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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 YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 0-1402

THE LINCOLN ELECTRIC COMPANY
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

OHIO
------------------------------------------
(State or other jurisdiction of
incorporation or organization)

34-0359955
------------------------------------------
(I.R.S. Employer
Identification No.)

22801 St. Clair Ave., Cleveland, Ohio
------------------------------------------
(Address of principal executive offices)

44117
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(Zip Code)

(216) 481-8100 (Registrant's telephone number including area code)

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

Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting common stock held by
non-affiliates as of February 15, 1995 was $131,480,925. (Affiliates, for this
purpose, have been deemed to be Directors of the Company, certain significant
shareholders and employees participating in the Employees' Stock Purchase Plan
and Employee Stock Ownership Plan).

The number of shares outstanding of the issuer's classes of common stock as
of February 15, 1995 was as follows:

Common Stock, without par value 10,514,324
Class A Common Stock, without par value 499,840
----------
Total outstanding shares 11,014,164
==========

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on May 23, 1995 are hereby incorporated by reference
into Part III.
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PART I

Item 1. BUSINESS

As used in Item 1 of this report, the term "Company", except as otherwise
indicated by the context, means The Lincoln Electric Company and its
subsidiaries. The Lincoln Electric Company was incorporated under the laws of
the State of Ohio in 1906. The Company is a full-line manufacturer of welding
products and integral horsepower industrial electric motors. Welding products
include arc welding machines, power sources, automated wire feeding systems and
arc welding consumable electrodes. The Company also sells industrial gases,
regulators and torches used in oxy-fuel welding and cutting. Sales of arc
welding and other welding products accounted for 93% of the Company's net sales
in 1994.

The arc welding machines, power sources and automated wire feeding systems
manufactured by the Company range in technology from basic units used for light
manufacturing and maintenance to highly sophisticated machines for robotic
applications, high production welding and fabrication. Three primary types of
arc welding electrodes are produced: (1) coated manual or stick electrodes, (2)
solid electrodes produced in coil form for continuous feeding in mechanized
welding, and (3) cored electrodes produced in coil form for continuous feeding
in mechanized welding. The integral horsepower electric motors manufactured by
the Company range in size from 1/3 to 1,250 horsepower.

The Company's products are sold in both domestic and international markets.
In the domestic market, they are sold directly by the Company's own sales
organization as well as by distributors. In the international markets, the
Company's products are sold principally by foreign subsidiary companies. The
Company also has an international sales organization comprised of international
direct sales distributors, agents and dealers that operate in more than
eighty-six countries. The Company has manufacturing facilities located in the
United States, Australia, Canada, Mexico, England, France, Ireland, Italy, The
Netherlands, Norway and Spain. See Note G to the consolidated financial
statements with respect to geographic area information.

The Company is not dependent on a single customer or a few customers. The
loss of any one customer would not have a material adverse effect on its
business. The Company's business is not seasonal.

Conditions in the arc welding industry are highly competitive. The Company
believes that it is one of the largest manufacturers of consumables and
machinery in a field of three or four major domestic competitors and numerous
smaller competitors covering the industry. The Company continues to pursue
strategies to heighten its competitiveness in international markets. Competition
in the electric arc welding industry is on the basis of price, brand preference,
product quality and performance, warranty, delivery, service and technical
support. All of these factors have contributed to the Company's position as one
of the leaders in the industry.

Virtually all of the Company's products may be classified as standard
commercial articles and are manufactured for stock. The Company believes its
products are unique because of its highly trained technical sales force and the
support of its welding research and development staff which allow it to uniquely
assist the consumers of its products in solving their welding application
problems. The Company utilizes this technical expertise to present its
Guaranteed Cost Reduction Program to end users in which the Company guarantees
that the user will save money in its manufacturing process when it utilizes the
Company's products. This allows the Company to introduce its products to new
users and to establish and maintain very close relationships with the consumers.
This close relationship between the technical sales force and the direct
consumers, together with its supportive relationship with its distributors, who
are particularly interested in handling the broad breadth of the Company's
products, is an important element of the Company's market success and a valuable
asset of the Company.

The principal raw materials essential to the Company's business are various
chemicals, steel, copper and aluminum, all of which are normally available for
purchase in the open market.

The Company's operations are not materially dependent upon patents,
licenses, franchises or concessions.

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3

The Company's facilities are subject to federal, state and local
environmental control regulations. To date, compliance with these environmental
regulations has not had a material effect on the Company's earnings nor has it
required the Company to make significant capital expenditures.

The Company conducts a significant amount of its business and has a number
of operating facilities in countries outside the United States. As a result, the
Company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located.

Research activities relating to the development of new products and the
improvement of existing products in 1994 were all Company-sponsored. These
activities were primarily related to the development of new products utilizing
the latest electronic technology. The number of professional employees engaged
full-time in these research activities was 113. Refer to Note A to the
consolidated financial statements with respect to total costs of research and
development.

The number of persons employed by the Company worldwide at December 31,
1994 was 5,693. Effects of plant closures have reduced worldwide employment
levels in 1994. Refer to Note C to the consolidated financial statements with
respect to restructuring activities.

The table below sets forth consolidated net sales by product line for the
most recent three years:

1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)

Arc Welding and Other Welding Products..... $843,643 $795,072 $816,389
93% 94% 96%
All Other.................................. 62,961 50,927 36,618
7% 6% 4%
-------- -------- --------
$906,604 $845,999 $853,007
======== ======== ========

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 230 acres, of which present manufacturing
facilities comprise an area of approximately 2,658,410 square feet. While
current utilization of existing facilities is high, the Company is adding
capacity as necessary.

In addition to the principal facilities in Ohio, the Company operates two
other manufacturing locations in the United States plus 12 manufacturing
locations in 10 foreign countries, the locations of which are as follows:

Unites States: Gainesville, Georgia; Monterey Park, California.
Australia: Sydney.
Canada: Toronto.
England: Sheffield.
France: Grand-Quevilly
Ireland: Rathnew.
Italy: Pianoro; Milano.
Mexico: Mexico City.
Netherlands: Nijmegen.
Norway: Skjelland; Stavern.
Spain: Barcelona.

Manufacturing facilities located in Germany, Venezuela, Japan and Brazil
were closed in early 1994 under the Company's restructuring program.

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4

All property relating to the Company's Cleveland, Ohio headquarters and
manufacturing facilities is owned outright by the Company. In addition, the
Company maintains operating leases for its distribution centers and many sales
offices throughout the world. See Note J to the consolidated financial
statements with respect to leases. Most of the Company's foreign subsidiaries
own manufacturing facilities in the foreign country where they are located. At
December 31, 1994, $7.9 million of indebtedness was secured by property, plant
and equipment.

Item 3. LEGAL PROCEEDINGS

The Company is subject, from time to time, to a variety of civil and
administrative proceedings arising out of its normal operations, including,
without limitation, employment-related actions, product liability claims, and
health, safety and environmental claims. Included in such proceedings are the
cases summarily described below, in which claimants seek recovery for injuries
allegedly resulting from exposure to fumes and gases in the welding environment.

The Company is a co-defendant in eighteen cases alleging that exposure to
manganese contained in arc welding electrode products caused the plaintiffs to
develop a neurological condition known as manganism. The plaintiffs seek
compensatory and, in most instances, punitive damages, usually for unspecified
sums. Two similar cases have been tried, both to defense verdicts.

The Company is also a defendant in one case, and one of several
co-defendants in three other cases, alleging that exposure to welding fumes
generally impaired the respiratory system of the plaintiffs. The plaintiffs seek
compensatory and punitive damages, in most cases for unspecified sums. During
the preceding five years, thirty-eight similar cases have resulted in ten
voluntary dismissals, seven defense verdicts or summary judgments and twenty-one
settlements for immaterial amounts.

Claims pending against the Company alleging asbestos induced illness total
nine thousand seven hundred fifty-eight (9,758); in each instance, the Company
is one of a large number of defendants. Approximately (4,416) of these asbestos
claims are pending in Orange County, Texas and a motion to certify a class
action, which is being contested vigorously, is pending. The asbestos claimants
seek compensatory and punitive damages, in most cases for unspecified sums.
Twenty cases have been tried, all to defense verdicts. Voluntary dismissals on
such claims total fourteen thousand one hundred sixty-eight (14,168); summary
judgments for the defense total fifty-nine.

The Company, together with the hundreds of other co-defendants, is a
defendant in state court in Morris County, Texas, in litigation on behalf of
three thousand forty-two (3,042) claimants, all prior employees of a local pipe
fabricator, alleging that occupational exposures caused a wide variety of
illnesses. The plaintiffs seek compensatory and punitive damages of unspecified
sums.

The Company bears the costs of defending those of its product liability
cases arising and filed after 1990. In many cases where there are multiple
defendants, cost sharing efficiencies are arranged. Subject to the Company's per
claim retention under its insurance coverage, the Company has tendered the
manganese, fume, asbestos and Morris County, Texas cases to its insurance
carrier which has accepted such tender for all situations except those where
liability would result solely from asbestos; no such situations have arisen to
date.

The Company believes that resolution of the pending cases referred to
above, individually or in the aggregate, will not have a material effect upon
the Company.

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, 1994.

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5

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS

The Company's Common Stock is traded on the over-the-counter market. The
number of record holders of Common Stock at December 31, 1994 was 2,545.

There is no public trading market for Class A Common Stock, which has only
been issued to the Company's Employee Stock Ownership Plan.

Quarterly high and low stock prices, based on end of month quotes, and
dividends paid for the last two years were:

1994 1993
----------------------------- -----------------------------------
CASH CASH
BID PRICE* DIVIDENDS BID PRICE* DIVIDENDS
---------------- --------- ---------------------- ---------
QUARTER ENDED HIGH LOW PAID HIGH LOW PAID
----------------------------------- ------ ------ --------- --------- --------- ---------

March 31........................... $18.25 $17.25 $ .18 $ 21.00 $ 19.20 $ .18
June 30............................ 27.25 18.75 .18 20.50 19.20 .18
September 30....................... 35.50 30.00 .18 20.50 17.00 .18
December 31........................ 39.00 34.50 .20** 18.00 16.25 .18

---------------

* Source: Ohio Dealers' Data Service

** Includes special dividend of $.02 per share.

Future dividends, which are subject to limitations under the Credit
Agreement and the Senior Note Agreement, will be based on financial performance
of the Company (see Note D to the consolidated financial statements for a
further description of these limitations.)

