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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, 2009                      Commission file number 0-1402

For the fiscal year ended December 31, 2012Commission file number 0-1402
LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Ohio 34-1860551

(State or other jurisdiction of

incorporation or organization)

 (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)

                       (216) 481-8100                    

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Shares, without par value The NASDAQ Stock Market LLC
(Title of each class) (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ    No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨    No þ

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 þ    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sregistrant'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 þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act.

þLarge accelerated filerþ

 
¨Accelerated filer¨
 
¨Non-accelerated filer¨
Smaller reporting company  ¨
(Do
 (Do not check if a smaller reporting company)
 
¨ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨    No þ

The aggregate market value of the common shares held by non-affiliates as of June 30, 20092012 was $1,438,957,655$3,558,724,932 (affiliates, for this purpose, have been deemed to be Directors and Executive Officers of the Company and certain significant shareholders).

The number of shares outstanding of the registrant’sregistrant's common shares as of December 31, 20092012 was 42,637,247.

82,944,817.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’sregistrant's definitive proxy statement to be filed on or about March 19, 201022, 2013 with respect to the registrant’s 2010registrant's 2013 Annual Meeting of Shareholders.




PART I

ITEM 1.BUSINESS

ITEM 1. BUSINESS
General

As used in this report,Annual Report on Form 10-K, the term “Company,”"Company," except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc., and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest. The Lincoln Electric Company began operations in 1895 and was incorporated under the laws of the State of Ohio in 1906. During 1998, The Lincoln Electric Company reorganized into a holding company structure, and Lincoln Electric Holdings, Inc. became the publicly-held parent of Lincoln Electric subsidiaries worldwide, including The Lincoln Electric Company.

The Company is one of only a few worldwide broad-line manufacturer and resellermanufacturers of welding, cutting and cuttingbrazing products. Welding products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company’s weldingCompany's product offering also includes computer numeric controlled ("CNC") plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and cutting.brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market.

The arc welding power sources and wire feeding systems manufactured by the Company range in technology from basic units used for light manufacturing and maintenance to highly sophisticated robotic applications for high volume production welding and fabrication. Three primary types of arc welding electrodes are produced: (1) coated manual or stick electrodes,electrodes; (2) solid electrodes produced in coil, reel or drum forms for continuous feeding in mechanized welding,welding; and (3) cored electrodes produced in coil form for continuous feeding in mechanized welding.

The Company has, through wholly-owned subsidiaries or joint ventureventures, manufacturing facilities located in the United States, Australia, Brazil, Canada, China, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, People’s Republic of China, Poland, Portugal, Russia, Turkey, the United Kingdom and Venezuela. Nearly allVenezuela, of the above facilitieswhich 34 are ISO 9001 certified.

During the fourth quarter of 2009, the

The Company realignedhas aligned its business units into five operating segments to enhance the utilization of the Company’sCompany's worldwide resources and global end user and sourcing initiatives. The operating segments consist of North America Welding, Europe Welding, Asia Pacific Welding, South America Welding and The Harris Products Group. The North America Welding segment includes welding operations in the United States, Canada and Mexico. The Europe Welding segment includes welding operations in Europe, Russia and Africa. The other threetwo welding segments include welding operations in Europe, Asia Pacific and South America, respectively. The fifth segment, The Harris Products Group, includes the Company’sCompany's global cutting, soldering and brazing businesses as well as the retail business in the United States. See Note 35 to the Company’s Consolidated Financial StatementsCompany's consolidated financial statements for segment and geographic area information.

information, which is incorporated herein by reference.

Customers

The Company’sCompany's products are sold in both domestic and international markets. In North America, products are sold principally through industrial distributors, retailers and also directly to users of welding products. Outside of North America, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company’sCompany's various manufacturing sites to distributors and product users.

The Company’sCompany's major end-user markets include:

general metal fabrication,

power generation and process industry,

structural steel construction (buildings and bridges),

heavy equipment fabrication (farming, mining and rail),

shipbuilding,

automotive,

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pipe mills and pipelines, and

offshore oil and gas exploration and extraction.

The Company is not dependent on a single customer or a few customers. Thecustomers and no individual customer currently accounts for more than ten percent of total Net sales. However, the loss of any onea large customer would notcould have a materialan adverse effect on itsthe Company's business. The Company’s businessCompany's operating results are sensitive to changes in general economic conditions. The arc welding and cutting industry is not seasonal.

generally a mature industry in developed markets such as North America and Western Europe, and is cyclical in nature. Overall demand for arc welding and cutting products is largely determined by economic cycles and the level of capital spending in manufacturing and other industrial sectors. The Company experiences some variability in reported period-to-period results as demand for the Company's products are mildly seasonal with generally higher demand in the second and


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third quarters. See "Item 1A. Risk Factors" for further discussion regarding risks associated with customers, general economic conditions and demand.
Competition

Conditions in the arc welding and cutting industry are highly competitive. The Company believes it is the world’sworld's largest manufacturer of consumables and equipment with relatively few major broad-line competitors worldwide, but numerous smaller competitors in specific geographic markets. The Company continues to pursue strategies to heighten its competitiveness in domestic and international markets, which includes positioning low cost manufacturing facilities in most geographical markets. Competition in the arc welding and cutting industry is based on the basis of brand preference, product quality, price, performance, warranty, delivery, service and technical support. The Company believes its performance against these factors has contributed to the Company’sCompany's position as the leader in the industry.

Most of the Company’sCompany's products may be classified as standard commercial articles and are manufactured for stock. The Company believes it has a competitive advantage in the marketplace because of its highly trained technical sales force and the support of its welding research and development staff which allow it to assist the consumers of its productscustomers in optimizing their welding applications. The Company utilizes this technical expertise to present its Guaranteed Cost Reduction Program to end users through which the Company guarantees that the user will achieve cost savings 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 close relationships with its consumers.customers. This close relationship between the technical sales force and the direct consumers,customers, together with its supportive relationship with its distributors, who are particularly interested in handling the broad range of the Company’sCompany's products, is an important element of the Company’sCompany's market success and a valuable asset of the Company.

Raw Materials

The principal raw materials essential to the Company’sCompany's business are various chemicals, electronics, steel, electronic components, engines, brass, copper, andsilver, aluminum alloys and various chemicals, all of which are normally available for purchase in the open market.

Patents and Trademarks

The Company holds many valuable patents, primarily in arc welding, and has increased the application process as research and development has progressed in both the United States and major international jurisdictions. The Company believes its trademarks are an important asset and aggressively pursues brand management.

Environmental Regulations

The Company’sCompany's facilities are subject to environmental regulations. To date, compliance with these environmental regulations has not had a material adverse effect on the Company’sCompany's earnings. The Company is ISO 14001 certified at allmost significant manufacturing facilities in North America and Europe and is working to gainprogressing towards certification at its remaining facilities worldwide. In addition, the Company is ISO 9001 certified at nearly all facilities worldwide.

International Operations

The Company conducts a significant amount of its business and has a number of operating facilities in countries outside the United States. As a result, the Company is subject to business risks inherent to non- U.S.non-U.S. activities, including political uncertainty, import and export limitations, exchange controls and currency fluctuations.

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Research and Development

Research activities, which the Company believes provide a competitive advantage, relate to the development of new products and the improvement of existing products. Research activities are Company-sponsored. Refer to Note 1 to the Company's consolidated financial statements with respect to total costs of research and development.

development, which is incorporated herein by reference.

Employees
Employees

The number of persons employed by the Company worldwide at December 31, 20092012 was 8,950.approximately 10,000. See "Part I, Item 10 of Part III1C" for information regarding the Company’sCompany's executive officers, which is incorporated herein by reference.

Website Access

The Company’sCompany's website, www.lincolnelectric.com, is used as a channel for routine distribution of important information, including news releases and financial information. The Company posts its filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC, including annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; proxy statements; and any amendments to those reports or statements. The Company also posts its Code of Corporate Conduct and Ethics on its website. All such postings and filings are available on the Company’sCompany's website free of charge. In addition, this website allows investors and other interested persons to sign up to automatically receive e-mail alerts when news releases and financial information is posted on the website. The SEC also maintains a web site,website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The

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content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report unless expressly noted.

ITEM 1A.RISK FACTORS

ITEM 1A. RISK FACTORS
From time to time, information we provide, statements by our employees or information included in our filings with the SEC may contain forward-looking statements that are not historical facts. Those statements are “forward-looking”"forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "forecast," "guidance" or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company's operating results. Forward-looking statements, and our future performance, operating results, financial position and liquidity, are subject to a variety of factors that could materially affect results, including those risks described below. Any forward-looking statements made in this report or otherwise speak only as of the date of the statement, and, except as required by law, we undertake no obligation to update those statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

In the ordinary course of our business, we face various strategic, operating, compliance and financial risks. These risks could have ana material impact on our business, financial condition, operating results and cash flows. Many of our most significant risks are set forth below and elsewhere in this Annual Report on Form 10-K. We can mitigate these risks and their impact on the Company only to a limited extent.

Our Enterprise Risk Management (“ERM”("ERM") process seeks to identify and address significant risks. Our ERM process is a company-wide initiative that is designed with the intent of prioritizing risks and giving risksassigning appropriate consideration.consideration for such risks. We use the integrated risk framework of the Committee of Sponsoring Organizations to assess, manage and monitor risks.

Management has identified and prioritized critical risks based on the severity and likelihood of each risk and assigned an executive to address each major identified risk area and lead action plans to monitor and mitigate risks, where possible. Our Board of Directors provides oversight of the ERM process and systematically reviews identified critical risks. The Audit Committee also reviews major financial risk exposures and the steps management has taken to monitor and seek to control them.

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Our goal is to proactivelypro-actively manage risks in a structured approach and in conjunction with the strategic planning process, with the intent to preserve and enhance shareholder value. However, these and other risks and uncertainties could cause our results to vary materially from recent results or from our anticipated future results.

The risksrisk factors and uncertainties described below, and all of the othertogether with information incorporated by reference or otherwise included elsewhere in this Annual Report on Form 10-K, should be carefully considered. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties of which we are currently unaware or that we currently believe to be immaterial may also adversely affect our business.

General economic and market conditions may adversely affect the Company’sCompany's financial condition, results of operations and access to capital markets.

The Company’sCompany's operating results are sensitive to changes in general economic conditions. RecessionaryFurther recessionary economic cycles, higher interest rates, inflation, higher tax rateslabor costs, trade barriers in the world markets, financial turmoil related to sovereign debt and other changes in tax laws or other economic factors affecting the countries and industries in which we do business could adversely affect demand for the Company’s products. The industrial downturn recently experienced affecting the U.S.Company's products, thereby impacting our results of operations, collection of accounts receivable and global economies could continue to negativelyour expected cash flow generation from current and acquired businesses, which may adversely impact investment activity within key geographicour financial condition and market segments served by the Company. In addition, any further deterioration in the condition of financial markets may limit the Company’s access to capital markets. There can
Economic and supply disruptions associated with events beyond our control, such as war, acts of terror, political unrest, public health concerns, labor disputes or natural disasters could adversely affect our supply chain and distribution channels or result in loss of sales and customers.
Our facilities and operations, and the facilities and operations of our suppliers and customers, could be no assurances that government responses to disruptionsdisrupted by events beyond our control, such as war, political unrest, public health concerns, labor disputes or natural disasters. Any such disruption could cause delays in the financialproduction and broader industrial markets will restore market confidence.

distribution of our products and the loss of sales and customers. Insurance proceeds may not adequately compensate the Company for the losses.


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Availability of and volatility in energy costs or raw material prices may adversely affect our performance.

In the normal course of business, we are exposed to market risks related to the availability of and price fluctuations in the purchase of energy and commodities used in the manufacture of our products (primarily steel, brass, copper, andsilver, aluminum alloys, electronic components, electricity and natural gas). The availability and prices for raw materials are subject to volatility and are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, our competitors’competitors' production costs, anticipated or perceived shortages and other factors. The price of the type of steel used to manufacture our products has experienced periods of significant price volatility and has been subject to periodic shortages due to global economic factors. We have also experienced substantial volatility in prices for other raw materials, including nonferrous metals, chemicals and energy costs. Our operating margins will be dependent on
Increases in the cost of raw materials and components may adversely affect our abilityprofitability if we are unable to managepass along to our customers these cost increases in the impactform of volatilityprice increases or otherwise reduce our cost of goods sold. Although most of the raw materials and components used in our products are commercially available from a number of sources and in adequate supply, any disruption in the availability of such raw materials and related costs.

components, our inability to timely or otherwise obtain substitutes for such items, or any deterioration in our relationships with or the financial viability of our suppliers could adversely affect our business.

We are a co-defendant in litigation alleging manganese induced illness and litigation alleging asbestos induced illness. Liabilities relating to such litigation could reduce our profitability and impair our financial condition.

At December 31, 2009,2012, we were a co-defendant in cases alleging manganese induced illness involving claims by approximately 3,333 plaintiffs and a co-defendant in cases alleging asbestos induced illness involving claims by approximately 17,19115,050 plaintiffs. In each instance, we are one of a large number of defendants. In the manganese cases, the claimants allege that exposure to manganese contained in welding consumables caused the plaintiffs to develop adverse neurological conditions, including a condition known as manganism. In theThe asbestos cases, the claimants allege that exposure to asbestos contained in welding consumables caused the plaintiffs to develop adverse pulmonary diseases, including mesothelioma and other lung cancers.

Since January 1, 1995, we have been a co-defendant in manganese cases that have been resolved as follows: 13,471 of those claims were dismissed, 20 were tried to defense verdicts in favor of us and five were tried to plaintiff verdicts (four of which are being or will be appealed). In addition, 13 claims were resolved by agreement for immaterial amounts and one was decided in favor of us following a motion for summary judgment.

Since January 1, 1995, we have been a co-defendant in asbestos cases that have been resolved as follows: 38,46541,161 of those claims were dismissed, 1220 were tried to defense verdicts, fourseven were tried to plaintiff verdicts (two of which are being appealed), one was resolved by agreement for an immaterial amount and 563612 were decided in favor of usthe Company following summary judgment motions.

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Defense costs remain significant.

The long-term impact of the manganese and asbestos loss contingencies, in each casecontingency, in the aggregate, on operating results, operating cash flows and access to capital markets is difficult to assess, particularly since claims are in many different stages of development and we benefit significantly from cost-sharing with co-defendants and insurance carriers. While we intend to contest these lawsuits vigorously, and believe we have applicable insurance relating to these claims, there are several risks and uncertainties that may affect our liability for personal injury claims relating to exposure to manganese and asbestos, including the future impact of changing cost sharing arrangements or a change in our overall trial experience.

Manganese is an essential element of steel and cannot be eliminated from welding consumables.

Asbestos use in welding consumables in the U.S. ceased in 1981.

We may incur material losses and costs as a result of product liability claims that may be brought against us.

Our business exposes us to potential product liability risks that are inherent in the design, manufacture, sale and application of our products and the products of third-party suppliers that we utilize or resell. Our products are used in a variety of applications, including infrastructure projects such as oil and gas pipelines and platforms, buildings, bridges and power generation facilities, the manufacture of transportation and heavy equipment and machinery, and various other construction projects. We face risk of exposure to product liability claims in the event that accidents or failures on these projects result, or are alleged to result, in bodily injury or property damage. Further, our welding products are designed for use in specific applications, and if a product is used inappropriately, personal injury or property damage may result. For example, in the period between 1994 and 2000, we were a defendant or co-defendant in 21 lawsuits filed by building owners or insurers in Los Angeles County, California. The plaintiffs in those cases alleged that certain buildings affected by the 1994 Northridge earthquake sustained property damage in part because a particular electrode used in the construction of those buildings was unsuitable for that use. In the Northridge cases, one case was tried to a defense verdict in favor of us, 12 were voluntarily dismissed, seven were settled and we received summary judgment in our favor in another.

The occurrence of defects in or failures of our products, or the misuse of our products in specific applications, could cause termination of customer contracts, increased costs and losses to us, our customers and other end users. We cannot be assured that we will not experience any material product liability losses in the future or that we will not incur significant costs to defend those claims. Further, we cannot be assured that our product liability insurance coverage will be adequate for any liabilities that we may ultimately incur or that itproduct liability insurance will continue to be available on terms acceptable to us.

The cyclicalitycyclical nature and maturity of the arc welding and cutting industry in developed markets may adversely affect our performance.

The arc welding and cutting industry is generally a mature industry in developed markets such as North America and Western Europe and is very cyclical in nature. The growth of the arc welding and cutting industry in developed markets has been and continues to be constrained by factors such as the increased cost of steel. Overall demand for arc welding and cutting products is largely determined by the level of capital spending in manufacturing and other industrial sectors, and the welding industry has historically experienced contraction during periods of slowing industrial activity. If economic, business and industry conditions deteriorate, capital spending in those sectors may be substantially decreased, which could reduce demand for our products, our revenues and our results of operations.


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We may not be able to complete our acquisition strategy or successfully integrate acquired businesses.

Part of our business strategy is to pursue targeted business acquisition opportunities, including foreign investment opportunities. For example, the Company haswe have completed and continuescontinue to pursue acquisitions or joint ventures in the People’s Republic ofemerging markets including, but not limited to, Brazil, Russia, India and China in order to strategically position resources to increase our presence in this growing market.markets. We cannot be certain that we will be successful in pursuing potential acquisition candidates or that the consequences of any acquisition would be beneficial to us. Future acquisitions may expose us to unexpected liabilities and involve the expenditure of significant funds and management time. Further, we may not be able to successfully integrate any acquired business with our existing businesses or recognize the expected benefits from any completed acquisition.
Depending on the nature, size and timing of future

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acquisitions, we may be required to raise additional financing, which may not be available to us on acceptable terms. Our current operational cash flow is sufficient to fund our current acquisition plans, but a significant acquisition could require access to the capital markets. Further, we may not be able to successfully integrate any acquired business with our existing businesses or recognize the expected benefits from any completed acquisition.

If we cannot continue to develop, manufacture and market products that meet customer demands, our revenues and gross margins may suffer.

Our continued success depends, in part, on our ability to continue to meet our customers’customers' needs for welding and cutting products through the introduction of innovative new products and the enhancement of existing product design and performance characteristics. We must remain committed to product research and development and customer service in order to remain competitive. Accordingly, we may spend a proportionately greater amount on research and development than some of our competitors. We cannot be assured that new products or product improvements, once developed, will meet with customer acceptance and contribute positively to our operating results, or that we will be able to continue our product development efforts at a pace to sustain future growth. Further, we may lose customers to our competitors if they demonstrate product design, development or manufacturing capabilities superior to ours.

The competitive pressures we face could harm our revenue, gross margins and prospects.

We operate in a highly competitive global environment and compete in each of our businesses with other broad-line manufacturers and numerous smaller competitors specializing in particular products. We compete primarily on the basis of brand, product quality, price, performance, warranty, delivery, service and technical support. We have previously initiated, and may in the future initiate significant rationalization activities to align our business to current market conditions. RationalizationSuch rationalization activities could fail to deliver the desired competitive cost structure and could result in disruptions in customer service. If our products, services, support and cost structure do not enable us to compete successfully based on any of the criteria listed above, our operations, results and prospects could suffer.

Further, in the past decade, the United States arc welding industry in the United States and other developed countries has been subject to increased levels of foreign competition as low cost imports have become more readily available. Our competitive position could also be harmed if new or emerging competitors become more active in the arc welding business. For example, while steel manufacturers traditionally have not been significant competitors in the domestic arc welding industry, some foreign integrated steel producers manufacture selected consumable arc welding products. Our sales and results of operations, as well as our plans to expand in some foreign countries, could be harmedadversely affected by this practice.

The loss of any of our largest customers could adversely affect our revenue, gross margins and profit.
We have a large and varied customer base due, in part, to our extensive distribution channels in the industries and regions that we serve. Although no individual customer currently accounts for more than ten percent of total Net sales, there are customers to which we sell a large amount of product. The loss of any of these customers could have an adverse effect on our revenue, gross margins and profit.
We conduct our sales and distribution operations on a worldwide basis and are subjectmaintain manufacturing facilities in a number of foreign countries, which subjects us to the risks associated with doing business outside the United States.

Our long-term strategy is to continue to increase our market share in growing international markets, particularly Asia (with emphasis in China and India), Latin America, Eastern Europe, Russia and other developing markets. There are a number of risks in doing business abroad, which may impede our ability to achieve our strategic objectives relating to our foreign operations. Many developing countries, like Venezuela, have a significant degree of political and economic uncertainty that may impede our ability to implement and achieve our foreign growth objectives. Conducting business internationally also subjects us to corporate governance and management challenges in consideration of the numerous U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, repatriation of earnings, exchange controls, anti-boycott provisions and anti-bribery laws (such as the Foreign Corrupt Practices Act and the Organization for Economic Cooperation and Development Convention). Failure by the Company or its sales representatives or agents to comply with these laws and regulations could result in administrative, civil or criminal liabilities, all or any of which could negatively impact our business and reputation.

Moreover, social unrest, the absence of trained labor pools and the uncertainties associated with entering into joint ventures or similar arrangements in foreign countries have slowed our business expansion into some

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developing economies. Our presence in emerging markets has been facilitated in part through joint venture agreements with local organizations. While this strategy has allowed us to gain a footprint in emerging markets while leveraging the experience of local organizations, it also presents corporate governance and management challenges.

Our foreign operations also subject us to the risks of international terrorism and hostilities and to foreign currency risks, including exchange rate fluctuations and limits on the repatriation of funds.

The share of sales and profits we derive from our international operations and exports from the United States is significant and growing. This trend increases our exposure to the performance of many developing economies in addition to the developed economies outside of the United States.

For example, during 2012, approximately 8% of our net sales were generated from China and approximately 19% of our property, plant and equipment were located there. If the Chinese economy were to experience a significant slowdown, it could adversely affect our financial condition, results of operations and cash flows.

There are a number of risks in doing business internationally, which may impede our ability to achieve our strategic objectives relating to our foreign operations. Many developing countries have a significant degree of political and economic uncertainty and social turmoil that may impede our ability to implement and achieve our international growth objectives. Conducting business internationally subjects us to corporate governance and management challenges in consideration of the numerous U.S.

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and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, repatriation of earnings and funds, exchange controls, labor regulations, nationalization, anti-boycott provisions and anti-bribery laws (such as the Foreign Corrupt Practices Act and the Organization for Economic Cooperation and Development Convention). Failure by the Company or its sales representatives, agents or distributors to comply with these laws and regulations could result in administrative, civil or criminal liabilities, all or any of which could negatively impact our business and reputation. Our foreign operations also subject us to the risks of international terrorism and hostilities.
Our operations depend on maintaining a skilled workforce, and any interruption in our workforce could negatively impact our results of operations and financial condition.

We are dependent

Our success depends in part on the efforts and abilities of our management team and key employees. Their skills, experience and industry knowledge significantly benefit our operations and performance. Our future success will also depend on our ability to identify, attract, and retain highly trainedqualified managerial, technical sales force and the support of our welding(including research and development staff. development), sales and marketing, and customer service personnel. Competition for these individuals is intense, and we may not succeed in identifying, attracting, or retaining qualified personnel. With our strategy to expand internationally into developing markets, we may incur additional risks as some developing economies lack a sufficiently trained labor pool.
Any interruption of our workforce, including interruptions due to unionization efforts, changes in labor relations or shortages of appropriately skilled individuals for our research, production and sales forces could impact our results of operations and financial condition.

Our revenues and results of operations may suffer if we cannot continue to enforce the intellectual property rights on which our business depends or if third parties assert that we violate their intellectual property rights.

We rely upon patent, trademark, copyright and trade secret laws in the United States and similar laws in foreign countries, as well as agreements with our employees, customers, suppliers and other third parties, to establish and maintain our intellectual property rights. However, any of our intellectual property rights could be challenged, invalidated or circumvented, or our intellectual property rights may not be sufficient to provide a competitive advantage. Further, the laws and their application in certain foreign countries do not protect our proprietary rights to the same extent as U.S. laws. Accordingly, in certain countries, we may be unable to protect our proprietary rights against unauthorized third-party copying or use, which could impact our competitive position.

Further, third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we believe that those claims are without merit, defending those claims and contesting the validity of patents can be time-consuming and costly. Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from manufacturing, marketing or selling certain of our products.

Our defined benefit pension plans are subject to financial market trends, such as changes in discount rates and actual investment return on pension assets, which could adversely affect our results of operations and cash flows.
The performance of the financial markets and interest rates impact our funding obligations under our defined benefit pension plans. Significant changes in discount rates, decreases in the fair value of plan assets and investment losses on plan assets may increase our benefit obligations and adversely impact our results of operations, shareholders' equity and cash flows through our annual measurement of plan assets and liabilities. For a discussion regarding how the financial statements have been affected by significant changes in 2012, refer to the pension related disclosure under "Part II, Item 7 – Critical Accounting Policies" and Note 11 to the Company's consolidated financial statements.
We are subject to changes in the U.S. regulatory environment, which could adversely affect our results of operations, cash flows and financial condition.
Our businesses, results of operations or financial condition could be adversely affected if laws, regulations or standards relating to us, our products or the markets in which we operate are newly implemented or changed. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “the Acts”) were signed into law. The Acts make broad-based changes to the U.S. health care system, which could significantly affect the U.S. economy and our financial results. While the provisions of the Acts are not expected to have any significant short-term impacts, the long-term potential impacts on our business and the consolidated financial statements are currently uncertain. We are currently assessing the potential impact of the Acts.
A significant fluctuation between the U.S. dollar and other currencies could adversely impact our operating income.
Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in other currencies. Our profitability is affected by movements of the U.S. dollar against other foreign currencies in which we generate revenues and incur expenses. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our profitability and financial condition.

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Changes in tax rates or exposure to additional income tax liabilities could affect profitability.
Our business is subject to income taxes in the United States and various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix among earnings in countries with differing statutory tax rates, changes in the valuation allowances of deferred tax assets or changes in tax laws.
The amount of income taxes paid is subject to ongoing audits by United States federal, state and local tax authorities and by foreign tax authorities. If these audits result in assessments different from amounts reserved, future financial results may include unfavorable adjustments which could have a material adverse effect on our results of operations.
We are subject to risks relating to our information technology systems.
The conduct and management of our business relies extensively on information technology systems. If these systems are damaged, cease to function properly or are subject to a cyber security breach, we may suffer an interruption in our ability to manage and operate the business and our results of operations and financial condition could be adversely affected.
Our global operations are subject to increasingly complex environmental regulatory requirements.

We are subject to increasingly complex environmental regulations affecting international manufacturers, including those related to air and water emissions, waste management and climate change.

There is a growing political and scientific belief that emissions of greenhouse gases (“GHG”("GHG") alter the composition of the global atmosphere in ways that are affecting the global climate. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. There is growing consensus that some form of U.S. regulation will be forthcoming atThese concerns may lead to international, national, regional or local legislative or regulatory responses in the federal level with respect to GHG emissions.future. Such regulation could result in new or additional regulatory or product standard requirements for the Company’sCompany's global businesses but becausebusinesses. We are unable, at this time, to predict the significance of these requirements as the impact of any impactfuture GHG legislative, regulatory or product standards is dependent on the timing and design of the mandatemandates or standard, the Company is unable to predict its significance at this time.

standards. Furthermore, the potential physical impacts of theorized climate change on the Company’sCompany's customers, and therefore on the Company’sCompany's operations, are speculative and highly uncertain, and would be particular to the circumstances developing in various geographical regions. These may include changes in weather patterns

8

(including (including drought and rainfall levels), water availability, storm patterns and intensities, and temperature levels. These potential physical effects may adversely impact the cost, production, sales and financial performance of the Company’s operations.

Company's operations which we are unable, at this time, to predict.

It is our policy to apply strict standards for environmental protection to sitesall of our operations inside and outside the United States, even when we are not subject to local government regulations. We may incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, liabilities resulting from third-party property damage or personal injury claims, or our products could be enjoined from entering certain jurisdictions, if we were to violate or become liable under environmental laws or if our products become non-compliant with environmental laws.

We also face increasing complexity in our products design and procurement operations as we adjust to new and future requirements relating to the design, production and labeling of our products that are sold worldwide in the European Union.multiple jurisdictions. The ultimate costs under environmental laws and the timing of these costs are difficult to predict, and liability under some environmental laws relating to contaminated siteslocations can be imposed retroactively and on a joint and several basis.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

7


ITEM 1C. EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 1B.
UNRESOLVED STAFF COMMENTS
NameAgePosition
John M. Stropki, Jr.62
Executive Chairman of the Board effective December 31, 2012; Chairman of the Board since October 13, 2004 to December 31, 2012; Director since 1998; Chief Executive Officer and President since June 3, 2004 to December 31, 2012; Chief Operating Officer from May 1, 2003 to June 3, 2004; Executive Vice President from 1995 to June 3, 2004; and President, North America from 1996 to 2003.
Christopher L. Mapes51
President and Chief Executive Officer effective December 31, 2012; Chief Operating Officer from September 1, 2011 to December 31, 2012; Director since February 2010. Prior to his service with the Company, Mr. Mapes was Executive Vice President of A.O. Smith Corporation (a global manufacturer with a water heating and water treatment technologies business and an electric motor and motor solutions business) a position he held from 2006 through August 2011, and the President of its Electrical Products unit, a position he held from September 2004 through August 2011.
Vincent K. Petrella52
Senior Vice President, Chief Financial Officer and Treasurer since October 7, 2005; Vice President, Chief Financial Officer and Treasurer from February 4, 2004 to October 7, 2005; and Vice President, Corporate Controller from 2001 to 2003.
Frederick G. Stueber59
Senior Vice President, General Counsel and Secretary since 1996.
George D. Blankenship50
Senior Vice President; President, Lincoln Electric North America since July 30, 2009; Senior Vice President, Global Engineering from October 7, 2005 to July 30, 2009; Vice President, Global Engineering from May 5, 2005 to October 7, 2005; President, Lincoln Electric North America of The Lincoln Electric Company since July 30, 2009; Senior Vice President; President, Lincoln Cleveland of The Lincoln Electric Company from January 8, 2008 to July 30, 2009; Senior Vice President, U.S. Operations of The Lincoln Electric Company from October 7, 2005 to January 8, 2008; Vice President, Cleveland Operations of The Lincoln Electric Company from June 6, 2005 to October 7, 2005; and Vice President, Engineering and Quality Assurance of The Lincoln Electric Company from 2000 to June 6, 2005.
Gabriel Bruno45
Vice President, Chief Information Officer since May 1, 2012; Vice President, Corporate Controller from 2005 to May 1, 2012.
Gretchen A. Farrell50
Senior Vice President, Human Resources and Compliance since July 30, 2009; Vice President, Human Resources from May 5, 2005 to July 30, 2009; and Vice President, Human Resources of The Lincoln Electric Company since March 5, 2003.
Thomas A. Flohn52
Vice President; President, Lincoln Electric Europe, Middle East & Africa (EMEA) since July 1, 2010; Vice President; President, Lincoln Asia Pacific from January 1, 2005 to June 30, 2010; and Vice President of Sales and Marketing, Lincoln Electric Asia Pacific from May 1, 1999 to December 31, 2004.
Steven B. Hedlund46
Vice President, Strategy and Business Development since September 15, 2008. Prior to his service with the Company, Mr. Hedlund was the Vice President, Growth and Innovations with Master Lock, LLC (a security products company) from June 1, 2005 to July 1, 2008.
David M. LeBlanc48
Senior Vice President; President, Lincoln Electric International since July 30, 2009; Vice President; President, Lincoln Electric Europe and Russia from March 10, 2008 to July 30, 2009; Vice President; President, Lincoln Electric Europe from September 1, 2005 to March 10, 2008; and Vice President; President, Lincoln Electric Latin America from January 1, 2002 to August 31, 2005.

None.

ITEM 2.PROPERTIES

The Company’sCompany has been advised that there is no arrangement or understanding among any one of the officers listed and any other persons pursuant to which he or she was elected as an officer. The executive officers are elected by the Board of Directors normally for a term of one year and/or until the election of their successors.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal United States manufacturing facilities are located in the Cleveland, Ohio area. Total Cleveland area property consists of 233 acres, of which present manufacturing facilities comprise an area of approximately 2,940,000 square feet.


8


The Company has 3845 manufacturing facilities, including operations and joint ventures in 1819 countries, the locations (grouped by operating segment) of which are as follows:

North AmericanAmerica Welding:

 

United States

 Cleveland and Fort Loramie, Ohio; Oceanside, California.San Diego and Anaheim, California; Reno, Nevada; Baltimore, Maryland; Ladson, South Carolina; Chattanooga, Tennessee.

Canada

 Toronto; Mississauga.

Mexico

 Mexico City; Torreon.

Europe Welding:

United Kingdom		 Port Talbot, Wales.

Europe Welding:

France

 Grand-Quevilly.

Germany

 Essen.

Italy

 Genoa; Corsalone.

Netherlands

 Nijmegen.

Poland

 Bielawa; Swietochlowice; Dzierzoniow.

Portugal

 Lisbon.

Russia

Mtsensk.
Turkey

 Istanbul.

United Kingdom

 Sheffield; Chertsey.Sheffield and Chertsey, England.

Asia Pacific Welding:

 

Australia

China		 Sydney.Shanghai; Jinzhou; Nanjing; Zhengzhou; Luan County.

India

 Chennai.

Indonesia

 Cikarang.

People’s Republic of China

South America Welding:		 Shanghai; Jining; Jinzhou; Nanjing; Zhengzhou.

South America Welding:

Brazil

 Sao Paulo.

Colombia

 Bogota.

Venezuela

 Maracay.

The Harris Products Group:

 

United States

 Mason, Ohio; Gainesville, Georgia; Santa Fe Springs, California.

Brazil

 Guarulhos.

Mexico

 Tijuana.

Poland

 Dzierzoniow.

9

All properties relating to the Company’sCompany's Cleveland, Ohio headquarters and manufacturing facilities are owned by the Company. Most of the Company’sCompany's foreign subsidiaries own manufacturing facilities in the country where they are located. The Company believes that its existing properties are in good condition and are suitable for the conduct of its business. At December 31, 2009, $2.22012, $0.2 million of indebtedness under capital leases was secured by property with a book value of $4.7 million.

$0.4 million.

In addition, the Company maintains operating leases for many of its distribution centers and many sales offices throughout the world. See Note 1116 to the Company’s Consolidated Financial Statements with respect toCompany's consolidated financial statements for information regarding the Company's lease commitments.

ITEM 3.LEGAL PROCEEDINGS

ITEM 3. LEGAL PROCEEDINGS
The Company is subject, from time to time, to a variety of civil and administrative proceedings arising out of its normal operations, including, without limitation, product liability claims, regulatory claims and health, safety and environmental claims. Among such proceedings are the cases described below.

At December 31, 2009,2012, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 17,19115,050 plaintiffs, which is a net decrease of 255three claims from those previously reported. In each instance, the Company is one of a large number of defendants. The asbestos claimants seek compensatory and punitive damages, in most cases for unspecified sums. Since January 1, 1995, the Company has been a co-defendant in other similar cases that have been resolved as follows: 38,46541,161 of those claims were dismissed, 1220 were tried to defense verdicts, fourseven were tried to plaintiff verdicts (two of which are being appealed), one was resolved by agreement for an immaterial amount and 563612 were decided in favor of the Company following summary judgment motions.

At December 31, 2009,

In July 2012, the Company wasreceived a co-defendant in cases alleging manganese induced illness involving claimsNotice of Reassessment from the Canada Revenue Agency (the “CRA”) for 2004 to 2011, which would disallow the deductibility of inter-company dividends. These adjustments would increase Canadian federal

9


and provincial tax due. The Company disagrees with the position taken by approximately 3,333 plaintiffs, whichthe CRA and believes it is a net decreasewithout merit. The Company will vigorously contest the assessment through the Tax Court of 11 claims from those previously reported.Canada. A trial date has not yet been scheduled. In each instance,connection with the litigation process, the Company is one of a large number of defendants. The claimants in cases alleging manganese induced illness seek compensatory and punitive damages, in most cases for unspecified sums. The claimants allege that exposurerequired to manganese contained in welding consumables caused the plaintiffs to develop adverse neurological conditions, including a condition known as manganism. At December 31, 2009, cases involving 2,048 claimants were filed in or transferred to federal court where the Judicial Panel on MultiDistrict Litigation has consolidated these cases for pretrial proceedings in the Northern District of Ohio. Since January 1, 1995, the Company has been a co-defendant in similar cases that have been resolved as follows: 13,471 of those claims were dismissed, 20 were tried to defense verdicts in favordeposit no less than one-half of the Companytax and five were tried to plaintiff verdicts (fourinterest assessed by the CRA, of which are being or will be appealed). In addition, 13 claims were resolved by agreement for immaterial amountsa payment was made in September 2012 and one claim was decided in favorthe balance of the Company following a summary judgment motion.

On December 13, 2006, the Company filed a complainttax and interest assessment was made in U.S. District Court (Northern District of Ohio) against Illinois Tool Works, Inc. seeking a declaratory judgment that eight patents owned by the defendant relating to certain inverter power sources have not and are not being infringed and that the subject patents are invalid. Illinois Tool Works filed a motion to dismiss this action, which the Court denied on June 21, 2007. On September 7, 2007, the Court stayed the litigation, referencing pending reexaminations before the U.S. Patent and Trademark Office. On June 17, 2008, the Company filed a motion to amend its pleadings in the foregoing matter to include several additional counts, including specific allegations of fraud on the U.S. Patent and Trademark Office with respect to portable professional welding machines and resulting monopoly power in that market.

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, 2009.

10

2012. Any Canadian tax ultimately due will be creditable in the parent company's U.S. federal tax return. The Company expects to be able to utilize the full amount of foreign tax credits generated in the statutorily allowed carry-back and carry-forward periods. Accordingly, should the Company not prevail in this dispute, the income statement charge will approximate the deficiency interest, net of tax. The Company believes it will prevail on the merits of the tax position. In accordance with prescribed recognition and measurement thresholds, no income tax accrual has been made for any uncertain tax positions related to the CRA reassessment. An unfavorable resolution of this matter could have a material effect on the Company's financial statements in the period in which a judgment is reached.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(In thousands of dollars, except per share data)

The Company’sCompany's common shares are traded on The NASDAQ StockGlobal Select Market under the symbol “LECO.”"LECO." The number of record holders of common shares at December 31, 20092012 was 1,758.

1,699.

The total amount of dividends paid in 20092012 was $45,801. For 2009,$73.1 million. During 2012, dividends were paid quarterly on January 15,13, April 15,13, July 1513 and October 15.

The December dividend that the Company would normally pay in January 2013 was paid on December 28, 2012.

