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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For 6 Months Ended Commission File
June 30, 1994 No. 0-1402
THE LINCOLN ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
State of Incorporation: I.R.S. Employer
Ohio Ident. No: 34-0359955
Shares of Common Stock Outstanding: 10,514,324
Shares of Class A Common Stock Outstanding: 499,840
Address of Principal Executive Offices:
22801 St. Clair Avenue
Cleveland, Ohio 44117
Registrant's Telephone Number:
(216) 481-8100
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
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<TABLE>
STATEMENTS OF CONSOLIDATED OPERATIONS - "UNAUDITED"
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars except per share data)
<CAPTION>
Quarter ended June 30 Six months ended June 30
--------------------- ------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $234,173 $215,441 $444,698 $426,609
Cost of goods sold 143,857 136,026 272,416 267,438
-------- -------- -------- --------
Gross profit 90,316 79,415 172,282 159,171
Distribution cost/selling,
general & administrative
expenses 65,818 68,959 126,842 134,606
-------- -------- -------- --------
Operating income 24,498 10,456 45,440 24,565
Other income/(expense):
Interest income 299 473 592 914
Other income 809 796 1,257 1,137
Interest expense (4,112) (4,558) (8,010) (9,343)
-------- -------- -------- --------
Total other income/(expense) (3,004) (3,289) (6,161) (7,292)
-------- -------- -------- --------
Income before income taxes
and cumulative effect of
accounting change 21,494 7,167 39,279 17,273
Provision for income taxes 9,187 6,172 16,565 11,472
-------- -------- -------- --------
Income before cumulative
effect of accounting change 12,307 995 22,714 5,801
Cumulative effect to
January 1, 1993 of change
in method of accounting for
income taxes (Note E) 2,468
-------- -------- -------- --------
Net income $ 12,307 $ 995 $ 22,714 $ 8,269
======== ======== ======== ========
Net income per share:
Income before cumulative
effect of accounting
change $ 1.12 $ 0.09 $ 2.08 $ 0.53
Cumulative effect to
January 1, 1993 of change
in method of accounting
for income taxes 0.23
-------- -------- -------- --------
Net income $ 1.12 $ 0.09 $ 2.08 $ 0.76
======== ======== ======== ========
Dividends paid per share $ 0.18 $ 0.18 $ 0.36 $ 0.36
======== ======== ======== ========
Average number of shares
outstanding: (000's) 10,963 10,827 10,932 10,818
====== ====== ====== ======
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
<CAPTION>
"Unaudited"
June 30, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 23,565 $ 20,381
Accounts receivable (less allowance
for doubtful accounts of $6,815 in
1994 and $6,258 in 1993) 133,556 110,504
Inventories: (Note C)
Raw materials and in-process 67,179 66,987
Finished goods 77,389 76,698
-------- --------
144,568 143,685
Deferred income taxes 42,606 42,960
Prepaid expenses 3,638 3,241
Other current assets 7,144 4,937
-------- --------
TOTAL CURRENT ASSETS 355,077 325,708
OTHER ASSETS
Notes receivable from employees 3,615 4,747
Goodwill 39,983 39,732
Other 21,796 19,665
-------- --------
65,394 64,144
PROPERTY, PLANT AND EQUIPMENT
Land 13,200 12,802
Buildings 116,433 113,927
Machinery, tools and equipment 296,383 279,933
-------- --------
426,016 406,662
Less allowances for depreciation
and amortization (250,829) (236,971)
-------- --------
175,187 169,691
-------- --------
TOTAL ASSETS $595,658 $559,543
======== ========
</TABLE>
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<TABLE>
<CAPTION>
"Unaudited"
June 30, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 49,580 $ 43,471
Notes payable to banks 10,896 23,198
Salaries, wages and amounts withheld 10,224 12,779
Taxes, including income 40,961 23,061
Dividends payable 2,007 1,959
Current portion of long-term debt 9,902 10,200
Accrued restructuring charges 23,320 29,618
Other current liabilities (Note D) 55,773 31,569
-------- --------
TOTAL CURRENT LIABILITIES 202,663 175,855
Long-term debt, less current portion 190,649 216,915
Deferred taxes, long-term 5,735 6,128
Other long-term liabilities 17,111 9,221
Minority interest 6,631 7,929
Shareholders' equity
Common Stock 2,103 2,076
Common Class A Capital Stock 100 100
Additional paid-in-capital 24,799 22,926
Retained earnings 156,077 137,307
Cumulative translation adjustments (10,210) (18,914)
-------- --------
172,869 143,495
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $595,658 $559,543
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS - "UNAUDITED"
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
<CAPTION>
Six Months Ended
June 30
----------------------
1994 1993
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 22,714 $ 8,269
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,914 14,456
Cumulative effect of accounting change (2,468)
Employee stock ownership plan 1,100
Minority interest 234 (438)
Change in operating assets and liabilities:
(Increase) in accounts receivable (19,851) (15,727)
Decrease in inventories 2,948 9,651