Item 6. SELECTED FINANCIAL DATA

YEAR ENDED DECEMBER 31
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

Net sales......................... $906,604 $845,999 $853,007 $833,892 $796,671
Income (loss) before cumulative
effect of accounting change..... 48,008 (40,536) (45,800) 14,365 11,052
Cumulative effect of accounting
change.......................... 2,468
-------- -------- -------- -------- --------
Net income (loss)................. $ 48,008 $(38,068) $(45,800) $ 14,365 $ 11,052
======== ======== ======== ======== ========
Per common share:
Income (loss) before cumulative
effect of accounting change..... $ 4.38 $ (3.74) $ (4.24) $ 1.33 $ 1.03
Cumulative effect of accounting
change.......................... .23
-------- -------- -------- -------- --------
Net income (loss)................. $ 4.38 $ (3.51) $ (4.24) $ 1.33 $ 1.03
======== ======== ======== ======== ========
Cash dividends declared........... $ .76 $ .72 $ .72 $ .61 $ 1.26
Total assets...................... $556,857 $559,543 $603,347 $640,261 $572,230
Long-term debt.................... 194,831 216,915 221,470 155,547 110,940

See Note C to the consolidated financial statements with respect to
restructuring activities in 1993 and 1992.

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6

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The Company is engaged primarily in the design, manufacture and sale of arc
welding and other welding products, which represented 93% of the Company's 1994
net sales. The Company is one of the world's largest manufacturers of arc
welding products. The Company also designs, manufactures and sells integral
horsepower industrial electric motors.

In 1994, the Company reported the highest net sales, net income and net
income per common share in its history. This sales increase was broadly based
and was primarily attributable to increased volume, higher selling prices and
improved economic conditions in the United States, Canada and Europe. The
Company believes that the high quality of its products, advanced engineering
expertise and strong distributor network coupled with its large technically
trained sales force, has permitted the Company to increase global market share.

The Company's 1992 and 1993 earnings were negatively affected by
restructuring charges taken by the Company to consolidate and reorganize foreign
operations. In 1992, the Company recorded a restructuring charge of $23.9
million (without tax benefit, or $2.21 per share) as a result of decisions by
management at that time to downsize and streamline certain non-U.S. operations
(principally in Europe). The 1992 restructuring charge was primarily for
severance pay, redundancies and other liabilities relating to the reorganization
of the sales and distribution operations.

In 1993, the Company decided to terminate operations in early 1994 of its
Messer Lincoln subsidiary in Germany (the "German Subsidiary") as well as
manufacturing operations in Brazil, Venezuela and Japan. Sales, marketing and
distribution activities continue in these countries. The 1993 restructuring
resulted in a charge of $70.1 million ($40.9 million after-tax, or $3.77 per
share). The elements of this charge were: (i) asset writedowns in the amount of
$45.9 million including goodwill of $8.9 million; (ii) severance and other
redundancy costs of $27.5 million; and (iii) a net credit of $3.3 million
comprised of a claim settlement and other restructuring liabilities including
estimated losses through the final facility closing dates in 1994. To date,
approximately 1,400 employees have been terminated as a result of the 1992 and
1993 restructuring programs. The remaining cash outlays to complete the
restructuring are expected to be incurred in 1995 and 1996. Management believes
it has adequately provided for costs and expenses of the restructuring. Although
European sales and profitability remained constrained in 1994, the 1992 and 1993
restructuring programs have returned the Company's European operations to
profitability.

Research and development expenditures by the Company, exluding the
German Subsidiary expenditures, increased approximately 16.5% to $17.6 million
in 1993 and increased 5.2% to $18.5 million in 1994. The Company believes that,
over the past three years, expenditures for research and development activities
have been adequate to maintain the Company's product lines and to introduce new
products at an appropriate rate to sustain future growth. Expenditures on
research and development are expected to increase in 1995.

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7

RESULTS OF OPERATIONS

The following table shows the Company's results of operations for the years
ended December 31, 1994, 1993 and 1992:

YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
% OF % OF % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ------ ------ ------ ------ ------
(IN MILLIONS OF DOLLARS)

Net Sales.......................... $906.6 100.0% $846.0 100.0% $853.0 100.0%
Cost of Goods Sold................. 556.2 61.3% 532.8 63.0% 553.1 64.8%
------ ------ ------ ------ ------ ------
Gross Profit..................... 350.4 38.7% 313.2 37.0% 299.9 35.2%
Distribution Cost/Selling
General & Administrative
Expenses...................... 261.7 28.9% 277.0 32.7% 299.2 35.1%
------ ------ ------ ------ ------ ------
Operating Income before
Restructuring................. 88.7 9.8% 36.2 4.3% 0.7 0.1%
Restructuring Charge (income)...... (2.7) -0.3% 70.1 8.3% 23.9 2.8%
------ ------ ------ ------ ------ ------
Operating Income (loss).......... 91.4 10.1% (33.9) -4.0% (23.2) -2.7%
Other Income....................... 3.1 0.3% 2.9 0.3% 4.4 0.5%
Interest Expense, Net.............. (14.3) -1.6% (16.0) -1.9% (15.6) -1.8%
------ ------ ------ ------ ------ ------
Income (loss) before Income
Taxes......................... 80.2 8.8% (47.0) -5.6% (34.4) -4.0%
Income Taxes (benefit)............. 32.2 3.5% (6.4) -0.8% 11.4 1.3%
------ ------ ------ ------ ------ ------
Net Income (loss) before Cumula-
tive effect of Accounting
Change........................ $ 48.0 5.3% $(40.6) -4.8% $(45.8) -5.3%
Cumulative effect to January 1,
1993 of change in method of
accounting for income taxes...... 2.5 .3%
------ ------ ------ ------ ------ ------
Net Income (loss).................. $ 48.0 5.3% $(38.1) -4.5% $(45.8) -5.3%
====== ====== ====== ====== ====== ======

1994 COMPARED TO 1993

Net Sales. Net sales for 1994 were $906.6 million, an increase of $60.6
million or 7.2% from $846.0 million for 1993. Net sales for 1993 include the
sales of manufacturing operations (principally in Germany) that were closed in
early 1994. Excluding the 1993 sales of the closed operations, sales for 1994
increased 17.0%. A portion of this increase was due to the absorption by the
Company's other manufacturing operations of the sales formerly made by the
closed operations. Sales from the Company's U.S. operations were $641.6 million
in 1994 or 18.1% higher than 1993 sales of $543.5 million, attributable to
volume and price increases. Non-U.S. sales in 1994 were $265.0 million compared
to $302.5 million in 1993, a decrease of 12.4%. Excluding the 1993 sales of the
closed operations, non-U.S. sales for 1994 increased 14.7% over non-U.S. sales
for 1993 reflecting improved economic conditions in Europe and elsewhere in the
world. A portion of this increase was also due to the absorption by the
Company's other manufacturing operations of the sales formerly made by the
Company's closed German Subsidiary. Total U.S. export sales were $105.3 million
in 1994, an increase of $18.1 million or 20.8% from $87.2 million in 1993. This
increase in export sales largely reflects improved worldwide economic
conditions. In 1994, sales of certain new products were restricted by capacity
limitations inherent in tooling up production which have now been resolved.

Gross Profit. Gross profit increased to $350.4 million in 1994 as compared
with $313.2 million in 1993. Gross profit as a percentage of sales improved to
38.7% in 1994 from 37.0% in 1993. This improvement in gross profit is largely
attributable to a greater percentage of total sales coming from the higher
margin U.S. operations in 1994. In addition, 1993 gross profit was unfavorably
affected as it included lower gross profit levels for the manufacturing
operations that were closed in early 1994. Gross profit for the Company's U.S.
operations in 1994 remained substantially consistent with 1993 at 40.2%.

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8

Distribution Cost/Selling, General and Administrative
Expenses. Distribution cost/selling, general and administrative expenses were
$261.7 million in 1994, or 28.9% of sales (28.6% at the Company's U.S.
operations), as compared to $277.0 million, or 32.7% of sales in 1993 (29.9% at
the Company's U.S. operations). The decrease in these expenses as a percentage
of sales evidences the effects of the closing of the German Subsidiary, the
Company's restructuring program and management's initiatives to control
operating costs throughout the Company. The higher expense level in 1993 was
principally due to the inclusion of the operating results of the Company's
closed German Subsidiary. Included in distribution cost/selling, general and
administrative expenses are the costs ($68.4 million in 1994 and $61.9 million
in 1993) related to the Company's discretionary employee bonus program.

Interest Expense, Net. Interest expense, net was $14.3 million in 1994 as
compared with $16.0 million in 1993, a decrease which reflects the effect of
lower debt levels offset partially by higher interest rates.

Income Taxes. Income taxes in 1994 were $32.2 million on income before
income taxes of $80.2 million, an effective rate of 40.1%, as compared to a tax
benefit of $6.4 million on a loss before income taxes of $47.0 million in 1993.
The 1993 tax benefit principally reflects the tax benefits attributable to the
plant closure and liquidation of the German Subsidiary. Results from 1993 also
benefited from the cumulative effect of a change in accounting for income taxes,
which decreased the net loss by $2.5 million or $0.23 per share.

Net Income. As a result of the restructuring programs in 1992 and 1993 and
the improvement in economic conditions in Europe, the United States and Canada,
net income for 1994 was $48.0 million as compared to a net loss of $38.1 million
in 1993. Results in 1993 were adversely affected by a $40.9 million net-of-tax
restructuring charge. 1994 results benefited from a net reversal of $2.7 million
of restructuring charges recorded previously.