Quarterly high and low stock prices and dividends declared per share for the last two years were:

   2009  2008
   Stock Price  Dividends
Declared		  Stock Price  Dividends
Declared
   High  Low    High  Low  

First quarter

  $56.22  $26.32  $0.27  $71.48  $53.32  $0.25

Second quarter

   45.96   30.88   0.27   86.97   64.07   0.25

Third quarter

   52.81   32.97   0.27   86.47   59.78   0.25

Fourth quarter

   56.71   42.90   0.28   65.11   34.27   0.27

Source: The NASDAQ Stock Market

  2012 2011
  Stock Price 
Dividends
Declared
 Stock Price 
Dividends
Declared
  High Low  High Low 
First quarter $47.87
 $38.96
 $0.170
 $38.50
 $32.69
 $0.155
Second quarter 50.36
 41.42
 0.170
 39.62
 32.30
 0.155
Third quarter 46.11
 37.83
 0.170
 39.18
 27.47
 0.155
Fourth quarter 49.00
 37.63
 0.200
 40.10
 26.84
 0.170
Issuer purchases of equity securities for 2009the fourth quarter 2012 were:

Period

  Total Number of
Shares Repurchased (1)		  Average Price
Paid Per Share		  Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs		  Maximum
Number of
Shares that May
Yet be Purchased
Under the Plans
or Programs (2)

February 1-28, 2009

  8,407  $40.85  8,407  3,784,610

Period 
Total Number of
Shares Repurchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs
 
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2)
October 1-31, 2012 —
 $—
 —
 3,779,773
November 1-30, 2012 271,518
(1) 
44.74
 253,400
 3,526,373
December 1-31, 2012 184,000
 47.36
 184,000
 3,342,373
Total 455,518
 45.80
 437,400
  
(1)The above acquisition consists ofshare repurchases include the surrender of 8,40718,118 shares of the Company’sCompany's common sharesstock to satisfy minimum income tax withholding requirements related to the vesting of 30,55045,460 restricted shares granted pursuant to the Company’s 1998 StockCompany's 2006 Equity and Performance Incentive Plan.
(2)
The Company’sCompany's Board of Directors authorized a share repurchase programsprogram for up to 1530 million shares of the Company’sCompany's common stock. Total shares purchased through the share repurchase programsprogram were 11,215,39026,657,627 shares at a cost of $274,531$430.1 million for a weighted average cost of $24.48$16.13 per share through December 31, 2009.2012.

11


10



The following line graph compares the yearly percentage change in the cumulative total shareholder return on Lincoln Electric Holdings, Inc. (“Lincoln”)the Company's common sharesstock against the cumulative total return of the S&P Composite 500 Stock Index (“("S&P 500”500") and the S&P 400 MidCap Index (“("S&P 400”400") for the five-year calendar period commencing January 1, 20052008 and ending December 31, 2009.2012. This graph assumes that $100 was invested on December 31, 20042007 in each of Lincolnthe Company's common stock, the S&P 500 and the S&P 400. A peer-group index for the welding industry, in general, was not readily available because the industry is comprised of a large number of privately held competitors and competitors that are relatively small entitiessmaller parts of large publicly traded companies.

 200720082009201020112012
The Company100737897118149
S&P 50010063809294109
S&P 4001006488111109128


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ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
  Year Ended December 31,
  
2012 (1)
 
2011 (2)
 
2010 (3)
 
2009 (4)
 
2008 (5)
Net sales $2,853,367
 $2,694,609
 $2,070,172
 $1,729,285
 $2,479,131
Net income 257,411
 217,186
 130,244
 48,576
 212,286
Basic earnings per share 3.10
 2.60
 1.54
 0.57
 2.49
Diluted earnings per share 3.06
 2.56
 1.53
 0.57
 2.47
Cash dividends declared per share 0.710
 0.635
 0.575
 0.545
 0.510
Total assets 2,089,863
 1,976,776
 1,783,788
 1,705,292
 1,718,805
Long-term debt 1,599
 1,960
 84,627
 87,850
 91,537
ITEM 6.
(1)
SELECTED FINANCIAL DATAResults for 2012 include rationalization and asset impairment net charges of $9,354 ($7,442 after-tax) which include $7,512 ($6,153 after-tax) in rationalization charges and asset disposals, impairment charges of $1,842 ($1,289 after-tax). Results also include a charge of $1,381 ($906 after-tax) related to the change in Venezuelan labor law, which provides for increased employee severance obligations.
(In thousands
(2)Results for 2011 include rationalization and asset impairment net charges of dollars, except per share data)

   Year Ended December 31,
   2009  2008  2007  2006  2005

Net sales

  $1,729,285  $2,479,131  $2,280,784  $1,971,915  $1,601,190

Net income

   48,576   212,286   202,736   175,008   122,306

Basic earnings per share

  $1.15  $4.98  $4.73  $4.11  $2.93

Diluted earnings per share

   1.14   4.93   4.67   4.07   2.90

Cash dividends declared

   1.09   1.02   0.91   0.79   0.73

Total assets

  $1,705,292  $1,718,805  $1,645,296  $1,394,579  $1,161,161

Long-term debt

   87,850   91,537   117,329   113,965   157,853

12

Results for 2009 include rationalization and asset impairment charges of $29,897 ($23,789 after-tax). The Company’s rationalization activities to align the business to current market conditions resulted in charges of $29,018 ($23,193 after-tax) and impairment charges of $879 ($596 after-tax) were recognized for certain indefinite-lived intangible assets. Results also include a loss of $7,943 ($7,943 after-tax) associated with the acquisition of a business in China and the related disposal of an interest in Taiwan, a pension settlement gain of $1,543 ($1,543 after-tax) and a gain on the sale of a property by the Company’s joint venture in Turkey of $5,667 ($5,667 after-tax).

Results for 2008 include a charge of $2,447 ($1,698 after-tax) relating to the Company’s rationalization programs that began in the fourth quarter of 2008 designed to align the business to current market conditions. Results for 2008 also include $16,924 ($16,615 after-tax) in asset impairment charges including $13,194 of goodwill and $2,388 of long-lived assets related to two businesses in China (with no tax benefit) as well as an impairment charge of $1,342 ($1,033 after-tax) for intangible assets in North America and Europe.

Results for 2007 include a net gain of $188 ($107 after-tax) relating to the Company’s rationalization programs.

Results for 2006 include a charge of $3,478 ($3,478 after-tax) relating to the Company’s rationalization programs and a gain of $9,006 ($7,204 after-tax) on the sale of a facility in Ireland.

Results for 2005 include a charge of $1,761 ($1,303 after-tax) relating to the Company’s rationalization programs, a one-time state income tax benefit of $1,807 (net of federal benefit) relating to changes in Ohio tax laws, a favorable adjustment of $8,711 related to the resolution of prior years’ tax liabilities, a net favorable tax benefit of $1,146 associated with the repatriation of foreign earnings and a gain of $1,418 ($876 after-tax) on the settlement of legal disputes.

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS$282 ($237 after-tax) resulting from rationalization activities primarily initiated in 2009 and a gain of $4,844 related to a favorable adjustment for tax audit settlements.
(In thousands
(3)Results for 2010 include rationalization and asset impairment net gains of dollars, except share$384 ($894 after-tax) which include net gains of $3,684 ($3,725 after-tax) related to the sale of property and per share data)asset disposals, impairment charges of $883 ($801 after-tax) and $2,417 ($2,030 after-tax) in rationalization charges. Results also include a net charge of $3,123 ($3,560 after-tax) related to the change in functional currency and devaluation of the Venezuelan currency, income of $5,092 was recognized due to an adjustment in tax liabilities for a change in applicable tax regulations, a gain of $108 after-tax in non-controlling interests related to the impairment of assets for a majority-owned consolidated subsidiary and a charge of $1,890 after-tax in non-controlling interests related to gains on the disposal of assets in a majority-owned consolidated subsidiary.

The following discussions
(4)Results for 2009 include rationalization and asset impairment net charges of $29,897 ($23,789 after-tax). The net charges include rationalization charges of $26,957 ($21,529 after-tax) and impairment charges of $2,940 ($2,260 after-tax) for certain indefinite-lived intangible assets. Results also include a loss of $7,943 ($7,943 after-tax) associated with the acquisition of a business in China and the related disposal of an interest in Taiwan, a pension settlement gain of $2,144 ($2,144 after-tax), a charge of $601 after-tax in non-controlling interests associated with the pension settlement gain for a majority-owned consolidated subsidiary and a gain on the sale of a property by the Company's joint venture in Turkey of $5,667 ($5,667 after-tax).
(5)Results for 2008 include a charge of $2,447 ($1,698 after-tax) relating to the Company's rationalization programs that began in the fourth quarter 2008. Results for 2008 also include $16,924 ($16,615 after-tax) in asset impairment charges including $13,194 of goodwill and $2,388 of long-lived assets related to two businesses in China (with no tax benefit) as well as an impairment charge of $1,342 ($1,033 after-tax) for intangible assets.



12


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
This Management's Discussion and Analysis of financial conditionFinancial Condition and resultsResults of operationsOperations should be read together with “Selected"Selected Financial Data,”" the Company’s Consolidated Financial StatementsCompany's consolidated financial statements and other financial information included elsewhere in this report.Annual Report on Form 10-K. This reportAnnual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in the forward-looking statements. See "Item 1A. Risk Factors in Item 1AFactors" for more information regarding forward-looking statements.

General

The Company is the world’sworld's largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products.

The Company is one of only a few worldwide broad-line manufacturers of both arc welding, equipmentcutting and consumablebrazing products. Welding products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company’s weldingCompany's product offering also includes CNC plasma and oxy-fuel cutting systems, regulators and torches used in oxy-fuel welding, cutting and cutting.brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market.

The Company invests in the research and development of arc welding equipment and consumable products in order to continue its market leading product offering. The Company continues to invest in technologies that improve the quality and productivity of welding products. In addition, the Company continues to actively increase its patent application process in order to secure its technology advantage in the United States and other major international jurisdictions. The Company believes its significant investment in research and development and its highly trained technical sales force coupled with its extensive distributor network provide a competitive advantage in the marketplace.

The Company’sCompany's products are sold in both domestic and international markets. In North America, products are sold principally through industrial distributors, retailers and also directly to users of welding products. Outside of North America, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company’sCompany's various manufacturing sites to distributors and product users.

13

The Company’sCompany's major end userend-user markets include:

general metal fabrication,

power generation and process industry,

structural steel construction (buildings and bridges),

heavy equipment fabrication (farming, mining and rail),

shipbuilding,

automotive,

pipe mills and pipelines, and

offshore oil and gas exploration and extraction.

The Company has, through wholly-owned subsidiaries or joint ventures, manufacturing facilities located in the United States, Australia, Brazil, Canada, China, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, People’s Republic of China, Poland, Portugal, Russia, Turkey, the United Kingdom and Venezuela.

During the fourth quarter of 2009, the

The Company realignedhas aligned its business units into five operating segments to enhance the utilization of the Company’sCompany's worldwide resources and global end user and sourcing initiatives. The operating segments consist of North America Welding, Europe Welding, Asia Pacific Welding, South America Welding and The Harris Products Group. The North America Welding segment includes welding operations in the United States, Canada and Mexico. The Europe Welding segment includes welding operations in Europe, Russia and Africa. The other threetwo welding segments include welding operations in Europe, Asia Pacific and South America, respectively. The fifth segment, The Harris Products Group, includes the Company’sCompany's global cutting, soldering and brazing businesses as well as the retail business in the United States. The segment information of prior periods has been recast to conformSee Note 5 to the currentCompany's consolidated financial statements for segment presentation.

and geographic area information, which is incorporated herein by reference.

The principal raw materials essential to the Company’sCompany's business are various chemicals, electronics, steel, electronic components, engines, brass, copper, andsilver, aluminum alloys and various chemicals, all of which are normally available for purchase in the open market.

The Company’sCompany's facilities are subject to environmental regulations. To date, compliance with these environmental regulations has not had a material adverse effect on the Company’sCompany's earnings. The Company is ISO 9001 certified at nearly all facilities worldwide. In addition, the Company is ISO 14001 certified at allmost significant manufacturing facilities in North America and Europe and is working to gainprogressing towards certification at its remaining facilities worldwide.


13


Key Indicators

Key economic measures relevant to the Company include industrial production trends, steel consumption, purchasing manager indices, capacity utilization within durable goods manufacturers and consumer confidence indicators. Key industries which provide a relative indication of demand drivers to the Company include steel, farm machinery and equipment, construction and transportation, fabricated metals, electrical equipment, ship and boat building, defense, truck manufacturing, energy and railroad equipment. Although these measures provide key information on trends relevant to the Company, the Company does not have available a more direct correlation of leading indicators which can provide a forward-looking view of demand levels in the markets which ultimately use the Company’sCompany's welding products.

Key operating measures utilized by the operating units to manage the Company include orders, sales, inventory and fill-rates, all of which provide key indicators of business trends. These measures are reported on various cycles including daily, weekly and monthly depending on the needs established by operating management.

Key financial measures utilized by the Company’sCompany's executive management and operating units in order to evaluate the results of its business and in understanding key variables impacting the current and future results of the Company include: sales; gross profit; selling, general and administrative expenses; operating income; earnings before interest and taxes; earnings before interest, taxes and bonus; net income; adjusted operating income; adjusted net income; adjusted diluted earnings per share; operating cash flows; and capital expenditures, including applicable ratios such as return on invested capital and average operating working capital to sales. These measures are reviewed at monthly, quarterly and annual intervals and compared with historical periods, as well as objectives established by the Board of Directors of the Company.

14

Results of Operations

The following table shows the Company’sCompany's results of operations:

   Year Ended December 31, 
   2009  2008  2007 
   Amount  % of Sales  Amount  % of Sales  Amount  % of Sales 

Net sales

  $1,729,285   100.0%  $2,479,131   100.0%  $2,280,784   100.0% 

Cost of goods sold

   1,273,017   73.6%   1,758,980   71.0%   1,633,218   71.6% 
                

Gross profit

   456,268   26.4%   720,151   29.0%   647,566   28.4% 

Selling, general & administrative expenses

   333,395   19.3%   405,376   16.4%   370,122   16.2% 

Rationalization and asset impairment charges (gain)

   29,897   1.7%   19,371   0.8%   (188)  (0.0)% 
                

Operating income

   92,976   5.4%   295,404   11.9%   277,632   12.2% 

Interest income

   3,462   0.2%   8,845   0.4%   8,294   0.4% 

Equity (loss) earnings in affiliates

   (5,025)  (0.3)%   6,034   0.2%   9,838   0.4% 

Other income

   3,589   0.2%   1,681   0.1%   2,823   0.1% 

Interest expense

   (8,521)  (0.5)%   (12,155)  (0.5)%   (11,430)  (0.5)% 
                

Income before income taxes

   86,481   5.0%   299,809   12.1%   287,157   12.6% 

Income taxes

   37,905   2.2%   87,523   3.5%   84,421   3.7% 
                

Net income

  $48,576   2.8%  $212,286   8.6%  $202,736   8.9% 
                

  Year Ended December 31,
  2012 2011 2010
  Amount % of Sales Amount % of Sales Amount % of Sales
Net sales $2,853,367
 100.0% $2,694,609
 100.0% $2,070,172
 100.0%
Cost of goods sold 1,986,711
 69.6% 1,957,872
 72.7% 1,506,353
 72.8%
Gross profit 866,656
 30.4% 736,737
 27.3% 563,819
 27.2%
Selling, general & administrative
   expenses
 495,221
 17.4% 439,775
 16.3% 377,773
 18.2%
Rationalization and asset impairment
   charges (gains)
 9,354
 0.3% 282
 —
 (384) —
Operating income 362,081
 12.7% 296,680
 11.0% 186,430
 9.0%
Interest income 3,988
 0.1% 3,121
 0.1% 2,381
 0.1%
Equity earnings in affiliates 5,007
 0.2% 5,385
 0.2% 3,171
 0.2%
Other income 2,685
 0.1% 2,849
 0.1% 1,817
 0.1%
Interest expense (4,191) (0.1%) (6,704) (0.2%) (6,691) (0.3%)
Income before income taxes 369,570
 13.0% 301,331
 11.2% 187,108
 9.0%
Income taxes 112,354
 3.9% 84,318
 3.1% 54,898
 2.7%
Net income including non-controlling
   interests
 257,216
 9.0% 217,013
 8.1% 132,210
 6.4%
Non-controlling interests in
   subsidiaries' (loss) earnings
 (195) —
 (173) —
 1,966
 0.1%
Net income $257,411
 9.0% $217,186
 8.1% $130,244
 6.3%

14


20092012 Compared to 2008with

2011

Net Sales:Net sales for 2009 decreased 30.2% to $1,729,2852012 increased 5.9% from $2,479,1312011. The sales increase reflects volume increases of 1.3%, price increases of 1.7%, increases from acquisitions of 4.9% and unfavorable impacts from foreign exchange of 2.0%. Sales volumes increased because of growth in 2008. The decreasethe domestic markets offset by lower demand in Net sales reflects a $738,535 (29.8%) decreasethe international markets. Product pricing increased from prior year levels due to volume, a $13,130 (0.5%) decrease duethe realization of price increases implemented in response to price, a $73,450 (3.0%) increase from acquisitions and a $71,631 (2.9%) unfavorable impact as a result of changesincreases in foreign currency exchange rates.raw material costs.

Net sales for the North America Welding segment decreased 34.7%

Gross Profit:  Gross profit increased17.6% to $858,180 in 2009$866,656 during 2012 compared with $1,313,881$736,737 in 2008. This decrease reflects a decrease of $456,826 (34.8%) due to volume, a $15,912 (1.2%) increase due to price and a $14,787 (1.1%) decrease as a result of changes in foreign currency exchange rates.

Net sales for the Europe Welding segment decreased 35.7% to $346,383 in 2009 compared with $538,570 in 2008. This decrease reflects a decrease of $130,235 (24.2%) due to volume, a $22,510 (4.2%) decrease due to price, a $5,242 (1.0%) increase from acquisitions and a $44,684 (8.3%) unfavorable impact as a result of changes in foreign currency exchange rates.

Net sales for the Asia Pacific Welding segment decreased 9.7% to $208,280 in 2009 compared with $230,661 in 2008. This decrease reflects a decrease of $68,447 (29.7%) due to volume, a $5,471 (2.4%) decrease due to price, a $54,638, (23.7%) increase from acquisitions and a $3,101 (1.3%) unfavorable impact as a result of changes in foreign currency exchange rates.

Net sales for the South America Welding segment decreased 14.6% to $99,171 in 2009 compared with $116,061 in 2008. This decrease reflects a decrease of $23,831 (20.5%) due to volume, a $13,117 (11.3%) increase due to price and a $6,176 (5.3%) unfavorable impact as a result of changes in foreign currency exchange rates.

15

Net sales for The Harris Products Group segment decreased 22.4% to $217,271 in 2009 compared with $279,958 in 2008. This decrease reflects a decrease of $59,196 (21.1%) due to volume, a $14,178 (5.1%) decrease due to price, a $13,570, (4.8%) increase from acquisitions and a $2,883 (1.0%) unfavorable impact as a result of changes in foreign currency exchange rates.

Gross Profit:    Gross profit decreased 36.6% to $456,268 during 2009 compared with $720,151 in 2008.2011. As a percentage of Net sales, Gross profit decreasedincreased to 26.4%30.4% in 2009 from 29.0%2012 compared with 27.3% in 2008. This decrease2011. The increase was primarily athe result of lower volumes, the liquidation of higher cost inventoriespricing increases and higher retirement costs in the U.S. of $15,466operating leverage partially offset by lower product liability costsmargins from the acquisitions of $5,412 primarilyKaliburn, Burny and Cleveland Motion Control businesses (collectively, "Kaliburn"), Wayne Trail Technologies, Inc. (“Wayne Trail”), Weartech International, Inc. (“Weartech”), Techalloy Company, Inc. and certain assets of its parent company, Central Wire Industries Ltd. (collectively, "Techalloy") and OOO Severstal-metiz: welding consumables ("Severstal"). In the current period, the Company recorded charges of $2,334 related to the initial accounting for recent acquisitions and charges of $1,039 due to a gain on an insurance settlement.change in Venezuelan labor law, which provides for increased employee severance obligations. Foreign currency exchange rates had a $12,653$13,166 unfavorable translation impact in 2009. The LIFO reserve decreased by $28,467 as a result of decreases in commodity prices in 2009, primarily steel, and a reduction in inventory levels. The reduction in inventory levels resulted in a decrease to the LIFO reserve of $14,254.

2012.

Selling, General & Administrative (“("SG&A”&A") Expenses:SG&A expenses decreased $71,981 (17.8%)increased12.6% to $495,221 during 20092012 compared with 2008.$439,775 in 2011. The decreaseincrease was primarily due to lowerhigher bonus expense of $56,292, lower selling,$20,439, incremental SG&A expenses from acquisitions of $15,403, higher general and administrative spending primarily related to additional employee compensation costs of $12,692, higher U.S. retirement costs of $3,986and research and developmenthigher legal expenses of $11,574, the favorable translation impact of foreign currency exchange rates of $12,785 and incremental foreign currency transaction gains of $9,172$2,142 partially offset by higher retirement costs in the U.S.foreign currency translation of $12,120 and incremental SG&A from acquisitions of $6,118. The Company realized a gain of $1,543 on the settlement of a pension obligation during 2009 that was recorded as a reduction to SG&A expenses.

$8,821.

Rationalization and Asset Impairment Charges (Gain)(Gains):  In 2009,2012, the Company recorded $29,897 ($23,789 after-tax)$9,354 in charges primarily related to rationalization activities to align the business to current market conditionsactions initiated in 2012. See "Rationalization and asset impairments. These charges include $27,142 primarily related to employee severance costs, $2,061 in long-lived asset impairment charges and a gain of $185 recognized in connection with the partial settlement of a pension plan. Rationalization activities during the year affected 1,063 employees and included the closure of two manufacturing facilities. Impairment charges on certain indefinite-lived intangible assets of $879 were also included under this caption.Asset Impairments" for additional information.

Interest Income:  Interest income decreasedincreased to $3,462$3,988 in 20092012 from $8,845$3,121 in 2008.2011. The increase was largely due to international entities earning more favorable interest rates.
Equity Earnings in Affiliates:  Equity earnings in affiliates were $5,007 in 2012 compared with earnings of $5,385 in 2011. The decrease was due to lower interest rates on Cash and cash equivalentsa decrease in 2009 when compared with 2008.

Equity (Loss) Earnings in Affiliates:    Equity loss in affiliates was $5,025 in 2009 compared with earnings of $6,034$542 in 2008. The equity lossChile being partially offset by an increase in 2009 includes a lossearnings of $7,943 associated with the acquisition of Jinzhou Jin Tai Welding and Metal Co, Ltd. (“Jin Tai”) and the related disposal of an interest$164 in Kuang Tai Metal Industrial Co., Ltd. (“Kuang Tai”), the Company’s Taiwanese joint venture, and income of $5,667 as the Company’s share of a gain realized on the sale of a property by the Company’s joint ventureTurkey.

Interest Expense:  Interest expense decreased to $4,191 in Turkey. Excluding these items, equity earnings decreased2012 from $6,704 in 2011, primarily as a result of losses atlower levels of debt in the Company’s joint venture in Taiwan prior to the acquisition of Jin Tai. See the “Acquisitions” section of Item 7 for additional information related to the acquisition of Jin Tai.current period.

Interest Expense:    Interest expense decreased to $8,521 in 2009 from $12,155 in 2008 primarily as a result of a lower average debt balance from the payment of $30,000 on the Senior Unsecured Note that matured in March 2009 and the impact of the amortization of gains on the terminated interest rate swaps.

Income Taxes:The Company recorded $37,905$112,354 of tax expense on pre-tax income of $86,481,$369,570, resulting in an effective tax rate of 43.8%30.4% for 2009.2012. The effective income tax rate exceedsis lower than the Company’sCompany's statutory rate primarily due to losses at certain non-U.S. entities, including the loss associated with the acquisition of Jin Taiincome earned in lower tax rate jurisdictions and related disposal of Kuang Tai of $7,943, with no tax benefit, partially offset by a benefit for the utilization of foreign tax credits.loss carry-forwards for which valuation allowances had been previously provided.

The effective income tax rate of 28.0% for 2011 was lower than the Company's statutory rate primarily due to income earned in lower tax rate jurisdictions, the utilization of foreign tax loss carry-forwards for which valuation allowances had been previously provided and a tax benefit of $4,844 for tax audit settlements.
Net Income:Net income for 20092012 was $48,576$257,411 compared with $212,286$217,186 in the prior year. Diluted earnings per share for 20092012 were $1.14$3.06 compared with diluted earnings of $2.56 per share in 2011. Foreign currency exchange rate movements had an unfavorable translation effect of $2,879 and a favorable translation effect of $2,948 on Net income for 2012 and 2011, respectively.

15


Segment Results
Net Sales:  The table below summarizes the impacts of volume, acquisition, price and foreign currency exchange rates on Net sales for the twelve months ended December 31, 2012:
    Change in Net Sales due to:  
  
Net Sales
2011
 Volume Acquisitions Price Foreign Exchange 
Net Sales
2012
Operating Segments  
  
  
  
  
  
North America Welding $1,309,499
 $112,898
 $124,830
 $37,124
 $(3,533) $1,580,818
Europe Welding 508,692
 (36,199) 8,322
 4,874
 (33,462) 452,227
Asia Pacific Welding 376,276
 (54,289) —
 1,646
 849
 324,482
South America Welding 156,684
 (1,284) —
 15,584
 (9,501) 161,483
The Harris Products Group 343,458
 13,683
 —
 (13,427) (9,357) 334,357
Consolidated $2,694,609
 $34,809
 $133,152
 $45,801
 $(55,004) $2,853,367
% Change  
  
  
  
  
  
North America Welding  
 8.6% 9.5% 2.8% (0.3%) 20.7%
Europe Welding  
 (7.1%) 1.6% 1.0% (6.6%) (11.1%)
Asia Pacific Welding  
 (14.4%) —
 0.4% 0.2% (13.8%)
South America Welding  
 (0.8%) —
 9.9% (6.1%) 3.1%
The Harris Products Group  
 4.0% —
 (3.9%) (2.7%) (2.6%)
Consolidated  
 1.3% 4.9% 1.7% (2.0%) 5.9%
Net sales volumes for 2012 increased for the North America Welding and The Harris Products Group segments because of growth within the domestic markets. Volume decreases for the Europe Welding, Asia Pacific Welding and South America Welding segments are the result of softening demand in these international markets. Product pricing increased for all operating segments from prior year levels, except for The Harris Products Group segment, due to the realization of price increases implemented in response to increases in raw material costs. Product pricing in the South America Welding segment reflects a higher inflationary environment, particularly in Venezuela. Product pricing decreased for The Harris Products Group segment because of significant decreases in the costs of silver and copper as compared to the prior year period. The increase in Net sales from acquisitions was due to the acquisitions of Kaliburn in November 2012, Wayne Trail in May 2012, Weartech in March 2012, Techalloy in July 2011, Applied Robotics, Inc. (d/b/a Torchmate) ("Torchmate") in July 2011 and SSCO Manufacturing, Inc. (d/b/a Arc Products) ("Arc Products") in January 2011 in the North America Welding segment and the acquisition of Severstal in March 2011 in the Europe Welding segment (see the "Acquisitions" section below for additional information regarding the acquisitions). With respect to changes in Net sales due to foreign exchange, all segments, except for the Asia Pacific Welding segment, decreased due to a stronger U.S. dollar.

16


Earnings Before Interest and Income Taxes (“EBIT”), as Adjusted: Segment performance is measured and resources are allocated based on a number of factors, the primary profit measure being EBIT, as adjusted. The following table presents EBIT, as adjusted for 2012 by segment compared with 2011:
  Twelve Months Ended    
  December 31,    
  2012 2011 $ Change % Change
North America Welding:        
Net sales $1,580,818
 $1,309,499
 271,319
 20.7%
Inter-segment sales 131,062
 136,314
 (5,252) (3.9%)
Total Sales $1,711,880
 $1,445,813
 266,067
 18.4%
         
EBIT, as adjusted $293,070
 $227,924
 65,146
 28.6%
As a percent of total sales 17.1% 15.8%   1.3%
         
Europe Welding:        
Net sales $452,227
 $508,692
 (56,465) (11.1%)
Inter-segment sales 16,048
 17,422
 (1,374) (7.9%)
Total Sales $468,275
 $526,114
 (57,839) (11.0%)
         
EBIT, as adjusted $37,299
 $36,171
 1,128
 3.1%
As a percent of total sales 8.0% 6.9%   1.1%
         
Asia Pacific Welding:        
Net sales $324,482
 $376,276
 (51,794) (13.8%)
Inter-segment sales 14,829
 15,614
 (785) (5.0%)
Total Sales $339,311
 $391,890
 (52,579) (13.4%)
         
EBIT, as adjusted $7,247
 $2,629
 4,618
 175.7%
As a percent of total sales 2.1% 0.7%   1.4%
         
South America Welding:        
Net sales $161,483
 $156,684
 4,799
 3.1%
Inter-segment sales 38
 494
 (456) (92.3%)
Total Sales $161,521
 $157,178
 4,343
 2.8%
         
EBIT, as adjusted $18,301
 $12,895
 5,406
 41.9%
As a percent of total sales 11.3% 8.2%   3.1%
         
The Harris Products Group:        
Net sales $334,357
 $343,458
 (9,101) (2.6%)
Inter-segment sales 8,549
 8,496
 53
 0.6%
Total Sales $342,906
 $351,954
 (9,048) (2.6%)
         
EBIT, as adjusted $29,477
 $25,151
 4,326
 17.2%
As a percent of total sales 8.6% 7.1%   1.5%
EBIT, as adjusted and as a percent of total sales increased for all segments in 2012 as compared with 2011. The North America Welding segment growth is primarily due to improved leverage on an 8.6% increase in volumes and price increases of 2.8%. The increase at the Europe Welding segment is primarily due to improved product mix. The Asia Pacific Welding segment increase is due to improved profitability resulting from prior rationalization actions in Australia and improved product mix. The South America Welding segment increase is a result of product pricing increases of 9.9% exceeding inflationary costs. The Harris Products Group segment growth is primarily a result of improved product mix on equipment sales volume.
In 2012, EBIT, as adjusted, for the North America Welding, Europe Welding and Asia Pacific Welding segments excluded special item charges of $827, $3,534 and $4,993, respectively, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations. The South America Welding segment EBIT, as adjusted,

17


excluded a special item charge of $1,381, related to a change in Venezuelan labor law, which provides for increased employee severance obligations.
In 2011, EBIT, as adjusted, for the Europe Welding and Asia Pacific Welding segments excluded special items net charges of $188 and $93, respectively, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations. The Europe Welding segment special items also include a loss of $204 on the sale of assets at a rationalized operation. The Asia Pacific Welding segment special items also include a gain of $203 on the sale of assets at a rationalized operation.
2011 Compared with 2010
Net Sales:  Net sales volume for 2011 increased for all operating segments as a result of higher demand levels from expanding industrial economies associated with the improved global economy and modest market share gains. Product pricing increased for all operating segments due to the realization of price increases implemented in response to increases in raw material costs. Product pricing in the South America Welding segment reflected a higher inflationary environment, particularly in Venezuela. Product pricing increased in The Harris Products Group segment due to the pass-through effect of higher commodity costs, particularly silver and copper. The increase in Net sales from acquisitions was due to the acquisitions of Arc Products in January 2011, Techalloy and Torchmate in July 2011 in the North America Welding segment and the acquisitions of Severstal in March 2011 and Mezhgosmetiz-Mtsensk OAO ("MGM") in October 2010 in the Europe Welding segment (see the "Acquisitions" section below for additional information regarding the acquisitions). With respect to changes in Net sales due to foreign exchange, all segments increased due to a weaker U.S. dollar.
Gross Profit:  Gross profit increased 30.7% to $736,737 during 2011 compared with $563,819 in 2010. As a percentage of Net sales, Gross profit increased slightly to 27.3% in 2011 compared with 27.2% in 2010. The increase was the result of pricing increases and operating leverage offset by rising material costs and lower margins from the acquisitions of MGM, Severstal and Techalloy. In the prior year, the South America Welding segment recorded charges of $5,755 resulting from the change in functional currency and related devaluation of the Venezuelan currency. Foreign currency exchange rates had an $11,125 favorable translation impact in 2011.
Selling, General & Administrative ("SG&A") Expenses:  SG&A expenses increased 16.4% to $439,775 during 2011 compared with $377,773 in 2010. The increase was primarily due to higher bonus expense of $30,714, higher selling, administrative and research and development expenses of $15,546, incremental SG&A expenses from acquisitions of $8,600, higher foreign currency translation of $7,257 and higher foreign exchange transaction losses of $4,531 partially offset by lower legal expenses of $4,124. In the prior year period, the South America Welding segment recorded a gain of $2,632 resulting from the change in Venezuela's functional currency to the U.S. dollar and the devaluation of the bolivar.
Rationalization and Asset Impairment Charges (Gains):  In 2011, the Company recorded $282 in charges primarily related to rationalization actions initiated in 2009. See "Rationalization and Asset Impairments" for additional information.
Interest Income:  Interest income increased to $3,121 in 2011 from $2,381 in 2010. The increase was largely due to interest income received on a sales tax refund.
Equity Earnings (Loss) in Affiliates:  Equity earnings in affiliates were $5,385 in 2011 compared with earnings of $4.93$3,171 in 2010. The increase was due to an increase in earnings of $1,895 in Turkey and an increase of $319 in Chile.
Interest Expense:  Interest expense remained flat at $6,704 in 2011 as compared to $6,691 in 2010, primarily as a result of higher interest rates offset by lower levels of debt in the current period.
Income Taxes:  The Company recorded $84,318 of tax expense on pre-tax income of $301,331, resulting in an effective tax rate of 28.0% for 2011. The effective income tax rate is lower than the Company's statutory rate primarily due to income earned in lower tax rate jurisdictions, the utilization of foreign tax loss carry-forwards for which valuation allowances had been previously provided and a tax benefit of $4,844 for tax audit settlements.
The effective income tax rate of 29.3% for 2010 was primarily due to income earned in lower tax rate jurisdictions and the utilization of foreign tax loss carry-forwards for which valuation allowances had been previously provided.
Net Income:  Net income for 2011 was $217,186 compared with $130,244 in the prior year. Diluted earnings per share for 2011 were $2.56 compared with diluted earnings of $1.53 per share in 2008.2010. Foreign currency exchange rate movements had a favorable translation effect of $612$2,948 and $2,508$762 on netNet income for 20092011 and 2008,2010, respectively.

16


18



Segment Results
Net Sales:  The table below summarizes the impacts of volume, acquisition, price and foreign currency exchange rates on Net sales for the twelve months ended December 31, 2011:
    Change in Net Sales due to:  
  
Net Sales
2010
 Volume Acquisitions Price 
Foreign
Exchange
 
Net Sales
2011
Operating Segments            
North America Welding $1,013,193
 $194,618
 $54,452
 $41,839
 $5,397
 $1,309,499
Europe Welding 359,925
 42,376
 66,425
 20,390
 19,576
 508,692
Asia Pacific Welding 324,092
 26,198
 —
 3,305
 22,681
 376,276
South America Welding 117,419
 24,209
 —
 11,618
 3,438
 156,684
The Harris Products Group 255,543
 18,625
 —
 65,753
 3,537
 343,458
Consolidated $2,070,172
 $306,026
 $120,877
 $142,905
 $54,629
 $2,694,609
% Change            
North America Welding  
 19.2% 5.4% 4.1% 0.5% 29.2%
Europe Welding  
 11.8% 18.5% 5.7% 5.4% 41.3%
Asia Pacific Welding  
 8.1% —
 1.0% 7.0% 16.1%
South America Welding  
 20.6% —
 9.9% 2.9% 33.4%
The Harris Products Group  
 7.3% —
 25.7% 1.4% 34.4%
Consolidated  
 14.8% 5.8% 6.9% 2.6% 30.2%
Net sales volume for 2011 increased for all operating segments as a result of higher demand levels from expanding industrial economies associated with the improved global economy and modest market share gains. Product pricing increased for all operating segments due to the realization of price increases implemented in response to increases in raw material costs. Product pricing in the South America Welding segment reflected a higher inflationary environment, particularly in Venezuela. Product pricing increased in The Harris Products Group segment due to the pass-through effect of higher commodity costs, particularly silver and copper. The increase in Net sales from acquisitions was due to the acquisitions of Arc Products in January 2011, Techalloy and Torchmate in July 2011 in the North America Welding segment and the acquisitions of Severstal in March 2011 and Mezhgosmetiz-Mtsensk OAO ("MGM") in October 2010 in the Europe Welding segment (see the "Acquisitions" section below for additional information regarding the acquisitions). With respect to changes in Net sales due to foreign exchange, all segments increased due to a weaker U.S. dollar.


19


Earnings Before Interest and Income Taxes (“EBIT”), as Adjusted: Segment performance is measured and resources are allocated based on a number of factors, the primary profit measure being EBIT, as adjusted. The following table presents EBIT, as adjusted for 2011 by segment compared with 2010:
  Twelve Months Ended    
  December 31,    
  2011 2010 $ Change % Change
North America Welding:        
Net sales $1,309,499
 $1,013,193
 296,306
 29.2%
Inter-segment sales 136,314
 108,849
 27,465
 25.2%
Total Sales $1,445,813
 $1,122,042
 323,771
 28.9%
         
EBIT, as adjusted $227,924
 $162,192
 65,732
 40.5%
As a percent of total sales 15.8% 14.5%   1.3%
         
Europe Welding:        
Net sales $508,692
 $359,925
 148,767
 41.3%
Inter-segment sales 17,422
 13,330
 4,092
 30.7%
Total Sales $526,114
 $373,255
 152,859
 41.0%
         
EBIT, as adjusted $36,171
 $17,023
 19,148
 112.5%
As a percent of total sales 6.9% 4.6%   2.3%
         
Asia Pacific Welding:        
Net sales $376,276
 $324,092
 52,184
 16.1%
Inter-segment sales 15,614
 12,546
 3,068
 24.5%
Total Sales $391,890
 $336,638
 55,252
 16.4%
         
EBIT, as adjusted $2,629
 $1,752
 877
 50.1%
As a percent of total sales 0.7% 0.5%   0.2%
         
South America Welding:        
Net sales $156,684
 $117,419
 39,265
 33.4%
Inter-segment sales 494
 1,216
 (722) (59.4%)
Total Sales $157,178
 $118,635
 38,543
 32.5%
         
EBIT, as adjusted $12,895
 $7,554
 5,341
 70.7%
As a percent of total sales 8.2% 6.4%   1.8%
         
The Harris Products Group:        
Net sales $343,458
 $255,543
 87,915
 34.4%
Inter-segment sales 8,496
 6,641
 1,855
 27.9%
Total Sales $351,954
 $262,184
 89,770
 34.2%
         
EBIT, as adjusted $25,151
 $12,311
 12,840
 104.3%
As a percent of total sales 7.1% 4.7%   2.4%
EBIT, as adjusted and as a percent of total sales increased for all segments in 2011 as compared with 2010. The North America Welding segment growth was primarily due to improved leverage on a 19.2% increase in volumes and price increases of 4.1%. The increase at the Europe Welding segment was primarily due to improved leverage on 11.8% increase in volumes and price increases of 5.7%. The Asia Pacific Welding segment increase was due to improved leverage on an 8.1% increase in volumes. The South America Welding segment increase was a result of product pricing increases of 9.9% exceeding increasing inflationary costs and improved leverage on a 20.6% increase in volumes. The Harris Products Group segment growth was primarily due to improved leverage on a 14.8% increase in volumes and price increases of 6.9% exceeding increasing raw material costs.