(Increase) decrease in other current assets 2,755 (7,270)
Increase (decrease) in accounts payable 4,189 (4,095)
Increase in other current liabilities 34,125 21,939
Gross change in other noncurrent assets (1,182) 5,228
Gross change in other noncurrent liabilities (706) 1,705
Other-net 60 4,405
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 58,200 36,755
INVESTING ACTIVITIES
Purchases of property, plant and equipment (13,375) (6,600)
Proceeds from sale of property, plant and equipment 1,273 1,814
Acquisition of minority interest (8,518)
------- -------
NET CASH (USED) BY INVESTING ACTIVITIES (12,102) (13,304)
FINANCING ACTIVITIES
Short-term borrowings-net (316) 38,846
Repayment on short-term borrowings, maturities
greater than three months (26,698) (20,423)
Proceeds on short-term borrowings, maturities
greater than three months 13,801
Proceeds from long-term borrowings 183,765 367,026
Repayments on long-term borrowings (213,017) (411,568)
Dividends paid (3,920) (3,882)
Other 1,323 1,093
------- -------
NET CASH (USED) BY FINANCING ACTIVITIES (45,062) (28,908)
Effect of exchange rate changes on cash and
cash equivalents 2,148 (958)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,184 (6,415)
Cash and cash equivalents at beginning of period 20,381 20,627
------- -------
Cash and cash equivalents at end of period $ 23,565 $ 14,212
======= =======
Cash paid during the period: Interest $ 8,184 $ 11,258
Income taxes $ 4,434 $ 6,022
<FN>
See notes to consolidated financial statements.
</TABLE>
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS "UNAUDITED"
(In thousands of dollars except per share data)
June 30, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and contain the adjustments
(consisting of only normal recurring accruals) necessary to fairly present the
financial position, results of operations and changes in cash flows for the
interim periods. Results of operations for any interim period are not
necessarily indicative of the results to be expected for the year. For further
information, refer to the Consolidated Financial Statements and Footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1993.
NOTE B - RECLASSIFICATIONS
Certain reclassifications have been made to amounts previously presented to
conform with the current reporting presentations.
NOTE C - INVENTORY VALUATION
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on
management's estimates of expected year-end inventory levels and costs. Since
these are subject to many forces beyond management's control, interim results
are subject to the final year-end LIFO inventory valuation.
NOTE D - OTHER CURRENT LIABILITIES
The other current liabilities category includes provisions for possible
year-end bonus, annuity expense, Employees' Stock Ownership Plan and
contributions. These expenditures are wholly discretionary each year as
determined by the Board of Directors
NOTE E - CHANGE IN THE METHOD OF ACCOUNTING FOR INCOME TAXES
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. 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 has elected not to restate the
financial statements of any prior years. The effect of the change on pretax
income for the six months ended June 30, 1993 was not material; however, the
cumulative effect of the change increased net income by $2,468 or $.23 per
share.
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Part 1 - Item 2
Management's Discussion of Financial Condition and Results of Operations
- - ------------------------------------------------------------------------
(In thousands of dollars except per share data)
Net sales for the quarter ended June 30, 1994 were $234,200, or 8.7%, higher
than the $215,400 reported for the similar prior year period. For the first
six months of 1994, net sales were $444,700, or 4.2%, higher than the $426,600
net sales reported for the prior year's six-month period.
Domestic net sales were up 17.3%, or $23,400, for the second quarter of 1994,
and 18.0%, or $47,300, for the first six months of 1994 compared to the similar
periods in 1993. The domestic market is expected to remain strong throughout
1994. At the end of 1993, the Company closed certain foreign manufacturing
facilities, principally in Germany and South America, which affects the
comparability between the periods. While the sales of these facilities are
absent in 1994, a portion of these sales were transferred to other
manufacturing facilities of the Company. For the second quarter of 1994,
foreign net sales were down 5.9%, or $4,600, and for the first six months of
1994, were down 17.8%, or $29,200, compared to the similar periods in 1993.
While foreign markets have shown modest improvement, sales remain depressed
which continues to affect the profitability of the Company's foreign
operations.
Gross profit was $90,300 (38.6% of sales) in the second quarter of 1994, as
compared with $79,400 (36.9% of sales) for the same period in 1993. Gross
profit for the first six months of 1994 was $172,300 (38.7% of sales) as
compared with $159,200 (37.3% of sales) for the similar period in 1993.