1993 COMPARED TO 1992

Net Sales. Net sales for 1993 were $846.0 million, a decrease of $7.0
million or less than 1.0% from 1992 sales of $853.0 million. Excluding the 1993
and 1992 sales of the operations closed in early 1994, sales increased 5.7%.
Sales from the Company's U.S. operations in 1993 were $543.5 million or 11.6%
higher than 1992 sales of $487.1 million, attributable to volume and price
increases. Non-U.S. sales in 1993 were $302.5 million compared to $365.9 million
in 1992, a decrease of 17.3%. Excluding the sales of operations closed in early
1994, non-U.S. sales for 1993 decreased 5.8% from 1992 non-U.S. sales. Currency
translation adversely affected these 1993 sales by $23.5 million. Total U.S.
export sales were $87.2 million in 1993, a decrease of $10.4 million or 10.6%
from $97.6 million in 1992. This decrease in export sales reflects the depressed
economic conditions in Europe and lower intercompany export sales due to
inventory reductions at the Company's foreign subsidiaries.

Gross Profit. Gross profit increased to $313.2 million in 1993 as compared
with $299.9 million in 1992. Gross profit as a percentage of sales improved to
37.0% in 1993 (40.3% at the Company's U.S. operations) from 35.2% in 1992 (37.1%
at the Company's U.S. operations). This improvement in gross profit was largely
attributable to U.S. sales volume increases and improved absorption of
manufacturing costs. Gross profit in 1993 was also favorably impacted by reduced
overhead costs as a result of restructurings in 1992 and reduced price pressures
in Europe. In 1992, gross profit was adversely affected by inventory adjustments
as a result of management's decisions to reduce certain inventory.

Distribution Cost/Selling, General and Administrative
Expenses. Distribution cost/selling, general and administrative expenses were
$277.0 million in 1993, or 32.7% of sales (29.9% at the Company's U.S.
operations), as compared to $299.2 million, or 35.1% of sales in 1992 (31.3% at
the Company's U.S. operations). Expenses for 1993 include $3.7 million for
asset disposals and other non-recurring costs as compared to expenses for 1992
which include $18.9 million relating to certain one-time costs at the Company's
closed German Subsidiary, asset disposals and certain other non-recurring costs.
Included in distribution cost/selling, general and administrative expenses are
the costs ($61.9 million in 1993 and $55.3 million in 1992) related to the
Company's discretionary employee bonus program.

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9

Interest Expense, Net. Interest expense, net was $16.0 million in 1993 as
compared with $15.6 million in 1992, reflecting the use of credit facilities
with more favorable terms in 1993, offset by lower interest income in 1993.

Income Taxes. The 1993 tax benefit of $6.4 million on a loss before income
taxes of $47.0 million compares to the 1992 provision for income taxes of $11.4
million on a loss before income taxes of $34.4 million. The 1993 tax benefit
principally reflects the tax benefits attributable to the plant closure and
liquidation of the German Subsidiary. The higher effective rate experienced in
1992 was principally due to losses from non-U.S. subsidiaries that were in net
operating loss carryover positions. Results from 1993 also benefited from the
cumulative effect of a change in accounting for income taxes, which decreased
the net loss by $2.5 million or $0.23 per share.

Net Loss. The net loss for 1993 was $38.1 million as compared to a net loss
of $45.8 million in 1992. Results were adversely affected by restructuring
charges of $40.9 million net-of-tax and $23.9 million without tax benefit in
1993 and 1992, respectively.

LIQUIDITY AND CAPITAL RESOURCES

During the three years ended December 31, 1994, the Company has relied
primarily on cash flow from operations and borrowings to finance working
capital, investments, capital expenditures and the payment of dividends. Cash
provided from operating activities during 1994 amounted to $68.7 million, an
increase of $40.0 million over 1993. This increase in cash flow resulted
primarily from the Company's increase in net income; partially offset by
increased working capital requirements associated with increased sales volume.
Cash provided from operating activities amounted to $28.7 million in 1993 and
$23.6 million in 1992 despite net losses of $38.1 million and $45.8 million,
respectively.

In 1993, the Company acquired the outstanding minority interest in its
subsidiary in Spain for $8.5 million. In 1992, the Company acquired the
outstanding minority interest in its subsidiary Lincoln Norweld and a small
Mexican Company for a total of $37.3 million.

In October 1994, the Company amended its unsecured, multi-currency Credit
Agreement and reduced its committed line under the Credit Agreement from $230.0
million to $200.0 million. The amended Credit Agreement also permits the
establishment of an accounts receivable facility of up to $50 million. See Note
D to the consolidated financial statements for additional information regarding
the terms and financial covenants of the Company's borrowing arrangements. Under
such covenants, the Company's ability to borrow under the Credit Agreement at
December 31, 1994 was limited to aggregate borrowings of $176.9 million. At
December 31, 1994, $100.9 million was outstanding under the Credit Agreement.

Total debt at December 31, 1994 was $212.9 million compared to $250.3
million at December 31, 1993 reflecting the significantly improved 1994
financial results and cash flow from operating activities. At December 31, 1994,
total debt was 52.3% of total capitalization compared with 64.0% at year end
1993.

Capital expenditures for property, plant and equipment totaled $37.4
million in 1994 and $19.1 million in 1993. These expenditures for property,
plant and equipment represent the Company's continued commitment to support and
develop advanced technologies, support new products, expand current capacity and
reduce future manufacturing costs. The Company is continuing the modernization
and expansion of its motor division, has established a separate facility in
Cleveland dedicated to motor manufacturing and is increasing its testing and
design capacity to be able to reduce costs, increase output, and meet scheduled
higher industry efficiency standards.

The Company continues to closely monitor its capital expenditures and is
adding to capacity and modernizing facilities as necessary. While the financial
covenants of the Company's debt agreements place limitations on capital
expenditures, capital expenditures for 1995 are expected to increase over 1994
expenditures.

9
10

A total of $8.1 million in dividends, including a special dividend, was
paid in 1994. Although the Company paid a special dividend of $.02 per share in
the fourth quarter of 1994, management expressed its intention of not continuing
such a practice in the future. The Company's amended credit facility and 8.98%
Senior Note Agreement contain various financial covenants that place limitations
on the payments of dividends, the purchase of unrestricted stock, capital
expenditures, and the incurrence of additional indebtedness. The losses of 1993
and 1992 placed constraints on the Company's financial flexibility, the impact
of which was reduced, but not eliminated, by the strong 1994 performance.

The Company's Board of Directors believes that the Company's future growth
and success would be enhanced by a reduction in the Company's leverage and
access to greater capital. The Company has explored a variety of alternative
forms of equity financings, both private and public. On March 30, 1995, the
Board of Directors authorized presentation to the Company's shareholders of
amendments to the Company's Articles of Incorporation that would provide the
basis for a plan of recapitalization to include the creation of a new class of
non-voting common stock. If the Company's shareholders approve the amendments to
the Articles of Incorporation, the Company anticipates that the Board of
Directors would declare a dividend of one share of non-voting common stock for
each outstanding share of common stock. The Company anticipates that
concurrently with such dividend, it would engage in a public offering of
non-voting common stock. The size and timing of such offering is dependent on a
variety of factors, many of which are outside the Company's control. There is no
certainty that such offering will be accomplished. In the event such offering is
not accomplished, the Company would reconsider alternative sources of equity
financing. There is no certainty that any such alternatives will be approved by
the Company's Board of Directors or, if so approved, be available. While
additional capital resources would allow a higher rate of capital expenditures
and provide more flexibility for growth, management believes that the current
financing arrangements and the cash flows generated from operations will provide
adequate funds to support the existing operations of the Company and satisfy
both its capital requirements and regular dividend practices throughout the term
of the Credit Agreement.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in a separate section of this report
following the signature page.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

A definitive proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act prior to April 29, 1995. Therefore, information
required under this part, unless set forth below, is incorporated herein by
reference from such definitive proxy statement.

NAME AGE POSITION
---------------------------- --- -------------------------------------------------

Donald F. Hastings 66 Chairman of the Board and Chief Executive Officer
of the Company since 1992; President of the
Company 1987-1992.
Frederick W. Mackenbach 64 President and Chief Operating Officer of the
Company since 1992; President of Latin America
1991-1992; District Manager 1976-1991.
Harry Carlson 60 Vice Chairman of the Company since 1987.
David J. Fullen 63 Senior Vice President, Machine and Motor Division
since 1994; Vice President - Machine and Motor
Division 1989-1994.

10
11

NAME AGE POSITION
---------------------------- --- -------------------------------------------------

John M. Stropki 44 Senior Vice President, Sales since 1994; General
Sales Manager 1992-1994; District Manager
1986-1992.
Richard C. Ulstad 55 Senior Vice President, Consumable Division since
1994; Vice President - Manufacturing Electrode
Division 1992-1994; Superintendent - Electrode
Division 1984-1992.
Frederick W. Anderson 42 Vice President, Manufacturing - Machine Division
since 1994; Plant Manager Machine and Motor
Division 1993-1994; Plant Superintendent
1989-1993.
Paul J. Beddia 61 Vice President, Human Resources since 1989.
Dennis D. Crockett 52 Vice President, Consumable Research and
Development since 1993; Chief Engineer,
Consumables Research and Development 1987 - 1993.
James R. Delaney 46 Corporate Vice President and President Lincoln
Latin America since 1994; President Lincoln
Electric South America 1993-1994; Vice President
of Lincoln Latin America 1992; Vice President of
Lincoln Mexicana 1988-1992.
H. Jay Elliott 53 Vice President, Chief Financial Officer, and
Treasurer since 1994; International Chief
Financial Officer 1993-1994; prior thereto,
Assistant Comptroller of The Goodyear Tire &
Rubber Company responsible at various times for
Corporate Strategic Planning, Finance Director of
North American Tires and International Vice
President-Finance.
Paul F. Fantelli 50 Vice President, Business Development since 1994;
Assistant to the Chief Executive Officer
1992-1994; President and Chief Executive Officer
of the Company's subsidiary, Harris Calorific
1990-1992.
Anthony Massaro 51 Corporate Vice President and President Lincoln
Europe since 1994; Director of International
Operations 1993-1994; prior thereto, as a
corporate officer with Westinghouse Electric
Corporation, served as Vice President and then as
President and a Member of the Management
Committee with responsibilities worldwide.
Ronald A. Nelson 45 Vice President, Machine Research and Development
since 1994; Chief Engineer - Machine and Motor
Division 1993-1994; Service Manager 1989-1993.
Richard J. Seif 47 Vice President, Marketing since 1994; Director of
Marketing 1991-1994; Project Manager 1989-1991.
Frederick G. Stueber 41 Vice President, General Counsel and Secretary
since February 1995; prior thereto, partner in
the law firm of Jones, Day, Reavis and Pogue.
John H. Weaver 56 Vice President, Export Sales since 1994;
International Sales Manager 1987-1994.