20


In 2011, EBIT, as adjusted, for the Europe Welding and Asia Pacific Welding segments excluded special items net charges of $188 and $93, respectively, primarily related to employee severance and other cost associated with the consolidation of manufacturing operations. The Europe Welding segment special items also include a loss of $204 on the sale of assets at a rationalized operation. The Asia Pacific Welding segment special items also include a gain of $203 on the sale of assets at a rationalized operation.
In 2010, EBIT, as adjusted, for the Europe Welding and Asia Pacific Welding segments excluded special items net charges of $1,990 and $427, respectively, primarily related to employee severance and other cost associated with the consolidation of manufacturing operations. The Europe Welding segment special items also include a charge of $496 in related asset impairments. The Asia Pacific Welding segment special items also include a gain of $4,555 on the disposal of assets at a rationalized operation. EBIT, as adjusted, for the South America Welding segment excluded special item net charges of $3,123 related to the change in functional currency and devaluation of the Venezuelan currency. EBIT, as adjusted, for The Harris Products Group segment excluded a net charge of $871 related to environmental costs associated with the sale of property at a rationalized operation.
Non-GAAP Financial Measures:Measures
The Company reviews OperatingAdjusted operating income, NetAdjusted net income and DilutedAdjusted diluted earnings per share, (“EPS”) excluding special items,all non-GAAP financial measures, in assessing and evaluating the Company’sCompany's underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company's reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.
The following tables present reconciliationstable presents a reconciliation of Operating income as reported to Adjusted operating income:
  Year Ended December 31,
  2012 2011 2010
Operating income as reported $362,081
 $296,680
 $186,430
Special items (pre-tax):      
Rationalization charges (gains) 7,512
 282
 (1,267)
Impairment charges 1,842
 —
 883
Venezuela statutory severance obligation 1,381
 —
 —
Venezuela – functional currency change and devaluation —
 —
 3,123
Adjusted operating income $372,816
 $296,962
 $189,169
Special items included in Operating income during 2012 include net rationalization charges of $7,512, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations initiated in 2012, partially offset by gains on the disposal of assets at rationalized operations, asset impairment charges of $1,842 and a net charge of $1,381 related to the change in Venezuelan labor law, which provides for increased employee severance obligations.
Special items included in Operating income during 2011 include net rationalization and asset impairment charges of $282, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations resulting from actions initiated in 2009.
Special items included in Operating income during 2010 include net rationalization gains of $1,267 primarily related to gains on the disposal of assets at rationalized operations offset by charges associated with the consolidation of manufacturing operations initiated in 2009, asset impairment charges of $883 and a net charge of $3,123 related to the change in functional currency for the Company's operation in Venezuela to the U.S. dollar and the devaluation of the Venezuelan currency. The net charge of $3,123 relating to the Venezuelan operations is recorded as an increase in Cost of goods sold of $5,755 and a reduction in SG&A expenses of $2,632.

21


The following table presents reconciliations of Net income and Diluted EPSearnings per share as reported to OperatingAdjusted net income and Adjusted diluted earnings per share:
  Year Ended December 31,
  2012 2011 2010
Net income as reported $257,411
 $217,186
 $130,244
Special items (after-tax):      
Rationalization charges (gains) 6,153
 237
 (1,695)
Impairment charges 1,289
 —
 801
Venezuela statutory severance obligation 906
 —
 —
Venezuela – functional currency change and devaluation —
 —
 3,560
Income from tax adjustment resulting from change in
   applicable tax regulations
 —
 —
 (5,092)
Adjustment for tax audit settlements —
 (4,844) —
Non-controlling interests charges associated with special
items
 —
 —
 1,782
Adjusted net income $265,759
 $212,579
 $129,600
Diluted earnings per share as reported $3.06
 $2.56
 $1.53
Special items per share 0.10
 (0.05) (0.01)
Adjusted diluted earnings per share $3.16
 $2.51
 $1.52
Net income for 2012 includes net rationalization charges of $6,153, primarily related to employee severance and Diluted EPS excluding special items.other costs associated with the consolidation of manufacturing operations

   Year Ended December 31,
       2009          2008    

Operating income as reported

  $92,976   $295,404

Special items:

   

Rationalization charges

   29,018    2,447

Impairment charges

   879    16,924

Pension settlement gain

   (1,543)   —
        

Adjusted Operating income excluding special items

  $121,330   $314,775
        

   Year Ended December 31,
       2009          2008    

Net income as reported

  $48,576   $212,286

Special items (after-tax):

   

Rationalization charges

   23,193    1,698

Impairment charges

   596    16,615

Pension settlement gain

   (1,543)   —

Loss associated with the acquisition of Jin Tai

   7,943    —

Gain on sale of property

   (5,667)   —
        

Adjusted Net income excluding special items

  $73,098   $230,599
        

Diluted EPS

  $1.14   $4.93

Special items

   0.57    0.43
        

Adjusted Diluted EPS excluding special items

  $1.71   $5.36
        

2008 Compared to 2007

Net Sales:    Net sales for 2008 increased 8.7% to $2,479,131 from $2,280,784 initiated in 2007. The increase in Net sales reflects an $88,436 (3.9%) decrease due to volume, a $176,045 (7.7%) increase due to price, a $67,538 (3.0%) increase from acquisitions and a $43,200 (1.9%) favorable impact as a result of changes in foreign currency exchange rates.

Net sales for the North America Welding segment increased 5.2% to $1,313,881 in 2008 compared with $1,248,382 in 2007. This increase reflects a decrease of $57,607 (4.6%) due to volume, a $113,883 (9.1%) increase due to price and a $9,425 (0.8%) increase from acquisitions.

Net sales for the Europe Welding segment increased 13.5% to $538,570 in 2008 compared with $474,388 in 2007. This increase reflects a decrease of $1,592 (0.3%) due to volume, a $6,458 (1.4%) increase due to price, a $29,827 (6.3%) increase from acquisitions and a $29,489 (6.2%) favorable impact as a result of changes in foreign currency exchange rates.

17

Net sales for the Asia Pacific Welding segment increased 29.5% to $230,661 in 2008 compared with $178,120 in 2007. This increase reflects a $21,752 (12.2%) increase due to price, a $23,159 (13.0%) increase from acquisitions and a $7,699 (4.3%) favorable impact as a result of changes in foreign currency exchange rates.

Net sales for the South America Welding segment increased 14.4% to $116,061 in 2008 compared with $101,426 in 2007. This increase reflects a decrease of $10,444 (10.3%) due to volume, a $20,883 (20.6%) increase due to price and a $4,196 (4.1%) favorable impact as a result of changes in foreign currency exchange rates.

Net sales for The Harris Products Group segment increased 0.5% to $279,958 in 2008 compared with $278,468 in 2007. This increase reflects a decrease of $18,724 (6.7%) due to volume, a $13,069 (4.7%) increase due to price, a $5,127 (1.8%) increase from acquisitions and a $2,018 (0.7%) favorable impact as a result of changes in foreign currency exchange rates.

Gross Profit:    Gross profit increased 11.2% to $720,151 during 2008 compared with $647,566 in 2007. As a percentage of Net sales, Gross profit increased to 29.0% in 2008 from 28.4% in 2007. This increase was primarily a result of favorable pricing leverage and improved operational effectiveness2012 partially offset by volume decreasesgains on the disposal of assets at rationalized operations, asset impairment charges of $1,289 and a net charge of $906 related to the continuing shiftchange in sales mix to traditionally lower margin geographies and businesses. Foreign currency exchange rates had a $10,621 favorable impact in 2008.

Selling, General & Administrative Expenses:    SG&A expensesVenezuelan labor law, which provides for increased $35,254 (9.5%) in 2008 compared with 2007. The increase was primarily due to higher selling expenses of $10,543 resulting from increased sales activity, incremental selling, general and administrative expenses from acquisitions totaling $9,222, higher bonus expense of $5,706 and higher foreign currency transaction losses of $4,381. Foreign currency exchange rates had a $5,587 unfavorable impact.employee severance obligations.

Rationalization and Asset Impairment Charges (Gain):    In 2008, the Company recorded $19,371 inNet income for 2011 includes net rationalization and asset impairment charges. This total included $2,447 ($1,698 after-tax) in rationalization charges of $237 primarily related to workforce reductions that affected 67 employeesemployee severance and other costs associated with the consolidation of manufacturing operations resulting from actions initiated in 2009. Special items for 2011 also include a gain of $4,844 related to a favorable adjustment for tax audit settlements.
The Harris Products Group segment and 65 employees in the Europe Welding segment. The actions were takenCompany's 2010 rationalization activities to align the business to current market conditions. Assetconditions resulted in net gains of $1,695 primarily related to the sale of property and asset disposals and asset impairment charges of $16,924 ($16,615 after-tax) included $15,582 (with no tax benefit) to write off goodwill and write down long-lived assets related to two businesses in China and $1,342 ($1,033 after-tax) to write down intangible assets in North America and Europe.

In 2007, the Company recorded$801. Net income also includes a net gaincharge of $188 ($107 after-tax) to rationalization charges due to a gain of $816 ($735 after-tax)$3,560 related to the terminationchange in functional currency and devaluation of the Harris Ireland Pension Plan offsetting other chargesVenezuelan currency, income of $5,092 due to an adjustment in tax liabilities for a change in applicable tax regulations, a gain of $108 in non-controlling interests related to severance costs covering 66 employees at the Company’s facility in Ireland.

Interest Income:    Interest income increased to $8,845 in 2008 from $8,294 in 2007. The increase wasimpairment of assets for a result of higher cash balances partially offset by lower interest rate investments in 2008 when compared with 2007.

Equity Earnings in Affiliates:    Equity earnings in affiliates decreased to $6,034 in 2008 from $9,838 in 2007 as a result of lower earnings at the Company’s joint venture investments in Turkey and Taiwan.

Interest Expense:    Interest expense increased to $12,155 in 2008 from $11,430 in 2007 as a result of a lower level of amortization of the gain associated with previously terminated interest rate swap agreements and higher debt levels.

Income Taxes:    Income taxes for 2008 were $87,523 on income before income taxes of $299,809, an effective rate of 29.2%, compared with income taxes of $84,421 on income before income taxes of $287,157, or an effective rate of 29.4% for 2007. The decrease in the effective tax rate for 2008 from 2007 was a result of additional utilization of foreign tax credits from the repatriation of higher-taxed earnings partially offset by non-deductible asset impairment charges in China. The effective rate for 2008 and 2007 was lower than the Company’s statutory rate primarily because of the utilization of foreign tax credits, lower taxes on non-U.S. earnings and the utilization of foreign tax loss carryforwards, for which valuation allowances had been previously provided.

18

Net Income:    Net income for 2008 was $212,286 compared with $202,736 in the prior year. Diluted EPS for 2008 was $4.93 compared with $4.67 per share in 2007. Foreign currency exchange rate movements had a $2,508majority-owned consolidated subsidiary and a $3,419 favorable effect on net incomecharge of $1,890 in non-controlling interests related to the disposal of assets for 2008 and 2007, respectively.a majority-owned consolidated subsidiary.

Non-GAAP Financial Measures:    The Company reviews Operating income, Net income and Diluted EPS excluding special items, non-GAAP financial measures, in assessing and evaluating the Company’s underlying operating performance. The following tables present reconciliations of Operating income, Net income and Diluted EPS as reported to Operating income, Net income and Diluted EPS excluding special items.

   Year Ended December 31, 
       2008          2007     

Operating income as reported

  $295,404  $277,632  

Special items:

    

Rationalization charges (gain)

   2,447   (188) 

Impairment charges

   16,924   —  
         

Adjusted Operating income excluding special items

  $314,775  $277,444  
         

   Year Ended December 31, 
       2008          2007     

Net income as reported

  $212,286  $202,736  

Special items (after-tax):

    

Rationalization charges (gain)

   1,698   (107) 

Impairment charges

   16,615   —  
         

Adjusted Net income excluding special items

  $230,599  $202,629  
         

Diluted EPS

  $4.93  $4.67  

Special items

   0.43   —  
         

Adjusted Diluted EPS excluding special items

  $5.36  $4.67  
         

Liquidity and Capital Resources

The Company’sCompany's cash flow from operations while cyclical, has been reliable and strong.can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances and, if necessary, borrowings under its existing credit facilities.

19


22



The following table reflects changes in key cash flow measures:

  Year Ended December 31,  $ Change 
  2009  2008  2007  2009 vs. 2008  2008 vs. 2007 

Cash provided by operating activities:

 $250,350   $257,449   $249,832   $(7,099)  $7,617  

Cash used by investing activities:

  (63,581)   (115,800)   (79,705)   52,219    (36,095) 

Capital expenditures

  (38,201)   (72,426)   (61,633)   34,225    (10,793) 

Acquisition of businesses, net of cash acquired

  (25,449)   (44,036)   (18,773)   18,587    (25,263) 

Cash used by financing activities:

  (89,072)   (67,741)   (77,586)   (21,331)   9,845  

(Payments) proceeds on short-term borrowings, net

  (12,954)   6,104    2,826    (19,058)   3,278  

(Payments) proceeds on long-term borrowings, net

  (30,874)   319    (40,142)   (31,193)   40,461  

Proceeds from exercise of stock options

  705    7,201    8,644    (6,496)   (1,443) 

Tax benefit from exercise of stock options

  195    3,728    4,289    (3,533)   (561) 

Purchase of shares for treasury

  (343)   (42,337)   (15,459)   41,994    (26,878) 

Cash dividends paid to shareholders

  (45,801)   (42,756)   (37,744)   (3,045)   (5,012) 

Increase in Cash and cash equivalents

  103,804    66,950    97,170    36,854    (30,220) 

  Year Ended December 31, $ Change
  2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Cash provided by operating activities $327,484
 $193,518
 $156,978
 $133,966
 $36,540
Cash used by investing activities: (187,471) (130,796) (69,400) (56,675) (61,396)
Capital expenditures (52,715) (65,813) (60,565) 13,098
 (5,248)
Acquisition of businesses, net of cash acquired (134,602) (66,229) (18,856) (68,373) (47,373)
Proceeds from the sale of property, plant and equipment 1,387
 1,246
 10,021
 141
 (8,775)
Other investing activities (1,541) —
 —
 (1,541) —
Cash used by financing activities: (216,838) (63,370) (109,507) (153,468) 46,137
(Payments) proceeds on short-term borrowings, net (4,533) 8,981
 (18,599) (13,514) 27,580
Payments on long-term borrowings, net (84,770) (1,032) (8,580) (83,738) 7,548
Proceeds from exercise of stock options 18,776
 11,351
 3,508
 7,425
 7,843
Tax benefit from exercise of stock options 7,819
 2,916
 1,210
 4,903
 1,706
Purchase of shares for treasury (81,018) (36,997) (39,682) (44,021) 2,685
Cash dividends paid to shareholders (73,112) (51,935) (47,364) (21,177) (4,571)
Other financing activities —
 3,346
 —
 (3,346) 3,346
Decrease in Cash and cash equivalents (74,637) (5,092) (21,943)  
  
Cash and cash equivalents increased 36.5%decreased20.7%, or $103,804,$74,637, to $388,136$286,464 as of December 31, 2009,2012, from $284,332$361,101 as of December 31, 2008.2011. This decrease was predominantly due to the Company's repayment of the $80,000 senior unsecured note at maturity, cash used in the acquisition of businesses of $134,602, purchases of common shares for treasury of $81,018, cash dividends paid to shareholders of $73,112 and a $89,448 deposit for tax and interest assessed by the Canada Revenue Agency (“CRA”) offset by cash provided by operating activities. This compares with an increasea decrease of 30.8%1.4%, or $66,950,$5,092, in Cash and cash equivalents during 2008.

2011.

Cash provided by operating activities for 2009 decreased $7,0992012increased$133,966 from 2008.2011. The decreaseincrease was primarilypredominantly due to lower net operating working capital requirements and increased Net income that was largelyfor the year ended December 31, 2012, compared with the year ended December 31, 2011, offset by reductions in accountsthe $89,448 deposit for tax and interest assessed by the CRA. Net operating working capital, defined as the sum of Accounts receivable and Total inventory as the Company adjusted working capital levels commensurateless Trade accounts payable, decreased$102,155 in 2012 compared with lower demand.an increase of $110,525 in 2011. Net operating working capital to sales, defined as net operating working capital divided by annualized rolling three months of Net sales, was 23.2%decreased to 18.8% at December 31, 20092012 compared with 24.8%21.0% at December 31, 2008.2011. Days sales in inventory decreasedincreased to 100.894.3 days at December 31, 20092012 from 115.892.5 days at December 31, 2008.2011. Accounts receivable days increaseddecreased to 56.951.8 days at December 31, 20092012 from 55.053.5 days at December 31, 2008.2011. Average days in accounts payable decreasedincreased to 30.043.9 days at December 31, 20092012 from 32.135.1 days at December 31, 2008.

2011.

Cash used by investing activities decreasedincreased by $52,219$56,675 for 20092012 compared with 2008. Cash used2011. This reflects a decrease in capital expenditures of $13,098 from 2011 and an increase in the acquisition of businesses in 2009 decreased $18,587of $68,373 from 2008. Capital expenditures during 2009 were $38,201, a $34,225 decrease from 2008.2011. The Company anticipates capital expenditures of $60,000in 2010 in the range of $40,000 — $50,000.2013. Anticipated capital expenditures reflect plansinvestments for capital maintenance, to improve operational effectiveness and the Company’sCompany's continuing international expansion. Management critically evaluates all proposed capital expenditures and requires each project to increase efficiency, reduce costs, promote business growth, or to improve the overall safety and environmental conditions of the Company’sCompany's facilities.

Cash used by financing activities for 2009 2012increased $21,331$153,468 from 2008.2011. The increase was primarilypredominantly due to higher net payments of long-term borrowings of $83,738, due primarily to the $30,000Company's repayment of the Company’s Series B Senior Unsecured Note upon maturity during the first quarter$80,000 senior unsecured note, higher purchases of 2009, a reduction in short-term borrowings of $12,954 in the current period versus an increase of $6,104 in the comparable period of 2008 and a decrease in proceeds from the exercise of stock options and related tax benefits of $10,029 partially offset by lower purchases ofcommon shares for treasury of $41,994.

The Company’s debt levels decreased from $142,230 at December 31, 2008, to $123,717 at December 31, 2009. Debt to total capitalization decreased to 10.2% at December 31, 2009 from 12.3% at December 31, 2008.

A total of $45,801 in$44,021 and higher cash dividends was paid during 2009. In January 2010, the Company paid a quarterly cash dividend of $0.28 cents per share, or $11,885 to shareholders of record on December 31, 2009.

20

Subsequent Events$21,177

The Company has investments in Venezuela which currently require the approval of a government agency to convert local currency to U.S. dollars at official government rates. Government approval for currency conversion to satisfy U.S. dollar liabilities to foreign suppliers, including payables to Lincoln affiliates, has lagged payment due dates from time to time in the past, resulting in higher cash balances and higher past due U.S. dollar payables within our Venezuelan subsidiary. If the Company had settled its Venezuelan subsidiary’s U.S. dollar liabilities using unofficial parallel currency exchange mechanisms as of December 31, 2009, it would have resulted in a currency exchange gain of approximately $437.

Cumulative inflation in Venezuela over the preceding three year period reached 100% during the fourth quarter of 2009. As a result, the Company changed the functional currency of its Venezuelan subsidiary to the U.S. dollar as of January 1, 2010. During January 2010, the Venezuelan government announced the devaluation of the official exchange rate used for most foreign currency transactions common to the Company’s Venezuelan subsidiary from 2.15 to 4.30 Bolivars to the U.S. dollar.

The Company’s Venezuelan subsidiary’s net Bolivar denominated monetary liability position is expected to result in a gain of approximately $2,500 during the first quarter of 2010. The Company also expects that its Venezuelan subsidiary’s results of operations will decrease significantly in 2010 due to the new exchange rate. The impact of selling inventories carried at the previous exchange rate is expected to decrease gross profit by approximately $5,000.

Rationalization and Asset Impairments

The Company recorded rationalization and asset impairment charges of $29,897 for the year ended December 31, 2009. These charges include $27,142 primarily related to employee severance costs, $2,061 in long-lived asset impairment charges, $879 in indefinite-lived intangible asset impairment charges and a gain of $185 recognized in connection with the partial settlement of a pension plan.

In the fourth quarter of 2009, the Company determined that the carrying value of certain long-lived assets exceeded fair value at operations affected by rationalization activities initiated in the second and third quarters of 2009. As a result, asset impairment charges totaling $2,061 were recognized in “Rationalization and asset impairment charges (gain).” Of the total asset impairment charges, $253 were recognized in the Europe Welding segment, $1,515 in the Asia Pacific Welding segment and $293 in The Harris Products Group segment. Fair values of impaired long-lived assets were determined primarily by third party appraisal.

During the third quarter of 2009, the Company initiated various rationalization actions, including the closureDecember dividend payment of a manufacturing facility in Europe and the consolidation of certain manufacturing operations in the Europe Welding and Asia Pacific Welding segments. These actions impacted 80 employees in the Europe Welding segment, 175 employees in the Asia Pacific Welding segment and nine employees in the South America Welding segment. These actions are expected to cost approximately $12,000, of which the Company recorded rationalization charges of $8,333 for the year ended December 31, 2009. At December 31, 2009, a liability related to these actions of $3,912 was recorded in “Other current liabilities.” Costs related to these actions relate primarily to employee severance actions$16,533 that are expected to be substantially completed and paid over the next year.

During the second quarter of 2009, the Company initiated various rationalization actions including the closure of a manufacturing facility in The Harris Products Group segment. These actions affected eight employees in the North America Welding segment, 61 employees in the Europe Welding segment, 81 employees in the Asia Pacific Welding segment, 23 employees in the South America Welding segment and 58 employees in The Harris Products Group segment. The Company recorded rationalization charges of $6,684 for the year ended December 31, 2009 related to these actions. A liability related to these actions of $2,445 was recorded in “Other current liabilities” at December 31, 2009. These costs relate primarily to employee severance actions that are essentially complete and are expected towould generally be paid over the next year.

21

Rationalization actions taken during the first quarter of 2009 included a voluntary separation incentive program covering certain U.S.-based employees. These actions affected 408 employees in the North America Welding segment, 48 employees in the Europe Welding segment, 44 employees in the Asia Pacific Welding segment, 22 employees in the South America Welding segment and 46 employees in The Harris Products Group segment. The Company recorded rationalization charges of $12,092 for the year ended December 31, 2009 related to these actions. At December 31, 2009, all activities associated with these actions were completed.

Rationalization actions taken during the fourth quarter of 2008 affected 67 and 65 employees in The Harris Products Group and Europe Welding segments, respectively. The Company recorded rationalization charges of $2,447 at December 31, 2008 and $33 for the year ended December 31, 2009 related to these actions. At December 31, 2009, all activities associated with these actions were completed.

The Company continues evaluating its cost structure and additional rationalization actions may result in charges in subsequent quarters.

In the fourth quarter of 2008, the Company recorded asset impairment charges totaling $16,924 in “Rationalization and asset impairment charges (gain).”

In the fourth quarter of 2008, the Company determined that poor operating results and a dampened economic outlook indicated the potential for impairment at two of its businesses in China. Impairment testing determined that the carrying value of long-lived assets exceeded fair value at one of these businesses and the Company recorded a charge of $2,388. In addition, the carrying value of goodwill at both of these businesses exceeded the implied value of goodwill and the Company recorded a charge of $13,194.

The Company also tested indefinite-lived intangible assets and determined that the carrying value of certain intangible assets in the Europe Welding and North America Welding segments exceeded fair value. As a result, the Company recorded charges of $524 and $818, respectively.

Fair values of impaired assets were determined using projected discounted cash flows.

In 2005, the Company committed to a plan to rationalize manufacturing operations at Harris Calorific Limited (“Harris Ireland”). The Company incurred a total of $3,920 in charges related to this plan of which a gain of $188 was recorded in 2007. During 2009, the Company received cash of $1,740 related to the termination of the Harris Ireland pension plan and recognized a gain of $185.

AcquisitionsJanuary 2013.

On July 29, 2009, the Company completed the acquisition of 100% of Jin Tai, based in Jinzhou, China. This transaction expanded the Company’s customer base and gave the Company control of significant cost-competitive solid wire manufacturing capacity.

The Company previously held a 21% direct interest in Jin Tai and a further 27% indirect interest via its 35% interest in Kuang Tai. Under the terms of the agreement, the Company exchanged its 35% interest in Kuang Tai with a fair value of $22,723, paid cash of $35,531 and will pay an additional $4,181 in cash over a three-year period after close.

The fair value of the Company’s previous non-controlling direct interest in Jin Tai was $8,675. The carrying values of the Company’s interests in Kuang Tai and Jin Tai were $29,368 and $9,973, respectively. The excess carrying value over fair value of these interests resulted in a loss on the transaction of $7,943 recorded in “Equity (loss) earnings in affiliates.”

The Company previously reported its proportional share of Jin Tai’s net income under the equity method in “Equity (loss) earnings in affiliates.” Jin Tai’s sales were $186,774 in 2008 and $74,834 in 2009 prior to the acquisition. Jin Tai’s sales of $53,956 after the acquisition were included in “Net sales” for 2009. The pro forma impact on the results of operations if the acquisition had been completed as of the beginning of both 2009 and 2008 would not have been significant.

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The identifiable assets acquired and liabilities assumed upon the acquisition of Jin Tai were as follows:

   July 29, 2009

Cash and cash equivalents

  $16,032

Accounts receivable

   23,306

Inventory

   17,037

Other current assets

   18,932

Property, plant and equipment

   29,275

Intangibles

   15,201

Goodwill

   1,429

Other non-current assets

   5,585
    

Total assets acquired

   126,797

Amounts due banks

   28,833

Trade accounts payable

   2,306

Current liabilities

   7,839

Long-term liabilities

   15,459
    

Total liabilities assumed

   54,437
    

Net assets acquired

  $72,360
    

All assets acquired and liabilities assumed were recorded at estimated fair value. Goodwill of $1,429 was allocated to the Asia Pacific Welding segment and is not deductible for income tax purposes under current tax law. Net assets acquired included a non-controlling interest in one of Jin Tai’s operations valued at $1,250. This non-controlling interest was subsequently acquired and accounted for as an equity transaction.

On October 1, 2008, the Company acquired a 90% interest in a leading Brazilian manufacturer of brazing products for approximately $24,000 in cash and assumed debt. The newly acquired company, based in Sao Paulo, is being operated as Harris Soldas Especiais S.A. This acquisition expanded the Company’s brazing product line and increased the Company’s presence in the South American market. Annual sales at the time of the acquisition were approximately $30,000.

On April 7, 2008, the Company acquired all of the outstanding stock of Electro-Arco S.A. (“Electro-Arco”), a privately held manufacturer of welding consumables headquartered near Lisbon, Portugal, for approximately $24,000 in cash and assumed debt. This acquisition added to the Company’s European consumables manufacturing capacity and widened the Company’s commercial presence in Western Europe. Annual sales at the time of the acquisition were approximately $40,000.

On November 30, 2007, the Company acquired the assets and business of Vernon Tool Company Ltd. (“Vernon Tool”), a privately held manufacturer of computer-controlled pipe cutting equipment used for precision fabrication purposes headquartered near San Diego, California, for approximately $12,434 in cash. This acquisition added to the Company’s ability to support its customers in the market for infrastructure development. Annual sales at the time of the acquisition were approximately $9,000.

On November 29, 2007, the Company announced that it had entered into a majority-owned joint venture with Zhengzhou Heli Welding Materials Company Ltd. (“Zhengzhou Heli”), a privately held manufacturer of subarc flux based in Zhengzhou, China. The Company has contributed $16,400 to Zhengzhou Heli. Annual sales at the time of the acquisition were approximately $8,000.

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On July 20, 2007, the Company acquired Nanjing Kuang Tai Welding Materials Company, Ltd. (“Nanjing”), a manufacturer of stick electrode products based in Nanjing, China, for approximately $4,245 in cash and assumed debt. The Company previously owned 35% of Nanjing indirectly through its investment in Kuang Tai. Annual sales at the time of the acquisition were approximately $10,000.

On March 30, 2007, the Company acquired all of the outstanding stock of Spawmet Sp. z o.o. (“Spawmet”), a privately held manufacturer of welding consumables headquartered near Katowice, Poland, for approximately $5,000 in cash. This acquisition provided the Company with a portfolio of stick electrode products and broadened its distributor network in Poland and Eastern Europe. Annual sales at the time of the acquisition were approximately $5,000.

Acquired companies are included in the Company’s consolidated financial statements as of the date of acquisition.

The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the public and/or private bondlong-term debt market, as well as the syndicated bank loan market. The Company’sCompany's financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the U.S., and then lends funds to the specific subsidiary that

23


requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.

The Company's debt levels decreased from $103,378 at December 31, 2011 to $20,275 at December 31, 2012. Debt to total invested capital

decreased to 1.5% at December 31, 2012 from 8.0% at December 31, 2011. The decrease was predominantly due to the repayment of the Company's $80,000 senior unsecured note on March 12, 2012.

The Company paid $73,112 in cash dividends to its shareholders in the year ended December 31, 2012.
The Company has a share repurchase program for up to 30 million shares of the Company's common stock. At management's discretion, the Company repurchases its common stock from time to time in the open market, depending on market conditions, stock price and other factors. During the year ended December 31, 2012, the Company purchased 1,779,384 shares at a cost of $80,178. As of December 31, 2012, 3,342,373 shares remained available for repurchase under the stock repurchase program.
The Company made voluntary contributions to its U.S. defined benefit plans of $60,277, $30,000 and $41,500 in 2012, 2011 and 2010, respectively. The Company expects to voluntarily contribute approximately $103,000 to its U.S. plans in 2013. Based on current pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2013.
As discussed in Note 12 to the consolidated financial statements, in July 2012, the Company received a Notice of Reassessment from the CRA for 2004 to 2011, which would disallow the deductibility of inter-company dividends. These adjustments would increase Canadian federal and provincial tax due by $62,120 plus approximately $17,156 of interest, net of tax. The Company disagrees with the position taken by the CRA and believes it is without merit. The Company will vigorously contest the assessment through the Tax Court of Canada. A trial date has not yet been scheduled. In connection with the litigation process, the Company is required to deposit no less than one half of the tax and interest assessed by the CRA. The Company has elected to deposit the entire amount of the dispute in order to suspend the continuing accrual of a 5% interest charge. Additionally, deposited amounts will earn interest of approximately 1% due upon a favorable outcome. A deposit was made and is recorded as a non-current asset as of December 31, 2012. Although the Company believes it will prevail on the merits of the tax position, the ultimate outcome of the assessment remains uncertain.
Rationalization and Asset Impairments
In 2012, the Company recorded rationalization and asset impairment net charges of $9,354 for the year ended December 31, 2012 resulting from rationalization activities primarily initiated in 2012. The Company initiated a number of rationalization activities in 2012 to align its business to current market conditions. The 2012 net charges include $7,512 primarily related to employee severance and other related costs, partially offset by gains from sales of assets at rationalized operations and $1,842 in asset impairment charges.
In 2011, the Company recorded rationalization and asset impairment net charges of $282 for the year ended December 31, 2011 resulting from rationalization activities primarily initiated in the third and second quarters of 2009. The Company initiated a number of rationalization activities in 2009 to align its business to current market conditions. The 2011 net charges include $259 primarily related to employee severance and other related costs and $23 in asset impairment charges.
In 2010, the Company recorded rationalization and asset impairment net gains of $384 resulting from rationalization activities primarily initiated in the third and second quarters of 2009. The 2010 net gains include $4,555 primarily related to asset disposals offset by charges of $2,417 primarily related to employee severance and other related costs, $871 related to environmental costs associated with the sale of property and $883 in asset impairment charges.
Fair values of impaired assets were determined using projected discounted cash flows.
Acquisitions
On December 31, 2012, the Company completed the acquisition of the privately-held automated systems and tooling manufacturer, Tennessee Rand, Inc. ("Tenn Rand"). Tenn Rand, based in Chattanooga, Tennessee, is a leader in the design and manufacture of tooling and robotic systems for welding applications. The acquisition added tool design, system building and machining capabilities that will enable the Company to further expand its welding automation business. Annual sales for Tenn Rand at the date of acquisition were approximately $35,000.
On November 13, 2012, the Company completed the acquisition of Kaliburn from ITT Corporation. Kaliburn, headquartered in Ladson, South Carolina, is a designer and manufacturer of shape cutting solutions, producer of shape cutting control systems and manufacturer of web tension transducers and engineered machine systems. The acquisition added to the Company's cutting business portfolio. Annual sales for Kaliburn as of the date of acquisition were approximately $36,000.
On May 17, 2012, the Company completed the acquisition of Wayne Trail. Wayne Trail, based in Ft. Loramie, Ohio, is a manufacturer of automated systems and tooling, serving a wide range of applications in the metal processing market.  The

24


acquisition added to the Company’s welding and automated solutions portfolio.  Annual sales for Wayne Trail at the date of acquisition were approximately $50,000.
On March 6, 2012, the Company completed the acquisition of Weartech. Weartech, based in Anaheim, California, is a producer of cobalt-based hard facing and wear-resistant welding consumables.  The acquisition added to the Company’s consumables portfolio.  Sales for Weartech during 2011 were approximately $40,000.
The Company acquired Tenn Rand, Kaliburn, Wayne Trail and Weartech for approximately $143,504 in cash, net of cash acquired, and assumed debt. The fair value of net assets acquired was $75,764, resulting in goodwill of $67,740. Some of the purchase price allocations are preliminary and subject to final opening balance sheet adjustments.
On July 29, 2011, the Company acquired substantially all of the assets of Techalloy. Techalloy, based in Baltimore, Maryland, was a privately-held manufacturer of nickel alloy and stainless steel welding consumables. The acquisition added to the Company's consumables portfolio. Annual sales for Techalloy at the date of acquisition were approximately $70,000.
On July 29, 2011, the Company acquired substantially all of the assets of Torchmate. Torchmate, based in Reno, Nevada, provides a wide selection of computer numeric controlled plasma cutter and oxy-fuel cutting systems. The acquisition added to the Company's plasma and oxy-fuel cutting product offering. Annual sales for Torchmate at the date of acquisition were approximately $13,000.
On March 11, 2011, the Company completed the acquisition of Severstal. Severstal is a leading manufacturer of welding consumables in Russia and was a subsidiary of OAO Severstal, one of the world's leading vertically integrated steel and mining companies. This acquisition expanded the Company's capacity and distribution channels in Russia and the Commonwealth of Independent States ("CIS"). Sales for Severstal during 2010 were approximately $40,000.
On January 31, 2011, the Company acquired substantially all of the assets of Arc Products. Arc Products was a privately-held manufacturer of orbital welding systems and welding automation components based in Southern California. Orbital welding systems are designed to automatically weld pipe and tube in difficult to access locations and for mission-critical applications requiring high weld integrity and sophisticated quality monitoring capabilities. The acquisition will complement the Company's ability to serve global customers in the nuclear, power generation and process industries worldwide. Sales for Arc Products during 2010 were not significant.
The Company acquired Techalloy, Torchmate, Severstal and Arc Products for approximately $65,321 in cash and assumed debt and a contingent consideration liability fair valued at $3,806. The contingent consideration is based upon estimated sales at the related acquisition for the five-year period ending December 31, 2015 and will be paid in 2016 based on actual sales during the five-year period. The fair value of net assets acquired was $46,837, resulting in goodwill of $22,290.
On October 29, 2010, the Company acquired all of the outstanding stock of MGM, a privately-held welding wire manufacturer based in the Orel region of Russia, for approximately $28,500 in cash and assumed debt. This acquisition represented the Company's first manufacturing operation in Russia as well as established distribution channels to serve the growing Russian and CIS welding markets. Annual sales for MGM at the date of acquisition were approximately $30,000.
Pro forma information related to these acquisitions has not been presented because the impact on the Company's Consolidated Statements of Income is not material. Acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.
Debt
During March 2002, the Company issued Senior Unsecured Notes (the “Notes”"Notes") totaling $150,000 through a private placement. The Notes have$150,000 with original maturities ranging from five to ten years withand a weighted-average interest rate of 6.1% and an average tenure of eight years. Interest is payable semi-annually in March and September.. The proceeds are beingwere used for general corporate purposes, including acquisitions, and arewere generally invested in short-term, highly liquid investments. The Notes contain certain affirmative and negative covenants, including restrictions on asset dispositions and financial covenants (interest coverage and funded debt-to-EBITDA, as defined in the Notes Agreement, ratios). As of December 31, 2009, the Company was in compliance with all of its debt covenants. The Company repaid the $40,000$40,000 Series A Notes andin March 2007, the $30,000$30,000 Series B Notes in March 2007 and March 2009, respectively, reducing the balance outstanding of the Notes to $80,000, which is due March 2012.

During March 2002, the Company entered into floating rate interest rate swap agreements totaling $80,000 to convert a portion of the Notes outstanding from fixed to floating rates. These swaps were designated as fair value hedges and, as such, the gains or losses on the derivative instrument, as well as the offsetting gains or losses on the hedged item attributable to the hedged risk, were recognized in earnings. Net payments or receipts under these agreements were recognized as adjustments to “Interest expense.” In May 2003, these swap agreements were terminated. The gain of $10,613 on the termination of these swaps was deferred and is being amortized as an offset to “Interest expense” over the remaining life of the Notes. The amortization of this gain reduced “Interest expense” by $313 in 2009, $958 in 2008 and $1,121 in 2007, and is expected to reduce annual “Interest expense” by $206 in 2010. At December 31, 2009, $442 remains to be amortized and is recorded in “Long-term debt, less current portion.”