Improvement in gross profit was largely attributable to the domestic sales
volume increases, coupled with the effects of improved absorption of
manufacturing costs and the relative stability of these costs in relation to
the price increases realized during 1994. In addition, overall gross profit
was enhanced by the effects of improved efficiencies of foreign operations and
manufacturing facility closings at the end of 1993.
Distribution cost/selling, general and administrative expenses were $65,800
(28.1% of sales) for the second quarter of 1994 and $69,000 (32.0% of sales)
for the same period in 1993. For the six months ended June 30, 1994,
distribution cost/selling, general and administrative expenses were $126,800
(28.5% of sales) compared to $134,600 (31.6% of sales) for the similar period
in 1993. The decrease of distribution cost/selling, general and administrative
expenses in relation to sales volume evidences the effect of prior year's
restructuring.
Operating income increased to $24,500 (10.5% of sales) in the second quarter of
1994, as compared with $10,500 (4.9% of sales) for the prior period. For the
six months ended June 30, 1994, operating income was $45,400 (10.2% of sales)
as compared with $24,600 (5.8% of sales) for the comparable year-ago period.
Income taxes for the quarter ended June 30, 1994 were $9,200 on income before
income taxes of $21,500, compared with income taxes of $6,200 on similar income
in 1993 of $7,200. For the six months ended June 30, 1994, income taxes were
$16,600 on income before income taxes of $39,300, compared with $11,500 on
income before income taxes and cumulative effect of accounting change of
$17,300 for the comparable prior period of 1993. The decrease in the effective
tax rate is principally the result of the decrease in the amount of foreign
losses without tax benefits made possible by the prior year's restructuring.
Net income increased to $12,300, or $1.12 per share, for the quarter ended June
30, 1994 as compared with $1,000, or $.09 per share, for the prior year period.
Net income for the first six months of 1994 was $22,700, or $2.08 per share, as
compared with $5,800, or $.53 per share, for the comparable year-ago period,
excluding the cumulative effect of accounting change of $2,468, or $.23 per
share, reported in 1993.
Liquidity and Capital Resources
- - -------------------------------
The Company's cash flows for the six months ended June 30, 1994 and 1993 are
presented in the consolidated statements of cash flows. Cash provided from
operating activities for the six months ended June 30, 1994 amounted to $58,200
compared to $36,800 for the
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Management's Discussion of Financial Condition and Results of Operations--
- - ------------------------------------------------------------------------
Continued
(In thousands of dollars)
comparable period in 1993. Cash flows from operations for 1994 were used
primarily for net capital expenditures of $13,400, net debt repayments of
$42,500 and the payment of dividends in the amount of $3,900 with the balance
increasing the amount of cash and cash equivalents at June 30, 1994.
Total debt at June 30, 1994 was $211,500 compared to $250,300 at December 31,
1993. At June 30, 1994 debt was 55% of total capitalization (shareholders'
equity and debt) compared with 64% at year-end 1993. The improvement in the
ratio of debt to total capitalization was the result of the reduction in debt
and the increase in shareholders' equity as a result of the earnings for the
six-month period ended June 30, 1994 and the cyclical nature of the Company's
cash requirements. The payment of incentive bonuses at the end of 1994 will
affect the debt-to-equity ratio.
The ratio of current assets to current liabilities was 1.8 at the end of the
second quarter of 1994, compared to 1.9 at the prior year-end which reflects a
satisfactory liquidity position.
The Company's Credit Agreement 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. While the losses for 1993 and 1992 have placed
constraints on the Company's financial flexibility, the Company is in
compliance with the financial covenants of the agreements and management
believes that the Company will continue to meet such covenants throughout 1994.
Management believes that the current financing arrangement and cash flows
generated from operations will provide adequate funds to support the operations
of the Company and satisfy both its capital requirements and operating needs
throughout the term of the Credit Agreement. The Company reviews its dividend
on a quarterly basis.
Part II - Other Information
Item 1. Legal proceedings -- No change.
Item 2. Changes in Securities -- No change.
Item 3. Defaults Upon Senior Securities -- None.
Item 4. Submission of Matter to a vote of Security Holdings:
(a) The Annual Meeting was held on May 24, 1994.
(b) The following were elected Directors at the meeting:
For term ending in 1997:
Donald F. Hastings
Hugh L. Libby
David C. Lincoln
G. Russell Lincoln
Henry L. Meyer III
Frank L. Steingass
Item 5. Other Information -- None.
Item 6. Exhibits and Reports on Form 8-K -- None.
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SIGNATURES
Pursuant to the requirements of the Securities and 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
/s/ Jay Elliott /s/ Graham A. Peters
- - -------------------------- -----------------------
Jay Elliott Graham A. Peters
Chief Financial Officer, Corporate Controller
Treasurer and Acting Secretary
August 8, 1994 August 8, 1994
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