11
12

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) FINANCIAL STATEMENTS

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

Statements of Consolidated Financial Condition -- December 31, 1994 and
1993

Statements of Consolidated Operations -- Year ended December 31, 1994,
1993 and 1992

Statements of Consolidated Shareholders' Equity -- Year ended December
31, 1994, 1993 and 1992

Statements of Consolidated Cash Flows -- Year ended December 31, 1994,
1993 and 1992

Notes to Consolidated Financial Statements -- December 31, 1994

Reports of Independent Auditors

(a) (2) FINANCIAL STATEMENT SCHEDULES

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

Schedule II -- Valuation and Qualifying Accounts

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

(a) (3) EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------

12
13

EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------

4(b) Credit Agreement dated March 18, 1993 among the Company, the Banks listed
on the signature page thereof, and Society National Bank, as Agent (filed
as Exhibit 4 (b) to Form 10-K of The Lincoln Electric Company for the year
ended December 31, 1992, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof), as amended by Amendment No.1 to Credit
Agreement dated November 19, 1993; 8.98% Senior Note Due November 26, 2003
(filed as Exhibit 4(b) to Form 10K of The Lincoln Electric Company for the
year ended December 31, 1993, SEC File No. 0-1402 and incorporated herein
by reference and made a part hereof), and as further amended by Amendment
No. 2 to Credit Agreement dated October 31, 1994 (filed as Exhibit 4(b) to
Form 10Q of The Lincoln Electric Company for the period ended September
30, 1994, SEC File No. 0-1402 and incorporated herein by reference and
made a part hereof).
9 Voting Trust Agreement filed herewith.
10(a)* The Lincoln Electric Company 1988 Incentive Equity Plan (filed as Exhibit
28 to the Form S-8 Registration Statement of The Lincoln Electric Company,
SEC File No. 33-25209 and incorporated herein by reference and made a part
hereof).
10(b) Form of Indemnification Agreement filed herewith.
10(c) Supplemental Executive Retirement Plan dated as of January 1, 1994.
10(d) The Lincoln Electric Company Deferred Compensation Plan dated as of
November 10, 1994.
10(e) Employment Agreement between the Company and Anthony A. Massaro dated July
14, 1993, as amended on January 1, 1994.
10(f) Employment Agreement between the Company and H. Jay Elliott dated June 22,
1993.
10(g) Employment Agreement between the Company and Frederick G. Stueber dated
February 22, 1995.
10(h) Severance Agreement between the Company and Roger F. Young dated August
11, 1994.
10(i) Severance Agreement between the Company and John Gonzalez dated November
22, 1994.
11 Computation of earnings per share.
21 Subsidiaries of the Registrant.
23 Consents of Independent Auditors.
27 Financial Data Schedule.

* Reflects executive compensatory arrangement required to be filed as an Exhibit
pursuant to Item 14(c) of this Report.

Upon request, The Lincoln Electric Company will furnish to security holders
copies of any exhibit to the Form 10-K report upon payment of a reasonable fee.
Any requests should be made in writing to: Mr. H. Jay Elliott, Vice President,
Chief Financial Officer and Treasurer, The Lincoln Electric Company, 22801 St.
Clair Avenue, Cleveland, Ohio 44117, Phone: (216) 481-8100.

13
14

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

The Lincoln Electric Company
------------------------------------
(Registrant)

/s/ H. JAY ELLIOTT
------------------------------------
H. Jay Elliott
Vice President,
Chief Financial Officer
and Treasurer
(principal financial and
accounting officer)

14
15

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1995.

/s/ DONALD F. HASTINGS /s/ FREDERICK W. MACKENBACH
----------------------------------------- -----------------------------------------
Donald F. Hastings, Chairman of the Frederick W. Mackenbach, President,
Board and Chief Executive Officer Chief Operating Officer and Director
(principal executive officer)

/s/ HARRY CARLSON /s/ DAVID H. GUNNING
----------------------------------------- -----------------------------------------
Harry Carlson, Vice Chairman and David H. Gunning, Director
Director

/s/ EDWARD E. HOOD, JR. /s/ PAUL E. LEGO
----------------------------------------- -----------------------------------------
Edward E. Hood, Jr., Director Paul E. Lego, Director

/s/ HUGH L. LIBBY /s/ DAVID C. LINCOLN
----------------------------------------- -----------------------------------------
Hugh L. Libby, Director David C. Lincoln, Director

/s/ EMMA S. LINCOLN /s/ G. RUSSELL LINCOLN
----------------------------------------- -----------------------------------------
Emma S. Lincoln, Director G. Russell Lincoln, Director

/s/ HENRY L.MEYER III /s/ LAWRENCE O. SELHORST
----------------------------------------- -----------------------------------------
Henry L. Meyer, III, Director Lawrence O. Selhorst, Director

/s/ CRAIG R. SMITH /s/ FRANK STEINGASS
----------------------------------------- -----------------------------------------
Craig R. Smith, Director Frank Steingass, Director

/s/ H. JAY ELLIOTT
-----------------------------------------
H. Jay Elliott, Vice President, Chief
Financial Officer and Treasurer
(principal financial and accounting
officer)

15
16

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED DECEMBER 31, 1994

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

16
17

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
The Lincoln Electric Company

We have audited the consolidated financial statements of The Lincoln
Electric Company and subsidiaries listed in the accompanying index to financial
statements Item 14 (a1). Our audits also included the financial statement
schedule listed in the Index at Item 14 (a2). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits. We did not audit the consolidated financial statements of The Lincoln
Electric Company (Australia) Proprietary Limited and subsidiaries and, for 1992,
the consolidated financial statements of Lincoln-Norweld B.V. and subsidiaries
and the consolidated financial statements of Messer Lincoln GmbH and subsidiary,
all consolidated subsidiaries, which statements reflect total assets
constituting 7% in 1994 and 5% in 1993 and total revenues constituting 5% in
1994 and 1993 and 36% in 1992 of the related consolidated totals. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to data included for The Lincoln
Electric Company (Australia) Proprietary Limited and subsidiaries and, for 1992,
Lincoln Norweld B.V. and subsidiaries and Messer Lincoln GmbH and subsidiary, is
based solely on the reports of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The Lincoln Electric
Company and subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note A to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.

ERNST & YOUNG LLP

Cleveland, Ohio
March 3, 1995

17
18

To the Board of Directors of
The Lincoln Electric Company

REPORT OF INDEPENDENT ACCOUNTANTS

In our opinion, the consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows (none
of which are presented separately herein) present fairly, in all material
respects, the financial position of The Lincoln Electric Company (Australia)
Proprietary Limited and its subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

Parramatta, Australia
March 27, 1995

18
19

INDEPENDENT AUDITORS' REPORT

The Board of Directors
of Messer Lincoln GmbH

We have audited the consolidated balance sheet of Messer Lincoln GmbH and
its subsidiary as of December 31, 1992 and the balance sheet of Messer Lincoln
GmbH as of December 31, 1991 and the related (consolidated) statements of
income, retained earnings, and cash flows for the year ended December 31, 1992
and the period ended December 31, 1991. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements (none of which are presented separately
herein) based on our audits.

The Company is a subsidiary of The Lincoln Electric Company based in
Cleveland, Ohio, USA, which is responsible for management of the Company. The
financial statements have been prepared assuming that the Company will continue
as a going concern. The Company has suffered considerable losses in 1992 and
1991 and is dependent on the continued support of The Lincoln Electric Company
for the continuance of its operations. The Lincoln Electric Company has
confirmed that it will provide financial and other support to enable the Company
to continue to trade as a viable and solvent business entity at least through
December 31, 1993.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Messer Lincoln GmbH and its
subsidiary as of December 31, 1992 and of Messer Lincoln GmbH as of December 31,
1991, and the results of its operations and its cash flows for the year ended
December 31, 1992 and the period ended December 31, 1991 in conformity with
generally accepted accounting principles.

Dusseldorf, March 12, 1993

KPMG KLYNVELD PEAT MARWICK GOERDELER
Gesellschaft mit beschrankter Haftung
Wirtschaftsprufungsgesellschaft

19
20

To the board of directors of
Lincoln-Norweld B.V.

INDEPENDENT AUDITORS' REPORT

We have audited the consolidated balance sheet of Lincoln-Norweld B.V. and
subsidiaries as of December 31, 1992, and the related consolidated statement of
income, retained earnings and cash flows for the year ended December 31, 1992
(none of which are presented separately herein). These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet and
statement of income 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Lincoln-Norwald B.V. and subsidiaries as of December 31, 1992, and the results
of its operations and its cash flows for the year then ended in conformity with
United States generally accepted accounting principles.