During July 2003 and April 2004, the Company entered into various floating rate interest rate swap agreements totaling $110,000 to convert a portion of the Notes outstanding from fixed to floating rates based on the London Inter-Bank Offered Rate (“LIBOR”). These swaps were designated and qualified as fair value hedges and, as such, the gains or losses on the derivative instrument, as well as the offsetting gains or losses on the hedged item, were recognized in earnings. Net payments or receipts under these agreements were recognized as adjustments to “Interest expense.”

During February 2009, the Company terminated swaps with a notional value of $80,000 and realized a gain of $5,079. This gain was deferred and is being amortized over the remaining life of the Notes. The amortization of

24

this gain reduced “Interest expense” by $1,429 in 2009 and is expected to reduce annual “Interest expense” by $1,661the $80,000 Series C Notes in 2010. At December 31, 2009, $3,650 remains to be amortized and is included in “Long-term debt, less current portion.”

During March 2009, swaps designated as fair value hedges that converted the $30,000 Series B Notes from fixed to floating interest rates matured with the underlying Notes. 2012.

The Company has no interest rate swaps outstanding at December 31, 2009. The weighted average effective rate on the Notes, net of the impact of swaps, was 4.1% and 4.6% for 2009 and 2008, respectively.

2012.

At December 31, 20092012 and 2008,2011, the fair value of long termlong-term debt, including the current portion, was approximately $91,365$1,919 and $124,446,$84,110, respectively, which was determined using available market information and methodologies requiring judgment. Since considerable judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.

Revolving Credit Agreement

On November 18, 2009, the

The Company entered into anhas a line of credit totaling $300,000 through the Amended and Restated Credit Agreement (“Credit(the “Credit Agreement”) for a $150,000 revolving credit facility to be used for general corporate purposes. This Credit Agreement amended and restated the Company’s $175,000 revolving credit agreement that, which was entered into on July 26, 2012.  The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to

25


liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio.  As of December 17, 200431, 2012, the Company was in compliance with all of its covenants and had a maturity date in December 2009.no outstanding borrowings under the Credit Agreement.  The Credit Agreement has a three-yearfive-year term and may be increased, subject to certain conditions, by an additional amount up to $75,000 at any time not later than 180 days prior to the last day of the term.$100,000.  The interest rate on borrowings is based on either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. A quarterly facility fee is payable based upon the daily aggregate amount of commitments and the Company’s leverage ratio.

The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of December 31, 2009, there were no borrowings under the Credit Agreement.

Short-term Borrowings

The Company’sCompany's short-term borrowings included in “Amounts"Amounts due banks”banks" were $34,577$18,220 and $19,436$19,922 at December 31, 20092012 and 2008,2011, respectively, and represent the borrowings of foreign subsidiaries at weighted average interest rates of 8.35%11.3% and 22.78%11.6%, respectively. The decrease in the weighted average interest rate in 2009 is primarily due to the low interest rate short-term borrowings at Jin Tai offsetting higher interest rate borrowings at the Company’s subsidiary in Venezuela. The higher weighted average interest rate in 2008 was due to borrowings at the Company’s subsidiary in Venezuela.

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Contractual Obligations and Commercial Commitments

The Company’sCompany's contractual obligations and commercial commitments as of December 31, 20092012 are as follows:
  Payments Due By Period
  Total 2013 2014 to
2015		 2016 to
2017		 2018 and
Beyond
Long-term debt, including current portion $1,788
 $366
 $622
 $188
 $612
Interest on long-term debt 160
 38
 49
 30
 43
Capital lease obligations 267
 93
 95
 79
 —
Short-term debt 18,220
 18,220
 —
 —
 —
Interest on short-term debt 844
 844
 —
 —
 —
Operating leases 46,219
 12,624
 16,257
 10,256
 7,082
Purchase commitments(1)
 155,480
 154,823
 482
 158
 17
Total $222,978
 $187,008
 $17,505
 $10,711
 $7,754

   Payments Due By Period
   Total  2010  2011 to
2012		  2013 to
2014		  2015 and
Beyond

Long-term debt

  $82,209  $326  $80,457  $303  $1,123

Interest on long-term debt

   13,209   5,235   7,828   53   93

Capital lease obligations

   2,839   964   1,652   83   140

Short-term debt

   34,577   34,577   —   —   —

Interest on short-term debt

   904   904   —   —   —

Operating leases

   34,709   9,923   12,559   4,995   7,232
                    

Total contractual cash obligations

  $168,447  $51,929  $102,496  $5,434  $8,588
                    

(1)Purchase commitments include contractual obligations for raw materials and services.
As of December 31, 2009,2012, there were $42,840was $25,255 of tax liabilities related to unrecognized tax benefits. Because of the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities, the Company is unable to estimate the years in which settlement will occur with the respective taxing authorities. See Note 912 to the Company’s Consolidated Financial StatementsCompany's consolidated financial statements for further discussion.

The Company expects to voluntarily contribute $30,000approximately $103,000 to the U.S. pension plans in 2010.

2013.

Stock-Based Compensation

On April 28, 2006, the shareholders of the Company approved the 2006 Equity and Performance Incentive Plan, as amended (“("EPI Plan”Plan"), which replaced the 1998 Stock Plan, as amended and restated in May 2003. The EPI Plan provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an additional 3,000,0006,000,000 of the Company’sCompany's common shares. In addition, on April 28, 2006, the shareholders of the Company approved the 2006 Stock Plan for Non-Employee Directors, as amended (“("Director Plan”Plan"), which replaced the Stock Option Plan for Non-Employee Directors adopted in 2000. The Director Plan provides for the granting of options, restricted shares and restricted stock units up to an additional 300,000600,000 of the Company’sCompany's common shares.

At December 31, 2012, there were 2,517,228 common shares available for future grant under all plans.

Under these plans, options, restricted shares and restricted sharesstock units granted were 386,305567,023 in 2009, 316,2642012, 648,561 in 20082011 and 268,854603,874 in 2007.2010. The Company issued shares of common stock from treasury upon all exercises of stock options and the granting of restricted stock awards in 2009, 20082012, 2011 and 2007.

2010.

Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares or restricted stock units ultimately forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the consolidated statementsConsolidated Statements of incomeIncome for 2009, 20082012, 2011 and 20072010 was $5,432, $4,738$8,961, $6,610 and $4,679,$8,213, respectively. The related tax benefit for 2009, 20082012, 2011 and 20072010 was $2,058, $1,793$3,409, $2,515 and $1,789,$3,112, respectively. As of December 31, 2009,2012, total unrecognized stock-based compensation expense related to nonvestednon-vested stock options, restricted shares and restricted sharesstock units was $13,508,$23,718, which is expected to be recognized over a weighted average period of approximately 39 months.

37 months.


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The aggregate intrinsic value of awardsoptions outstanding at December 31, 2009, based on the Company’s closing stock price of $53.46 as of the last business day of the year ended December 31, 2009,and exercisable which would have been received by the optionees had all options been exercised on that date was $32,367. The aggregate intrinsic value of awards exercisable at December 31, 2009, based on the Company’s closing stock price of $53.46 as of the last business day of the year ended December 31, 2009, which would have been received by the optionees had all

26

awards been exercised on that dateat December 31, 2012, was $19,385.$54,178 and $47,464, respectively. The total intrinsic value of awards exercised during 20092012, 2011 and 20082010 was $2,236$18,776, $10,028 and $10,366,$4,270 respectively. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the awards.

Product Liability Expense

Costs

Product liability expensescosts have historically been significant particularly with respect to welding fume claims. Costs incurred are volatile and are largely related to trial activity. The costs associated with these claims are predominantly defense costs which are recognized in the periods incurred. Product liability costs decreased $5,412$2,922 in 20092012 compared with 20082011 primarily due to an insurance settlement. See Note 12 to the Company’s Consolidated Financial Statements for further discussion.

reduced trial activity.

The long-term impact of the welding fume loss contingency, in the aggregate, on operating results, operating cash flows and access to capital markets is difficult to assess, particularly since claims are in many different stages of development and the Company benefits significantly from cost sharing with co-defendants and insurance carriers. Moreover, the Company has been largely successful to date in its defense of these claims and indemnity payments have been immaterial. If cost sharing dissipates for some currently unforeseen reason, or the Company’s trial experience changes overall, it is possible on a longer term basis that the cost of resolving this loss contingency could materially reduce the Company’s operating results, cash flows and restrict capital market access.

claims.

Off-Balance Sheet Financial Instruments

Arrangements

The Company utilizes letters of credit to back certain payment and performance obligations. Letters of credit are subject to limits based on amounts outstanding under the Company’sCompany's Credit Agreement. The Company has also provided a guarantee on loans for an unconsolidated joint venture of approximately $1,381 at December 31, 2009. The Company believes the likelihood is remote that any payment will be required under this arrangement because of the current financial condition of the joint venture. See Note 12 to the Company’s Consolidated Financial Statements for further discussion.

New Accounting Pronouncements

New Accounting Standards to be Adopted:

In June 2009,February 2013, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Codification (“ASC”Update ("ASU") topic 105 (formerly StatementNo. 2013-02, “Comprehensive Income (Topic 220): Reporting of Financial Accounting Standards (“SFAS”) 168,“The FASB Accounting Standards Codification andAmounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to provide information about the Hierarchyamounts reclassified out of Generally Accepted Accounting Principles”).ASC 105 established the FASB Accounting Standards Codification as the source of authoritative accounting principles recognizedaccumulated other comprehensive income by the FASBcomponent. In addition, an entity is required to be applied by entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”). This pronouncement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted this pronouncement in 2009. Adoption did not have a significant impactpresent, either on the Company’s financial statements.

In May 2009,face of the FASB issued ASC 855 (formerly SFAS 165, “Subsequent Events”). ASC 855 established general standards of accounting for disclosure of events that occur after the balance sheet date but before financial statements are issuedstatement where net income is presented or are available to be issued. In particular, ASC 855 sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 was adopted in 2009 and did not have a significant impact on the Company’s financial statements.

In December 2008, the FASB issued ASC 715 (formerly FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”). ASC 715 requires disclosure about an entity’s investment policies and

27

strategies, the categories of plan assets, concentrations of credit risk and fair value measurements of plan assets. The standard, effective for fiscal years ending after December 15, 2009, resulted in increased disclosures in the notes, tosignificant amounts reclassified out of accumulated other comprehensive income by the Company’s financial statements related torespective line items of net income but only if the assets of the Company’s defined benefit pension plans.

In November 2008, the FASB issued ASC 323-10 (formerly Emerging Issues Task Force (“EITF’) Issue 08-6, “Equity Method Investment Accounting Considerations”). ASC 323-10 addresses the impact that ASC 805 (formerly SFAS 141(R)), and ASC 810 (formerly SFAS 160), might have on the accounting for equity method investments including how the initial carrying value of an equity method investment should be determined, how it should be tested for impairment and how changes in classification from equity method to cost method should be treated. ASC 323-10amount reclassified is required under U.S. GAAP to be implemented prospectively and is effective for fiscal years beginning after December 15, 2008. The adoption of ASC 323-10 did not have a significant impact on the Company’s financial statements.

In June 2008, the FASB issued ASC 260-10 (formerly FSP EITF 03-6-1, “Determining Whether Instruments Grantedreclassified to net income in Share-Based Payment Transactions Are Participating Securities”). ASC 260-10 determined that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be includedits entirety in the two-class method of computing earnings per share. This standard did not have a significant impact on the Company’s disclosure of earnings per share.

In April 2008, the FASB issued ASC 275-10 and ASC 350-30 (formerly FSP 142-3, “Determination of the Useful Life of Intangible Assets”). These standards amend the factorssame reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under U.S. GAAP that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350 (formerly SFAS 142, “Goodwill and Other Intangible Assets”). ASC 275-10 and ASC 350-30provide additional detail about those amounts. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. ASC 275-10 and ASC 350-30 apply prospectively to intangible assets acquired after adoption. The adoption of ASC 275-10 and ASC 350-30 did not have a significant impact on the Company’s financial statements.

In March 2008, the FASB issued ASC 815 (formerly SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”). ASC 815 requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. ASC 815 is effective for fiscal years beginning after November 15, 2008 with early adoption permitted. The Company adopted these provisions as of January 1, 2009. See Note 10 for the Company’s disclosures pursuant to adoption.

In December 2007, the FASB issued ASC 810 (formerly SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements”). ASC 810 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. ASC 810 changes the way the consolidated statement of income is presented thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest. This pronouncement is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. The Company adopted these provisions as of January 1, 2009, applying the presentation and disclosure requirements retrospectively resulting in reclassification of noncontrolling interests from “Other non-current liabilities” to “Total equity.” Income attributable to noncontrolling interests is included in “Selling, general and administrative expenses” in the Consolidated Statements of Income and is not material to the Company. Therefore, the Company did not present income attributable to non-controlling interests separately in the Consolidated Statements of Income.

In December 2007, the FASB issued ASC 805 (formerly SFAS 141 (revised 2007), “Business Combinations” which replaced SFAS 141, “Business Combinations”). ASC 805 retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes

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the acquisition date as the date that the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date measured at their fair values as of that date with limited exceptions specified in the statement. ASC 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

New Accounting Standards to be Adopted:

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06,“Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements.”ASU 2010-06 amends ASC 820-10-50 to require additional information to be disclosed principally with respect to Level 3 fair value measurements and transfers to and from Level 1 and Level 2 measurements; in addition, enhanced disclosure is required concerning inputs and valuation techniques used to determine Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures, as required by ASU 2010-06, are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Earlier application is permitted. ASU No. 2010-06 is not expected to have a significant impact on the Company’s financial statements.

In December 2009, the FASB issued ASU No. 2009-17,“Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities an Amendment of the FASB Accounting Standards Codification.”In June 2009, the FASB issued ASC 810 (formerly SFAS 167,“Amendments to FASB Interpretation No. 46(R)”). The objective of ASC 810 is to amend certain requirements of FASB Interpretation 46 (R) (revised December 2003), “Consolidation of Variable Interest Entities,”to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ASC 810 will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. ASU No. 2009-17 is not expected to have a significant impact on the Company’s financial statements.

In December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets an Amendment of the FASB Accounting Standards Codification.”In June 2009, the FASB issued ASC 860,“Transfers and Servicing,” (formerly SFAS 166,“Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140”). The objective of ASC 860 is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets. ASC 860 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. ASU No. 2009-16 must be applied to transfers occurring on or after the effective date. ASU No. 2009-16 is not expected to have a significant impact on the Company’s financial statements.

In October 2009, the FASB issued ASU No. 2009-13,“Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force.” This update provides amendments to the criteria in Subtopic ASC 605-25. ASU No. 2009-13 provides principles for allocating consideration among multiple-elements and accounting for separate deliverables under an arrangement. ASC 605-25, as amended, introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis and early application is permitted.2012. The Company is currently evaluating the impact of the adoption of ASU 2013-02 on the Company's financial statements.

In July 2012, the FASB issued ASU No. 2009-13, but does2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 permits an entity first to assess qualitative factors to determine whether it is more likely than not expectthat an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. In accordance with this update, an entity will have a significantan option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company is currently evaluating the impact of the adoption of ASU 2012-02 on the Company’sCompany's financial statements.

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In December 2011, the FASB issued ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." ASU 2011-11 requires an entity to disclose information about financial instruments and derivative instruments that are subject to offsetting, master netting or other similar arrangements, to illustrate the effect or potential effect of those arrangements on the Company's financial position. In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which clarifies the scope of ASU 2011-11. The amendments are effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The amendments should be applied retrospectively for all prior periods presented. The Company is currently evaluating the impact of the adoption of ASU 2011-11 on the Company's financial statements.
Critical Accounting Policies

The Company’sCompany's consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make estimates and assumptions. These estimates and assumptions are reviewed periodically by management and compared to historical trends to determine the accuracy of estimates and assumptions used. If warranted, these estimates and assumptions may be changed as current trends are assessed and updated. Historically, the Company’sCompany's estimates have been determined to be reasonable. No material changes to the Company’sCompany's accounting policies were made during 2009.2012. The Company believes the following are some of the more critical judgment areas in the application of its accounting policies that affect its financial condition and results of operations.


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Legal and Tax Contingencies

The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims and health, safety and environmental claims, some of which relate to cases alleging asbestos and manganese-inducedinduced illnesses. The costs associated with these claims are predominantly defense costs, which are recognized in the periods incurred. Insurance reimbursements mitigate these costs and, where reimbursements are probable, they are recognized in the applicable period. With respect to costs other than defense costs (i.e., for liability and/or settlement or other resolution), reserves are recorded when it is probable that the contingencies will have an unfavorable outcome. The Company accrues its best estimate of the probable costs, after a review of the facts with management and counsel and taking into account past experience. If an unfavorable outcome is determined to be reasonably possible but not probable, or if the amount of loss cannot be reasonably estimated, disclosure is provided for material claims or litigation. Many of the current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate disposition of such actions, will varyvaries greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise to increases to such reserves. See Note 12 to the Company’s Consolidated Financial Statements and the Legal Proceedings section of this Annual Report on Form 10-K for further discussion of legal contingencies.

The Company is subject to taxation from U.S. federal, state, municipal and international jurisdictions. The calculation of current income tax expense is based on the best information available and involves significant management judgment. The actual income tax liability for each jurisdiction in any year can in some instances be ultimately determined several years after the financial statements are published.

The Company maintains reserves for estimated income tax exposures for many jurisdictions. Exposures are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Exposures can also be affected by changes in applicable tax law or other factors, which may cause management to believe a revision of past estimates is appropriate. Management believes that an appropriate liability has been established for income tax exposures; however, actual results may materially differ from these estimates.

See Note 12 to the Company's consolidated financial statements and "Item 3. Legal Proceedings" section of this Annual Report on Form 10-K for further discussion of tax contingencies.

Translation of Foreign Currencies
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the dates of the Consolidated Balance Sheets; revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are reflected as a component of Total equity. For subsidiaries operating in highly inflationary economies, both historical and current exchange rates are used in translating balance sheet accounts, and translation adjustments are included in Net income.
Foreign currency transaction losses are included in "Selling, general & administrative expenses" and were $4,608, $4,904 and $118 in 2012, 2011 and 2010, respectively.
Venezuela – Highly Inflationary Economy
Venezuela is a highly inflationary economy under U.S. GAAP. As a result, the financial statements of the Company's Venezuelan operation are reported under highly inflationary accounting rules as of January 1, 2010. Under highly inflationary accounting, the financial statements of the Company's Venezuelan operation have been remeasured into the Company's reporting currency and exchange gains and losses from the re-measurement of monetary assets and liabilities are reflected in current earnings. In remeasuring the financial statements, the official exchange rate for non-essential goods of 4.3 (the "Non-Essential Rate") is used as this is the rate expected to be applicable to dividend repatriations.
Future impacts to earnings of applying highly inflationary accounting for Venezuela on the Company's consolidated financial statements will be dependent upon movements in the applicable exchange rates between the bolivar and the U.S. dollar and the amount of monetary assets and liabilities included in the Company's Venezuelan operation's balance sheet. The bolivar-denominated monetary net asset position was $31,545 at December 31, 2012 and $6,826 at December 31, 2011. The increased exposure was due to the limited opportunities to convert bolivars into U.S. dollars.
The Company's ability to effectively manage sales and profit levels in Venezuela will be impacted by several factors. These include, but are not limited to, the Company's ability to mitigate the effect of any potential devaluation and Venezuelan government price exchange controls. If in the future the Company were to convert bolivars at a rate other than the official exchange rate or the official exchange rate is revised, the Company may realize a loss to earnings.
In 2010, the Company participated in Venezuelan sovereign debt offerings as a means of converting bolivars to U.S. dollars. The conversion of bolivars to U.S. dollars through Venezuelan sovereign debt offerings generated foreign currency transaction losses as the debt was purchased at the Non-Essential Rate and subsequently sold at a discount. During 2010, the Company acquired $7,672 of Venezuelan sovereign debt at the Non-Essential Rate, which was immediately sold at a discount for $6,022.

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The sale of the Venezuelan sovereign debt resulted in a loss of $1,650 recognized in Selling, general & administrative expenses. In 2012 and 2011, the Company was not successful in utilizing this vehicle as a means of converting bolivars to U.S. dollars.
The devaluation of the bolivar and the change to the U.S. dollar as the functional currency resulted in a foreign currency transaction gain of $2,632 in "Selling, general & administrative expenses" and higher "Cost of goods sold" of $5,755 due to the liquidation of inventory valued at the historical exchange rate for the year ended December 31, 2010.
On February 8, 2013, the Venezuelan government announced the devaluation of its currency relative to the U.S. dollar. The Non-Essential Rate moved from 4.3 to 6.3 bolivars to one U.S. dollar. The devaluation of the bolivar is expected to result in a foreign currency transaction charge of approximately $8,500 in Selling, general & administrative expenses. This charge will be recognized during the first quarter of 2013. The impact of selling inventories carried at the previous exchange rate is expected to decrease gross profit by approximately $4,000 in 2013. These charges will be recognized during the first half of 2013. The Company also expects that its Venezuelan subsidiary's results of operations will decrease significantly in 2013 due to the new exchange rate.
Deferred Income Taxes

Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting and income tax bases of assets and liabilities and operating loss and tax credit carryforwards.carry-forwards. The Company does not provide deferred income taxes on unremitted earnings of certain non-U.S. subsidiaries, which are deemed permanently reinvested. It is not practicable to calculate the deferred taxes associated with the remittance of these earnings. Deferred income taxes of $283 have been provided onassociated with earnings of $1,831$3,776 that are not expected to be permanently reinvested.reinvested were not significant. At December 31, 2009,2012, the Company had approximately $141,730$170,175 of gross deferred tax assets related to deductible temporary differences and tax loss and credit carryforwardscarry-forwards which may reduce taxable income in future years.

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In assessing the realizability of deferred tax assets, the Company assesses whether it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At December 31, 2009,2012, a valuation allowance of $34,095$38,799 was recorded against these deferred tax assets based on this assessment. The Company believes it is more likely than not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable could be increased or reduced in the future if the Company’sCompany's assessment of future taxable income or tax planning strategies changes.

Pensions

The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans.

A substantial portion of the Company’sCompany's pension amounts relates to its defined benefit plan in the United States. The fair value of plan assets is determined at December 31 of each year.

A significant element in determining the Company’sCompany's pension expense is the expected return on plan assets. At the end of each year, the expected return on plan assets is determined based on the weighted average expected return of the various asset classes in the plan’splan's portfolio and the targeted allocation of plan assets. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance. The Company determined this rate to be 8.0%7.7% and 8.2% for its U.S. plans7.9% at December 31, 20092012 and 2008,2011, respectively. The assumed long-term rate of return on assets is applied to the market value of plan assets. This produces the expected return on plan assets included in pension expense. The difference between this expected return and the actual return on plan assets is deferred and amortized over the average remaining service period of active employees expected to receive benefits under the plan. The amortization of the net deferral of past losses will increase future pension expense. During 2009,2012, investment returns in the Company’s U.S. pension plans were 16.3%11.1% compared with a declinereturn of 22.2%4.1% in 2008.2011. A 25 basis point change in the expected return on plan assets would increase or decrease pension expense by approximately $1,500.

$1,800.

Another significant element in determining the Company’sCompany's pension expense is the discount rate for plan liabilities. To develop the discount rate assumption to be used, the Company refers to the yield derived from matching projected pension payments with maturities of a portfolio of available non-callable bonds rated AA- or better. The Company determined this rate to be 5.8% for its U.S. plans3.8% at December 31, 2009.2012 and 4.2% at December 31, 2011. A 12.510 basis point change in the discount rate would increase or decrease pension expense by approximately $1,000.

$1,100.

Pension expense relating to the Company’sCompany's defined benefit plans was $34,774, $4,613$36,258, $26,370 and $6,260$29,123 in 2009, 20082012, 2011 and 2007,2010, respectively. The Company expects 20102013 defined benefit pension expense to decreaseincrease by approximately $2,000$200 to $4,000.

$500.


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The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $417,967 as of December 31, 2012 and $408,000 as of December 31, 2011. The increase is primarily the result of an increase in actuarial losses. Actuarial losses arising during 2012 are primarily attributable to a lower discount rate.
The Company made voluntary contributions to its U.S. defined benefit plans of $45,000, $20,000$60,277, $30,000 and $10,000$41,500 in 2009, 20082012, 2011 and 2007,2010, respectively. The Company expects to voluntarily contribute $30,000$103,000 to its U.S. plans in 2010.2013. Based on current pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2010.

2013.

Inventories

Inventories are valued at the lower of cost or market. Fixed manufacturing overhead costs are allocated to inventory based on normal production capacity and abnormal manufacturing costs are recognized as period costs.

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For most domestic inventories, cost is determined principally by the last-in, first-out (“LIFO”("LIFO") method, and for non-U.S. inventories, cost is determined by the first-in, first-out (“FIFO”("FIFO") method. The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs. Actual year-end costs and inventory levels may differ from interim LIFO inventory valuations. The excess of current cost over LIFO cost amounted to $62,447was $72,173 at December 31, 20092012 and $90,914$78,292 at December 31, 2008. 2011.

The Company reviews the net realizable value of inventory on an on-going basis, with consideration given to deterioration, obsolescence and other factors. If actual market conditions differ from those projected by management, and the Company’sCompany's estimates prove to be inaccurate, write-downs of inventory values and adjustments to costCost of salesgoods sold may be required. Historically, the Company’sCompany's reserves have approximated actual experience.

Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make required payments for products delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’sCompany's reserves have approximated actual experience.

Long-Lived Assets

The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, a loss is recognized to the extent that carrying value exceeds fair value. Fair value is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

Goodwill and Intangibles

The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using the same dates each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment. The fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge is recorded if the carrying value exceeds the fair value. Goodwill is tested by comparing the fair value of each reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is compared to its carrying value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.

Fair values are determined using established business valuation multiples and models developed by the Company whichthat incorporate allocations of certain assets and cash flows among reporting units, estimates of market participant assumptions of future cash flows, future growth rates and the applicable discount rates to value estimated cash flows. Changes in economic and operating conditions impacting these assumptions could result in asset impairments in future periods.

Goodwill allocated to The Harris Products Group reporting unit at December 31, 2009 was $19,824.

The fair value of goodwill for all of the reporting unitCompany's operating business units exceeded its carrying value by 8%at least 10% as of the testing date during the fourth quarter of 2009.2012. Key assumptions in estimating the reporting unit’sunit's fair value include assumed market participant assumptions of revenue growth, operating margins and the rate used to discount future cash flows. Actual revenue growth and operating margins below the assumed market participant assumptions or an increase in the discount rate would have a negative impact on the fair value of the reporting unit that could result in a goodwill impairment charge in a future period.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Stock-Based Compensation
The Company’sCompany utilizes the Black-Scholes option pricing model for estimating fair values of options. The Black-Scholes model requires assumptions regarding the volatility of the Company's stock, the expected life of the stock award and the Company's dividend yield. The Company utilizes historical data in determining these assumptions. An increase or decrease in the assumptions or economic events outside of management's control could have a direct impact on the Black-Scholes model.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary financial market risks include fluctuations in currency exchange rates, commodity prices and interest rates. The Company manages these risks by using derivative financial instruments in accordance with established policies and procedures. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

Included below is a sensitivity analysis based upon a hypothetical 10% weakening or strengthening in the U.S. dollar compared to foreign currency exchange rates at December 31, 2009,2012, a 10% change in commodity prices, and a 100 basis point increase in effective interest rates under the Company’sCompany's current borrowing arrangements. The contractual derivative and borrowing arrangements in effect at December 31, 20092012 were compared to the hypothetical foreign exchange, commodity price, or interest rates in the sensitivity analysis to determine the effect on income before taxes, interest expense, or accumulated other comprehensive loss. The analysis takes into consideration any offset that would result from changes in the value of the hedged asset or liability.

Foreign Currency Exchange Risk

The Company enters into forward foreign exchange contracts principally to hedge the currency fluctuations in transactions denominated in foreign currencies, thereby limiting the Company’sCompany's risk that would otherwise result from changes in exchange rates. At December 31, 2009,2012, the Company hedged certain third partythird-party and intercompanyinter-company purchases and sales. At December 31, 2009,2012, the Company had foreign exchange contracts with a notional value of approximately $3,570.$39,597. At December 31, 2009,2012, a hypothetical 10% weakening of the U.S. dollar would not materially affect the Company’sCompany's financial statements.

Commodity Price Risk

From time to time, the Company uses various hedging arrangements to manage exposures to price risk from commodity purchases. These hedging arrangements have the effect of locking in for specified periods the prices the Company will pay for the volume to which the hedge relates. A hypothetical 10% adverse change in commodity prices on the Company’sCompany's open commodity futures at December 31, 20092012 would not materially affect the Company’sCompany's financial statements.

Interest Rate Risk

As of December 31, 20092012, the Company had no interest rate swaps outstanding.

Additionally, the Company had no outstanding borrowings under the Credit Agreement, therefore an interest rate increase would have no effect on interest expense.

The fair value of the Company’sCompany's Cash and cash equivalents at December 31, 20092012 approximated carrying value. The Company’sCompany's financial instruments are subject to concentrations of credit risk. The Company has minimized this risk by entering into investments with a number of major banks and financial institutions and investing in high-quality instruments. The Company does not expect any counterpartiescounter-parties to fail to meet their obligations.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this Annual Report on Form 10-K following the signature page.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of disclosure controls and procedures, as such

33

term is defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’sCompany's disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.

Management’s


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Management's Report on Internal Control Over Financial Reporting

The Company’sCompany's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company’sCompany's management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 20092012 based on the framework in “Internal"Internal Control —– Integrated Framework”Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’sCompany's evaluation under such framework, management concluded that the Company’sCompany's internal control over financial reporting was effective as of December 31, 2009.

2012.

The effectiveness of the Company’sCompany's internal control over financial reporting as of December 31, 20092012 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

elsewhere in this Annual Report on Form 10-K and is incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’sCompany's internal control over financial reporting that occurred during the fourth quarter of 20092012 that materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.

ITEM 9B.OTHER INFORMATION

ITEM 9B. OTHER INFORMATION
None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company is expected to file its 20102013 proxy statement pursuant to Regulation 14A of the Exchange Act prior to April 30, 2010.

2013.

Except for the information set forth belowwithin Part I, Item 1C section of this Annual Report on Form 10-K concerning our Executive Officers, the information required by this item is incorporated by reference from the 20102013 proxy statement.

ITEM 11. EXECUTIVE OFFICERS OF THE REGISTRANT

Name

Age

Position

John M. Stropki, Jr.

59Chairman of the Board since October 13, 2004; Director since 1998; Chief Executive Officer and President since June 3, 2004; Chief Operating Officer from May 1, 2003 to June 3, 2004; Executive Vice President from 1995 to June 3, 2004 and President North America from 1996 to 2003.

Vincent K. Petrella

49Senior Vice President, Chief Financial Officer and Treasurer since October 7, 2005; Vice President, Chief Financial Officer and Treasurer from February 4, 2004 to October 7, 2005 and Vice President, Corporate Controller from 2001 to 2003.

Frederick G. Stueber

56Senior Vice President, General Counsel and Secretary since 1996.

George D. Blankenship

47Senior Vice President, President Lincoln Electric North America since July 30, 2009; Senior Vice President, Global Engineering from October 7, 2005 to July 30, 2009; Vice President, Global Engineering from May 5, 2005 to October 7, 2005; President, Lincoln Electric North America of The Lincoln Electric Company since July 30, 2009; Senior Vice President; President, Lincoln Cleveland of The Lincoln Electric Company from January 8, 2008 to July 30, 2009; Senior Vice President, U.S. Operations of The Lincoln Electric Company from October 7, 2005 to January 8, 2008; Vice President, Cleveland Operations of The Lincoln Electric Company from June 6, 2005 to October 7, 2005 and Vice President, Engineering and Quality Assurance of The Lincoln Electric Company from 2000 to June 6, 2005.

Gretchen A. Farrell

47Senior Vice President, Human Resources and Compliance since July 30, 2009; Vice President, Human Resources from May 5, 2005 to July 30, 2009 and Vice President, Human Resources of The Lincoln Electric Company since March 5, 2003.

Thomas A. Flohn

49Vice President; President, Lincoln Asia Pacific since January 1, 2005 and Vice President of Sales and Marketing, Lincoln Electric Asia Pacific from May 1, 1999 to December 31, 2004.

David M. LeBlanc

45Senior Vice President, President Lincoln Electric International since July 30, 2009; Vice President; President, Lincoln Electric Europe and Russia from March 10, 2008 to July 30, 2009; Vice President; President Lincoln Electric Europe from September 1, 2005 to March 10, 2008 and Vice President; President, Lincoln Electric Latin America from January 1, 2002 to August 31, 2005.

The Company has been advised that there is no arrangement or understanding among any one of the officers listed and any other persons pursuant to which he or she was elected as an officer. The executive officers serve at the pleasure of the Board of Directors.

COMPENSATION
ITEM 11.
EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the 20102013 proxy statement.

35

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Except for the information set forth below regarding our equity plans, the information required by this item is incorporated by reference from the 2010 proxy statement.

Plan Category

  Number of Securities
to be Issued
Upon Exercise of
Outstanding Options
(a)		  Weighted
Average
Exercise Price of
Outstanding
Options
(b)		  Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a))
(c)

Equity compensation plans:

      

Approved by security holders

  2,016,327  $45.49  3,264,886

Not approved by security holders

  —   —  —
          

Total

  2,016,327  $45.49  3,264,886

For further information on the Company’s equity compensation plans see Note 1 and Note 7 to the Company’s consolidated financial statements included in Item 8.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference from the 20102013 proxy statement.

For further information on the Company's equity compensation plans, see Note 1 and Note 9 to the Company's consolidated financial statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference from the 20102013 proxy statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the 2013 proxy statement.
PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements

The following consolidated financial statements of the Company are included in a separate section of this report following the signature page and certifications:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Consolidated Balance Sheets — – December 31, 20092012 and 2008

2011

Consolidated Statements of Income —– Years ended December 31, 2009, 20082012, 2011 and 2007

2010

Consolidated Statements of Shareholders’ Equity —Comprehensive Income – Years ended December 31, 2009, 20082012, 2011 and 2007

2010

Consolidated Statements of Equity – Years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows —– Years ended December 31, 2009, 20082012, 2011 and 2007

2010

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

The following consolidated financial statement schedule of the Company is included in a separate section of this report
following the signature page:

Schedule II —– Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.

36


33



(a)(3) Exhibits

Exhibit No.

 

Description

3.1 Amended and Restated Articles of Incorporation of Lincoln Electric Holdings, Inc. (filed as Annex BExhibit 3.1 to Form S-48-K of Lincoln Electric Holdings, Inc., Registration No. 333-50435, filed on April 17, 1998,September 27, 2011, SEC file No. 0-1402 and incorporated herein by reference and made a part hereof).
3.2 Amended and Restated Code of Regulations of Lincoln Electric Holdings, Inc. (as Amended on November 3, 2009) (filed as Exhibit 3.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2009, SEC File No. 0-014020-1402 and incorporated herein by reference and made a part hereof).
10.1 
Amended and Restated Credit Agreement, dated November 18, 2009as of July 26, 2012, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Vernon Tool Co.Techalloy, Inc., Ltd.Wayne Trail Technologies, Inc., Lincoln Global, Inc., the financial institutions listed in Annex A thereof,Lenders and KeyBank National Association, as Letter of Credit Issuer and Administrative Agent (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on November 20, 2009,July 31, 2012, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).

10.2Note Purchase Agreement dated March 12, 2002 between Lincoln Electric Holdings, Inc. and The Lincoln Electric Company and the Purchasers listed in Schedule A thereof (filed as Exhibit 10(q) to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended March 31, 2002, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.3Amended and Restated Note Purchase and Private Shelf Agreement between Lincoln Electric Holdings, Inc., The Lincoln Electric Company and The Prudential Insurance Company of America dated as of April 30, 2002 (filed as Exhibit 10(v) to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended June 30, 2002, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.4Amendment No. 1 to the Amended and Restated Note Purchase and Private Shelf Agreement dated as of December 14, 2006 (filed as Exhibit 10(d) to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2006, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.5* 10.2* 1998 Stock Plan (Amended, Restated and Renamed as of May 1, 2003) (filed as Appendix B to the Lincoln Electric Holdings, Inc. proxy statement dated March 31, 2003, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.6* 10.3* Amendment No. 1 to the 1998 Stock Plan (Amended, Restated and Renamed Effective May 1, 2003) dated October 20, 2006 (filed as Exhibit 10.6 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2007, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.7* 10.4* 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 as Exhibit 10(d) to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 1998, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.8* 10.5* Amendment No. 2 to the 1988 Incentive Equity Plan dated October 20, 2006 (filed as Exhibit 10.8 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2007, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.9* Form of Indemnification Agreement (filed as Exhibit A to The Lincoln Electric Company 1987 proxy statement, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).

37

Exhibit No.

Description

10.10* 10.6* Supplemental Executive Retirement Plan (Amended and Restated as of December 31, 2008) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and incorporated herein by reference and made part hereof).
10.11* Deferred Compensation Plan for Executives (Amended and Restated as of January 1, 2004) (filed as Exhibit 10(h) to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2003, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.12* Amendment No. 1 to the Deferred Compensation Plan for Executives (Amended and Restated as of January 1, 2004) (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. on February 1, 2005, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.13* Instrument of Termination of the Deferred Compensation Plan for Executives (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 4, 2006, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.14* 10.7* Deferred Compensation Plan for Certain Retention Agreements and Other Contractual Arrangements (Amended and Restated as of January 1, 2004) (filed as Exhibit 10(i) to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2003, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.15* 10.8* Non-Employee Directors’Directors' Deferred Compensation Plan (Amended and Restated as of December 31, 2008) (filed as Exhibit 10.3 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.9*2005 Deferred Compensation Plan for Executives (Amended and Restated as of August 1, 2011) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on August 4, 2011, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.16* 10.10* 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).
10.17* 10.11* 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).
10.18* 10.12* Form of Severance Agreement (as entered into by the Company and the following executive officers: Messrs. Stropki, Mapes, Petrella, Stueber, LeBlanc and Flohn)Blankenship) (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended June 30, 2009, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.19* 10.13* Stock Option Plan for Non-Employee Directors (filed as Exhibit 10(p) to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended March 31, 2000, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.20* 10.14* Amendment No. 1 to the Stock Option Plan for Non-Employee Directors dated October 20, 2006 (filed as Exhibit 10.26 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2007, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.21* 10.15* Summary of Cash Long-Term Incentive Plan, as amended (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on April 6, 2005, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).

34


10.22* 10.16* Letter Agreement between John M. Stropki, Jr. and Lincoln Electric Holdings, Inc. dated October 12, 2004 (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on October 18, 2004, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.23* 2005 Deferred Compensation Plan for Executives (Amended and Restated as of December 31, 2008) (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).