Arnhem, The Netherlands

March 23, 1993

20
21

STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

DECEMBER 31
1994 1993
-------- --------
(IN THOUSANDS OF
DOLLARS)

ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $ 10,424 $ 20,381
Accounts receivable (less allowances of $4,251 in 1994; $6,258 in
1993)............................................................. 126,007 110,504
Inventories
Raw materials and in-process...................................... 72,302 66,987
Finished goods.................................................... 82,974 76,698
-------- --------
155,276 143,685
Deferred income taxes -- Note E...................................... 11,601 42,960
Prepaid expenses..................................................... 2,899 3,241
Other current assets................................................. 7,220 4,937
-------- --------
TOTAL CURRENT ASSETS................................................... 313,427 325,708
OTHER ASSETS
Notes receivable from employees...................................... 3,151 4,747
Goodwill -- Note C................................................... 39,213 39,732
Other................................................................ 16,855 19,665
-------- --------
59,219 64,144
PROPERTY, PLANT AND EQUIPMENT
Land................................................................. 12,655 12,802
Buildings............................................................ 118,903 113,927
Machinery, tools and equipment....................................... 312,957 279,933
-------- --------
444,515 406,662
Less allowances for depreciation and amortization.................... 260,304 236,971
-------- --------
184,211 169,691
-------- --------

TOTAL ASSETS........................................................... $556,857 $559,543
======== ========

21
22

STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

DECEMBER 31,
1994 1993
-------- --------
(IN THOUSANDS OF
DOLLARS)

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable............................................... $ 54,766 $ 43,471
Notes payable to banks -- Note D..................................... 15,843 23,198
Salaries, wages and amounts withheld................................. 12,405 12,779
Taxes, including income taxes -- Note E.............................. 21,783 23,061
Dividend payable..................................................... 2,203 1,959
Current portion of long-term debt -- Note D.......................... 2,272 10,200
Accrued restructuring charges -- Note C.............................. 8,968 29,618
Other current liabilities............................................ 25,877 31,569
-------- --------
TOTAL CURRENT LIABILITIES.............................................. 144,117 175,855
LONG-TERM DEBT, less current portion -- Note D......................... 194,831 216,915
DEFERRED INCOME TAXES -- Note E........................................ 6,631 6,128
OTHER LONG-TERM LIABILITIES............................................ 10,337 9,221
MINORITY INTEREST IN SUBSIDIARIES...................................... 6,808 7,929
SHAREHOLDERS' EQUITY
Common Stock, without par value -- at stated
capital amount -- Note B:
Authorized -- 15,000,000 shares
Outstanding -- 10,514,324 shares in 1994 and 10,381,450 shares
in 1993, exclusive of 4,346,516 shares in 1994 and 4,479,390
shares in 1993 held in treasury................................ 2,103 2,076
Class A Common Stock, without par value -- at stated capital
amount --
Note B:
Authorized -- 2,000,000
Outstanding -- 499,840 shares................................... 100 100
Additional paid-in capital........................................... 25,447 22,926
Retained earnings.................................................... 176,965 137,307
Cumulative translation adjustments................................... (10,482) (18,914)
-------- --------
194,133 143,495
-------- --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $556,857 $559,543
======== ========

See notes to consolidated financial statements.

22
23

STATEMENTS OF CONSOLIDATED OPERATIONS

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

YEAR ENDED DECEMBER 31
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS EXCEPT
PER SHARE DATA)

Net sales.................................................. $906,604 $845,999 $853,007
Cost of goods sold......................................... 556,259 532,795 553,103
-------- -------- --------
Gross Profit............................................... 350,345 313,204 299,904
Distribution cost/selling, general & administrative
expenses................................................. 261,681 277,003 299,195
Restructuring charges (income) -- Note C................... (2,735) 70,079 23,897
-------- -------- --------
Operating income (loss).................................... 91,399 (33,878) (23,188)
Other income (expense):
Interest income.......................................... 1,442 1,627 3,061
Other income............................................. 3,067 2,922 4,433
Interest expense......................................... (15,740) (17,621) (18,736)
-------- -------- --------
(11,231) (13,072) (11,242)
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
accounting change........................................ 80,168 (46,950) (34,430)
Income taxes (benefit) -- Note E........................... 32,160 (6,414) 11,370
-------- -------- --------
Income (loss) before cumulative effect of accounting
change................................................... 48,008 (40,536) (45,800)
Cumulative effect to January 1, 1993 of change in method of
accounting for income taxes -- Note A.................... 2,468
-------- -------- --------
Net income (loss).......................................... $ 48,008 $(38,068) $(45,800)
======== ======== ========
Per share:
Income (loss) before cumulative effect of accounting
change................................................ 4.38 (3.74) (4.24)
Cumulative effect of accounting change................... .23
-------- -------- --------
Net income (loss)........................................ $ 4.38 $ (3.51) $ (4.24)
======== ======== ========

See notes to consolidated financial statements.

23
24

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992

CLASS A COMMON
COMMON STOCK STOCK ADDITIONAL CUMULATIVE
------------------- ---------------- PAID IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL
---------- ------ ------- ------ ---------- -------- ----------- -----------
(IN THOUSANDS OF DOLLARS)

Balance, January 1, 1992............. 1,039,142 $ 208 35,794 $ 7 $ 20,845 $238,412 $ 4,664 $ 264,136
Net loss........................... (45,800) (45,800)
Cash dividends declared -- $.72 per
share............................ (7,762) (7,762)
Purchases of Common Stock.......... (16,841) (3) (2,473) (1,667) (4,143)
Shares sold to employees........... 9,979 2 2,373 2,375
Shares issued to ESOP.............. 9,268 2 2,058 2,060
Shares issued under Incentive
Equity Plan...................... 1,066 264 264
Adjustment for the year............ (12,407) (12,407)
---------- ------ ------- ------ ---------- -------- ----------- -----------
Balance December 31, 1992............ 1,033,346 207 45,062 9 23,067 183,183 (7,743) 198,723
Net loss........................... (38,068) (38,068)
Cash dividends declared -- $.72 per
share............................ (7,808) (7,808)
Shares sold to employees........... 3,648 1 678 679
Shares issued under Incentive
Equity Plan...................... 1,151 224 224
Ten-for-one stock split............ 9,343,305 1,868 405,558 81 (1,949)
Shares issued to ESOP.............. 49,220 10 906 916
Adjustment for the year............ (11,171) (11,171)
---------- ------ ------- ------ ---------- -------- ----------- -----------
Balance December 31, 1993............ 10,381,450 2,076 499,840 100 22,926 137,307 (18,914) 143,495
Net income......................... 48,008 48,008
Cash dividends declared -- $.76 per
share............................ (8,350) (8,350)
Shares sold to employees........... 107,520 22 2,063 2,085
Shares issued under Incentive
Equity Plan...................... 25,354 5 458 463
Adjustment for the year............ 8,432 8,432
---------- ------ ------- ------ ---------- -------- ----------- -----------
Balance December 31, 1994............ 10,514,324 $2,103 499,840 $100 $ 25,447 $176,965 $ (10,482) $ 194,133
========= ======= ======= ======= ========= ======== ========== ========

See notes to consolidated financial statements.

24
25

STATEMENTS OF CONSOLIDATED CASH FLOWS

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

YEAR ENDED DECEMBER 31
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)

OPERATING ACTIVITIES
Net income (loss).......................................... $ 48,008 $(38,068) $(45,800)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 27,960 30,545 31,511
Deferred income taxes............................... 31,862 (32,501) 538
Cumulative effect of accounting change.............. (2,468)
Foreign exchange loss (gain)........................ 4,047 (348) 957
Employee Stock Ownership Plan....................... 916 2,060
Minority interest................................... 416 (358) (2,158)
Provision for restructuring......................... (2,735) 68,370 18,356
Changes in operating assets and liabilities net of
effects from acquisitions:
(Increase) in accounts receivable.............. (14,003) (6,228) (739)
(Increase) decrease in inventories............. (6,476) 10,654 22,939
(Increase) decrease in other current assets.... (1,447) (1,331) 695
Increase in accounts payable................... 9,929 2,856 171
(Decrease) in other current liabilities.......... (31,026) (2,928) (4,060)
Gross change in other noncurrent assets........ 1,368 (3,112) (2,699)
Other--net..................................... 763 2,734 1,853
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 68,666 28,733 23,624
INVESTING ACTIVITIES
Purchases of property, plant and equipment............... (37,366) (19,090) (34,847)
Sales of property, plant and equipment................... 5,099 2,599 4,448
Acquisitions, net of cash acquired....................... (8,518) (37,288)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES...................... (32,267) (25,009) (67,687)
FINANCING ACTIVITIES
Proceeds from the sale of Common Stock................... 2,085 679 2,375
Purchase of Common Stock................................. (4,143)
Proceeds from short-term borrowings, maturities greater
than three months..................................... 56,405 305 11,674
Payments on short-term borrowings, maturities greater
than three months..................................... (59,293) (12,736)
Notes payable to banks--net.............................. (5,122) (9,470) (33,416)
Proceeds from long-term borrowings....................... 317,669 603,405 287,317
Payment on long-term borrowings.......................... (351,793) (576,445) (212,111)
Dividends paid........................................... (8,106) (7,791) (7,756)
Other.................................................... 838 (210) 321
-------- -------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES........... (47,317) (2,263) 44,261
Effect of exchange rate changes on cash and cash
equivalents.............................................. 961 (1,707) 170
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........... (9,957) (246) 368
Cash and cash equivalents at beginning of year............. 20,381 20,627 20,259
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 10,424 $ 20,381 $ 20,627
======== ======== ========

See notes to consolidated financial statements.

25
26

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)

DECEMBER 31, 1994

NOTE A -- ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include
the accounts of The Lincoln Electric Company and its subsidiaries (the
"Company") after elimination of all significant intercompany accounts,
transactions and profits.

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

Inventories: Inventories are valued at the lower of cost or market. For
domestic inventories, cost is determined principally by the last-in, first-out
(LIFO) method, and for foreign inventories cost is determined by the first-in,
first-out (FIFO) method. At December 31, 1994 and 1993, approximately 62% and
60%, respectively, of total inventories were valued using the LIFO method. The
excess of current cost over LIFO cost amounted to $51,739 at December 31, 1994
and $48,876 at December 31, 1993. During 1992, certain LIFO inventories were
reduced, resulting in liquidations of LIFO inventory quantities carried at the
lower costs of prior years, as compared with their 1992 costs. The effect of
these liquidations was to reduce the 1992 net loss after tax, by $1,018 ($.09
per share).

Property, Plant and Equipment: Property, plant and equipment, including
facilities and equipment under capital leases (not material), are stated at cost
and include improvements which significantly extend the useful lives of existing
plant and equipment. Depreciation and amortization are computed by both
accelerated and straight-line methods.

Research and Development: Research and development costs, which are
expensed as incurred, were $18,473 in 1994, $19,210 in 1993 and $19,364 in 1992.

Goodwill: The excess of the purchase price over the fair value of net
assets acquired (goodwill) is amortized by the straight-line basis over periods
not exceeding 40 years. Amounts are stated net of accumulated amortization of
$5,784 and $2,363 in 1994 and 1993, respectively.

The carrying value of goodwill is reviewed if facts and circumstances
indicate a potential impairment of carrying value utilizing relevant cash flow
and profitability information.

Translation of Foreign Currencies: For subsidiaries in countries which do
not have highly inflationary economies, asset and liability accounts are
translated into U.S. dollars using exchange rates in effect at the balance sheet
date and revenue and expense accounts are translated at average monthly exchange
rates. Translation adjustments are reflected as a component of shareholders'
equity.

For subsidiaries in countries with highly inflationary economies (Venezuela
and Brazil) inventories, property, plant and equipment and related depreciation
are translated into U.S. dollars at historical exchange rates. Other asset and
liability accounts are translated at exchange rates in effect at the balance
sheet date and revenues and expenses, excluding depreciation, are translated at
average monthly exchange rates. Translation adjustments for these subsidiaries,
as well as transaction gains and losses of all other subsidiaries, are included
in the statements of consolidated operations in distribution cost/selling,
general and administrative expenses. The Company recorded transaction losses of
$3,746 in 1994, $228 in 1993 and $859 in 1992. The increase in transaction
losses in 1994 is attributable to the effect of the devaluation of the Mexican
peso on a U.S. dollar denominated debt obligation.

26
27

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE A -- ACCOUNTING POLICIES -- (CONTINUED)
Financial Instruments: The Company on a limited basis has used forward
exchange contracts to hedge exposure to exchange rate fluctuations on
anticipated future purchase and sales transactions and certain intercompany
transactions. Any contracts that are entered into are written on a short-term
basis, are not held for trading purposes, and are not held for purposes of
speculation. Gains and losses on forward exchange contracts described herein are
recognized in the statements of consolidated operations in the periods the
exchange rates change. At December 31, 1994, the Company had no outstanding
forward exchange contracts.

Accounting Change: Effective January 1, 1993, the Company adopted FASB
Statement No. 109, "Accounting for Income Taxes." Under Statement No. 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of Statement No. 109, income tax
expense was determined using the deferred method under which deferred tax
expense was based on items of income and expense that were reported in different
years in the financial statements and tax returns and were measured at the tax
rate in effect in the year the difference originated. As permitted by Statement
No. 109, the Company elected not to restate the financial statements of any
prior year. The cumulative effect of the change decreased the net loss for 1993
by $2,468 or $.23 per share.

Net Income (Loss) per Share: Net income (loss) per share is based on the
average number of all shares outstanding during the year (10,969,991 in 1994;
10,851,991 in 1993 and 10,796,410 in 1992).

Other: Included in Distribution cost/selling, general & administrative
expenses are the costs related to the Company's discretionary employee bonus
($68,370 in 1994; $61,883 in 1993; and $55,282 in 1992.)

Notes receivable from employees are secured by Company Common Stock owned
by the employee.

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

NOTE B -- SHAREHOLDERS' EQUITY

The Lincoln Electric Company Employees' Stock Purchase Plan ("Plan") which
provided that employees could purchase shares of the Company's Common Stock,
when offered, at its estimated fair value, was terminated by the Board of
Directors in February 1995 effective March 30, 1995. Under the Plan, the Company
had the option to repurchase the shares, but in 1992 the Company suspended the
repurchase of all shares and the employees were permitted to sell their shares
on the open market. Upon termination of the Plan, all shares issued under the
Plan (1,639,686) became unrestricted shares.

The Lincoln Electric Company 1988 Incentive Equity Plan ("Incentive Equity
Plan") provides for the award or sale of Common Stock to officers and other key
employees of the Company and its subsidiaries. Distribution of shares is based
on certain specified performance and other conditions being satisfied. As a
result of conditions being fulfilled in 1991 with respect to certain of the
Company's subsidiaries, the Company awarded 32,524 shares (including 524 shares
issued for dividends accrued during the deferral period) of which 10,660 shares
were distributed in 1992, 11,510 shares in 1993, and 10,354 shares in 1994.
These shares, along with 15,000 shares issued to a former officer of the
Company, are restricted as to resale rights with the Company having a right of
first refusal at a purchase price based on the book value of the shares.
Additionally, in 1994, 15,000 shares were issued to certain officers of the
Company. Such shares vest equally over a three-year period, commencing in 1995
and ending in 1997. At December 31, 1994, there were no other outstanding awards
under the Plan, and 952,476 shares are reserved for future issuance under the
Incentive Equity Plan.

27
28

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE B -- SHAREHOLDERS' EQUITY -- (CONTINUED)
The Lincoln Electric Company Employee Stock Ownership Plan (the "ESOP") is
a non-contributory profit-sharing plan established to provide deferred
compensation benefits for all eligible employees. The cost of the plan is borne
by the Company through contributions to an employee stock ownership trust as
determined annually by the Board of Directors. In May 1989, shareholders
authorized 2,000,000 shares of Class A Common Stock ("Class A Common Stock"),
without par value. The Company's Common Stock and Class A Common Stock are
identical in all respects, except that holders of Class A Common Stock are
subject to certain transfer restrictions and the Class A Common Stock is only
issued to the ESOP. In 1994, no shares of stock were issued to the ESOP. In
1993, the Company issued 49,220 shares (92,680 shares in 1992) to the ESOP with
an estimated fair value of $916 ($2,060 in 1992) which was recorded as
compensation expense. The difference between the total stated capital amount of
$.20 per share and the estimated fair value was recorded as additional
paid-in-capital. At December 31, 1994 and 1993, 1,500,160 authorized but
unissued shares are available for future issuance to the ESOP.

NOTE C -- RESTRUCTURING CHARGES

In 1993, the Company substantially completed its plan to downsize and
streamline its foreign operations (principally in Europe) and close
manufacturing facilities in Germany, Japan and South America. Management's
decisions resulted in a restructuring charge in 1993 of $70,100 ($40,900 after
tax or $3.77 per share) which was comprised of (1) asset write-downs in the
amount of $45,900 including goodwill of $8,900; (2) severance and other
redundancy costs of $27,500; and (3) a net credit of $3,300 comprised of a claim
settlement and other restructuring liabilities including estimated losses
through the final facility closing dates in 1994.

In 1992, the Company recorded a restructuring charge of $23,900 (without
tax benefit, or $2.21 per share) as a result of decisions by management at that
time to downsize and streamline certain foreign operations (principally in
Europe). This charge was primarily for severance pay, redundancies and other
liabilities relating to the reorganization of the sales and distribution
operations in Europe.

In 1994, all of the planned facility closings were completed and one of the
facilities was disposed of. In total, approximately 1,400 employees were
terminated as a result of the 1992 and 1993 restructuring programs. In 1994 the
restructuring accruals were adjusted to reflect management's current cost
estimates to complete the program which resulted in a credit to income of
$2,735. Included in property, plant and equipment, are facilities held for sale
with a net carrying value of $4,700. The remaining expenditures, which include
costs related to the sale of real estate and holding costs to be incurred
through the estimated date of disposal, are anticipated to be incurred in 1995
and 1996.

28
29

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE D -- SHORT-TERM AND LONG-TERM DEBT

1994 1993
-------- --------

Short-term debt:
Notes payable to banks at interest rates from 5.6625% to
11.25% (4.125% to 23.25% in 1993)........................ $ 15,843 $ 23,198
======== ========
Long-term debt:
Multi-currency Credit Agreement, due October 1, 1997........ $100,947 $126,457
8.98% Senior Note due 2003 (equal annual principal payments
commencing in 1996)...................................... 75,000 75,000
Other borrowings due through 2023, interest at 2.00% to
13.74% (3.00% to 13.74% in 1993)......................... 21,156 25,658
-------- --------
$197,103 $227,115
Less current portion........................................ 2,272 10,200
-------- --------
Total $194,831 $216,915
======== ========

In October 1994, the Company amended its unsecured, multi-currency Credit
Agreement with ten banks and reduced its committed line under the Credit
Agreement from $230,000 to $200,000 which the Company believes is sufficient to
meet future financing needs. Under the terms of the amended agreement which
expires October 1, 1997, but provides for a mechanism for annual extensions, the
interest rate on outstanding borrowings is determined based upon defined
leverage rates for the pricing option selected. The interest rate can range from
the LIBOR plus .375% to LIBOR plus 1.125% depending upon the defined leverage
rate. The agreement also provides for commitment fees ranging from .2% to .375%
per annum on the unused credit lines based upon the defined leverage rate. Prior
to the amendment, the interest rates ranged from LIBOR plus 1% to LIBOR plus 2%,
and the commitment fees were from .375% to .5%.

Simultaneously, with the signing of the Credit Agreement, the $75,000 8.98%
Senior Note due in 2003 was amended to change the financial covenants to conform
with the financial covenants of the amended Credit Agreement, which requires a
1.35 to 1 consolidated current ratio and the maintenance of consolidated
tangible net worth of $125,000 plus 50% of net income subsequent to January 1,
1995. In addition, there are requirements with respect to interest coverage and
funded debt to capital ratios (.60 to 1 decreasing to .50 to 1 after December
31, 1995), and limitations on capital expenditures. Purchases of unrestricted
stock and the payment of dividends are limited to 50% of cumulative net income
from January 1, 1993, plus $25,000. At December 31, 1994, the Company was in
compliance with all of its financial covenants and $13,800 was available for
dividends and the purchase of unrestricted stock. The limitations on capital
expenditures, purchases of unrestricted common stock and payment of dividends
can be waived based on the achievement of a certain interest coverage ratio for
three consecutive quarters.

Maturities of long-term debt for the five years succeeding December 31,
1994 are $2,272 in 1995, $10,652 in 1996, $120,884 in 1997, $9,861 in 1998;
$9,612 in 1999 and $43,822 thereafter.

At December 31, 1994, certain loans ($7,900) were collateralized by
property and equipment.