38

Exhibit No.

Description

10.24*10.17* 2006 Equity and Performance Incentive Plan (Restated as of March 3, 2011) (filed as Appendix BAnnex A to the Lincoln Electric Holdings, Inc. proxy statement dated March 28, 2006,18, 2011, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.25*Amendment No. 1 to the 2006 Equity and Performance Incentive Plan dated October 20, 2006 (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended March 31, 2007, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.26*Amendment No. 2 to the 2006 Equity and Performance Incentive Plan (filed as Exhibit 10.5 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.27*10.18* 2006 Stock Plan for Non-Employee Directors (filed as Appendix C to the Lincoln Electric Holdings, Inc. proxy statement dated March 28, 2006, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.28*10.19* Amendment No. 1 to the 2006 Stock Plan for Non-Employee Directors dated October 20, 2006 (filed as Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended March 31, 2007, SEC file No. 0-1402 and incorporated herein by reference and made a part hereof).
10.29*10.20* Amendment No. 2 to the 2006 Stock Plan for Non-Employee Directors dated July 26, 2007 (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2007, SEC file No. 0-1402 and incorporated herein by reference and made a part hereof).
10.30*10.21* 2007 Management Incentive Compensation Plan (Amended and Restated as of December 31, 2008) (filed as Exhibit 10.4 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.22*Form of Restricted Shares Agreement for Non-Employee Directors (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.23*Form of Restricted Shares Agreement for Executive Officers (filed as Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.24*Form of Stock Option Agreement for Non-Employee Directors (filed as Exhibit 10.3 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.25*Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.4 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.26*Form of Restricted Shares Agreement for Non-Employee Directors (for awards made on or after December 1, 2010) (filed as Exhibit 10.35 to Form 10-K of the Lincoln Electric Holdings, Inc. for the year ended December 31, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.27*Form of Restricted Shares Agreement for Executive Officers (for awards made on or after December 1, 2010) (filed as Exhibit 10.36 to Form 10-K of the Lincoln Electric Holdings, Inc. for the year ended December 31, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.28*Form of Stock Option Agreement for Executive Officers (for awards made on or after December 1, 2010) (filed as Exhibit 10.37 to Form 10-K of the Lincoln Electric Holdings, Inc. for the year ended December 31, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.29*Form of Restricted Stock Unit Agreement for Executive Officers (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. filed on August 4, 2011, SEC File No. 0-1402 and incorporated herein by reference and made a part thereof).
10.30*
Form of Officer Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).

10.31*
Form of Director Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).

21 Subsidiaries of the Registrant.
23 Consent of Independent Registered Public Accounting Firm.
24 Powers of Attorney.
31.1 Certification by the President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification by the Senior Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document


35


101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
*Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(b) of this report.

39




36



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.
By:

/s/ VINCENT K. PETRELLA

 

Vincent K. Petrella

Senior Vice President, Chief Financial
Officer and Treasurer

(principal financial and accounting officer)

February 22, 2010

2013

40


37



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ JOHN M. STROPKI, JR.        

CHRISTOPHER L. MAPES		 

/s/ VINCENT K. PETRELLA

John M. Stropki, Jr., Chairman of the

Board,

Christopher L. Mapes,
President and Chief Executive

Officer (principal

(principal executive officer)

February 22, 2010

2013
 

Vincent K. Petrella,

Senior Vice President, Chief Financial Officer and
Treasurer (principal financial and accounting officer)

February 22, 2010

2013

/s/ JOHN M. STROPKI, JR.

/s/ VINCENT K. PETRELLA

John M. Stropki, Jr.,
Executive Chairman of the Board
February 22, 2013
 
Vincent K. Petrella as
Attorney-in-Fact for
Harold L. Adams, Director
February 22, 2013
 

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as

Attorney-in-Fact for

Harold L. Adams, Director

February 22, 2010

 

Vincent K. Petrella as

Attorney-in-Fact for

David H. Gunning, Director

February 22, 2010

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as
Attorney-in-Fact for
Curtis E. Espeland
February 22, 2013		 
Vincent K. Petrella as
Attorney-in-Fact for
David H. Gunning, Director
February 22, 2013
 

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as

Attorney-in-Fact for

Stephen G. Hanks, Director

February 22, 2010

 

Vincent K. Petrella as

Attorney-in-Fact for

Kathryn Jo Lincoln, Director

February 22, 2010

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as
Attorney-in-Fact for
Stephen G. Hanks, Director
February 22, 2013		 
Vincent K. Petrella as
Attorney-in-Fact for
Robert J. Knoll, Director
February 22, 2013
 

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as

Attorney-in-Fact for

Robert J. Knoll, Director

February 22, 2010

 

Vincent K. Petrella as

Attorney-in-Fact for

Hellene S. Runtagh, Director

February 22, 2010

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as
Attorney-in-Fact for
G. Russell Lincoln, Director
February 22, 2013
 Vincent K. Petrella as
Attorney-in-Fact for
Kathryn Jo Lincoln, Director
February 22, 2013
 

/s/ VINCENT K. PETRELLA

/s/ VINCENT K. PETRELLA

Vincent K. Petrella as

Attorney-in-Fact for

G. Russell Lincoln, Director

February 22, 2010

Vincent K. Petrella as

Attorney-in-Fact for

William E. MacDonald, III, Director

February 22, 2010

2013
Vincent K. Petrella as
Attorney-in-Fact for
Hellene S. Runtagh, Director
February 22, 2013

/s/ VINCENT K. PETRELLA

 

/s/    VINCENT K. PETRELLA        

Vincent K. Petrella as

Attorney-in-Fact for

George H. Walls, Jr., Director

February 22, 2010

2013
 

Vincent K. Petrella as

Attorney-in-Fact for

Christopher L. Mapes, Director

February 22, 2010

41


38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Lincoln Electric Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Lincoln Electric Holdings, Inc. and subsidiaries as of December 31, 20092012 and 2008,2011, and the related consolidated statements of income, shareholders’comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2009.2012. Our audits also included the financial statement schedule listed in the Index as Item 15 (a) (2). These financial statements and schedule are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lincoln Electric Holdings, Inc. and subsidiaries at December 31, 20092012 and 2008,2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009,2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2009 the Company changed its method of accounting for business combinations and noncontrolling interests. Also as discussed in Note 9 to the consolidated financial statements, in 2007 the Company changed its method of accounting for uncertain tax positions.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lincoln Electric Holdings, Inc. and subsidiaries’subsidiaries' internal control over financial reporting as of December 31, 2009,2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 20102013 expressed an unqualified opinion thereon.


/s/ ERNSTErnst & YOUNGYoung LLP

Cleveland, Ohio
February 22, 2010

2013


F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Lincoln Electric Holdings, Inc.

We have audited Lincoln Electric Holdings, Inc. and subsidiaries’subsidiaries' internal control over financial reporting as of December 31, 2009,2012, based on criteria established in Internal Control —– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Lincoln Electric Holdings, Inc. and subsidiaries’subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the company’scompany's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Lincoln Electric Holdings, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2012, based on the COSO criteria.criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lincoln Electric Holdings, Inc. and subsidiaries as of December 31, 20092012 and 2008,2011, and the related consolidated statements of income, shareholders’comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 20092012 of Lincoln Electric Holdings, Inc. and subsidiaries and our report dated February 22, 20102013 expressed an unqualified opinion thereon.


/s/ ERNSTErnst & YOUNGYoung LLP

Cleveland, Ohio
February 22, 2010

2013


F-2



LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

   December 31,
   2009  2008

ASSETS

    

Current Assets

    

Cash and cash equivalents

  $388,136  $284,332

Accounts receivable (less allowance for doubtful accounts of $8,174 in 2009; $7,673 in 2008)

   273,700   299,171

Inventories

    

Raw materials

   69,048   94,112

Work-in-process

   32,727   49,692

Finished goods

   153,968   203,128
        

Total inventory

   255,743   346,932

Deferred income taxes

   23,779   16,725

Other current assets

   82,188   77,566
        

Total Current Assets

   1,023,546   1,024,726

Property, Plant and Equipment

    

Land

   42,823   38,745

Buildings

   291,444   258,736

Machinery and equipment

   683,037   643,056
        
   1,017,304   940,537

Less accumulated depreciation

   557,243   512,635
        

Property, Plant and Equipment, Net

   460,061   427,902

Other Assets

    

Prepaid pensions

   1,921   2,716

Equity investments in affiliates

   22,899   62,358

Intangibles, net

   81,774   65,262

Goodwill

   39,554   36,187

Long-term investments

   29,077   29,843

Deferred income taxes

   26,326   47,397

Other non-current assets

   20,134   22,414
        

Total Other Assets

   221,685   266,177
        

TOTAL ASSETS

  $1,705,292  $1,718,805
        

Dollars in thousands)


  December 31,
  2012 2011
ASSETS    
Current Assets    
Cash and cash equivalents $286,464
 $361,101
Accounts receivable (less allowance for doubtful accounts of $8,654 in
   2012; $7,079 in 2011)
 360,662
 386,197
Inventories    
Raw materials 119,963
 117,194
Work-in-process 41,805
 42,103
Finished goods 203,122
 213,941
Total inventory 364,890
 373,238
Deferred income taxes 16,670
 15,102
Other current assets 104,130
 83,632
Total Current Assets 1,132,816
 1,219,270
Property, Plant and Equipment    
Land 44,510
 42,891
Buildings 343,867
 322,626
Machinery and equipment 732,461
 724,801
  1,120,838
 1,090,318
Less accumulated depreciation 634,602
 619,867
Property, Plant and Equipment, Net 486,236
 470,451
Other Assets    
Equity investments in affiliates 24,606
 24,618
Intangibles, net 132,902
 94,471
Goodwill 132,903
 65,101
Long-term investments 31,187
 30,176
Deferred income taxes 44,639
 57,568
Other non-current assets 104,574
 15,121
Total Other Assets 470,811
 287,055
TOTAL ASSETS $2,089,863
 $1,976,776
See notes to these consolidated financial statements.


F-3



LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share data)

   December 31, 
   2009  2008 

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current Liabilities

   

Amounts due banks

  $34,577   $19,436  

Trade accounts payable

   100,052    124,388  

Accrued employee compensation and benefits

   36,486    47,405  

Accrued expenses

   28,941    25,173  

Accrued taxes, including income taxes

   22,430    13,305  

Accrued pensions

   3,014    3,248  

Dividends payable

   11,885    11,444  

Other current liabilities

   59,296    80,986  

Current portion of long-term debt

   1,290    31,257  
         

Total Current Liabilities

   297,971    356,642  

Long-Term Liabilities

   

Long-term debt, less current portion

   87,850    91,537  

Accrued pensions

   139,670    188,160  

Deferred income taxes

   16,679    8,553  

Accrued taxes

   53,388    40,323  

Other long-term liabilities

   24,059    23,617  
         

Total Long-Term Liabilities

   321,646    352,190  

Shareholders’ Equity

   

Preferred shares, without par value – at stated capital amount; authorized – 5,000,000 shares; issued and outstanding – none

   —    —  

Common shares, without par value – at stated capital amount; authorized –120,000,000 shares; issued – 49,290,717 shares in 2009 and 2008; outstanding –42,637,247 shares in 2009 and 42,521,628 shares in 2008

   4,929    4,929  

Additional paid-in capital

   159,440    155,538  

Retained earnings

   1,239,004    1,236,810  

Accumulated other comprehensive loss

   (149,404)   (218,254) 

Treasury shares, at cost – 6,653,470 shares in 2009 and 6,769,089 shares in 2008

   (181,623)   (183,807) 
         

Total Shareholders’ Equity

   1,072,346    995,216  

Noncontrolling interests

   13,329    14,757  
         

Total Equity

   1,085,675    1,009,973  
         

TOTAL LIABILITIES AND EQUITY

  $1,705,292   $1,718,805  
         

Dollars in thousands)


  December 31,
  2012 2011
LIABILITIES AND EQUITY    
Current Liabilities    
Amounts due banks $18,220
 $19,922
Trade accounts payable 209,647
 176,312
Accrued employee compensation and benefits 68,698
 55,670
Accrued expenses 29,420
 30,243
Accrued taxes, including income taxes 45,505
 21,964
Accrued pensions 3,639
 10,348
Dividends payable —
 14,186
Customer advances 26,335
 15,473
Other current liabilities 38,347
 45,428
Current portion of long-term debt 456
 81,496
Total Current Liabilities 440,267
 471,042
Long-Term Liabilities    
Long-term debt, less current portion 1,599
 1,960
Accrued pensions 216,189
 232,175
Deferred income taxes 8,349
 17,606
Accrued taxes 35,550
 35,693
Other long-term liabilities 29,588
 25,058
Total Long-Term Liabilities 291,275
 312,492
Shareholders' Equity    
Preferred shares, without par value – at stated capital amount;
   authorized – 5,000,000 shares; issued and outstanding – none
 —
 —
Common shares, without par value – at stated capital amount;
   authorized – 240,000,000 shares; issued – 98,581,434 shares in 2012 and 2011;
   outstanding – 82,944,817 shares in 2012 and 83,757,366 shares in 2011
 9,858
 9,858
Additional paid-in capital 205,124
 179,104
Retained earnings 1,682,668
 1,484,393
Accumulated other comprehensive loss (235,400) (247,881)
Treasury shares, at cost – 15,636,617 shares in 2012 and 14,824,068 shares in 2011 (319,877) (248,528)
Total Shareholders' Equity 1,342,373
 1,176,946
Non-controlling interests 15,948
 16,296
Total Equity 1,358,321
 1,193,242
TOTAL LIABILITIES AND EQUITY $2,089,863
 $1,976,776
See notes to these consolidated financial statements.



F-4



LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, of dollars, except per share data)

   Year Ended December 31, 
   2009  2008  2007 

Net sales

  $1,729,285   $2,479,131   $2,280,784  

Cost of goods sold

   1,273,017    1,758,980    1,633,218  
             

Gross profit

   456,268    720,151    647,566  

Selling, general & administrative expenses

   333,395    405,376    370,122  

Rationalization and asset impairment charges (gain)

   29,897    19,371    (188) 
             

Operating income

   92,976    295,404    277,632  

Other (expense) income:

    

Interest income

   3,462    8,845    8,294  

Equity (loss) earnings in affiliates

   (5,025)   6,034    9,838  

Other income

   3,589    1,681    2,823  

Interest expense

   (8,521)   (12,155)   (11,430) 
             

Total other (expense) income

   (6,495)   4,405    9,525  
             

Income before income taxes

   86,481    299,809    287,157  

Income taxes

   37,905    87,523    84,421  
             

Net income

  $48,576   $212,286   $202,736  
             

Basic weighted average shares outstanding

   42,391    42,648    42,899  

Effect of dilutive securities – stock options and awards

   243    406    493  
             

Diluted weighted average shares outstanding

   42,634    43,054    43,392  
             

Basic earnings per share

  $1.15   $4.98   $4.73  
             

Diluted earnings per share

  $1.14   $4.93   $4.67  
             

Cash dividends declared per share

  $1.09   $1.02   $0.91  
             

amounts)

  Year Ended December 31,
  2012 2011 2010
Net sales $2,853,367
 $2,694,609
 $2,070,172
Cost of goods sold 1,986,711
 1,957,872
 1,506,353
Gross profit 866,656
 736,737
 563,819
Selling, general & administrative expenses 495,221
 439,775
 377,773
Rationalization and asset impairment charges (gains) 9,354
 282
 (384)
Operating income 362,081
 296,680
 186,430
Other income (expense):      
Interest income 3,988
 3,121
 2,381
Equity earnings in affiliates 5,007
 5,385
 3,171
Other income 2,685
 2,849
 1,817
Interest expense (4,191) (6,704) (6,691)
Total other income (expense) 7,489
 4,651
 678
Income before income taxes 369,570
 301,331
 187,108
Income taxes 112,354
 84,318
 54,898
Net income including non-controlling interests 257,216
 217,013
 132,210
Non-controlling interests in subsidiaries' (loss) earnings (195) (173) 1,966
Net income $257,411
 $217,186
 $130,244
       
Basic earnings per share $3.10
 $2.60
 $1.54
Diluted earnings per share $3.06
 $2.56
 $1.53
       
Cash dividends declared per share $0.710
 $0.635
 $0.575
See notes to these consolidated financial statements.


F-5



LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

COMPREHENSIVE INCOME

(In thousands, except per share data)

  Common
Shares
Outstanding		  Common
Stock		 Additional
Paid-In
Capital		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income (Loss)		  Treasury
Shares		  Total 

Balance January 1, 2007

 42,806   $4,929 $137,315   $906,074   $(54,568)  $(140,689)  $853,061  

Comprehensive income:

       

Net income

     202,736      202,736  

Unrecognized amounts from defined benefit pension plans, net of tax of $10,371

      17,704     17,704  

Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax of $1,772

      (2,989)    (2,989) 

Currency translation adjustment

      55,779     55,779  

Less comprehensive income attributable to non-controlling interests

      (229)    (229) 
          

Total comprehensive income

        273,001  

Cash dividends declared – $0.91 per share

     (39,120)     (39,120) 

Issuance of shares under benefit plans

 378     8,939      8,673    17,612  

Purchase of shares for treasury

 (222)       (15,459)   (15,459) 

Adjustment to initially adopt FIN 48 (ASC 740)

    (429)   (1,590)     (2,019) 
  

Balance December 31, 2007

 42,962    4,929  145,825    1,068,100    15,697    (147,475)   1,087,076  

Comprehensive income:

       

Net income

     212,286      212,286  

Unrecognized amounts from defined benefit pension plans, net of tax of $84,685

      (142,422)    (142,422) 

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax of $137

      842     842  

Currency translation adjustment

      (92,419)    (92,419) 

Less comprehensive loss attributable to non-controlling interests

      48     48  
          

Total comprehensive loss

        (21,665) 

Cash dividends declared – $1.02 per share

     (43,576)     (43,576) 

Issuance of shares under benefit plans

 301     9,713      6,005    15,718  

Purchase of shares for treasury

 (741)      (42,337)   (42,337) 
  

Balance December 31, 2008

 42,522    4,929  155,538    1,236,810    (218,254)   (183,807)   995,216  

Comprehensive income:

       

Net income

     48,576      48,576  

Unrecognized amounts from defined benefit pension plans, net of tax of $12,242

      21,287     21,287  

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax of $1,477

      1,444     1,444  

Currency translation adjustment

      46,968     46,968  

Less comprehensive income attributable to non-controlling interests

      (849)    (849) 
          

Total comprehensive income

        117,426  

Cash dividends declared – $1.09 per share

     (46,382)     (46,382) 

Issuance of shares under benefit plans

 123     3,902      2,527    6,429  

Purchase of shares for treasury

 (8)       (343)   (343) 
  

Balance December 31, 2009

 42,637  $4,929 $159,440   $1,239,004   $(149,404)  $(181,623)  $1,072,346  

amounts)

  Year Ended December 31,
  2012 2011 2010
Net income including non-controlling interests $257,216
 $217,013
 $132,210
Other comprehensive income, net of tax:      
Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges, net of tax of $(201) in 2012; $264 in 2011; $302 in 2010 (832) 1,264
 292
Defined pension plan activity, net of tax of $3,492 in 2012; $47,413 in 2011; $893 in 2010 (6,475) (79,936) (2,024)
Currency translation adjustment 19,635
 (26,773) 9,874
Other comprehensive income (loss) 12,328
 (105,445) 8,142
Comprehensive income 269,544
 111,568
 140,352
Comprehensive (loss) income attributable to non-controlling interests (348) 315
 2,652
Comprehensive income attributable to shareholders $269,892
 $111,253
 $137,700
See notes to these consolidated financial statements.




F-6



LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

EQUITY

(In thousands, of dollars)

  Year Ended December 31, 
  2009  2008  2007 

CASH FLOWS FROM OPERATING ACTIVITIES

   

Net income

 $48,576   $212,286   $202,736  

Adjustments to reconcile net income to net cash provided by operating activities:

   

Rationalization and asset impairment charges (gain)

  2,940    19,371    (188) 

Depreciation and amortization

  56,598    56,925    52,610  

Equity loss (earnings) of affiliates, net

  8,554    (3,235)   (7,208) 

Deferred income taxes

  (7,090)   7,367    (3,711) 

Stock-based compensation

  5,432    4,738    4,679  

Amortization of terminated interest rate swaps

  (1,742)   (958)   (1,121) 

Amortization of actuarial losses and prior service costs

  25,064    1,706    4,690  

Other non-cash items, net

  2,027    4,758    (5,146) 

Changes in operating assets and liabilities, net of effects from acquisitions:

   

Decrease (increase) in accounts receivable

  60,913    30,130    (20,723) 

Decrease (increase) in inventories

  127,739    (27,845)   36,011  

Decrease (increase) in other current assets

  10,222    (27,450)   2,354  

Decrease in accounts payable

  (30,364)   (26,768)   (3,333) 

(Decrease) increase in other current liabilities

  (22,778)   37,040    (1,798) 

Decrease in accrued pensions

  (39,185)   (25,975)   (9,794) 

Net change in other long-term assets and liabilities

  3,444    (4,641)   (226) 
            

NET CASH PROVIDED BY OPERATING ACTIVITIES

  250,350    257,449    249,832  

CASH FLOWS FROM INVESTING ACTIVITIES

   

Capital expenditures

  (38,201)   (72,426)   (61,633) 

Acquisition of businesses, net of cash acquired

  (25,449)   (44,036)   (18,773) 

Additions to equity investment in affiliates

  (488)   —    —  

Proceeds from sale of property, plant and equipment

  557    662    701  
            

NET CASH USED BY INVESTING ACTIVITIES

  (63,581)   (115,800)   (79,705) 

CASH FLOWS FROM FINANCING ACTIVITIES

   

Proceeds from short-term borrowings

  22,241    19,504    6,550  

Payments on short-term borrowings

  (34,779)   (7,849)   (1,004) 

Amounts due banks, net

  (416)   (5,551)   (2,720) 

Proceeds from long-term borrowings

  531    1,352    —  

Payments on long-term borrowings

  (31,405)   (1,033)   (40,142) 

Proceeds from exercise of stock options

  705    7,201    8,644  

Tax benefit from exercise of stock options

  195    3,728    4,289  

Purchase of shares for treasury

  (343)   (42,337)   (15,459) 

Cash dividends paid to shareholders

  (45,801)   (42,756)   (37,744) 
            

NET CASH USED BY FINANCING ACTIVITIES

  (89,072)   (67,741)   (77,586) 

Effect of exchange rate changes on cash and cash equivalents

  6,107    (6,958)   4,629  
            

INCREASE IN CASH AND CASH EQUIVALENTS

  103,804    66,950    97,170  

Cash and cash equivalents at beginning of year

  284,332    217,382    120,212  
            

CASH AND CASH EQUIVALENTS AT END OF YEAR

 $388,136   $284,332   $217,382  
            

except per share amounts)

 
Common
Shares
Outstanding
 
Common
Shares
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Shares
 
Non-controlling
Interests
 Total
Balance at December 31, 200985,274
 $9,858
 $154,511
 $1,239,004
 $(149,404) $(181,623) $13,329
 $1,085,675
Net income      130,244
     1,966
 132,210
Unrecognized amounts from defined benefit pension plans, net of tax 
  
  
   (2,024)  
   (2,024)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax 
  
  
   292
  
  
 292
Currency translation adjustment 
  
  
   9,188
  
 686
 9,874
Cash dividends declared – $0.575 per
   share
 
  
  
 (48,696)  
  
  
 (48,696)
Issuance of shares under benefit plans374
  
 7,936
  
  
 3,893
  
 11,829
Purchase of shares for treasury(1,406)  
  
  
  
 (39,682)  
 (39,682)
Balance at December 31, 201084,242
 9,858
 162,447
 1,320,552
 (141,948) (217,412) 15,981
 1,149,478
Net income      217,186
     (173) 217,013
Unrecognized amounts from defined benefit pension plans, net of tax 
  
  
   (79,936)  
  
 (79,936)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax 
  
  
   1,264
  
  
 1,264
Currency translation adjustment 
  
  
   (27,261)  
 488
 (26,773)
Cash dividends declared – $0.635 per
   share
 
  
  
 (53,345)  
  
  
 (53,345)
Issuance of shares under benefit plans593
  
 16,657
  
  
 5,881
  
 22,538
Purchase of shares for treasury(1,078)  
  
  
  
 (36,997)  
 (36,997)
Balance at December 31, 201183,757
 9,858
 179,104
 1,484,393
 (247,881) (248,528) 16,296
 1,193,242
Net income      257,411
     (195) 257,216
Unrecognized amounts from defined benefit pension plans, net of tax 
  
  
   (6,475)  
  
 (6,475)
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax 
  
  
   (832)  
  
 (832)
Currency translation adjustment 
  
  
   19,788
  
 (153) 19,635
Cash dividends declared – $0.710 per
   share
 
  
  
 (59,136)  
  
  
 (59,136)
Issuance of shares under benefit plans985
  
 26,020
  
  
 9,669
  
 35,689
Purchase of shares for treasury(1,797)  
  
  
  
 (81,018)  
 (81,018)
Balance at December 31, 201282,945
 $9,858
 $205,124
 $1,682,668
 $(235,400) $(319,877) $15,948
 $1,358,321
See notes to these consolidated financial statements.


F-7



LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
  Year Ended December 31,
  2012 2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income $257,411
 $217,186
 $130,244
Non-controlling interests in subsidiaries' (loss) earnings (195) (173) 1,966
Net income including non-controlling interests 257,216
 217,013
 132,210
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:      
Rationalization and asset impairment charges (gains) 1,740
 23
 (4,391)
Depreciation and amortization 65,334
 62,051
 57,357
Equity loss (earnings) in affiliates, net 160
 (1,971) (600)
Deferred income taxes (2,137) 15,139
 4,387
Stock-based compensation 8,961
 6,610
 8,213
Amortization of terminated interest rate swaps (430) (1,867) (1,867)
Pension expense 35,515
 26,370
 29,123
Pension contributions and payments (69,646) (36,322) (47,205)
Other, net 3,118
 2,858
 (1,491)
Changes in operating assets and liabilities, net of effects from acquisitions:      
Decrease (increase) in accounts receivable 57,759
 (67,518) (47,958)
Decrease (increase) in inventories 28,286
 (51,679) (28,912)
(Increase) decrease in other current assets (9,506) (2,857) 4,956
Increase in accounts payable 16,110
 8,672
 47,323
Increase in other current liabilities 21,887
 20,838
 8,836
Net change in other long-term assets and liabilities (86,883) (3,842) (3,003)
NET CASH PROVIDED BY OPERATING ACTIVITIES 327,484
 193,518
 156,978
CASH FLOWS FROM INVESTING ACTIVITIES      
Capital expenditures (52,715) (65,813) (60,565)
Acquisition of businesses, net of cash acquired (134,602) (66,229) (18,856)
Proceeds from sale of property, plant and equipment 1,387
 1,246
 10,021
Other investing activities (1,541) —
 —
NET CASH USED BY INVESTING ACTIVITIES (187,471) (130,796) (69,400)
CASH FLOWS FROM FINANCING ACTIVITIES      
Proceeds from short-term borrowings 2,518
 23,224
 13,319
Payments on short-term borrowings (4,293) (15,446) (12,896)
Amounts due banks, net (2,758) 1,203
 (19,022)
Proceeds from long-term borrowings 918
 909
 150
Payments on long-term borrowings (85,688) (1,941) (8,730)
Proceeds from exercise of stock options 18,776
 11,351
 3,508
Tax benefit from exercise of stock options 7,819
 2,916
 1,210
Purchase of shares for treasury (81,018) (36,997) (39,682)
Cash dividends paid to shareholders (73,112) (51,935) (47,364)
Other financing activities —
 3,346
 —
NET CASH USED BY FINANCING ACTIVITIES (216,838) (63,370) (109,507)
Effect of exchange rate changes on cash and cash equivalents 2,188
 (4,444) (14)
DECREASE IN CASH AND CASH EQUIVALENTS (74,637) (5,092) (21,943)
Cash and cash equivalents at beginning of year 361,101
 366,193
 388,136
CASH AND CASH EQUIVALENTS AT END OF YEAR $286,464
 $361,101
 $366,193
See notes to these consolidated financial statements.

F-8


LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(InDollars in thousands, of dollars, except share and per share data)

amounts)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Lincoln Electric Holdings, Inc., and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest (the “Company”"Company") after elimination of all intercompanyinter-company accounts, transactions and profits.

Subsequent Events

Cumulative inflation

General Information
The Company is a manufacturer of welding, cutting and brazing products. Welding products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company's product offering also includes CNC plasma and oxy-fuel cutting systems, regulators and torches used in oxy-fuel welding, cutting and brazing and consumables used in the brazing and soldering alloys market.
Translation of Foreign Currencies
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the dates of the Consolidated Balance Sheets; revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are reflected as a component of Total equity. For subsidiaries operating in highly inflationary economies, both historical and current exchange rates are used in translating balance sheet accounts, and translation adjustments are included in Net income.
The translation of assets and liabilities originally denominated in foreign currencies into U.S. dollars is for consolidation purposes, and does not necessarily indicate that the Company could realize or settle the reported value of those assets and liabilities in U.S. dollars. Additionally, such a translation does not necessarily indicate that the Company could return or distribute the reported U.S. dollar value of the net equity of its foreign operations to shareholders.
Foreign currency transaction losses are included in Selling, general & administrative expenses and were $4,608, $4,904 and $118 in 2012, 2011 and 2010, respectively.
Venezuela over the preceding three-year period reached 100% during the fourth quarter of 2009.– Highly Inflationary Economy
Venezuela is a highly inflationary economy under U.S. generally accepted accounting principles ("GAAP"). As a result, the financial statements of the Company's Venezuelan operation are reported under highly inflationary accounting rules as of January 1, 2010. Under highly inflationary accounting, the financial statements of the Company's Venezuelan operation have been remeasured into the Company's reporting currency and exchange gains and losses from the re-measurement of monetary assets and liabilities are reflected in current earnings. In remeasuring the financial statements, the official exchange rate for non-essential goods of 4.3 bolivars to the U.S. dollar (the "Non-Essential Rate") is used as this is the rate expected to be applicable to dividend repatriations.
Future impacts to earnings of applying highly inflationary accounting for Venezuela on the Company's consolidated financial statements will be dependent upon movements in the applicable exchange rates between the bolivar and the U.S. dollar and the amount of monetary assets and liabilities included in the Company's Venezuelan operation's balance sheet. The bolivar-denominated monetary net asset position was $31,545 at December 31, 2012 and $6,826 at December 31, 2011. The increased exposure was due to the limited opportunities to convert bolivars into U.S. dollars.
In 2010, the Company changedparticipated in Venezuelan sovereign debt offerings as a means of converting bolivars to U.S. dollars. The conversion of bolivars to U.S. dollars through Venezuelan sovereign debt offerings generated foreign currency transaction losses as the functional currencydebt was purchased at the Non-Essential Rate and subsequently sold at a discount. During 2010, the Company acquired $7,672 of its Venezuelan subsidiarysovereign debt at the Non-Essential Rate, which was immediately sold at a discount for $6,022. The sale of the Venezuelan sovereign debt resulted in a loss of $1,650 recognized in Selling, general and administrative expenses.
The devaluation of the bolivar and the change to the U.S. dollar as the functional currency resulted in a foreign currency transaction gain of January 1,$2,632 in Selling, general & administrative expenses and higher Cost of goods sold of $5,755 due to the liquidation of inventory valued at the historical exchange rate for the year ended December 31, 2010. During January 2010,
On February 8, 2013, the Venezuelan government announced the devaluation of the official exchange rate used for most foreignits currency transactions common to the Company’s Venezuelan subsidiary from 2.15 to 4.30 Bolivarsrelative to the U.S. dollar.

The Company’s Venezuelan subsidiary’s net Bolivar denominated monetary liability positionNon-Essential Rate moved from 4.3 to 6.3 bolivars to one U.S. dollar. The devaluation of the bolivar is expected to result in a gainforeign currency transaction charge of approximately $2,500$8,500 in Selling, general & administrative expenses. This charge will be recognized during the first quarter of 2010. The Company also expects that its Venezuelan subsidiary’s results of operations will decrease significantly in 2010 due to the new exchange rate.2013. The impact of selling inventories carried at the previous exchange rate is expected


F-9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

to decrease gross profit by approximately $5,000.

Management has evaluated and disclosed all material events occurring subsequent$4,000 in 2013. These charges will be recognized during the first half of 2013. The Company also expects that its Venezuelan subsidiary's results of operations will decrease significantly in 2013 due to the date of the financial statements up to February 22, 2010, the filing date of this Annual Report on Form 10-K.

new exchange rate.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make required payments for products delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’sCompany's reserves have approximated actual experience.

Inventories

Inventories are valued at the lower of cost or market. Fixed manufacturing overhead costs are allocated to inventory based on normal production capacity and abnormal manufacturing costs are recognized as period costs. For most domestic inventories, cost is determined principally by the last-in, first-out (“LIFO”("LIFO") method, and for non-U.S. inventories, cost is determined by the first-in, first-out (“FIFO”("FIFO") method. At December 31, 2009 and 2008, approximately 31% and 35%, respectively, of total inventories were valued using the LIFO method. The excess of current cost over LIFO cost amounted to $62,447 at December 31, 2009 and $90,914 at December 31, 2008. A reduction in inventory levels resulted in a decrease to the LIFO reserve of $14,254.

Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Historically, the Company’sCompany's reserves have approximated actual experience.

F-8

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Equity Investments

Investments in businesses in which the Company does not have a controlling interest and holds between a 20% and 50% ownership interest are accounted for using the equity method of accounting on a one-month lag basis. The Company’s Company's 50% ownership interest in equity investments includes investments in Turkey and Chile. The amount of retained earnings that represents undistributed earnings of 50% or less owned equity investments was $12,619$15,034 at December 31, 20092012 and $26,875$15,190 at December 31, 2008. The decrease from the prior year is due to the acquisition of a business in China in which the Company previously held a non-controlling interest and the related divestiture of a non-controlling interest in Taiwan. See Note 2 for additional information.

2011.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and include improvements which significantly increase capacities or extend the useful lives of existing plant and equipment. Depreciation and amortization are computed using a straight-line method over useful lives ranging from three to 20 years for machinery, tools and equipment, and up to 50 years for buildings. Net gains or losses related to asset dispositions are recognized in earnings in the period in which dispositions occur.

The following table summarizes assets held under capital leases and included in property, plant and equipment:

   December 31, 
   2009  2008 

Buildings

  $6,663   $6,421  

Machinery and equipment

   982    1,561  

Less: accumulated depreciation

   (2,184)   (2,257) 
         

Net capital leases

  $5,461   $5,725  
         

Routine maintenance, repairs and replacements are expensed as incurred. The Company capitalizes interest costcosts associated with long-term construction in progress.

Goodwill and Intangibles

The Company performs an annual impairment test

Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Intangible assets other than goodwill are recorded at fair value at the time acquired or at cost, if applicable. Intangible assets that do not have indefinite lives are amortized in line with the pattern in which the economic benefits of the intangible asset are consumed. If the pattern of economic benefit cannot be reliably determined, the intangible assets are amortized on a straight-line basis over the shorter of the legal or estimated life.
Goodwill and indefinite-lived intangibleintangibles assets are not amortized, but are tested for impairment in the fourth quarter using the same dates each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment. The fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge is recorded if the carrying value exceeds the fair value. Goodwill is tested by comparing the fair value of each reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is compared to its carrying value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.

Fair values are determined using established business valuation multiples and models developed by the Company which incorporate allocations of certain assets and cash flows among reporting units, estimates of market participant assumptions of future cash flows, future growth rates and the applicable discount rates to value estimated cash flows. Changes in economic and operating conditions impacting these assumptions could result in asset impairments in future periods.

In 2009, the Company determined that certain indefinite-lived intangible assets were impaired and recognized an impairment charge of $879 to reduce the carrying value of these intangible assets to fair value and assigned definite lives to two of the intangible assets on a prospective basis.

F-9


F-10

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

In 2008, the Company determined that the carrying value of goodwill at two businesses

(Dollars in China exceeded the implied value of goodwillthousands, except share and the Company recognized an impairment charge of $13,194. In addition, the Company determined that two indefinite-lived intangible assets were impaired. per share amounts)

Long-Lived Assets
The Company recognized an impairment charge of $1,342 to reduce the carrying value of these intangible assets to fair value and assigned a definite life to these intangible assets on a prospective basis.

The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2009 and 2008 were as follows:

  North
America
Welding		  Europe
Welding		  Asia
Pacific
Welding		  South
America
Welding		  The Harris
Products
Group		  Consolidated 

Balance as of January 1, 2008

 $6,212   $10,817   $12,387   $538   $12,773   $42,727  

Additions and adjustments

 (1,118)  20   3,413   —   7,890   10,205  

Impairment charges

 —   —   (13,194)  —   —   (13,194) 

Foreign currency translation

 (327)  (2,116)  879   (56)  (1,931)  (3,551) 
                  

Balance as of December 31, 2008

 4,767   8,721   3,485   482   18,732   36,187  

Additions and adjustments

 (3)  —   1,429   —   (1,044)  382  

Foreign currency translation

 229   571   —   49   2,136   2,985  
                  

Balance as of December 31, 2009

 $4,993   $9,292   $4,914   $531   $19,824   $39,554  
                  

Additions and adjustments to goodwill primarily reflect goodwill recognized in the acquisitions of Harris Soldas Especiais S.A. and Vernon Tool Company, Ltd. in 2008 and Jinzhou Jin Tai Welding and Metal Co, Ltd. (“Jin Tai”) in 2009 (See Note 2).

Gross intangible assets other than goodwill by asset class as of December 31, 2009 and 2008 were as follows:

   December 31,
   2009  2008
   Gross
Amount		  Accumulated
Amortization		  Gross
Amount		  Accumulated
Amortization

Trademarks and trade names

  $30,001  $6,928  $26,973  $6,342

Customer relationships

  32,647  4,038  23,900  2,331

Patents

  14,912  2,653  13,095  2,192

Other

  30,078  12,245  23,289  11,130
            

Total

  $107,638  $25,864  $87,257  $21,995
            

Intangible assets other than goodwill are recorded at fair value at the time acquired or at cost, if applicable. Intangible assets that do not have indefinite lives are amortized on a straight-line basis over the shorter of the legal or estimated life. Included in the above table are trademarks and trade names with indefinite lives totaling $17,071 and $16,960 at December 31, 2009 and 2008, respectively.

The weighted average amortization period for trademarks and trade names, customer relationships, patents and other intangibles is 16, 19, 20 and 18 years, respectively. Aggregate amortization expense was $4,524, $3,432 and $2,349 for 2009, 2008 and 2007, respectively. Estimated annual amortization expense for intangible assets for each of the next five years is $5,128 in 2010, $4,983 in 2011, $4,927 in 2012, $4,365 in 2013 and $3,746 in 2014.