Interest expense capitalized to property, plant and equipment was $244 in
1994, $71 in 1993 and $320 in 1992. Total interest paid was $17,400 in 1994,
$19,000 in 1993 and $17,500 in 1992. Weighted average interest rates on notes
payable to banks at December 31, 1994 and 1993 were 6.8% and 9.1%, respectively.

In 1992, the Company terminated an interest rate swap agreement with a
notional borrowing amount of $75,000 and received $2,586 which was amortized
($904 in 1994; $986 in 1993 and $696 in 1992) over the original swap term as a
yield adjustment to interest expense on the underlying $75,000 debt.

29
30

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE D -- SHORT-TERM AND LONG-TERM DEBT -- (CONTINUED)
In connection with the expansion of its motor plant, the Company received
in 1994 $6,000 of low interest rate loans from certain governmental entities.
The Company also received in 1994 $1,750 of government grants which were
recorded as a reduction in property, plant and equipment.

NOTE E -- INCOME TAXES

The components of income (loss) before income taxes and cumulative effect
of accounting change are as follows:

1994 1993 1992
------- -------- --------

U.S.................................................. $70,703 $ 43,345 $ 24,120
Non-U.S.............................................. 9,465 (90,295) (58,550)
------- -------- --------
Total...................................... $80,168 $(46,950) $(34,430)
======= ======== ========

Components of income tax expense (benefit) are as follows:

DEFERRED
LIABILITY METHOD METHOD
-------------------- --------
1994 1993 1992
-------- -------- --------

Current:
Federal........................................... $ (8,379) $ 21,032 $ 8,295
Non-U.S........................................... 4,143 2,227 1,310
State and local................................... 4,534 2,828 1,227
-------- -------- --------
298 26,087 10,832
Deferred:
Federal........................................... 31,223 (32,980) 1,232
Non-U.S........................................... 639 479 (694)
-------- -------- --------
31,862 (32,501) 538
-------- -------- --------
Total..................................... $ 32,160 $ (6,414) $ 11,370
======== ======== ========

The components of the provision for deferred income taxes for 1992 were as
follows:

Inventory adjustments....................................................... $ 201
Incentive equity plan....................................................... 87
Depreciation................................................................ 204
Other asset adjustments..................................................... (88)
Pension adjustments......................................................... (299)
Employee stock ownership plan............................................... (149)
Other....................................................................... 582
-----
Total............................................................. $ 538
=====

30
31

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE E -- INCOME TAXES -- (CONTINUED)
The differences between total income tax expense (benefit) and the amount
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes and cumulative effect of accounting change are as follows:

DEFERRED
LIABILITY METHOD METHOD
------------------- --------
1994 1993 1992
------- -------- --------

Statutory rate applied............................... 35% 35% 34%
to pre-tax income (loss)........................... $28,059 $(16,432) $(11,706)
Effect of state and local income taxes, net of
Federal tax benefit................................ 2,947 1,838 810
Differences in income taxes on non-U.S. earnings and
remittances........................................ (1,158) 336 (502)
Non-U.S. losses and unrecognized tax benefits........ 2,113 8,308 22,650
Foreign Sales Corporation............................ (838) (703) (630)
Other -- net......................................... 1,037 239 748
------- -------- --------
Total...................................... $32,160 $ (6,414) $ 11,370
======= ======== ========

Total income tax payments, net of refunds, were $6,115 in 1994, $19,400 in
1993 and $16,500 in 1992.

At December 31, 1994, the Company's foreign subsidiaries have net operating
loss carryforwards of approximately $61,100 which expire in various years from
1995 through 2002, except for $5,000 for which there is no expiration date.

Significant components of the Company's deferred tax assets and liabilities
at December 31, 1994 and 1993, are as follows:

1994 1993
-------- --------

Deferred tax assets:
Net operating loss carryforwards........................... $ 20,015 $ 15,709
Restructuring activities................................... 33,446
Inventory adjustments...................................... 3,274 2,772
Other accrual accounts..................................... 4,273 1,685
Employee benefits.......................................... 1,269 (172)
Other asset adjustments.................................... 3,350 3,245
Pension adjustments........................................ 2,417 2,085
Other deferred tax assets.................................. 2,844 7,406
-------- --------
37,442 66,176
Valuation allowance........................................ (18,987) (15,709)
-------- --------
18,455 50,467
Deferred tax liabilities:
Depreciation............................................... (8,136) $ (3,390)
Pension adjustments........................................ (2,690) (618)
Other deferred tax liabilities............................. (2,659) (9,627)
-------- --------
(13,485) (13,635)
-------- --------
Total.............................................. $ 4,970 $ 36,832
======== ========

31
32

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE E -- INCOME TAXES -- (CONTINUED)
Income taxes currently payable amounted to approximately $10,100 and
$12,200 at December 31, 1994 and 1993, respectively.

The Company does not provide deferred income taxes on unremitted earnings
of foreign subsidiaries as such funds are deemed permanently reinvested to
finance foreign expansion and meet operational needs on an ongoing basis. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes subject to an adjustment for
foreign tax credits and withholding taxes payable to the various foreign
countries. Determination of the amount of unrecognized deferred U.S. income tax
liability is not practicable because of the complexities associated with its
calculation; however, unrecognized non-U.S. tax credits and non-U.S. withholding
taxes paid upon distribution would be available to reduce some portion of the
U.S. liability.

NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS

The Company and its subsidiaries maintain a number of defined benefit and
defined contribution plans to provide retirement benefits for their employees in
the United States as well as their employees in foreign countries. These plans
are maintained and contributions are made in accordance with the Employee
Retirement Income Security Act of 1974, local statutory law or as determined by
the Board of Directors. The plans generally provide benefits based upon years of
service and compensation. Pension costs accrued are funded except for the cost
associated with a supplemental employee retirement plan for certain key
employees.

A summary of the components of total pension expense is as follows:

1994 1993 1992
-------- -------- --------

U.S. Plans:
Service cost -- benefits earned during the year.......... $ 7,155 $ 6,115 $ 5,571
Interest cost on projected benefit obligation............ 19,601 18,158 17,207
Actual return on plan assets............................. (18,795) (19,569) (16,812)
Net amortization and deferral............................ (528) 1,441 (1,404)
-------- -------- --------
Net pension cost of defined benefit plans................ 7,433 6,145 4,562
Defined contribution plans............................... 258 193 225
-------- -------- --------
Total U.S. plans................................. 7,691 6,338 4,787
Non-U.S. Plans:
Service cost -- benefits earned during the year.......... 1,524 1,422 1,555
Interest cost on projected benefit obligation............ 2,207 2,253 2,472
Actual return on plan assets............................. (932) (4,506) (2,800)
Net amortization and deferral............................ (1,717) 2,000 289
-------- -------- --------
Net pension cost of defined benefit plans................ 1,082 1,169 1,516
Defined contribution plans............................... 702 1,326 905
-------- -------- --------
Total Non-U.S. plans............................. 1,784 2,495 2,421
-------- -------- --------
Total pension expense............................ $ 9,475 $ 8,833 $ 7,208
======== ======== ========

32
33

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT
PLANS -- (CONTINUED)
The funded status of the U.S. and Non-U.S. plans at December 31, 1994 and
1993 is as follows:

U.S. NON-U.S.
1994 1993 1994 1993
-------- -------- -------- --------

Actuarial present value of accumulated benefit
obligations:
Vested..................................... $218,754 $222,588 $ 24,902 $ 23,881
Nonvested.................................. 9,797 8,463 881 1,136
-------- -------- -------- --------
$228,551 $231,051 $ 25,783 $ 25,017
======== ======== ======== ========
Actuarial present value of projected benefit
obligations................................... $258,661 $254,295 $ 29,020 $ 28,396
Plan assets at fair value....................... 243,802 228,014 32,272 28,191
-------- -------- -------- --------
Excess of projected benefit obligations over
plan assets................................... (14,859) (26,281) 3,252 (205)
Unrecognized net (gain) loss............... 155 13,788 (1,410) (1,593)
Unrecognized prior service cost............ 13,839 10,835 389 540
Unrecognized net assets at January 1, 1994
and 1993, net of amortization............ (2,910) (3,239) (1,519) (1,449)
Minimum Liability.......................... (2,183) (480) (351)
-------- -------- -------- --------
Accrued retirement annuity expense
recognized in the balance sheet.......... $ (5,958) $ (4,897) $ 232 $ (3,058)
======== ======== ======== ========

The decrease in the actuarial present value of accumulated benefit
obligations ("ABO") for the U.S. plans is largely due to the change in the
discount rate from 7.5% to 8.25%, offset by the addition of a new non-qualified
Supplemental Executive Retirement Plan, as well as the normal one year's
additional accrual of benefit under all plans. In addition, the increase in the
ABO for the foreign plans is largely due to the restructuring of some of the
plans, as well as the normal one year's accrual of additional benefits, offset
by a change in the weighted average discount rate from 7.5% to 8.2% in 1994.

Assumptions used in accounting for the defined benefit plans as of December
31, 1994 and 1993 for both the U.S. and Non-U.S. plans were as follows:

U.S. NON-U.S.
PLANS PLANS
------------- -------------
1994 1993 1994 1993
---- ---- ---- ----

Weighted-average discount rates............................... 8.25% 7.5 % 8.2 % 7.5 %
Projected rates of increase in compensation................... 5.50% 4.1 % 4.8 % 4.2 %
Expected rates of return on plan assets....................... 9.00% 9.0 % 8.5 % 9.1 %

Plan assets for the U.S. plans consist principally of deposit
administration contracts and an investment contract with an insurance company.
Other assets held by the U.S. plans not under insurance contracts are invested
in equity and fixed income securities. Plan assets for the non-U.S. plans are
invested in non-U.S. insurance contracts and non-U.S. equity and fixed income
securities.

The Company does not have and does not provide for any postretirement or
postemployment benefits other than pensions.