F-10

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Long-lived Assets

The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, a loss is recognized to the extent that carrying value exceeds fair value. Fair value is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

Fair Value Measurements
Financial assets and liabilities, such as the Company's defined benefit pension plan assets and derivative contracts, are valued at fair value using the market and income valuation approaches. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses the market approach to value similar assets and liabilities in active markets and the income approach that consists of discounted cash flow models that take into account the present value of future cash flows under the terms of the contracts using current market information as of the reporting date. The following hierarchy is used to classify the inputs used to measure fair value:
Level 1Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2Inputs to the valuation methodology include:
• Quoted prices for similar assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in inactive markets;
• Inputs other than quoted prices that are observable for the asset or liability; and
• Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specific (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Product Warranties

The Company accrues for product warranty claims based on historical experience and the expected material and labor costs to provide warranty service. Warranty services are provided for periods up to three years from the date of sale. The accrual for product warranty claims is included in “Accrued"Accrued expenses.”

The changes in the carrying amount of product warranty accruals for 2009, 2008 and 2007 were as follows:

   December 31, 
   2009  2008  2007 

Balance at beginning of year

  $13,736   $12,308   $9,373  

Charged to expense

   11,359    14,022    12,460  

Deductions

   (8,718)   (11,974)   (9,988) 

Foreign currency translation

   391    (620)   463  
             

Balance at end of year

  $16,768   $13,736   $12,308  
             

Warranty expense was 0.7%, 0.6% and 0.5% of sales for 2009, 2008 and 2007, respectively.

"

Revenue Recognition

The Company recognizes revenue

Substantially all of the Company's revenues are recognized when the risks and rewards of ownership and title to the product have transferred to the customer. Revenue is recognized in accordance with shipping termscustomer which is generally occurs at point of shipment. The Company recognizes any discounts, credits, returns, rebates and incentive programs based on reasonable estimates as a reduction of Sales to arrive at Net sales at the pointsame time the related revenue is recorded.
For contracts accounted for under the percentage of shipment.

completion method, revenue recognition is based upon the ratio of costs incurred to date compared with estimated total costs to complete. The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses.

Distribution Costs

Distribution costs, including warehousing and freight related to product shipments, are included in “Cost"Cost of goods sold.”

"

Stock-Based Compensation

Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares or restricted stock units ultimately forfeited because the recipients fail to meet vesting requirements.

F-11

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Common stock issuable upon the exercise of employee stock options is excluded from the calculation of diluted earnings per share when the calculation of option equivalent shares is anti-dilutive. The calculation of diluted earnings

F-11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share excludes anti-dilutive shares of 709,512 in 2009, 232,044 in 2008 and 29,495 in 2007.

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.

Foreign currency transaction losses are included in “Selling, general & administrative expenses” and were $226, $10,409 and $6,102 in 2009, 2008 and 2007, respectively.

amounts)


Financial Instruments

The Company uses forward contracts to hedge exposures to commodity prices and exchange rate fluctuations on certain purchase and sales transactions and balance sheet exposures. Contracts are generally written on a short-term basis but may cover exposures for up to two years and are not held for trading or speculative purposes. The Company uses interest rate swaps from time to time to hedge changes in the fair value of debt. The Company recognizes derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value of derivative instruments depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship.

For derivative instruments that qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability), the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item are recognized in earnings. For derivative instruments that qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows), the effective portion of the unrealized gain or loss on the derivative instrument is reported as a component of “Accumulated"Accumulated other comprehensive loss”loss" with offsetting amounts recorded as “Other"Other current assets,” “Other" "Other non-current assets,” “Other" "Other current liabilities”liabilities" or “Other"Other long-term liabilities”liabilities" depending on the position and the duration of the contract. At settlement, the realized gain or loss is reflected in earnings in the same period or periods during which the hedged transaction affects earnings. Any remaining gain or loss on the derivative instrument is recognized in earnings. For derivative instruments not designated as hedges, the gain or loss from changes in the fair value of the instruments is recognized in earnings. The Company does not hedge its net investments in foreign subsidiaries.

Advertising Costs

Advertising costs are charged to “Selling,"Selling, general & administrative expenses” whenexpenses" as incurred and totaled $7,982, $10,337$12,376, $11,269 and $10,245$9,222 in 2009, 20082012, 2011 and 2007,2010, respectively.

Research and Development

Research and development costs are charged to “Selling,"Selling, general & administrative expenses”expenses" as incurred and totaled $27,567, $26,736$37,305, $32,834 and $25,794$29,489 in 2009, 20082012, 2011 and 2007,2010, respectively.

F-12

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Bonus
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Bonus

Included in “Selling,"Selling, general & administrative expenses”expenses" are the costs related to the Company’sCompany's discretionary employee bonus programs, which for certain U.S.- based employees are net of hospitalization costs. Bonus costs were $124,947 in 2012, $104,361 in 2011 and $73,197 in 2010.

Income Taxes
Deferred income taxes are recognized at currently enacted tax rates for certain U.S.-based employees,temporary differences between the financial reporting and income tax basis of $43,919 in 2009, $100,706 in 2008assets and $93,958 in 2007.

liabilities and operating loss and tax credit carry-forwards. In assessing the realizability of deferred tax assets, the Company assesses whether it is more likely than not that a portion or all of the deferred tax assets will not be realized.

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from these estimates.

Reclassification

Certain reclassifications have been made to prior year financial statements to conform to current year classifications.

New Accounting Pronouncements

New Accounting Standards Adopted:

In June 2009,September 2011, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Codification (“ASC”Update ("ASU") topic 105 (formerly StatementNo. 2011-08, "Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment." ASU 2011-08 provides an entity the option to first assess qualitative factors to determine whether the existence of Financial Accounting Standards (“SFAS”) 168,“events or circumstance leads to the determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines it is not more likely than not that the fair value is less than the carrying amount, then performing the two-step impairment test is unnecessary. However, if the entity concludes otherwise, it is required to perform the first step of the two-step impairment test. The FASB Accounting Standards Codificationamendments are effective for annual and the Hierarchy of Generally Accepted Accounting Principles”).ASC 105 established the FASB Accounting Standards Codification as the source of authoritative accounting principles recognizedinterim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. ASU 2011-08 was adopted by the FASB to be applied by entities in the preparation of financial statements in conformity with GAAP. This pronouncement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted this pronouncement in 2009. Adoption did not have a significant impact on the Company’s financial statements.

In May 2009, the FASB issued ASC 855 (formerly SFAS 165, “Subsequent Events”). ASC 855 established general standards of accounting for disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, ASC 855 sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 was adopted in 2009January 1, 2012 and did not have a significant impact on the Company’sCompany's financial statements.

In December 2008, the FASB issued ASC 715 (formerly FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”). ASC 715 requires disclosure about an entity’s investment policies and strategies, the categories of plan assets, concentrations of credit risk and fair value measurements of plan assets. The standard, effective for fiscal years ending after December 15, 2009, resulted in increased disclosures in the notes to the Company’s financial statements related to the assets of the Company’s defined benefit pension plans.

In November 2008, the FASB issued ASC 323-10 (formerly Emerging Issues Task Force (“EITF’) Issue 08-6, “Equity Method Investment Accounting Considerations”). ASC 323-10 addresses the impact that ASC 805 (formerly SFAS 141(R)), and ASC 810 (formerly SFAS 160), might have on the accounting for equity method

F-13


F-12

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

investments including how the initial carrying value of an equity method investment should be determined, how it should be tested for impairment

(Dollars in thousands, except share and how changes in classification from equity method to cost method should be treated. ASC 323-10 is to be implemented prospectively and is effective for fiscal years beginning after December 15, 2008. The adoption of ASC 323-10 did not have a significant impact on the Company’s financial statements.

per share amounts)


In June 2008,2011, the FASB issued ASC 260-10 (formerly FSP EITF 03-6-1,ASU No. 2011-05, “Determining Whether Instruments GrantedComprehensive Income (Topic 220): Presentation of Comprehensive Income.” This update provides amendments to Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income. ASU 2011-05 provides an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in Share-Based Payment Transactions Are Participating Securities”). ASC 260-10 determineda single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. Further, ASU 2011-05 requires the presentation on the face of the financial statements items that unvested share-based payment awards that contain rightsare reclassified from other comprehensive income to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be includednet income in the two-class methodstatement(s) where the components of computing earnings per share. This standard did not have a significant impact onnet income and the Company’s disclosurecomponents of earnings per share.

In April 2008,other comprehensive income are presented. The amendment to present reclassification adjustments was deferred when the FASB issued ASC 275-10 and ASC 350-30 (formerly FSP 142-3, “Determination of the Useful Life of Intangible Assets”). These standards amend the factors thatASU 2011-12. ASU 2011-05 should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350 (formerly SFAS 142, “Goodwillapplied retrospectively and Other Intangible Assets”). ASC 275-10 and ASC 350-30 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. ASC 275-10 and ASC 350-30 apply prospectively to intangible assets acquired after adoption. The adoption of ASC 275-10 and ASC 350-30 did not have a significant impact on the Company’s financial statements.

In March 2008, the FASB issued ASC 815 (formerly SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”). ASC 815 requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. ASC 815 is effective for fiscal years beginning after November 15, 2008 with early adoption permitted. The Company adopted these provisions as of January 1, 2009. See Note 10 for the Company’s disclosures pursuant to adoption.

In December 2007, the FASB issued ASC 810 (formerly SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements”). ASC 810 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. ASC 810 changes the way the consolidated statement of income is presented thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest. This pronouncement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.2011. The Company adopted these provisions as ofASU 2011-05, excluding deferred portions, on January 1, 2009, applying2012. Refer to the presentationconsolidated financial statements herein.

In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS's." ASU 2011-04 amends ASC Topic 820, resulting in common fair value measurement and disclosure requirements retrospectively resulting in reclassification of noncontrolling interests from “Other non-current liabilities” to “Total equity.” Income attributable to noncontrolling interests is included in “Selling, generalGAAP and administrative expenses” in the Consolidated Statements of Income and is not material to the Company. Therefore, the Company did not present income attributable to non-controlling interests separately in the Consolidated Statements of Income.

In December 2007, the FASB issued ASC 805 (formerly SFAS 141 (revised 2007), “Business Combinations” which replaced SFAS 141, “Business Combinations”International Financial Reporting Standards ("IFRS"). ASC 805 retainsConsequently, the fundamentalamendments change the wording used to describe many of the requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be usedGAAP for all business combinationsmeasuring fair value and for an acquirerdisclosing information about fair value measurements. These amendments are to be identifiedapplied prospectively and are effective for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combinationfiscal years, and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date

F-14

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

measured at their fair values as of that date with limited exceptions specified in the statement. ASC 805 applies prospectively to business combinations for which the acquisition date is on or after theinterim periods within those years, beginning of the first annual reporting period beginning on or after December 15, 2008.

2011. ASU 2011-04 was adopted by the Company on January 1, 2012 and did not have a significant impact on the Company's financial statements.

New Accounting Standards to be Adopted:

In January 2010,February 2013, the FASB issued Accounting Standards Update (“ASU”)ASU No. 2010-06,2013-02, “Fair Value Measurements and DisclosuresComprehensive Income (Topic 820) Improving Disclosures220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to provide information about Fair Value Measurements.”ASU 2010-06 amends ASC 820-10-50the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to require additional informationpresent, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be disclosed principally with respectreclassified to Level 3 fair value measurements and transfers to and from Level 1 and Level 2 measurements;net income in addition, enhanced disclosureits entirety in the same reporting period. For other amounts, an entity is required concerning inputs and valuation techniques used to determine Level 2 and Level 3 fair value measurements.cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The new disclosures and clarifications of existing disclosures, as required by ASU 2010-06,amendments are effective prospectively for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Earlier application is permitted. ASU No. 2010-06 is not expected to have a significant impact on the Company’s financial statements.

In December 2009, the FASB issued ASU No. 2009-17,“Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities an Amendment of the FASB Accounting Standards Codification.”In June 2009, the FASB issued ASC 810 (formerly SFAS 167,“Amendments to FASB Interpretation No. 46(R)”). The objective of ASC 810 is to amend certain requirements of FASB Interpretation 46 (R) (revised December 2003), “Consolidation of Variable Interest Entities,”to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ASC 810 will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. ASU No. 2009-17 is not expected to have a significant impact on the Company’s financial statements.

In December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets an Amendment of the FASB Accounting Standards Codification.”In June 2009, the FASB issued ASC 860,“Transfers and Servicing,” (formerly SFAS 166,“Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140”). The objective of ASC 860 is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets. ASC 860 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. ASU No. 2009-16 must be applied to transfers occurring on or after the effective date. ASU No. 2009-16 is not expected to have a significant impact on the Company’s financial statements.

In October 2009, the FASB issued ASU No. 2009-13,“Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force.” This update provides amendments to the criteria in Subtopic ASC 605-25. ASU No. 2009-13 provides principles for allocating consideration among multiple-elements and accounting for separate deliverables under an arrangement. ASC 605-25, as amended, introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available and

F-15

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)

significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis and early application is permitted.2012. The Company is currently evaluating the impact of the adoption of ASU 2013-02 on the Company's financial statements.

In July 2012, the FASB issued ASU No. 2009-13, but does2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 permits an entity first to assess qualitative factors to determine whether it is more likely than not expectthat an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. In accordance with this update, an entity will have a significantan option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company is currently evaluating the impact of the adoption of ASU 2012-02 on the Company’sCompany's financial statements.

In December 2011, the FASB issued ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." ASU 2011-11 requires an entity to disclose information about financial instruments and derivative instruments that are subject to offsetting, master netting or other similar arrangements, to illustrate the effect or potential effect of those arrangements on the Company's financial position. In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which clarifies the scope of ASU 2011-11. The amendments are effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The amendments should be applied retrospectively for all prior periods presented. The Company is currently evaluating the impact of the adoption of ASU 2011-11 on the Company's financial statements.

F-13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
 Year Ended December 31,
 2012 2011 2010
Numerator:     
Net income$257,411
 $217,186
 $130,244
Denominator:     
Basic weighted average shares outstanding83,087
 83,681
 84,407
Effect of dilutive securities - Stock options and awards1,088
 1,027
 816
Diluted weighted average shares outstanding84,175
 84,708
 85,223
Basic earnings per share$3.10
 $2.60
 $1.54
Diluted earnings per share$3.06
 $2.56
 $1.53
For the years ended December 31, 2012, 2011 and 2010, common shares subject to equity-based awards of 107,814, 626,135 and 1,504,346, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.
NOTE 3 – ACQUISITIONS

On July 29, 2009,December 31, 2012, the Company completed the acquisition of 100% of Jin Tai,the privately-held automated systems and tooling manufacturer, Tennessee Rand, Inc. ("Tenn Rand").  Tenn Rand, based in Jinzhou, China. This transaction expandedChattanooga, Tennessee, is a leader in the design and manufacture of tooling and robotic systems for welding applications. The acquisition added tool design, system building and machining capabilities that will enable the Company to further expand its welding automation business. Annual sales for Tenn Rand in 2012 were approximately $35,000.
On November 13, 2012, the Company completed the acquisition of the Kaliburn, Burny and Cleveland Motion Control businesses (collectively, "Kaliburn") from ITT Corporation. Kaliburn, headquartered in Ladson, South Carolina, is a designer and manufacturer of shape cutting solutions, producer of shape cutting control systems and manufacturer of web tension transducers and engineered machine systems. The acquisitions added to the Company's cutting business portfolio. Annual sales for Kaliburn at the date of acquisition were approximately $36,000.
On May 17, 2012, the Company completed the acquisition of Wayne Trail Technologies, Inc. (“Wayne Trail”).  Wayne Trail, based in Ft. Loramie, Ohio, is a manufacturer of automated systems and tooling, serving a wide range of applications in the metal processing market.  The acquisition added to the Company’s customer basewelding and gaveautomated solutions portfolio.  Annual sales for Wayne Trail at the date of acquisition were approximately $50,000.
On March 6, 2012, the Company controlcompleted the acquisition of significant cost-competitive solid wire manufacturing capacity.

Weartech International, Inc. (“Weartech”).  Weartech, based in Anaheim, California, is a producer of cobalt-based hard facing and wear-resistant welding consumables.  The acquisition added to the Company’s consumables portfolio.  Sales for Weartech during 2011 were approximately $40,000.

The Company previously held a 21% direct interest in Jin Taiacquired Tenn Rand, Kaliburn, Wayne Trail and a further 27% indirect interest via its 35% interest in Taiwan-based Kuang Tai Metal Industrial Co., Ltd. (“Kuang Tai”). Under the terms of the agreement, the Company exchanged its 35% interest in Kuang Tai with a fair value of $22,723, paid cash of $35,531 and will pay an additional $4,181Weartech for approximately $143,504 in cash, over a three-year period after close.

net of cash acquired, and assumed debt. The fair value of the Company’s previous non-controlling direct interestnet assets acquired was $75,764, resulting in Jin Tai was $8,675. The carrying valuesgoodwill of $67,740. Some of the Company’s interestspurchase price allocations are preliminary and subject to final opening balance sheet adjustments.

On July 29, 2011, the Company acquired substantially all of the assets of Techalloy Company, Inc. and certain assets of its parent company, Central Wire Industries Ltd. (collectively, "Techalloy"). Techalloy, based in Kuang TaiBaltimore, Maryland, was a privately-held manufacturer of nickel alloy and Jin Tai were $29,368 and $9,973, respectively.stainless steel welding consumables. The excess carrying value over fair value of these interests resulted in a loss on the transaction of $7,943 recorded in “Equity (loss) earnings in affiliates.”

The Company previously reported its proportional share of Jin Tai’s net income under the equity method in “Equity (loss) earnings in affiliates.” Jin Tai’s sales were $186,774 in 2008 and $74,834 in 2009 prioracquisition added to the acquisition. Jin Tai’sCompany's consumables portfolio. Annual sales for Techalloy at the date of $53,956 after the acquisition were included in “Net sales” for 2009. The pro forma impact onapproximately $70,000.

On July 29, 2011, the results of operations if the acquisition had been completed asCompany acquired substantially all of the beginningassets of both 2009Applied Robotics, Inc. (d/b/a Torchmate) ("Torchmate"). Torchmate, based in Reno, Nevada, provides a wide selection of computer numeric controlled plasma cutter and 2008 would not have been significant.

oxy-fuel cutting systems. The identifiable assets acquiredacquisition added to the Company's plasma and liabilities assumed uponoxy-fuel cutting product offering. Annual sales for Torchmate at the date of acquisition were approximately $13,000.

On March 11, 2011, the Company completed the acquisition of Jin TaiOOO Severstal-metiz: welding consumables ("Severstal"). Severstal is a leading manufacturer of welding consumables in Russia and was a subsidiary of OAO Severstal, one of the world's leading vertically integrated steel and mining companies. This acquisition expanded the Company's capacity and distribution channels in Russia and the Commonwealth of Independent States ("CIS"). Sales for Severstal during 2010 were as follows:

   July 29, 2009

Cash and cash equivalents

  $16,032

Accounts receivable

   23,306

Inventory

   17,037

Other current assets

   18,932

Property, plant and equipment

   29,275

Intangibles

   15,201

Goodwill

   1,429

Other non-current assets

   5,585
    

Total assets acquired

   126,797

Amounts due banks

   28,833

Trade accounts payable

   2,306

Current liabilities

   7,839

Long-term liabilities

   15,459
    

Total liabilities assumed

   54,437
    

Net assets acquired

  $72,360
    

F-16

approximately $40,000.


F-14

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 2 – ACQUISITIONS (continued)

All assets acquired

(Dollars in thousands, except share and liabilities assumed were recorded at estimated fair value. Goodwill of $1,429 was allocated to the Asia Pacific Welding segment and is not deductible for income tax purposes under current tax law. Net assets acquired included a non-controlling interest in one of Jin Tai’s operations valued at $1,250. This non-controlling interest was subsequently acquired and accounted for as an equity transaction.

per share amounts)


On October 1, 2008,January 31, 2011, the Company acquired substantially all of the assets of SSCO Manufacturing, Inc. (d/b/a 90% interest inArc Products) ("Arc Products"). Arc Products was a leading Brazilianprivately-held manufacturer of brazing productsorbital welding systems and welding automation components based in Southern California. Orbital welding systems are designed to automatically weld pipe and tube in difficult to access locations and for mission-critical applications requiring high weld integrity and sophisticated quality monitoring capabilities. The acquisition will complement the Company's ability to serve global customers in the nuclear, power generation and process industries worldwide. Sales for Arc Products during 2010 were not significant.
The Company acquired Techalloy, Torchmate, Severstal and Arc Products for approximately $24,000$65,321 in cash and assumed debt.debt and a contingent consideration liability fair valued at $3,806. The newly acquired company,contingent consideration is based in Sao Paulo, is being operated as Harris Soldas Especiais S.A. This acquisition expanded the Company’s brazing product line and increased the Company’s presence in the South American market. Annualupon estimated sales at the timerelated acquisition for the five-year period ending December 31, 2015 and will be paid in 2016 based on actual sales during the five-year period. The fair value of the acquisition were approximately $30,000.

net assets acquired was $46,837, resulting in goodwill of $22,290.

On April 7, 2008,October 29, 2010, the Company acquired all of the outstanding stock of Electro-Arco S.A. (“Electro-Arco”Mezhgosmetiz-Mtsensk OAO ("MGM"), a privately heldprivately-held welding wire manufacturer based in the Orel region of welding consumables headquartered near Lisbon, Portugal,Russia, for approximately $24,000$28,500 in cash and assumed debt. This acquisition addedrepresented the Company's first manufacturing operation in Russia as well as established distribution channels to serve the Company’s European consumables manufacturing capacitygrowing Russian and widened the Company’s commercial presence in Western Europe.CIS welding markets. Annual sales for MGM at the timedate of the acquisition were approximately $40,000.

On November 30, 2007,$30,000.

Pro forma information related to these acquisitions has not been presented because the Company acquiredimpact on the assets and businessCompany's Consolidated Statements of Vernon Tool Company Ltd. (“Vernon Tool”), a privately held manufacturer of computer-controlled pipe cutting equipment used for precision fabrication purposes headquartered near San Diego, California, for approximately $12,434 in cash. This acquisition added to the Company’s ability to support its customers in the market for infrastructure development. Annual sales at the time of the acquisition were approximately $9,000.

On November 29, 2007, the Company announced that it had entered into a majority-owned joint venture with Zhengzhou Heli Welding Materials Company Ltd. (“Zhengzhou Heli”), a privately held manufacturer of subarc flux based in Zhengzhou, China. The Company has contributed $16,400 to Zhengzhou Heli. Annual sales at the time of the acquisition were approximately $8,000.

On July 20, 2007, the Company acquired Nanjing Kuang Tai Welding Materials Company, Ltd. (“Nanjing”), a manufacturer of stick electrode products based in Nanjing, China, for approximately $4,245 in cash and assumed debt. The Company previously owned 35% of Nanjing indirectly through its investment in Kuang Tai. Annual sales at the time of the acquisition were approximately $10,000.

On March 30, 2007, the Company acquired all of the outstanding stock of Spawmet Sp. z o.o. (“Spawmet”), a privately held manufacturer of welding consumables headquartered near Katowice, Poland, for approximately $5,000 in cash. This acquisition provided the Company with a portfolio of stick electrode products and broadened its distributor network in Poland and Eastern Europe. Annual sales at the time of the acquisition were approximately $5,000.

Income is not material. Acquired companies are included in the Company’sCompany's consolidated financial statements as of the date of acquisition.

NOTE 4 – GOODWILL AND INTANGIBLES
The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using the same dates each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment. The fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge is recorded if the carrying value exceeds the fair value. Goodwill is tested by comparing the fair value of each reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is compared to its carrying value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.
Fair values are determined using established business valuation multiples and models developed by the Company that incorporate allocations of certain assets and cash flows among reporting units, estimates of market participant assumptions of future cash flows, future growth rates and the applicable discount rates to value estimated cash flows. Changes in economic and operating conditions impacting these assumptions could result in asset impairments in future periods. The Company's annual impairment test of goodwill and indefinite-lived intangible assets in 2012 resulted in no impairment loss being recognized.
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2012 and 2011 were as follows:
  
North
America
Welding
 
Europe
Welding
 
Asia
Pacific
Welding
 
South
America
Welding
 
The Harris
Products
Group
 Consolidated
Balance as of January 1, 2011 $5,069
 $16,379
 $5,030
 $565
 $18,909
 $45,952
Additions and adjustments 13,478
9,543
 —
 —
 (1,247) 21,774
Foreign currency translation (33) (2,055) 178
 (4) (711) (2,625)
Balance as of December 31, 2011 18,514
 23,867
 5,208
 561
 16,951
 65,101
Additions and adjustments 67,740 66
 —
 —
 (1,109) 66,697
Foreign currency translation 23 1,424
 40
 53
 (435) 1,105
Balance as of December 31, 2012 $86,277
 $25,357
 $5,248
 $614
 $15,407
 $132,903
Additions to goodwill primarily reflect goodwill recognized in the acquisitions of Weartech, Wayne Trail, Kaliburn and Tenn Rand in 2012 and the acquisitions of Arc Products, Severstal, Torchmate and Techalloy in 2011 (see Note 3). Reductions to goodwill result from the tax benefit attributable to the amortization of tax deductible goodwill in excess of goodwill recorded for financial reporting purposes.

F-15
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

Gross and net intangible assets other than goodwill by asset class as of December 31, 2012 and 2011 were as follows:
    December 31, 2012
  
Weighted
Average Life
 
Gross
Amount
 
Accumulated
Amortization
 
Indefinite
Lived Assets
 
Total Intangible,
Net
Trademarks and trade names 12 $30,611
 $9,493
 $18,276
 $39,394
Customer relationships 16 63,906
 12,099
 —
 51,807
Patents 19 20,882
 5,103
 —
 15,779
Other 14 44,769
 18,847
 —
 25,922
Total   $160,168
 $45,542
 $18,276
 $132,902
  December 31, 2011
  
Gross
Amount
 
Accumulated
Amortization
 
Indefinite
Lived Assets
 
Total Intangible,
Net
Trademarks and trade names $18,559
 $8,020
 $18,081
 $28,620
Customer relationships 40,818
 7,875
 —
 32,943
Patents 18,677
 3,927
 —
 14,750
Other 33,148
 14,990
 —
 18,158
Total $111,202
 $34,812
 $18,081
 $94,471
Additions to gross and net intangible assets primarily reflect assets and related amortization recognized in the acquisitions of Weartech, Wayne Trail, Kaliburn and Tenn Rand in 2012. Aggregate amortization expense was $10,641, $6,661 and $5,390 for 2012, 2011 and 2010, respectively. Estimated annual amortization expense for intangible assets for each of the next five years is $12,282 in 2013, $10,512 in 2014, $10,099 in 2015, $9,320 in 2016 and $8,816 in 2017.

NOTE 35 – SEGMENT INFORMATION

The Company’sCompany's primary business is the design and manufacture of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. The Company also has a leading global position in the brazing and soldering alloys market.

During the fourth quarter of 2009, the The Company realignedhas aligned its business units into five operating segments to enhance the utilization of the Company’sCompany's worldwide resources and global end user and sourcing initiatives. The operating

F-17

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3 – SEGMENT INFORMATION (continued)

segments consist of North America Welding, Europe Welding, Asia Pacific Welding, South America Welding and The Harris Products Group. The North America Welding segment includes welding operations in the United States, Canada and Mexico. The Europe Welding segment includes welding operations in Europe, Russia, Africa and the Middle East. The other threetwo welding segments include welding operations in Europe, Asia Pacific and South America, respectively. The fifth segment, The Harris Products Group, includes the Company’sCompany's global cutting, soldering and brazing businesses as well as the retail business in the United States. The segment information of prior periods has been recast to conform to the current segment presentation.

Segment performance is measured and resources are allocated based on a number of factors, the primary profit measure being earnings before interest and income taxes (“EBIT”("EBIT"), as adjusted. Segment EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets. The accounting principles applied at the operating segment level are generally the same as those applied at the consolidated financial statement level with the exception of LIFO. Segment assets include inventories measured on a FIFO basis while consolidated inventories are reported on a LIFO basis. Segment and consolidated income before interest and income taxes are reported on a LIFO basis. At December 31, 2009, 20082012, 2011 and 2007,2010, approximately 31%34%, 35%31% and 36%30%, respectively, of total inventories were valued using the LIFO method. LIFO is only used for certain domestic inventories included in the North America Welding segment. Inter-segment sales are recorded at agreed upon prices that approximate arm’sarm's length prices and are eliminated in consolidation. Corporate-level expenses are allocated to the operating segments on a basis that management believes to be reasonable. Certain corporate-level expenses may not be allocated to the operating segments and are reported as Corporate/Eliminations.

F-18


F-16

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3 – SEGMENT INFORMATION (continued)

(Dollars in thousands, except share and per share amounts)

Financial information for the reportable segments follows:

  North
America
Welding		 Europe
Welding		  Asia Pacific
Welding		  South
America
Welding		 The Harris
Products
Group		  Corporate /
Eliminations		  Consolidated 

For the year ended December 31, 2009

       

Net sales

 $858,180 $346,383   $208,280   $99,171 $217,271   $—   $1,729,285  

Inter-segment sales

  85,630  8,725    4,051    308  7,739    (106,453)   —  
                          

Total

 $943,810 $355,108   $212,331   $99,479 $225,010   $(106,453)  $1,729,285  
                          

EBIT, as adjusted

 $134,544 $(2,196)  $(18,370)  $10,648 $888   $(3,344)  $122,170  

Special items

  10,386  4,335    9,607    528  5,774    —    30,630  
                          

EBIT

 $124,158 $(6,531)  $(27,977)  $10,120 $(4,886)  $(3,344)  $91,540  

Interest income

        3,462  

Interest expense

        (8,521) 
          

Income before income taxes

       $86,481  
          

Total assets

 $792,876 $379,449   $310,329   $81,734 $253,851   $(112,947)  $1,705,292  

Equity investments in affiliates

  —  19,455    —    3,444  —    —    22,899  

Capital expenditures

  13,726  7,543    15,887    796  2,457    (2,208)   38,201  

Depreciation and amortization

  31,097  9,779    9,397    1,543  4,642    140    56,598  

For the year ended December 31, 2008

       

Net sales

 $1,313,881 $538,570   $230,661   $116,061 $279,958   $—   $2,479,131  

Inter-segment sales

  127,087  15,649    3,522    37  8,568    (154,863)   —  
                          

Total

 $1,440,968 $554,219   $234,183   $116,098 $288,526   $(154,863)  $2,479,131  
                          

EBIT, as adjusted

 $243,648 $55,998   $8,260   $9,984 $10,218   $(5,618)  $322,490  

Special items

  818  2,052    15,582    —  919    —    19,371  
                          

EBIT

 $242,830 $53,946   $(7,322)  $9,984 $9,299   $(5,618)  $303,119  

Interest income

        8,845  

Interest expense

        (12,155) 
          

Income before income taxes

       $299,809  
          

Total assets

 $848,233 $428,690   $244,461   $81,093 $248,360   $(132,032)  $1,718,805  

Equity investments in affiliates

  —  13,814    45,256    3,288  —    —    62,358  

Capital expenditures

  39,486  13,956    14,788    2,172  2,406    (382)   72,426  

Depreciation and amortization

  32,383  11,065    6,631    1,501  5,145    200    56,925  

For the year ended December 31, 2007

       

Net sales

 $1,248,382 $474,388   $178,120   $101,426 $278,468   $—   $2,280,784  

Inter-segment sales

  114,930  14,295    2,501    1,793  8,028    (141,547)   —  
                          

Total

 $1,363,312 $488,683   $180,621   $103,219 $286,496   $(141,547)  $2,280,784  
                          

EBIT, as adjusted

 $206,768 $57,495   $(328)  $8,804 $18,612   $(1,246)  $290,105  

Special items

  —  —    —    —  (188)   —    (188) 
                          

EBIT

 $206,768 $57,495   $(328)  $8,804 $18,800   $(1,246)  $290,293  

Interest income

        8,294  

Interest expense

        (11,430) 
          

Income before income taxes

       $287,157  
          

Total assets

 $859,828 $428,181   $215,946   $77,349 $229,973   $(165,981)  $1,645,296  

Equity investments in affiliates

  —  16,154    40,787    2,782  —    —    59,723  

Capital expenditures

  25,275  16,546    15,491    1,754  3,679    (1,112)   61,633  

Depreciation and amortization

  31,160  9,454    4,921    1,251  5,766    58    52,610  

F-19

 
North
America
Welding
 
Europe
Welding
 
Asia
Pacific
Welding
 
South
America
Welding
 
The Harris
Products
Group
 
Corporate /
Eliminations
 Consolidated
For the Year Ended
   December 31, 2012
             
Net sales$1,580,818
 $452,227
 $324,482
 $161,483
 $334,357
 $—
 $2,853,367
Inter-segment sales131,062
 16,048
 14,829
 38
 8,549
 (170,526) $—
Total$1,711,880
 $468,275
 $339,311
 $161,521
 $342,906
 $(170,526) $2,853,367
EBIT, as adjusted$293,070
 $37,299
 $7,247
 $18,301
 $29,477
 $(4,886) $380,508
Special items charge (gain)827
 3,534
 4,993
 1,381
 —
 —
 $10,735
EBIT$292,243
 $33,765
 $2,254
 $16,920
 $29,477
 $(4,886) $369,773
Interest income            3,988
Interest expense            (4,191)
Income before income taxes            $369,570
              
Total assets$980,093
 $451,654
 $350,189
 $134,650
 $195,881
 $(22,604) $2,089,863
Equity investments in affiliates—
 21,798
 —
 2,808
 —
 —
 $24,606
Capital expenditures36,834
 5,372
 8,833
 899
 831
 (54) $52,715
Depreciation and amortization33,479
 11,008
 15,102
 1,878
 3,934
 (67) $65,334
For the Year Ended
   December 31, 2011
             
Net sales$1,309,499
 $508,692
 $376,276
 $156,684
 $343,458
 $—
 $2,694,609
Inter-segment sales136,314
 17,422
 15,614
 494
 8,496
 (178,340) $—
Total$1,445,813
 $526,114
 $391,890
 $157,178
 $351,954
 $(178,340) $2,694,609
EBIT, as adjusted$227,924
 $36,171
 $2,629
 $12,895
 $25,151
 $426
 $305,196
Special items charge (gain)—
 392
 (110) —
 —
 —
 $282
EBIT$227,924
 $35,779
 $2,739
 $12,895
 $25,151
 $426
 $304,914
Interest income            3,121
Interest expense            (6,704)
Income before income taxes            $301,331
              
Total assets$771,315
 $436,327
 $380,282
 $110,781
 $181,916
 $96,155
 $1,976,776
Equity investments in affiliates—
 20,500
 —
 4,118
 —
 —
 $24,618
Capital expenditures31,826
 8,566
 21,498
 2,314
 1,792
 (183) $65,813
Depreciation and amortization29,237
 11,736
 14,663
 2,033
 4,714
 (332) $62,051
For the Year Ended
   December 31, 2010
             
Net sales$1,013,193
 $359,925
 $324,092
 $117,419
 $255,543
 $—
 $2,070,172
Inter-segment sales108,849
 13,330
 12,546
 1,216
 6,641
 (142,582) $—
Total$1,122,042
 $373,255
 $336,638
 $118,635
 $262,184
 $(142,582) $2,070,172
EBIT, as adjusted$162,192
 $17,023
 $1,752
 $7,554
 $12,311
 $(6,675) $194,157
Special items charge (gain)—
 2,486
 (3,741) 3,123
 871
 —
 $2,739
EBIT$162,192
 $14,537
 $5,493
 $4,431
 $11,440
 $(6,675) $191,418
Interest income            2,381
Interest expense            (6,691)
Income before income taxes            $187,108
              
Total assets$611,725
 $413,789
 $350,975
 $94,836
 $193,474
 $118,989
 $1,783,788
Equity investments in affiliates—
 19,194
 —
 3,715
 —
 —
 $22,909
Capital expenditures25,746
 10,373
 22,973
 3,573
 884
 (2,984) $60,565
Depreciation and amortization27,652
 9,527
 13,542
 1,564
 5,012
 60
 $57,357

F-17

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except share and per share amounts)

NOTE 3 – SEGMENT INFORMATION (continued)

In 2009,2012, special items include net charges of $827, $3,637 and $3,151for rationalization actions in the North America Welding, segment a chargeEurope Welding and Asia Pacific Welding segments, respectively, primarily related to employee severance and other costs associated with the consolidation of $10,386 for rationalization actions.manufacturing operations. The Europe Welding segment includesspecial items also include a gain of $103 on the sale of assets. The Asia Pacific Welding segment special items also include a charge of $9,868$1,842 related to asset impairments. The South America Welding segment special item represents a charge of $1,381 related to a change in Venezuelan labor law, which provides for increased employee severance obligations.

In 2011, special items include net charges of $188 and $93 for rationalization actions $134 in intangible asset impairment chargesthe Europe Welding and Asia Pacific Welding segments, respectively, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations. The Europe Welding and Asia Pacific Welding segments special items also include a loss of $204 and a gain of $5,667$203, respectively, on the sale of assets at rationalized operations.
In 2010, special items include a property.charge of $1,990 for rationalization actions and $496 in related asset impairment charges for the Europe Welding segment. The Asia Pacific Welding segment includes a gain of $4,555 related to the disposal of assets, a charge of $3,207$427 for rationalization actions a gain of $1,543 on the settlement of a pension obligation and a loss of $7,943 associated with the acquisition of Jin Tai and related divestiture of Kuang Tai.$387 in asset impairment charges. The South America Welding segment includes a net charge of $528 for rationalization actions.$3,123 related to the change in functional currency and devaluation of the Venezuelan currency. The Harris Products Group segment includes a net charge of $5,029 for rationalization actions and $745 in intangible asset impairment charges.

In 2008, special items include for$871 related to environmental costs associated with the North America Welding segmentsale of property at a charge of $818 for the impairment of an intangible asset. The Europe Welding segment includes a charge of $1,528 for rationalization actions and a charge of $524 for the impairment of an intangible asset. The Asia Pacific Welding segment includes a charge of $15,582 for the impairment of goodwill and certain long-lived assets. The Harris Products Group segment includes a charge of $919 for rationalization actions.

In 2007, special items include for The Harris Products Group segment a gain of $188 for rationalization actions.

rationalized operation.