33
34

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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

NOTE G -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION

The Company's primary business is the design, manufacture and sale, in the
domestic and international markets of arc and other welding products and related
gases used in the welding process. The Company also designs, manufactures and
sells integral horsepower industrial electric motors. Financial information by
geographic areas follows:

UNITED OTHER
STATES EUROPE COUNTRIES ELIMINATIONS TOTAL
-------- -------- --------- ------------ --------

1994:
Net sales to unaffiliated
customers................. $641,607 $156,803 $108,194 $ $906,604
Inter-geographic sales....... 40,876 10,558 7,060 (58,494) --
-------- -------- --------- ------------ --------
Total................ $682,483 $167,361 $115,254 $(58,494) $906,604
======== ======== ======== =========== ========
Pre-tax profit (loss)........ $ 71,650 $ 3,945 $ 5,520 $ (947) $ 80,168
Identifiable assets.......... 350,012 165,722 76,129 (35,006) 556,857
1993:
Net sales to unaffiliated
customers................. $543,458 $211,268 $ 91,273 $ $845,999
Inter-geographic sales....... 29,077 6,663 4,806 (40,546) --
-------- -------- --------- ------------ --------
Total................ $572,535 $217,931 $ 96,079 $(40,546) $845,999
======== ======== ======== =========== ========
Pre-tax profit (loss)........ $ 42,570 $(68,865) $(22,903 ) $ 2,248 $(46,950)
Identifiable assets.......... 389,247 172,136 69,871 (71,711) 559,543
1992:
Net sales to unaffiliated
customers................. $487,145 $275,520 $ 90,342 $ $853,007
Inter-geographic sales....... 30,466 6,811 4,944 (42,221) --
-------- -------- --------- ------------ --------
Total................ $517,611 $282,331 $ 95,286 $(42,221) $853,007
======== ======== ======== =========== ========
Pre-tax profit (loss)........ $ 24,860 $(52,828) $ (7,183 ) $ 721 $(34,430)
Identifiable assets.......... 294,730 246,457 86,839 (24,679) 603,347

Intercompany sales between geographic regions are accounted for at prices
comparable to normal, customer sales and are eliminated in consolidation.

Export sales (excluding intercompany sales) from the United States were
$64,400 in 1994, $58,100 in 1993 and $67,100 in 1992.

34
35

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE H -- ACQUISITIONS

In June 1993, the Company purchased the outstanding minority interest in
its subsidiary in Spain for approximately $8,500. In January and May of 1992,
respectively, the Company purchased the remaining 29 percent interest in Lincoln
Norweld and a small Mexican company for an aggregate of $37,300. These
transactions were accounted for as purchases and their results of operations and
the increased interest in their results of operations, were included in the
consolidated statements of operations from the respective transaction dates.

NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company has various financial instruments, including cash, cash
equivalents and short and long-term debt. The Company has determined the
estimated fair value of these financial instruments by using available market
information and appropriate valuation methodologies which require judgment.
Accordingly, the use of different market assumptions or estimation methodologies
could have a material effect on the estimated fair value amounts. The Company
believes the carrying values of its financial instruments approximate their fair
value.

NOTE J -- OPERATING LEASES

The Company leases sales offices, warehouses, office equipment and data
processing equipment. Such leases, some of which are noncancellable, and in many
cases, include renewals, expire at various dates. The Company pays most
maintenance, insurance and tax expenses relating to leased assets. Rental
expense was $9,226 in 1994, $9,864 in 1993 and $9,840 in 1992.

At December 31, 1994, total minimum lease payments for noncancellable
operating leases are as follows:

1995 $ 8,624
1996 6,855
1997 4,626
1998 3,887
1999 2,723
Thereafter 4,176
-------
Total $30,891
=======

NOTE K -- CONTINGENCIES

The Company and its subsidiaries are involved in various litigation in the
ordinary conduct of its business. Based on information known to the Company,
Management believes the outcome of all pending litigation will not have a
material effect upon the financial position of the Company.

35
36

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE L -- QUARTERLY FINANCIAL DATA (UNAUDITED)

1994 MAR 31 JUN 30 SEP 30 DEC 31
--------------------------------------------- -------- -------- -------- ---------

Net sales.................................... $210,525 $234,173 $230,752 $ 231,154
Gross profit................................. 81,966 90,316 89,904 88,159
Income before income taxes................... 17,785 21,494 21,499 19,390(a)
Net income................................... 10,407 12,307 11,669 13,625(a)
Net income per share......................... $ 0.96 $ 1.12 $ 1.06 $ 1.24

1993 MAR 31 JUN 30 SEP 30 DEC 31
--------------------------------------------- -------- -------- -------- ---------

Net sales.................................... $211,168 $215,441 $209,173 $ 210,217
Gross profit................................. 79,756 79,415 80,300 73,733
Income (loss) before income taxes and
cumulative effect of accounting change..... 10,106 7,167 10,459 (74,682)(c)
Income (loss) before cumulative effect of
accounting change.......................... 4,806 995 3,706 (50,043)(c)
Net income (loss)............................ 7,274(b) 995 3,706 (50,043)(c)
Per share data:
Income (loss) before cumulative effect of
accounting change.......................... $ 0.44 $ 0.09 $ 0.34 $ (4.61)
Net income (loss)............................ $ 0.67 $ 0.09 $ 0.34 $ (4.61)

<FN>
---------------

(a) - Includes $2,500 of net adjustments to various expense accruals and $3,140
for the devaluation of the Mexican peso, offset partially by net favorable
inventory adjustments of $1,900 and adjustments to restructuring accruals
of $3,235. Also includes a favorable $2,000 adjustment to income taxes to
reflect the annual effective income tax rate.

(b) - The first quarter of 1993 includes an increase in net income of $2,468
($.23 per share) for the cumulative effect on prior years for a change in
accounting principle effective January 1, 1993.

(c) - Includes a $70,100 ($40,900 after tax or 3.77 per share) charge for
restructuring and other pretax adjustments of $6,365.

36
37

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES

(IN THOUSANDS OF DOLLARS)
--------------------------------------------------------------------------------

COL. A COL. B COL. C COL. D COL. E
-----------------------------------------------------------------------------------------------------
ADDITIONS
(1)
CHARGED
BALANCE AT TO
BEGINNING COSTS (2) BALANCE
OF AND CHARGED TO OTHER NOTE A AT END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS-DESCRIBE DEDUCTIONS- PERIOD
--------------------------------- ---------- ------- ----------------- ----------- ---------

Allowance for doubtful accounts:
Year ended December 31, 1994... $6,258 $ 995 $ 117(2) $ 3,119(1) $ 4,251
Year ended December 31, 1993... $5,434 $2,037 $ (723)(2) $ 490 $ 6,258
Year ended December 31, 1992... $4,720 $2,842 $ (1,450)(2) $ 678 $ 5,434

<FN>
---------------

(1) - Includes $2,480 relating to accounts written off during 1994 in connection
with the Company's restructuring activities.

(2) - FAS #52 adjustment.

Note A - Uncollectible accounts written-off, net of recoveries.

37
38

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------

3(a) Amended and Restated Articles of Incorporation of The Lincoln
Electric Company (filed as Exhibit 3(a) to Form 10-K of The
Lincoln Electric Company for the year ended December 31, 1993, SEC
File No. 0-1402 and incorporated herein by reference and made a
part hereof).
3(b) Amended and Restated Code of Regulations of The Lincoln Electric
Company filed herewith.
4(a) Note Agreement dated November 20, 1991 between The Prudential
Insurance Company of America and the Company (filed as Exhibit 4
to Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1991, SEC File No. 0-1402 and incorporated by
reference and made a part hereof), as amended by letter dated
March 18, 1993; 8.98% Senior Note Due November 26, 2003 (filed as
Exhibit 4(a) to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1992, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof); as further amended by
letter dated as of November 19, 1993; 8.98% Senior Note Due
November 26, 2003 (filed as Exhibit 4(a) to Form 10K of The
Lincoln Electric Company for the year ended December 31, 1993, SEC
File No. 0-1402 and incorporated herein by reference and made a
part hereof), and as further amended by letter dated October 31,
1994 (filed as Exhibit 4(a) to Form 10Q of The Lincoln Electric
Company for the period ended September 30, 1994, SEC File No.
0-1402 and incorporated herein by reference and made a part
hereof).
4(b) Credit Agreement dated March 18, 1993 among the Company, the Banks
listed on the signature page thereof, and Society National Bank,
as Agent (filed as Exhibit 4(b) to Form 10-K of The Lincoln
Electric Company for the year ended December 31, 1992, SEC File
No. 0-1402 and incorporated herein by reference and made a part
hereof), as amended by Amendment No. 1 to Credit Agreement dated
November 19, 1993; 8.98% Senior Note Due November 26, 2003 (filed
as Exhibit 4(b) to Form 10K of The Lincoln Electric Company for
the year ended December 31, 1993, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof), and as
further amended by Amendment No. 2 to Credit Agreement dated
October 31, 1994 (filed as Exhibit 4(b) to Form 10Q of The Lincoln
Electric Company for the period ended September 30, 1994, SEC File
No. 0-1402 and incorporated herein by reference and made a part
hereof.)
9 Voting Trust Agreement filed herewith.
10(a) The Lincoln Electric Company 1988 Incentive Equity Plan (filed as
Exhibit 28 to the Form S-8 Registration Statement of The Lincoln
Electric Company, SEC File No. 33-25209 and incorporated herein by
reference and made a part hereof).
10(b) Form of Indemnification Agreement filed herewith.
10(c) Supplemental Executive Retirement Plan dated as of January 1,
1994.
10(d) The Lincoln Electric Company Deferred Compensation Plan dated as
of November 10, 1994.
10(e) Employment Agreement between the Company and Anthony A. Massaro
dated July 14, 1993, as amended on January 1, 1994.

38
39

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------

10(f) Employment Agreement between the Company and H. Jay Elliott dated
June 22, 1993.
10(g) Employment Agreement between the Company and Frederick G. Stueber
dated February 22, 1995.
10(h) Severance Agreement between the Company and Roger F. Young dated
August 11, 1994
10(i) Severance Agreement between the Company and John Gonzalez dated
November 22, 1994
11 Computation of earnings per share.
21 Subsidiaries of the Registrant.
23 Consents of Independent Auditors.
27 Financial Data Schedule.