Export sales (excluding intercompanyinter-company sales) from the United States were $154,526$268,331 in 2009, $242,3122012, $242,380 in 20082011 and $194,476$197,057 in 2007.2010. No individual customer comprised more than 10% of the Company’sCompany's total revenues for any of the three years ended December 31, 2009.

2012.

The geographic split of the Company’sCompany's net sales, based on the location of the customer, and property, plant and equipment were as follows:

   Year Ended December 31, 
   2009  2008  2007 

Net sales:

    

United States

  $722,638   $1,072,593   $1,064,113  

Foreign countries

   1,006,647    1,406,538    1,216,671  
             

Total

  $1,729,285   $2,479,131   $2,280,784  
             
   December 31, 
   2009  2008  2007 

Property, plant and equipment, net:

    

United States

  $153,342   $169,764   $167,659  

Foreign countries

   307,073    259,469    263,738  

Eliminations

   (354)   (1,331)   (1,453) 
             

Total

  $460,061   $427,902   $429,944  
             

Net sales derived from customers and property, plant and equipment in any individual foreign country were not material.

F-20

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

  Year Ended December 31,
  2012 2011 2010
Net sales:      
United States $1,283,066
 $1,092,838
 $825,371
China 229,996
 286,121
 250,981
Other foreign countries 1,340,305
 1,315,650
 993,820
Total $2,853,367
 $2,694,609
 $2,070,172
  December 31,
  2012 2011 2010
Property, plant and equipment, net:      
United States $170,831
 $149,637
 $149,185
China 92,744
 96,374
 87,722
Other foreign countries 223,050
 224,801
 242,084
Eliminations (389) (361) (425)
Total $486,236
 $470,451
 $478,566

NOTE 46 – RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded rationalization and asset impairmentnet charges of $29,897$9,354 and $282 for the years ended December 31, 2012 and 2011, respectively, and net gains of $384 for the year ended December 31, 2009. These2010. The 2012 net charges include $27,142$7,615 primarily related to employee severance costs, $2,061and $1,842 in long-lived asset impairment charges, $879 in indefinite-lived intangible asset impairment chargespartially offset by gains of $103 related to sale of assets.  A description of each restructuring plan and a gain of $185 recognized in connection with the partial settlement of a pension plan.

In the fourth quarter of 2009, the Company determined that the carrying value of certain long-lived assets exceeded fair value at operations affected by rationalization activities initiated in the second and third quarters of 2009. As a result, asset impairment charges totaling $2,061 were recognized in “Rationalization and asset impairment charges (gain).” Of the total asset impairment charges, $253 were recognized in the Europerelated costs follows:

North America Welding segment, $1,515 in the Asia Pacific Welding segment and $293 in The Harris Products Group segment. Fair values of impaired long-lived assets were determined primarily by third party appraisal.

Plans:

During the third quarter of 2009,2012, the Company initiated various rationalization actions includingplans within the closure of a manufacturingNorth America Welding segment. Plans for the segment are to consolidate its Oceanside, California operations and its Reno, Nevada operations to another facility in Reno, Nevada and to consolidate its Baltimore, Maryland manufacturing operations into its current manufacturing operations in Cleveland, Ohio.  These actions are expected to impact 72 employees within the North America Welding segment.  During the year ended December 31, 2012, the Company recorded charges of $827 related to these activities.  Charges represent employee

F-18
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

severance and other related costs. The Company expects additional charges in the range of $1,400 to $1,700 related to the completion of these activities.
Europe Welding Plans:
During 2012, the Company initiated various rationalization plans within the Europe Welding segment. Plans for the segment are to consolidate manufacturing facilities in Russia, relocate its Italian machine manufacturing operations to current facilities in Poland and to restructure headcount at various other manufacturing operations within the segment to better align the cost structure and capacity requirements with current economic needs and conditions. These actions are expected to impact 285 employees within the Europe Welding segment. During the year ended December 31, 2012, the Company recorded charges of $3,534 related to these activities.  Charges represent employee severance and other related costs of $3,637, partially offset by gains from the sale of assets at rationalized operations of $103.  At December 31, 2012, a liability relating to these actions of $1,836 was recognized in Other current liabilities, which will be substantially paid in 2013.  The Company expects to incur additional charges in the range of $50 to $100 related to the completion of this plan.
Asia Pacific Welding Plans:
During 2012, the Company initiated various rationalization plans within the Asia Pacific Welding segment. Plans for the segment are to rationalize its Australian manufacturing operations and to restructure headcount at various other manufacturing operations within the segment to better align the cost structure and capacity requirements with current economic needs and conditions. These actions are expected to impact 268 employees within the Asia Pacific Welding segment. During the year ended December 31, 2012, the Company recorded charges of $4,993 related to these activities.  Charges represent employee severance and other related costs of $3,151 and asset impairment charges of $1,842.  At December 31, 2012, a liability relating to these actions of $1,044 was recognized in Other current liabilities, which are expected to be substantially paid in 2013.  The Company expects additional charges up to $500 related to the completion of these activities.
2009 Plans:
During 2009, the Company initiated rationalization actions including the consolidation of certain manufacturing operations in the Europe Welding, and Asia Pacific Welding and The Harris Products Group segments.  These actions impacted 80 employees in the Europe Welding segment, 175 employees in the Asia Pacific Welding segment and nine employees in the South America Welding segment. These actions are expected to cost approximately $12,000, of which the Company recorded rationalization charges of $8,333 for the year ended At December 31, 2009. At December 31, 2009,2012, a liability relatedrelating to these actions of $3,912$177 was recordedrecognized in “OtherOther current liabilities.” Costs related to  The Company does not expect further costs associated with these actions relate primarily to employee severance actions that are expected to bein 2013 as they were substantially completed and paid over the next year.

During the second quarter of 2009, the Company initiated various rationalization actions including the closure of a manufacturing facility in The Harris Products Group segment. These actions affected eight employees in the North America Welding segment, 61 employees in the Europe Welding segment, 81 employees in the Asia Pacific Welding segment, 23 employees in the South America Welding segment and 58 employees in The Harris Products Group segment. The Company recorded rationalization charges of $6,684 for the year ended December 31, 2009 related to these actions. A liability related to these actions of $2,445 was recorded in “Other current liabilities” at December 31, 2009. These costs relate primarily to employee severance actions that are essentially complete2010 and are expected to be paid over the next year.

Rationalization actions taken during the first quarter of 2009 included a voluntary separation incentive program covering certain U.S.-based employees. These actions affected 408 employees in the North America Welding segment, 48 employees in the Europe Welding segment, 44 employees in the Asia Pacific Welding segment, 22 employees in the South America Welding segment and 46 employees in The Harris Products Group segment. The Company recorded rationalization charges of $12,092 for the year ended December 31, 2009 related to these actions. At December 31, 2009, all activities associated with these actions were completed.

Rationalization actions taken during the fourth quarter of 2008 affected 67 and 65 employees in The Harris Products Group and Europe Welding segments, respectively. The Company recorded rationalization charges of $2,447 at December 31, 2008 and $33 for the year ended December 31, 2009 related to these actions. At December 31, 2009, all activities associated with these actions were completed.

2013.

The Company continues evaluating its cost structure and additional rationalization actions may result in charges in subsequent quarters.

In the fourth quarter of 2008, the Company recorded asset impairment charges totaling $16,924 in “Rationalization and asset impairment charges (gain).”

In the fourth quarter of 2008, the Company determined that poor operating results and a dampened economic outlook indicated the potential for impairment at two of its businesses in China. Impairment testing determined

F-21

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 – RATIONALIZATION AND ASSET IMPAIRMENTS (continued)

that the carrying value of long-lived assets exceeded fair value at one of these businesses and the Company recorded a charge of $2,388. In addition, the carrying value of goodwill at both of these businesses exceeded the implied value of goodwill and the Company recorded a charge of $13,194.

The Company also tested indefinite-lived intangible assets and determined that the carrying value of certain intangible assets in the Europe Welding and North America Welding segments exceeded fair value. As a result, the Company recorded charges of $524 and $818, respectively.

Fair values of impaired assets were determined using projected discounted cash flows.

In 2005, the Company committed to a plan to rationalize manufacturing operations at Harris Calorific Limited (“Harris Ireland”). The Company incurred a total of $3,920 in charges related to this plan of which a gain of $188 was recorded in 2007. During 2009, the Company received cash of $1,740 related to the termination of the Harris Ireland pension plan and recognized a gain of $185.

future periods. The following table summarizestables summarize the activity related to the rationalization liabilities:

   North
America
Welding		  Europe
Welding		  Asia
Pacific
Welding		  South
America
Welding		  The Harris
Products
Group		  Consolidated 

Balance at December 31, 2008

  $—   $1,563   $—   $—   $739   $2,302  

Payments and other adjustments

   (10,386)   (8,097)   (861)   (528)   (3,215)   (23,087) 

Charged to expense

   10,386    9,615    1,692    528    4,921    27,142  
                         

Balance at December 31, 2009

  $—   $3,081   $831   $—   $2,445   $6,357  
                         

liabilities by segment for the years ended December 31, 2012 and 2011:

  North America Welding 
Europe
Welding
 
Asia
Pacific
Welding
 
The Harris
Products
Group
 Consolidated
Balance at December 31, 2011 $—
 $173
 $—
 $82
 $255
Payments and other adjustments (827) (1,797) (2,107) (82) (4,813)
Charged to expense 827
 3,637
 3,151
 —
 7,615
Balance at December 31, 2012 $—
 $2,013
 $1,044
 $—
 $3,057
  
Europe
Welding
 
Asia
Pacific
Welding
 
The Harris
Products
Group
 Consolidated
Balance at December 31, 2010 $411
 $90
 $930
 $1,431
Payments and other adjustments (404) (183) (848) (1,435)
Charged to expense 166
 93
 —
 259
Balance at December 31, 2011 $173
 $—
 $82
 $255

F-19
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

NOTE 57 – ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulatedAccumulated other comprehensive loss are as follows:
  December 31,
  2012 2011
Defined benefit pension plans, net of tax $(261,844) $(255,369)
Currency translation adjustment 26,364
 6,576
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax 80
 912
Total Accumulated other comprehensive loss $(235,400) $(247,881)
The balance of Accumulated other comprehensive (loss) income are as follows:

  Defined
Benefit Plans,
net of tax		  Currency
Translation
Adjustment		  Unrealized Gain
(Loss) on
Derivatives
Designated and
Qualifying as
Cash
Flow Hedges,
net of tax		  Comprehensive
Loss (Income)
Attributable to
Non-controlling
Interests		  Total
Accumulated
Other
Comprehensive
(Loss) Income		 

Balance January 1, 2007

 $(69,978)  $15,266   $59   $85   $(54,568) 

Other comprehensive income (loss)

  17,704    55,779    (2,989)   (229)   70,265  
                    

Balance December 31, 2007

  (52,274)   71,045    (2,930)   (144)   15,697  

Other comprehensive (loss) income

  (142,422)   (92,419)   842    48    (233,951) 
                    

Balance December 31, 2008

  (194,696)   (21,374)   (2,088)   (96)   (218,254) 

Other comprehensive income (loss)

  21,287    46,968    1,444    (849)   68,850  
                    

Balance December 31, 2009

 $(173,409)  $25,594   $(644)  $(945)  $(149,404) 
                    

F-22

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in non-controlling interests relates to foreign currency translation and amounted to $1,042 and $1,798 at December 31, 2012 and 2011, respectively.

NOTE 68 – DEBT

At December 31, 20092012 and 2008,2011, debt consisted of the following:

   December 31,
   2009  2008

Long-term debt

    

Senior Unsecured Notes paid in 2009, interest at 5.89%

  $—  $30,144

Senior Unsecured Notes due 2012, interest at 6.36%

   84,092   86,759

Capital leases due through 2017, interest at .90% to 28.00%

   2,839   3,651

Other borrowings due through 2023, interest up to 10.59%

   2,209   2,240
        
   89,140   122,794

Less current portion

   1,290   31,257
        

Total long-term debt

   87,850   91,537

Short-term debt

    

Amounts due banks, interest at 8.35% (22.78% in 2008)

   34,577   19,436

Current portion long-term debt

   1,290   31,257
        

Total short-term debt

   35,867   50,693
        

Total debt

  $123,717  $142,230
        

  December 31,
  2012 2011
Long-term debt    
Senior Unsecured Notes due 2012, interest at 6.36% $—
 $80,358
Capital leases due through 2017, interest at 1.12% to 8.63% 267
 901
Other borrowings due through 2023, interest up to 4.25% 1,788
 2,197
  2,055
 83,456
Less current portion 456
 81,496
Total long-term debt 1,599
 1,960
Short-term debt    
Amounts due banks, interest at 11.32% (11.61% in 2011) 18,220
 19,922
Current portion long-term debt 456
 81,496
Total short-term debt 18,676
 101,418
Total debt $20,275
 $103,378
Senior Unsecured Notes

During March 2002, the Company issued Senior Unsecured Notes (the “Notes”"Notes") totaling $150,000 through a private placement. The Notes have$150,000 with original maturities ranging from five to ten years withand a weighted-average interest rate of 6.1% and an average tenure of eight years. Interest is payable semi-annually in March and September.. The proceeds are beingwere used for general corporate purposes, including acquisitions, and arewere generally invested in short-term, highly liquid investments. The Notes contain certain affirmative and negative covenants, including restrictions on asset dispositions and financial covenants (interest coverage and funded debt-to-EBITDA, as defined in the Notes Agreement, ratios). As of December 31, 2009, the Company was in compliance with all of its debt covenants. The Company repaid the $40,000$40,000 Series A Notes andin March 2007, the $30,000$30,000 Series B Notes in March 20072009 and the $80,000 Series C Notes in March 2009, respectively, reducing the balance outstanding of the Notes to $80,000, which is due March 2012.

During March 2002, the Company entered into floating rate interest rate swap agreements totaling $80,000 to convert a portion of the Notes outstanding from fixed to floating rates. These swaps were designated as fair value hedges and, as such, the gains or losses on the derivative instrument, as well as the offsetting gains or losses on the hedged item attributable to the hedged risk, were recognized in earnings. Net payments or receipts under these agreements were recognized as adjustments to “Interest expense.” In May 2003, these swap agreements were terminated. The gain of $10,613 on the termination of these swaps was deferred and is being amortized as an offset to “Interest expense” over the remaining life of the Notes. The amortization of this gain reduced “Interest expense” by $313 in 2009, $958 in 2008 and $1,121 in 2007, and is expected to reduce annual “Interest expense” by $206 in 2010. 2012.

At December 31, 2009, $442 remains to be amortized2012 and is recorded in “Long-term debt, less current portion.”

F-23

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 6 – DEBT (continued)2011

During July 2003 and April 2004, the Company entered into various floating rate interest rate swap agreements totaling $110,000 to convert a portion of the Notes outstanding from fixed to floating rates based on the London Inter-Bank Offered Rate (“LIBOR”). These swaps were designated and qualified as fair value hedges and, as such, the gains or losses on the derivative instrument, as well as the offsetting gains or losses on the hedged item, were recognized in earnings. Net payments or receipts under these agreements were recognized as adjustments to “Interest expense.”

During February 2009, the Company terminated swaps with a notional value of $80,000 and realized a gain of $5,079. This gain was deferred and is being amortized over the remaining life of the Notes. The amortization of this gain reduced “Interest expense” by $1,429 in 2009 and is expected to reduce annual “Interest expense” by $1,661 in 2010. At December 31, 2009, $3,650 remains to be amortized and is included in “Long-term debt, less current portion.”

During March 2009, swaps designated as fair value hedges that converted the $30,000 Series B Notes from fixed to floating interest rates matured with the underlying Notes. The Company has no interest rate swaps outstanding at December 31, 2009. The weighted average effective rate on the Notes, net of the impact of swaps, was 4.1% and 4.6% for 2009 and 2008, respectively.

At December 31, 2009 and 2008,, the fair value of long termlong-term debt, including the current portion, was approximately $91,365$1,919 and $124,446,$84,110, respectively, which was determined using available market information and methodologies requiring judgment. Since considerable judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.

Revolving Credit Agreement

On November 18, 2009, the

The Company entered into anhas a line of credit totaling $300,000 through the Amended and Restated Credit Agreement (“Credit(the “Credit Agreement”) for a $150,000 revolving credit facility to be used for general corporate purposes. This Credit Agreement amended and restated the Company’s $175,000 revolving credit agreement that, which was entered into on July 26, 2012.  The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio.  As of December 17, 200431, 2012, the Company was in compliance with all of its covenants and had a maturity date in December 2009.no outstanding borrowings under the Credit Agreement.  The Credit Agreement has a three-yearfive-year term and may be increased, subject to certain conditions, by an additional amount up to $75,000 at any time not later than 180 days prior to the last day of the term.$100,000.  The interest rate on borrowings is based on either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. A quarterly facility fee is payable based upon the daily aggregate amount of commitments

F-20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and the Company’s leverage ratio.

The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of per share amounts)


Capital Leases
At December 31, 2009, there were no borrowings under the Credit Agreement.

2012Capital Leases

At December 31, 2009 and 2008, $2,8392011, $267 and $3,651$901 of capital lease indebtedness was secured by property, plant and equipment, respectively.

Other
Other

Maturities of long-term debt, including payments under capital leases and amounts due banks, for the five years succeeding December 31, 20092012 are $35,867$18,679 in 2010, $1,2972013, $408 in 2011, $80,8122014, $309 in 2012, $1902015, $133 in 2013, $1962016, $134 in 20142017 and $1,262$612 thereafter. Total interest paid was $11,339$4,423 in 2009, $13,0372012, $6,979 in 20082011 and $11,537$7,446 in 2007.2010. The

F-24

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 6 – DEBT (continued)

primary difference between interest expense and interest paid is the amortization of the gains on terminated interest rate swaps.

The Company’sCompany's short-term borrowings included in “Amounts"Amounts due banks”banks" were $34,577$18,220 and $19,436$19,922 at December 31, 20092012 and 2008,2011, respectively, and represent the borrowings of foreign subsidiaries at weighted average interest rates of 8.35%11.3% and 22.78%11.6%, respectively. The decrease in the weighted average interest rate in 2009 is primarily due to the low interest rate short-term borrowings at Jin Tai offsetting higher interest rate borrowings at the Company’s subsidiary in Venezuela. The higher weighted average interest rate in 2008 was due to borrowings at the Company’s subsidiary in Venezuela.

NOTE 79 – STOCK PLANS

On April 28, 2006, the shareholders of the Company approved the 2006 Equity and Performance Incentive Plan, as amended (“("EPI Plan”Plan"), which replaced the 1998 Stock Plan, as amended and restated in May 2003. The EPI Plan provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an additional 3,000,0006,000,000 of the Company’sCompany's common shares. In addition, on April 28, 2006, the shareholders of the Company approved the 2006 Stock Plan for Non-Employee Directors, as amended (“("Director Plan”Plan"), which replaced the Stock Option Plan for Non-Employee Directors adopted in 2000. The Director Plan provides for the granting of options, restricted shares and restricted stock units up to an additional 300,000600,000 of the Company’sCompany's common shares. At December 31, 2009,2012, there were 3,264,8862,517,228 common shares available for future grant under all plans.

Stock Options
The following table summarizes thestock option activity for each of the three years ended December 31, 2009,2012, under all Plans:

   Year Ended December 31,
   2009  2008  2007
   Shares  Weighted
Average
Exercise
Price		  Shares  Weighted
Average
Exercise
Price		  Shares  Weighted
Average
Exercise
Price

Balance at beginning of year

  1,716,017   $43.55  1,663,704   $41.63  1,747,050   $34.28

Shares granted

  386,305    52.61  316,264    44.11  268,854    68.48

Shares exercised

  (66,669)   34.86  (235,650)   30.56  (348,450)   25.30

Shares canceled

  (19,326)   51.49  (28,301)   45.23  (3,750)   60.72
               

Balance at end of year

  2,016,327   $45.49  1,716,017   $43.55  1,663,704   $41.63
               

Exercisable at end of year

  1,334,346   $41.81  1,144,784   $39.14  1,152,545   $33.45

  Year Ended December 31,
  2012 2011 2010
  Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
Balance at beginning of year 3,632,463
 $26.05
 3,779,824
 $23.99
 3,596,884
 $22.28
Options granted 412,980
 47.66
 459,263
 35.34
 491,010
 31.29
Options exercised (962,029) 19.52
 (572,795) 19.82
 (260,084) 13.49
Options canceled (22,470) 24.07
 (33,829) 26.62
 (47,986) 27.84
Balance at end of year 3,060,944
 30.98
 3,632,463
 26.05
 3,779,824
 23.99
Exercisable at end of year 2,208,455
 27.19
 2,677,071
 23.73
 2,749,168
 22.40
Options granted under both the EPI Plan and its predecessor plans may be outstanding for a maximum of ten10 years from the date of grant. The majority of options granted vest ratably over a period of three years from the grant date. The exercise prices of all options were equal to the quoted market price of the Company’sCompany's common shares at the date of grant. The Company issued shares of common stock from treasury upon all exercises of stock options in 2012, 2011and the granting of restricted stock awards in 2009, 2008 and 2007.

Restricted shares are valued at the quoted market price on the grant date. The majority of restricted shares vest over a period of three to five years. Under the EPI Plan, the Company issued 85,943 restricted shares at a weighted average market price of $52.58 per share in 2009, 56,205 restricted shares at a market price of $44.03

F-25

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7 – STOCK PLANS (continued)2010

per share in 2008 and 25,690 restricted shares at a market price of $68.51 per share in 2007. The Company issued 8,532 restricted shares at a market price of $52.71 per share, 10,233 restricted shares at a market price of $43.97 per share and 7,102 restricted shares at a market price of $68.21 under the Director Plan in 2009, 2008 and 2007, respectively.

.

The Company uses the Black-Scholes option pricing model for estimating fair values of options. In estimating the fair value of options granted, the expected option life is based on the Company’sCompany's historical experience. The expected volatility is based on historical volatility. The weighted average assumptions for each of the three years ended December 31, 20092012 were as follows:
  Year Ended December 31,
  2012 2011 2010
Expected volatility 45.67% 41.92% 42.15%
Dividend yield 1.66% 1.63% 2.02%
Risk-free interest rate 0.70% 0.80% 1.64%
Expected option life (years) 4.5
 4.3
 4.9
Weighted average fair value per option granted during the year $15.87
 $10.97
 $10.01

F-21
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The following table summarizes non-vested stock options for the year ended December 31, 2012:
  Year Ended December 31, 2012
  
Number of
Options
 
Weighted
Average Fair
Value at Grant
Date
Balance at beginning of year 929,382
 $10.78
Granted 412,980
 15.87
Vested (470,243) 10.19
Forfeited (19,630) 19.60
Balance at end of year 852,489
 13.63
The aggregate intrinsic value of options outstanding and exercisable which would have been received by the optionees had all awards been exercised at December 31, 2012 was $54,178 and $47,464, respectively. The total intrinsic value of awards exercised during 2012, 2011 and 2010 was $18,776, $10,028 and $4,270, respectively.
The following table summarizes information about awards outstanding as of December 31, 2012:
  Outstanding Exercisable  
Exercise Price Range 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life (years)
Under $19.99 449,884
 $18.59
 449,884
 $18.59
 2.4
$20.00 - $32.99 1,389,730
 27.79
 1,284,025
 27.50
 6.5
Over $33.00 1,221,330
 39.18
 474,546
 34.50
 8.0
  3,060,944
  
 2,208,455
  
 6.5
Restricted Share Awards
The following table summarizes restricted share award activity for each of the three years ended December 31, 2012, under all Plans:
  Year Ended December 31,
  2012 2011 2010
  Shares 
Weighted
Average
Grant Date
Fair Value
 Shares 
Weighted
Average
Grant Date
Fair Value
 Shares 
Weighted
Average
Grant Date
Fair Value
Balance at beginning of year 379,233
 $28.06
 523,730
 $27.36
 435,770
 $26.61
Shares granted 20,099
 47.81
 22,779
 35.55
 112,864
 31.05
Shares vested* (62,524) 32.10
 (159,842) 26.97
 (24,904) 31.07
Shares forfeited —
 —
 (7,434) 24.67
 —
 —
Balance at end of year 336,808
 28.49
 379,233
 28.06
 523,730
 27.36

   Year Ended December 31, 
   2009  2008  2007 

Expected volatility

   40.48%   33.80%   23.05% 

Dividend yield

   2.15%   3.09%   1.57% 

Risk-free interest rate

   2.04%   1.63%   3.50% 

Expected option life (years)

   4.7    4.5    4.3  

Weighted average fair value per option granted during the year

  $16.05   $9.85   $14.33  

*Includes shares vested but not exercisable
Restricted share awards are valued at the quoted market price on the grant date. The majority of restricted share awards vest over a period of three to five years. The Company issued shares of common stock from treasury upon the granting of restricted share awards in 2012, 2011 and 2010. Under the EPI Plan, the Company issued 82,992 restricted shares at a weighted average market price of $30.97 per share in 2010. The Company issued 20,099 restricted shares at a weighted average market price of $47.81 per share, 22,779 restricted shares at a weighted average market price of $35.55 per share and 29,872 restricted shares at a weighted average market price of $31.28 per share under the Director Plan in 2012, 2011 and 2010, respectively. The remaining weighted average life of all non-vested restricted share awards is 1.8 years as of December 31, 2012.

F-22
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The following table summarizes non-vested restricted share awards for the year ended December 31, 2012:
  Year Ended December 31, 2012
  
Number of
Restricted
Shares
 
Weighted
Average
Fair Value
at Grant Date
Balance at beginning of year 355,933
 $28.18
Granted 20,099
 47.81
Vested (57,944) 31.93
Balance at end of year 318,088
 28.74
Restricted Stock Units ("RSUs")
The following table summarizes restricted stock unit activity for the years ended December 31, 2012 and 2011, under all Plans:
  Year Ended December 31,
  2012 2011
  Units 
Weighted
Average
Grant Date
Fair Value
 Units 
Weighted
Average
Grant Date
Fair Value
Non-vested at beginning of year 166,519
 $34.55
 —
 $—
Units granted 133,944
 47.97
 166,519
 34.55
Units vested (10,499) 33.06
 —
 —
Units forfeited (1,295) 35.55
 —
 —
Non-vested at end of year 288,669
 40.83
 166,519
 34.55
RSUs are valued at the quoted market price on the grant date. The majority of RSUs vest over a period of three to five years. The Company will issue shares of common stock from treasury upon the vesting of RSUs and any earned dividend equivalents. Conversion of 10,499 RSUs to common stock in 2012 were deferred as part of the 2005 Deferred Compensation Plan for Executives (the "2005 Plan"). As of December 31, 2012, 10,713 RSUs, including related dividend equivalents, have been deferred under the 2005 Plan. These units are reflected within dilutive shares in the calculation of earnings per share. Under the EPI Plan, the Company issued 133,944 and 166,519 restricted stock units at a weighted average market price of $47.97 and $34.55 per share in 2012 and 2011, respectively. Restricted stock units were not granted prior to 2011. The remaining weighted average life of all non-vested RSUs is 4.3 years as of December 31, 2012.
Stock-Based Compensation Expense
Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares or restricted stock units ultimately forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the Consolidated Statements of Income for 2009, 20082012, 2011 and 20072010 was $5,432, $4,738$8,961, $6,610 and $4,679,$8,213, respectively. The related tax benefit for 2009, 20082012, 2011 and 20072010 was $2,058, $1,793$3,409, $2,515 and $1,789,$3,112, respectively. As of December 31, 2009,2012, total unrecognized stock-based compensation expense related to nonvestednon-vested stock options, restricted shares and restricted sharesstock units was $13,508,$23,718, which is expected to be recognized over a weighted average period of approximately 39 months.

The following table summarizes nonvested stock options and restricted shares for the year ended December 31, 2009:

   December 31, 2009
   Number of
Options and
Restricted
Shares		  Weighted
Average Fair
Value at
Grant Date

Balance at beginning of year

  524,583   $22.96

Granted

  386,305    24.99

Vested

  (271,037)   17.35

Forfeited

  (11,835)   11.70
     

Balance at end of year

  628,016   $26.84
     

The aggregate intrinsic value of awards outstanding at December 31, 2009, based on the Company’s closing stock price of $53.46 as of the last business day in the year ended December 31, 2009, which would have been received by the optionees had all awards been exercised on that date was $32,367. The aggregate intrinsic value of awards exercisable at December 31, 2009, based on the Company’s closing stock price of $53.46 as of the last

F-26

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7 – STOCK PLANS (continued)37 months

business day in the year ended December 31, 2009, which would have been received by the optionees had all awards been exercised on that date was $19,385. The total intrinsic value of awards exercised during 2009 and 2008 was $2,236 and $10,366, respectively. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the awards.

The following table summarizes information about awards outstanding as of December 31, 2009:

   Outstanding  Exercisable   

Exercise Price Range

  Number of
Awards		  Weighted
Average
Exercise
Price		  Number of
Awards		  Weighted
Average
Exercise
Price		  Weighted
Average
Remaining
Life
(years)

$13.50 - $34.99

  328,581  $23.42  328,581  $23.42  3.0

$35.00 - $39.99

  527,762  $37.64  525,727  $37.63  5.4

Over $40.00

  1,159,984  $55.32  480,038  $58.97  7.7
            
  2,016,327    1,334,346    6.3
            

.

Lincoln Stock Purchase Plan
The 1995 Lincoln Stock Purchase Plan provides employees the ability to purchase open market shares on a commission-free basis up to a limit of ten thousand dollars annually. Under this plan, 400,000800,000 shares have been authorized to be purchased. Under this plan, sharesShares purchased were 3,8184,908 in 2009, 1,0852012, 4,466 in 20082011 and 6,8434,240 in 2007.

2010.
NOTE 10 – COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to 30 million shares of the Company's common stock. At management's discretion, the Company repurchases its common stock from time to time in the open market, depending on market conditions, stock price and other factors. During the year ended December 31, 2012, the Company purchased 1,779,384 shares at an average cost per share of $45.06. As of December 31, 2012, 3,342,373 shares remained available for repurchase under the stock repurchase program. The treasury shares have not been retired.

F-23
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

NOTE 811 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS

The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans. The Company uses a December 31 measurement date for its plans.

The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and certain non-U.S. statutory termination benefits.

Defined Benefit Plans

The defined benefit plans generally provide benefits based upon years of service and compensation. The plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans. The contributions are made in amounts sufficient to fund current service costs on a current basis and to fund past service costs, if any, over various amortization periods.

F-27

Obligations and Funded Status
  December 31,
  2012 2011
Change in benefit obligations    
Benefit obligations at beginning of year $991,979
 $851,948
Service cost 21,538
 17,331
Interest cost 41,584
 44,161
Plan participants' contributions 334
 365
Plan amendments (3,681) —
Actuarial loss 70,015
 121,800
Benefits paid (86,722) (40,345)
Settlement/curtailment (3,946) (2,434)
Currency translation 2,624
 (847)
Benefit obligations at end of year 1,033,725
 991,979
     
Change in plan assets    
Fair value of plan assets at beginning of year 749,456
 726,474
Actual return on plan assets 83,156
 29,470
Employer contributions 68,029
 33,994
Plan participants' contributions 334
 365
Benefits paid (85,238) (37,960)
Settlement (3,798) (2,415)
Currency translation 1,958
 (472)
Fair value of plan assets at end of year 813,897
 749,456
     
Funded status at end of year (219,828) (242,523)
Unrecognized actuarial net loss 422,042
 408,474
Unrecognized prior service cost (4,101) (515)
Unrecognized transition assets, net 26
 41
Net amount recognized $198,139
 $165,477
The Company's U.S. defined benefit plans were amended to allow participants, including those with deferred vested pension benefits, additional payment options including a lump sum and a five year payment option. Increased benefits paid primarily reflect the disbursements related to deferred vested participants taking lump sum payment options.

F-24

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS (continued)

Obligations

(Dollars in thousands, except share and Funded Status

   December 31, 
   2009  2008 

Change in benefit obligations

   

Benefit obligations at beginning of year

  $721,467   $699,129  

Service cost

   12,755    16,501  

Interest cost

   43,097    42,615  

Plan participants’ contributions

   408    550  

Actuarial loss

   35,289    15,372  

Benefits paid

   (37,468)   (38,970) 

Settlement/curtailment

   (6,173)   (14) 

Currency translation

   8,146    (13,716) 
         

Benefit obligations at end of year

   777,521    721,467  

Change in plan assets

   

Fair value of plan assets at beginning of year

   532,775    715,072  

Actual return on plan assets

   87,936    (159,522) 

Employer contributions

   46,128    23,810  

Plan participants’ contributions

   408    550  

Benefits paid

   (34,366)   (34,237) 

Settlement

   (3,746)   —  

Currency translation

   7,623    (12,898) 
         

Fair value of plan assets at end of year

   636,758    532,775  

Funded status at end of year

   (140,763)   (188,692) 

Unrecognized net loss

   278,529    312,071  

Unrecognized prior service cost

   (872)   (917) 

Unrecognized transition assets, net

   78    109  
         

Net amount recognized

  $136,972   $122,571  
         

per share amounts)


The after-tax amounts of unrecognized actuarial net loss, prior service creditscosts and transition obligationsassets included in “AccumulatedAccumulated other comprehensive loss”loss at December 31, 20092012 were $173,861, $(512)$264,514, $(2,690) and $60,$20, respectively. The actuarial loss represents changes in the estimated obligation not yet recognized in the Consolidated Income Statement. Actuarial losses arising during 2012 are primarily attributable to a lower discount rate. The pre-tax amounts of unrecognized actuarial net loss, prior service credits and transition obligations expected to be recognized as components of net periodic benefit cost during 20102013 are $21,233, $(50)$32,314, $(615) and $5,$4, respectively.

F-28

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS (continued)

Amounts Recognized in Consolidated Balance Sheets

   December 31, 
   2009  2008 

Prepaid pensions

  $1,921   $2,716  

Accrued pension liability, current

   (3,014)   (3,248) 

Accrued pension liability, long-term

   (139,670)   (188,160) 

Accumulated other comprehensive loss, excluding tax effects

   277,735    311,263  
         

Net amount recognized in the balance sheets

  $136,972   $122,571  
         

  December 31,
  2012 2011
Accrued pension liability, current $(3,639) $(10,348)
Accrued pension liability, long-term (216,189) (232,175)
Accumulated other comprehensive loss, excluding tax effects 417,967
 408,000
Net amount recognized in the balance sheets $198,139
 $165,477
Components of Pension Cost for Defined Benefit Plans
  Year Ended December 31,
  2012 2011 2010
Service cost $21,538
 $17,331
 $15,371
Interest cost 41,584
 44,161
 42,730
Expected return on plan assets (58,754) (57,405) (50,424)
Amortization of prior service cost (90) (62) (44)
Amortization of net loss 31,085
 21,816
 20,830
Settlement/curtailment loss 895
 529
 660
Pension cost for defined benefit plans $36,258
 $26,370
 $29,123
Pension costs in

   Year Ended December 31, 
   2009  2008  2007 

Service cost

  $12,755   $16,501   $17,829  

Interest cost

   43,097    42,615    40,621  

Expected return on plan assets

   (43,802)   (56,954)   (55,943) 

Amortization of prior service cost

   (23)   70    75  

Amortization of net loss

   25,087    1,636    4,615  

Settlement/curtailment (gain) loss

   (2,340)   745    (937) 
             

Pension cost for defined benefit plans

  $34,774   $4,613   $6,260  
             

2012 for the Company's defined benefit plans increased as a result of an increase in amortization of net loss and settlement loss partially offset by an increase in expected return on plan assets. The higher settlement loss includes a charge of $742 related to the rationalization of the Company's Australia manufacturing operations.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets

   December 31,
   2009  2008

U.S. pension plans

    

Projected benefit obligation

  $714,455  $670,243

Accumulated benefit obligation

   679,899   635,433

Fair value of plan assets

   584,321   491,367

Non-U.S. pension plans

    

Projected benefit obligation

  $49,862  $39,362

Accumulated benefit obligation

   46,309   37,208

Fair value of plan assets

   37,321   26,841

  December 31,
  2012 2011
U.S. pension plans    
Projected benefit obligation $956,837
 $921,469
Accumulated benefit obligation 905,541
 883,157
Fair value of plan assets 755,491
 696,802
Non-U.S. pension plans    
Projected benefit obligation $76,884
 $70,507
Accumulated benefit obligation 70,492
 66,332
Fair value of plan assets 58,403
 52,652
The total accumulated benefit obligation for all plans was $738,965$976,033 as of December 31, 20092012 and $685,565$949,489 as of December 31, 2008.

F-29

2011.


F-25

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS (continued)

(Dollars in thousands, except share and per share amounts)

Contributions to Plans

Contributions to U.S. plans were $45,000 and $20,000 for the years ended December 31, 2009 and 2008, respectively.

The Company expects to contribute $30,000approximately $103,000 to its defined benefit plans in the U.S. plans during 2010.United States in 2013. The actual amounts to be contributed to the pension plans in 20102013 will be determined at the Company’sCompany's discretion.

Benefit Payments for Plans

Benefits expected to be paid for the U.S. plans are as follows:

Estimated Payments

2010

  $38,876

2011

   40,949

2012

   48,212

2013

   42,911

2014

   44,602

2015 through 2019

   253,638

Estimated Payments 
2013$53,513
201461,080
201562,051
201658,608
201762,361
2018 through 2022311,135
Assumptions
Assumptions

Weighted average assumptions used to measure the benefit obligation for the Company’sCompany's significant defined benefit plans as of December 31, 20092012 and 20082011 were as follows:

   December 31, 
   2009  2008 

Discount rate

  5.8%  6.2% 

Rate of increase in compensation

  4.0%  4.1% 

  December 31,
  2012 2011
Discount rate 3.8% 4.2%
Rate of increase in compensation 4.0% 4.0%
Weighted average assumptions used to measure the net periodic benefit cost for the Company’sCompany's significant defined benefit plans asfor each of the three years ended December 31, 2009, 2008 and 20072012 were as follows:

   December 31, 
   2009  2008  2007 

Discount rate

  6.2%  6.3%  5.9% 

Rate of increase in compensation

  4.0%  4.1%  4.1% 

Expected return on plan assets

  8.2%  8.2%  8.4% 

  December 31,
  2012 2011 2010
Discount rate 4.2% 5.3% 5.8%
Rate of increase in compensation 4.0% 4.0% 4.0%
Expected return on plan assets 7.7% 7.9% 7.9%
To develop the discount rate assumption to be used for U.S. plans, the Company refers to the yield derived from matching projected pension payments with maturities of a portfolio of available non-callable bonds rated AA- or better. The expected long-term rate of return assumption is based on the weighted average expected return of the various asset classes in the plans’plans' portfolio and the targeted allocation of plan assets. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance. The rate of compensation increase is determined by the Company based upon annual reviews.

F-30

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS (continued)

Pension Plans’Plans' Assets

The primary objective of the pension plans’plans' investment policy is to ensure sufficient assets are available to provide benefit obligations when such obligations mature. Investment management practices must comply with ERISA or any other applicable regulations and rulings. The overall investment strategy for the defined benefit pension plans’plans' assets is to achieve a rate of return over a normal business cycle relative to an acceptable level of risk that is consistent with the long-term objectives of the portfolio. The target allocation for plan assets is 60% to 70% equity securities and 30% to 40% debt securities.


F-26
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The following table sets forth, by level within the fair value hierarchy, the pension plans’ assets:

plans' assets as of December 31, 2012:
  Pension Plans' Assets at Fair Value as of December 31, 2012
  
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Corporate stock (1)
 $107,763
 $—
 $—
 $107,763
Cash and cash equivalents 5,170
 —
 —
 5,170
Corporate and other obligations (2)
 —
 412
 —
 412
Common trusts and 103-12 investments (3)
 —
 673,469
 —
 673,469
Private equity funds (4)
 —
 —
 27,083
 27,083
Total assets at fair value $112,933
 $673,881
 $27,083
 $813,897
The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of December 31, 2011:
  Pension Plans' Assets at Fair Value as of December 31, 2011
  
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Corporate stock (1)
 $94,407
 $—
 $—
 $94,407
Cash and cash equivalents 1,582
 —
 —
 1,582
Insurance company nonpooled separate account (5)
        
Cash and cash equivalents —
 15,371
 —
 15,371
Corporate and other obligations —
 8,288
 650
 8,938
Common trusts and 103-12 investments (3)
 —
 611,361
 —
 611,361
Private equity funds (4)
 —
 —
 17,797
 17,797
Total assets at fair value $95,989
 $635,020
 $18,447
 $749,456

   Pension Plans’ Assets at Fair Value as of December 31, 2009
   Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		  Significant Other
Observable
Inputs
(Level 2)		  Significant
Unobservable
Inputs
(Level 3)		  Total

Corporate stock (1)

  $88,600  $—  $—  $88,600

Insurance company nonpooled separate
account (2)

        

Cash and cash equivalents

   —   33,547   —   33,547

Corporate and other obligations

   —   11,793   1,699   13,492

Common trusts (3)

   —   496,600   —   496,600

Private equity funds

   —   —   4,519   4,519
                

Total assets at fair value

  $88,600  $541,940  $6,218  $636,758
                

(1)This investment category includes publicly traded equity investments directly held by the plans. Investments are valued at the unadjusted quoted close prices reported on the reporting date.
(2)The insurance company nonpooled separate accountThis investment category is focusedcomposed of publicly traded bonds and asset backed securities which are valued at the quoted closing market prices on capital preservation and invests in fixed-income securities and money market instruments.the reporting date.
(3)Common trusts and 103-12 investments are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, equity and credit indexes, and money markets. Trusts are valued at the net asset value ("NAV") as determined by their custodian. NAV represent the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.

(4)Private equity funds consist of four funds seeking capital appreciation by investing in private equity investment partnerships and venture capital companies. Funds are comprised of unrestricted and restricted publicly traded securities and privately held securities. Unrestricted securities are valued at the closing market price on the reporting date. Restricted securities may be valued at a discount from such closing public market price, depending on facts and circumstances. Privately held securities are valued at fair value as determined by the fund directors and general partners.
(5)The insurance company nonpooled separate account is focused on capital preservation and invests in fixed-income securities and money market instruments. The account is composed of publicly traded and privately held corporate bonds, money market and mortgage backed assets. Publicly traded bonds, money market and mortgage backed securities are valued at the closing market price on the reporting date. Privately held bonds are valued at fair value as determined by the fund directors and general partners.

F-27
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The table below sets forth a summary of changes in the fair value of the Level 3 pension plans’plans' assets for the year ended December 31, 2009:

   Insurance
Company
Nonpooled
Separate
Account		  Private
Equity
Funds		  Total

Balance at the beginning of year

  $1,638   $2,328   $3,966

Purchases, sales, issuances and settlements

   (432)   2,473    2,041

Realized and unrealized gains (losses)

   493    (282)   211
            

Balance at the end of year

  $1,699   $4,519   $6,218
            

The amount of total (losses) gains during the period attributable to the change in unrealized (losses) gains relating to Level 3 net assets still held at the reporting date

  $(283)  $586   $303
            

F-31

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2012NOTE 8 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS (continued):

  
Insurance
Company
Nonpooled
Separate
Account
 
Private
Equity
Funds
 Total
Balance at the beginning of year $650
 $17,797
 $18,447
Purchases, sales, issuances and settlements (650) 7,318
 6,668
Realized and unrealized gains —
 1,968
 1,968
Balance at the end of year $—
 $27,083
 $27,083
The amount of total gains during the period attributable to the change in unrealized gains relating to Level 3 net assets still held at the reporting date $—
 $1,135
 $1,135
Supplemental Executive Retirement Plan

The Company maintains a domestic unfunded supplemental executive retirement plan (“SERP”("SERP") under which non-qualified supplemental pension benefits are paid to certain employees in addition to amounts received under the Company’sCompany's qualified retirement plan which is subject to Internal Revenue Service (“IRS”("IRS") limitations on covered compensation. The annual cost of this program has been included in the determination of total net pension costs shown above and was $2,088, $2,598$2,254, $2,110 and $2,411$2,118 in 2009, 20082012, 2011 and 2007,2010, respectively. The projected benefit obligation associated with this plan is also included in the pension disclosure shown above and was $20,442, $18,764$25,646, $23,930 and $19,195$21,412 at December 31, 2009, 20082012, 2011 and 2007,2010, respectively.

Defined Contribution Plans

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 IRS. For most participants the plan provides for Company matching contributions of 35% of the first 6% of employee compensation contributed to the plan. On January 1, 2009, the match provision was suspended for the 401(k) savings
The plan as part of the Company’s actions to reduce costs in light of market conditions. In addition, the planalso includes a feature in which all participants hired after November 1, 1997 receive an annual Company contribution of 2% of their base pay. The plan allowed employees hired before November 1, 1997, at their election, to receive this contribution in exchange for forfeiting certain benefits under the pension plan.

In 2006, the plan was amended to include a feature in which all participants receive an annual Company contribution ranging from 4% to 10% of base pay based on years of service.

The annual costs recognized for defined contribution plans were $4,810, $8,471$9,405, $8,478 and $8,590$7,039 in 2009, 20082012, 2011 and 2007,2010, respectively.

Multi-Employer Plans

The Company participates in multi-employer plans for several of its operations in Europe. Pension costsCosts for these plans are recognized as contributions are funded. The Company's risk of participating in these plans is limited to the annual premium as determined by the plan. The annual costs of these programs were $1,322, $1,509$972, $966 and $1,725$1,052 in 2009, 20082012, 2011 and 2007,2010, respectively.

Other Benefits

The Cleveland, Ohio, area operations have a Guaranteed Continuous Employment Plan covering substantially all employees which, in general, provides that the Company will provide work for at least 75% of every standard work week (presently 40 hours). This plan does not guarantee employment when the Company’sCompany's ability to continue normal operations is seriously restricted by events beyond the control of the Company. The Company has reserved the right to terminate this plan effective at the end of a calendar year by giving notice of such termination not less than six months prior to the end of such year.

F-32

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 912 – INCOME TAXES

The components of income (loss) before income taxes for the three years ended December 31, 20092012 were as follows:

   Year Ended December 31, 
   2009  2008  2007 

U.S.

  $110,909   $223,672   $205,779  

Non-U.S.

   (24,428)   76,137    81,378  
             

Total

  $86,481   $299,809   $287,157  
             
The components of income tax expense (benefit) for the three years ended December 31, 2009 were as follows:   
   Year Ended December 31, 
   2009  2008  2007 

Current:

    

Federal

  $25,688   $51,700   $61,277  

Non-U.S.

   15,943    21,880    20,313  

State and local

   3,364    6,576    6,542  
             
   44,995    80,156    88,132  

Deferred:

    

Federal

   (4,612)   8,622    (711) 

Non-U.S.

   (2,735)   (1,435)   (3,712) 

State and local

   257    180    712  
             
   (7,090)   7,367    (3,711) 
             

Total

  $37,905   $87,523   $84,421  
             

  Year Ended December 31,
  2012 2011 2010
U.S. $243,382
 $204,667
 $135,756
Non-U.S. 126,188
 96,664
 51,352
Total $369,570
 $301,331
 $187,108

F-28
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The components of income tax expense (benefit) for the three years ended December 31, 2012 were as follows:
  Year Ended December 31,
  2012 2011 2010
Current:      
Federal $72,809
 $42,510
 $30,642
Non-U.S. 33,510
 19,970
 15,532
State and local 8,172
 6,699
 4,337
  114,491
 69,179
 50,511
Deferred:      
Federal (1,673) 12,140
 6,802
Non-U.S. (750) 2,768
 (2,640)
State and local 286
 231
 225
  (2,137) 15,139
 4,387
Total $112,354
 $84,318
 $54,898
The differences between total income tax expense and the amount computed by applying the statutory Federalfederal income tax rate to income before income taxes for the three years ended December 31, 20092012 were as follows:

   Year Ended December 31, 
   2009  2008  2007 

Statutory rate of 35% applied to pre-tax income

  $30,268   $104,933   $100,505  

Effect of state and local income taxes, net of federal tax benefit

   2,443    4,454    4,964  

Taxes more (less) than the U.S. tax rate on non-U.S. earnings, including utilization of tax loss carryforwards, losses with no benefit and changes in non-U.S. valuation allowance

   21,646    (6,203)   (11,881) 

Manufacturing deduction

   (2,310)   (4,170)   (3,583) 

U.S. tax (benefit) cost of foreign source income

   (14,486)   (6,888)   1,151  

Resolution of prior years’ tax liabilities

   (137)   (4,309)   (6,818) 

Other

   481    (294)   83  
             

Total

  $37,905   $87,523   $84,421  
             

Effective tax rate

   43.83%   29.19%   29.40% 
             

  Year Ended December 31,
  2012 2011 2010
Statutory rate of 35% applied to pre-tax income $129,350
 $105,466
 $65,488
Effect of state and local income taxes, net of federal tax benefit 5,598
 4,585
 3,044
Taxes (less) more than the U.S. tax rate on non-U.S. earnings, including utilization of tax loss carry-forwards, losses with no benefit and changes in non-U.S. valuation allowance (11,263) (13,637) (1,417)
Manufacturing deduction (6,287) (5,330) (3,900)
U.S. tax cost (benefit) of foreign source income (4,766) 145
 (3,282)
Resolution and adjustments to uncertain tax positions (1,493) (5,103) (3,204)
Other 1,215
 (1,808) (1,831)
Total $112,354
 $84,318
 $54,898
Effective tax rate 30.40% 27.98% 29.34%
The 2012 effective tax rate is impacted by the geographic mix of earnings and taxes at lower rates in foreign jurisdictions, including Canada, Mexico, Poland and the U.K., as well as loss utilization in other foreign jurisdictions. Total income tax payments, net of refunds, were $33,522$78,506 in 2009, $72,9232012, $62,600 in 20082011 and $83,950$40,970 in 2007.

F-33

2010.



F-29

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 9 – INCOME TAXES (continued)

Unrecognized Tax Benefits

In 2007, the Company adopted FIN 48, subsequently codified

(Dollars in ASC 740, which clarified the recognition thresholdthousands, except share and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company’s unrecognized tax benefits upon adoption were $28,997 and the cumulative effect of adoption was recorded as a decrease of $1,590 to retained earnings.

Liabilities for unrecognized tax benefits are classified as “Accrued taxes” non-current unless expected to be paid in one year. The Company recognizes interest and penalties related to unrecognized tax benefits in “Income taxes.” For the years ended December 31, 2009 and 2008, current income tax expense included $2,194 and $1,044 of interest and penalties, respectively. For those same years, the Company’s accrual for interest and penalties related to unrecognized tax benefits totaled $10,547 and $6,141, respectively.

The following table summarizes the activity related to unrecognized tax benefits:

   2009  2008 

Balance at January 1

  $34,183   $29,215  

Increase related to current year tax provisions

   3,973    7,646  

Increase related to prior years’ tax positions

   710    2,734  

Increase related to acquisitions

   6,617    —  

Decrease related to settlements with taxing authorities

   (1,685)   —  

Resolution of prior years’ tax liabilities

   (1,200)   (4,255) 

Other

   242    (1,157) 
         

Balance at December 31

  $42,840   $34,183  
         

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $27,182 at December 31, 2009 and $19,945 at December 31, 2008.

The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2005. The Company anticipates no significant changes to its total unrecognized tax benefits through the end of 2010. The Company is currently subject to an IRS audit for the tax years 2005 – 2008 and an Indonesian tax audit for 2005 – 2006. The Company does not expect the results of these examinations to have a material effect on the consolidated financial statements.

F-34

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 9 – INCOME TAXES (continued)

per share amounts)


Deferred Taxes

Significant components of deferred tax assets and liabilities at December 31, 20092012 and 2008,2011, were as follows:

   December 31, 
   2009  2008 

Deferred tax assets:

   

Tax loss and credit carryforwards

  $44,634   $16,918  

Inventory

   10,724    8,548  

Other accruals

   16,249    12,710  

Employee benefits

   14,445    13,502  

Pension obligations

   42,106    63,130  

Other

   13,572    16,282  
         
   141,730    131,090  

Valuation allowance

   (34,095)   (18,295) 
         
   107,635    112,795  

Deferred tax liabilities:

   

Property, plant and equipment

   35,316    31,338  

Intangible assets

   13,766    10,998  

Inventory

   11,012    10,970  

Pension obligations

   2,016    2,052  

Other

   12,104    10,314  
         
   74,214    65,672  
         

Total

  $33,421   $47,123  
         

  December 31,
  2012 2011
Deferred tax assets:    
Tax loss and credit carry-forwards $40,373
 $32,313
Inventory 1,328
 3,639
Other accruals 14,981
 15,653
Employee benefits 17,904
 17,600
Pension obligations 82,903
 79,371
Other 12,686
 7,111
Deferred tax assets, gross 170,175
 155,687
Valuation allowance (38,799) (31,713)
Deferred tax assets, net 131,376
 123,974
Deferred tax liabilities:    
Property, plant and equipment 41,380
 40,806
Intangible assets 19,545
 13,251
Inventory 5,783
 2,973
Pension obligations 2,940
 1,676
Other 8,769
 9,685
Deferred tax liabilities 78,417
 68,391
Total Deferred taxes $52,959
 $55,583
At December 31, 2009,2012, certain subsidiaries had tax loss carryforwardscarry-forwards of approximately $120,928$132,868 that will expire in various years from 20102013 through 2029,2030, except for $36,853$27,894 for which there is no expiration date.

In assessing the realizability of deferred tax assets, the Company assesses whether it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At December 31, 2009,2012, a valuation allowance of $34,095$38,799 was recorded against certain deferred tax assets based on this assessment. The Company believes it is more likely than not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable could be increased or decreased in the future if the Company’sCompany's assessment of future taxable income or tax planning strategies changes.

The Company does not provide deferred income taxes on unremitted earnings of certain non-U.S. subsidiaries which are deemed permanently reinvested. It is not practicable to calculate the deferred taxes associated with the remittance of these earnings. Deferred income taxes of $283 have been provided onassociated with earnings of $1,831$3,776 that are not expected to be permanently reinvested.

reinvested were not significant.

Unrecognized Tax Benefits
Liabilities for unrecognized tax benefits are classified as "Accrued taxes" non-current unless expected to be paid in one year. The Company recognizes interest and penalties related to unrecognized tax benefits in "Income taxes." Current income tax expense included an expense of $893 for the year ended December 31, 2012 and a benefit of $505 for the year ended December 31, 2011 for interest and penalties. For those same years, the Company's accrual for interest and penalties related to unrecognized tax benefits totaled $10,295 and $9,039, respectively.

F-30
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The following table summarizes the activity related to unrecognized tax benefits:
  2012 2011
Balance at January 1 $26,656
 $38,393
Increase related to current year tax provisions 3,838
 2,221
Increase related to prior years' tax positions 212
 3,250
Increase related to acquisitions 1,274
 —
Decrease related to settlements with taxing authorities (940) (3,424)
Resolution of and other decreases in prior years' tax liabilities (5,964) (13,460)
Other 179
 (324)
Balance at December 31 $25,255
 $26,656
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $14,839 at December 31, 2012 and $17,325 at December 31, 2011.
The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2003. The Company is currently subject to various U.S. state audits and an Indonesian tax audit for 2003 - 2007.
The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a further reduction of $5,045 in prior years' unrecognized tax benefits in 2013.
In July 2012, the Company received a Notice of Reassessment from the Canada Revenue Agency (the “CRA”) for 2004 to 2011, which would disallow the deductibility of inter-company dividends. These adjustments would increase Canadian federal and provincial tax due by $62,120 plus approximately $17,156 of interest, net of tax. The Company disagrees with the position taken by the CRA and believes it is without merit. The Company will vigorously contest the assessment through the Tax Court of Canada. A trial date has not yet been scheduled.
In connection with the litigation process, the Company is required to deposit no less than one-half of the tax and interest assessed by the CRA. The Company has elected to deposit the entire amount of the dispute in order to suspend the continuing accrual of a 5% interest charge. Additionally, deposited amounts will earn interest of approximately 1% due upon a favorable outcome. A deposit was made and is recorded as a non-current asset valued at $89,220 as of December 31, 2012. Any Canadian tax ultimately due will be creditable in the parent company's U.S. federal tax return. The Company expects to be able to utilize the full amount of foreign tax credits generated in the statutorily allowed carry-back and carry-forward periods. Accordingly, should the Company not prevail in this dispute, the income statement charge will approximate the deficiency interest, net of tax.
The Company believes it will prevail on the merits of the tax position. In accordance with prescribed recognition and measurement thresholds, no income tax accrual has been made for any uncertain tax positions related to the CRA reassessment. An unfavorable resolution of this matter could have a material effect on the Company's financial statements in the quarter in which a judgment is reached.
NOTE 1013 – DERIVATIVES AND FAIR VALUE

The Company uses derivatives to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Derivative contracts to hedge currency and commodity exposures are generally written on a short-term basis but may cover exposures for up to two years while interest rate contracts may cover longer periods consistent with the terms of the underlying debt. The Company does not enter into derivatives for trading or speculative purposes.

F-35

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 – DERIVATIVES AND FAIR VALUE (continued)

All derivatives are recordedrecognized at fair value on the balance sheet.Company's Consolidated Balance Sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. The Company formally documents the relationship of the hedge with the hedged item as well as the risk-management strategy for all designated hedges. Both at inception and on an ongoing basis, the hedging instrument is assessed as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, or the

F-31
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued. The cash flows from settled derivative contracts are recordedrecognized in operating activities in the Company's Consolidated Statements of Cash Flows. Hedge ineffectiveness was immaterial for the three years ended December 31, 2009.

2012.

The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. The Company manages individual counterparty exposure by monitoring the credit rating of the counterparty and the size of financial commitments and exposures between the Company and the counterparty. None of the concentrations of risk with any individual counterparty was considered significant at December 31, 2009.2012. The Company does not expect any counterparties to fail to meet their obligations.

Cash flow hedges

Certain foreign currency forward contracts wereare qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $3,570$39,597 at December 31, 20092012 and $35,807$65,721 at December 31, 2008.2011. The effective portions of the fair value gains or losses on these cash flow hedges were recordedare recognized in “AccumulatedAccumulated other comprehensive income” (“AOCI”income ("AOCI") and subsequently reclassified to “CostCost of goods sold”sold or “Sales”Sales for hedges of purchases and sales, respectively, as the underlying hedged transactions affected earnings. The Company reclassified a net loss of $61 from AOCI to earnings based on the probability of the forecasted transactions no longer occurring for the year ended December 31, 2009.

Fair value hedges

In February 2009, the Company terminated interest rate swaps that were qualified and designated as fair value hedges that converted notional amounts of $80,000 of debt from fixed to floating interest rates. The gain of $5,079 realized on termination was deferred and is being amortized as an offset to “Interest expense” over the remaining life of the Note. The fair value gains or losses on these contracts prior to settlement were recognized in earnings and offset by fair value losses or gains on the fixed-rate borrowings.

In March 2009, interest rate swaps designated as fair value hedges that converted notional amounts of $30,000 of debt from fixed to floating interest rates matured with the underlying Note. The fair value gains or losses on these contracts were recognized in earnings and offset by fair value losses or gains on the fixed-rate borrowings.

At December 31, 2008, the Company had interest rate swap agreements outstanding that effectively converted notional amounts of $110,000 of debt from fixed to floating interest rates. The fair value of the swaps was an unrealized gain of $6,148 at December 31, 2008.

Derivatives not designated as hedging instruments

The Company has certain foreign exchange forward contracts which wereare not designated as hedges. These derivatives wereare held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $102,410$189,259 at December 31, 20092012 and $65,040$161,026 at December 31, 2008.2011. The fair value gains or losses from these contracts wereare recognized currently in “Selling,Selling, general and administrative expenses,” offsetting the losses or gains on the exposures being hedged.

F-36

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 – DERIVATIVES AND FAIR VALUE (continued)

The Company dedesignated commodity forward contracts at the inception of 2009 that had previously been designated and qualified as cash flow hedges. At December 31, 2009, the notional amounts, in thousands of pounds, of these contracts consisted of aluminium forward contracts of 450, copper forward contracts of 450 and nickel forward contracts of 54. The effective portion of the fair value gains or losses on these instruments were recorded in AOCI while the instruments were designated and qualified as cash flow hedges. Realized gains and losses were reclassified to earnings as the underlying hedged transactions affected earnings. For the year ended December 31, 2009, the Company reclassified a loss of $1,262 from AOCI to earnings based on the probability of the forecasted transactions no longer occurring. Subsequent to dedesignation, the fair value gains or losses on these instruments were recognized currently in earnings.

At December 31, 2008, the notional amounts, in thousands of pounds, of the Company’s derivative contracts consisted of aluminium forward contracts of 3,125, copper forward contracts of 2,925 and nickel forward contracts of 276. These derivative financial instruments qualified and were designated as cash flow hedges.

The Company has short-term silver and copper forward contracts with a notional amountamounts of 250,000275,000 troy ounces and 375,000 pounds, respectively, at December 31, 2012 and short-term silver forward contracts with notional amounts of 340,000 troy ounces at December 31, 2009.2011. Realized and unrealized gains and losses on these contracts were recorded to earnings.

recognized in Cost of goods sold.

Fair values of derivative instruments in the Company's Consolidated Balance SheetSheets follow:

   December 31, 2009

Derivatives by hedge designation

  Other
Current
Assets		  Other
Current
Liabilities

Designated as hedging instruments:

    

Foreign exchange contracts

  $63  $12

Not designated as hedging instruments:

    

Foreign exchange contracts

   133   1,017

Commodity contracts

   611   186
        

Total derivatives

  $807  $1,215
        

At December 31, 2008, the fair value of the non-designated foreign exchange contracts, the designated cash flow hedges and the commodity forward contracts was an unrealized loss of $4,732, an unrealized gain of $3,076 and an unrealized loss of $7,708, respectively.

  December 31, 2012 December 31, 2011
Derivatives by hedge designation 
Other
Current
Assets
 
Other
Current
Liabilities
 
Other
Current
Assets
 
Other
Current
Liabilities
Designated as hedging instruments:        
Foreign exchange contracts $352
 $325
 $801
 $531
Not designated as hedging instruments:        
Foreign exchange contracts 510
 902
 726
 1,026
Commodity contracts 731
 —
 1,559
 —
Total derivatives $1,593
 $1,227
 $3,086
 $1,557
The effects of designated fair value hedges and undesignated derivative instruments on the Company's Consolidated StatementStatements of Income for the yearyears ended December 31, 20092012 and 2011 consisted of the following:

Derivatives by hedge designation

  

Classification of gains (losses)

  Year Ended
December 31,
2009		 

Fair value hedges:

    

Interest rate swaps

  Interest expense  $181  

Not designated as hedges:

    

Foreign exchange contracts

  Selling, general & administrative expenses   (6,053) 

Commodity contracts

  Cost of goods sold   3,613  

F-37

    Year Ended December 31,
Derivatives by hedge designation Classification of gains (losses) 2012 2011
Not designated as hedges:      
Foreign exchange contracts Selling, general & administrative expenses $3,711
 $92
Commodity contracts Cost of goods sold (1,117) 1,167
Commodity contracts Other income —
 (12)

F-32

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except share and per share amounts)

NOTE 10 – DERIVATIVES AND FAIR VALUE (continued)

The effects of designated cash flow hedges on AOCI and the Company's Consolidated StatementStatements of Income for the yearyears ended December 31, 20092012 and 2011 consisted of the following:

Total recognized in AOCI,
net of tax

  December 31, 2009  

Gain (loss) reclassified
from AOCI to:

  Year Ended
December 31, 2009		 

Foreign exchange contracts

  $(5)  Sales  $(149) 
   Cost of goods sold   1,851  

Commodity contracts

   (639)  Cost of goods sold   (6,150) 

  December 31,
Total gain recognized in AOCI, net of tax 2012 2011
Foreign exchange contracts $80
 $912
The Company expects $644a gain of $80 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.

Financial

    Year Ended December 31,
Derivative type Gain (loss) reclassified from AOCI to: 2012 2011
Foreign exchange contracts Sales $931
 $(91)
  Cost of goods sold 234
 (1,292)
NOTE 14 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities such as the Company’sof December 31, 2012 measured at fair value on a recurring basis:
Description Balance as of December 31, 2012 
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:        
Foreign exchange contracts $862
 $—
 $862
 $—
Commodity contracts 731
 —
 731
 —
Total assets $1,593
 $—
 $1,593
 $—
Liabilities:        
Foreign exchange contracts $1,227
 $—
 $1,227
 $—
Contingent consideration 4,894
 —
 —
 4,894
Deferred compensation 16,882
 —
 16,882
 —
Total liabilities $23,003
 $—
 $18,109
 $4,894
The following table provides a summary of fair value assets and liabilities as of December 31, 2011 measured at fair value on a recurring basis:
Description Balance as of December 31, 2011 
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:        
Foreign exchange contracts $1,527
 $—
 $1,527
 $—
Commodity contracts 1,559
 —
 1,559
 —
Total assets $3,086
 $—
 $3,086
 $—
Liabilities:  
  
  
  
Foreign exchange contracts $1,557
 $—
 $1,557
 $—
Contingent consideration 4,297
 —
 —
 4,297
Deferred compensation 14,936
 —
 14,936
 —
Total liabilities $20,790
 $—
 $16,493
 $4,297
The Company's derivative contracts are valued at fair value using the market and income valuation approaches.approach. The Company usesmeasures the fair value of foreign exchange contracts using Level 2 inputs based on observable spot and forward rates in active markets. The Company

F-33
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

measures the fair value of commodity contracts using Level 2 inputs through observable market approach to value similar assets and liabilitiestransactions in active markets provided by financial institutions. During the year ended December 31, 2012, there were no transfers between Levels 1, 2 or 3.
In connection with an acquisition, the Company recorded a contingent consideration fair valued at $4,894 as of December 31, 2012, which reflects a $597 increase in the liability from December 31, 2011. The contingent consideration is based upon estimated sales for the five-year period ending December 31, 2015 and will be paid in 2016 based on actual sales during the income approach that consistsfive-year period. The fair value of the contingent consideration is a Level 3 valuation and fair valued using a probability weighted discounted cash flow models that take into accountanalysis. The discounted cash flow utilized weighted average inputs, including a risk based discount rate of 9.7% and a compounded annual revenue growth rate of 33.7%. The discount rate was determined using discount rates of 3.5% reflective of the presentCompany's cost of debt and 14.1% as a risk adjusted cost of capital and the compounded annual revenue growth rate was determined using various scenarios with growth ranging from remaining relatively flat to growth rates of up to 66.2%.
The deferred compensation liability is the Company's obligation under its executive deferred compensation plan. The Company measures the fair value of future cash flows under the termsliability using the market values of the contracts using current market information as of the reporting date.

The following hierarchy is used to classify the inputs used to measure fair value:

Level 1Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3Unobservable inputs for the asset or liability.

The following table provides a summary of fair value measurements:

      Fair Value Measurements at December 31, 2009 Using

Description

  Balance as of
December 31, 2009		  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		  Significant Other
Observable Inputs
(Level 2)		  Significant
Unobservable Inputs
(Level 3)

Derivatives, net liability

  $408  $—  $408  $—

participants' underlying investment fund elections.

The Company has various financial instruments, including cash and cash equivalents, short-and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations. The fair value of cash"Cash and cash equivalents," "Accounts receivable," "Amounts due banks" and "Trade accounts payable" approximated book value due to the short-term nature of these instruments at both December 31, 20092012 and 2008.December 31, 2011. See Note 68 for the fair value estimate of debt.

NOTE 1115 – OPERATINGINVENTORY
For most domestic inventories, cost is determined principally by the LIFO method, and for non-U.S. inventories, cost is determined by the FIFO method. The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs. Because these estimates are subject to many factors beyond management's control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation. At December 31, 2012 and 2011, approximately 34% and 31%, respectively, of total inventories were valued using the LIFO method. The excess of current cost over LIFO cost was $72,173 at December 31, 2012 and $78,292 at December 31, 2011.
NOTE 16 – LEASES

The Company leases sales offices, warehouses and distribution centers, transportation equipment, 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 insurance, maintenance and taxes relating to leased assets. Rental expense was $14,275$17,751 in 2009, $14,6792012, $15,221 in 20082011 and $13,883$14,155 in 2007.

2010.

At December 31, 2009,2012, total future minimum lease payments for noncancelable operating leases were $9,923$12,624 in 2010, $7,2312013, $9,385 in 2011, $5,3282014, $6,872 in 2012, $2,7632015, $5,695 in 2013, $2,2322016, $4,561 in 20142017 and $7,232$7,082 thereafter.

F-38

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes assets held under capital leases and included in property, plant and equipment:
  December 31,
  2012 2011
Buildings $441
 $6,236
Machinery and equipment 209
 179
Less: accumulated depreciation (163) (2,494)
Net capital leases $487
 $3,921
NOTE 1217 – CONTINGENCIES

The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims and health, safety and environmental claims, some of which relate to cases alleging asbestos and manganese induced illnesses. The claimants in the asbestos and manganese cases seek compensatory and punitive damages, in most cases for unspecified amounts. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously.


F-34
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)

The Company’s reserveCompany's accrual for contingent liabilities primarily for product liability claims, was $15,333$5,636 as of December 31, 20092012 and $12,308$11,312 as of December 31, 2008.2011. The reserveaccrual is included in “Other"Other current liabilities.”" The Company also hasrecognized an asset for recoveries from insurance carriers onrelated to the outstanding insured claims outstanding of $11,235$1,311 as of December 31, 20092012 and $11,041$4,516 as of December 31, 2008.2011. The asset is included in “Other"Other current assets.”

" The decrease in the accrual for contingent liabilities is primarily due to a payment made in conjunction with the agreement entered into in January 2012 that provides for the dismissal with prejudice of substantially all of the pending manganese claims. The decrease in the asset for recoveries from insurance carriers reflects the collection of insurance receivables.

The Company accrues its best estimate of the probable costs, after a review of the facts with management and counsel and taking into account past experience. If an unfavorable outcome is determined to be reasonably possible but not probable, or if the amount of loss cannot be reasonably estimated, disclosure is provided for material claims or litigation. Many of the current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate disposition of such actions, varies greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise to increases to such reserves.
Based on the Company’sCompany's historical experience in litigating product liability claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, as well as the Company’sCompany's current assessment of the underlying merits of the claims and applicable insurance, the Company believes resolution of these claims and proceedings, individually or in the aggregate, (exclusive of defense costs), will not have a material adverse impact uponeffect on the Company’sCompany's consolidated financial statements.

NOTE 18 – PRODUCT WARRANTY COSTS
The Company has provided a guarantee on loanschanges in the carrying amount of product warranty accruals for an unconsolidated joint venture of approximately $1,381 at December 31, 2009. The loans, maturing in July 2012, 2011 and 2010 were undertaken to fund the joint venture’s working capital and capital expansion needs. The Company would become liable for any unpaid principal and accrued interest if the joint venture were to default on payment at the respective maturity dates. The Company believes the likelihood is remote that any payment will be required under these arrangements based on the current financial condition of the joint venture.

as follows:

  December 31,
  2012 2011 2010
Balance at beginning of year $15,781
 $16,879
 $16,768
Accruals for warranties 10,872
 10,395
 11,406
Settlements (11,477) (11,260) (11,065)
Foreign currency translation 128
 (233) (230)
Balance at end of year $15,304
 $15,781
 $16,879
NOTE 1319 – QUARTERLY FINANCIAL DATA (UNAUDITED)

   First  Second  Third  Fourth

2009

       

Net sales

  $411,751   $413,283  $441,802  $462,449

Gross profit

   90,248    106,391   125,131   134,498

(Loss) income before income taxes

   (2,010)   23,865   24,231   40,395

Net (loss) income

   (3,594)   15,068   12,757   24,345

Basic (loss) earnings per share

  $(0.08)  $0.36  $0.30  $0.57

Diluted (loss) earnings per share

  $(0.08)  $0.35  $0.30  $0.57

2008

       

Net sales

  $620,227   $699,826  $632,892  $526,186

Gross profit

   177,451    204,714   196,878   141,108

Income before income taxes

   78,991    95,100   92,882   32,836

Net income

   53,477    70,128   69,211   19,470

Basic earnings per share

  $1.25   $1.64  $1.62  $0.46

Diluted earnings per share

  $1.24   $1.62  $1.60  $0.46

F-39

  First Second Third Fourth
2012        
Net sales $727,122
 $744,045
 $697,552
 $684,648
Gross profit 215,265
 224,997
 213,362
 213,032
Income before income taxes 92,919
 98,157
 90,889
 87,605
Net income 64,243
 66,319
 64,765
 62,084
Basic earnings per share $0.77
 $0.80
 $0.78
 $0.75
Diluted earnings per share $0.76
 $0.79
 $0.77
 $0.74
2011        
Net sales $599,179
 $699,293
 $701,624
 $694,513
Gross profit 161,438
 195,504
 185,452
 194,343
Income before income taxes 60,537
 81,494
 75,873
 83,427
Net income 46,910
 57,013
 55,530
 57,733
Basic earnings per share $0.56
 $0.69
 $0.66
 $0.69
Diluted earnings per share $0.55
 $0.68
 $0.66
 $0.68

F-35

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except share and per share amounts)

NOTE 13 – QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)

The quarter ended December 31, 20092012 includes a chargerationalization and asset impairment net charges of $3,298 ($2,786$5,037 ($3,823 after-tax) primarily related to rationalization activities to alignemployee severance and other costs associated with the business to current market conditionsconsolidation of manufacturing operations in North America Welding, Europe Welding and impairment charges of $879 ($596 after-tax) to certain indefinite-lived intangible assets.

Asia Pacific Welding segments.

The quarter ended September 30, 20092012 includes rationalization and asset impairment net charges of $3,059 ($2,704 after-tax) primarily related to employee severance and other costs associated with the consolidation of manufacturing operations in North America Welding, Europe Welding and Asia Pacific Welding segments.
The quarter ended June 30, 2012 includes rationalization net charges of $1,258 ($915 after-tax) primarily related to employee severance and other costs associated with the consolidation of manufacturing operations in North America Welding, Europe Welding and Asia Pacific Welding segments and a charge of $7,144 ($6,340$1,381 ($906 after-tax) related to a change in Venezuelan labor law, which provides for increased employee severance obligations in the South America Welding segment.
The quarter ended June 30, 2011 includes rationalization activitiesand asset impairment net gains of $75 ($44 after-tax) primarily related to align the businessgain on sale of assets at rationalized operations in the Asia Pacific Welding segment resulting from actions initiated in 2009.
The quarter ended March 31, 2011 includes rationalization and asset impairment net charges of $357 ($281 after-tax) primarily related to current market conditions including the closure of a manufacturing facility in Europeemployee severance and other costs associated with the consolidation of certain manufacturing operations in the Europe Welding and Asia Pacific Welding segments and a loss of $7,943 ($7,943 after-tax) on the acquisition of Jin Tai.

The quarter ended June 30,resulting from actions initiated in 2009 includes a charge of $6,877 ($6,639 after-tax) related to the Company’s rationalization activities to align the business to current market conditions including the closure of a manufacturing facility in The Harris Products Group segment, a pension settlement gain of $1,543 ($1,543 after-tax) and a gain on the sale of a property by the Company’s joint venture in Turkey of $5,667 ($5,667 after-tax).

The quarter ended March 31, 2009 includes a charge of $11,699 ($7,428 after-tax)$4,844 related to a favorable adjustment for tax audit settlements in the Company’s rationalization activities to align the business to current market conditions including a voluntary separation incentive program covering certain U.S.-based employees.

The quarter ended December 31, 2008 includes a charge of $2,447 ($1,698 after-tax) related to the Company’s rationalization activities to align the business to current market conditions and $16,924 ($16,615 after-tax) in asset impairment charges including $13,194 of goodwill impairment with no tax benefit, $2,388 in impairment of long-lived assets with no tax benefit and $1,342 ($1,033 after-tax) in impairment of intangible assets.

North America Welding segment.

The quarterly earnings per share (EPS)("EPS") amounts are each calculated independently. Therefore, the sum of the quarterly EPS amounts may not equal the annual totals.

F-40


F-36



SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES

(In thousands)

      Additions      

Description

  Balance at
Beginning
of Period		  Charged to
Costs and
Expenses		  (1)
Charged to
Other
Accounts		  (2)
Deductions		  Balance
at End
of Period

Allowance for doubtful accounts:

         

Year ended December 31, 2009

  $7,673  $2,685  $368   $2,552  $8,174

Year ended December 31, 2008

   7,424   3,986   (735)   3,002   7,673

Year ended December 31, 2007

   8,484   3,115   630    4,805   7,424


    Additions    
Description 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
(1)
Charged to
Other
Accounts
 
(2)
Deductions
 Balance at End of Period
Allowance for doubtful accounts:          
Year Ended December 31, 2012 $7,079
 $3,368
 $68
 $1,861
 $8,654
Year Ended December 31, 2011 7,855
 2,173
 (303) 2,646
 7,079
Year Ended December 31, 2010 8,174
 3,146
 (425) 3,040
 7,855
(1)Currency translation adjustment.
(2)Uncollectible accounts written-off, net of recoveries.

F-41


F-37


QuickLinks

ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1C. EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts)
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EQUITY (In thousands, except per share amounts)
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts)
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS LINCOLN ELECTRIC HOLDINGS, INC. (In thousands)