<PAGE> 1
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 9 Months Ended Commission File
September 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
----- -----
<PAGE> 2
<TABLE>
STATEMENTS OF CONSOLIDATED OPERATIONS - "UNAUDITED"
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars except per share data)
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales $230,752 $209,173 $675,450 $635,782
Cost of goods sold 140,848 128,873 413,264 396,311
-------- -------- -------- --------
Gross profit 89,904 80,300 262,186 239,471
Distribution cost/selling,
general & administrative
expenses 66,470 66,601 193,312 201,207
------- ------- ------- --------
Operating income 23,434 13,699 68,874 38,264
Other income/(expense):
Interest income 414 399 1,006 1,313
Other income 1,455 313 2,712 1,450
Interest expense (3,804) (3,952) (11,814) (13,295)
------ ------ ------- -------
Total other income/(expense) (1,935) (3,240) (8,096) (10,532)
------ ------ ------- -------
Income before income taxes
and cumulative effect of
accounting change 21,499 10,459 60,778 27,732
Provision for income taxes 9,830 6,753 26,395 18,225
------ ------- ------- -------
Income before cumulative
effect of accounting change 11,669 3,706 34,383 9,507
Cumulative effect to
January 1, 1993 of change
in method of accounting for
income taxes (Note E) 2,468
-------- -------- -------- --------
Net income $ 11,669 $ 3,706 $ 34,383 $ 11,975
======== ======== ======== ========
Net income per share:
Income before cumulative
effect of accounting
change $ 1.06 $ 0.34 $ 3.14 $ .87
Cumulative effect to
January 1, 1993 of change
in method of accounting
for income taxes 0.23
-------- -------- -------- --------
Net income $ 1.06 $ 0.34 $ 3.14 $ 1.10
======== ======== ======== ========
Dividends paid per share $ 0.18 $ 0.18 $ 0.54 $ 0.54
======== ======== ======== ========
Average number of shares
outstanding: (000's) 11,014 10,892 10,957 10,844
====== ====== ====== ======
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 2
<PAGE> 3
<TABLE>
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
<CAPTION>
"Unaudited"
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 21,310 $ 20,381
Accounts receivable (less allowance
for doubtful accounts of $4,535 in
1994 and $6,258 in 1993) 134,331 110,504
Inventories: (Note C)
Raw materials and in-process 72,234 66,987
Finished goods 81,483 76,698
-------- --------
153,717 143,685
Deferred income taxes 22,109 42,960
Prepaid expenses 2,264 3,241
Other current assets 6,841 4,937
-------- --------
TOTAL CURRENT ASSETS 340,572 325,708
OTHER ASSETS
Notes receivable from employees 3,408 4,747
Goodwill 39,871 39,732
Other 21,995 19,665
-------- --------
65,274 64,144
PROPERTY, PLANT AND EQUIPMENT
Land 13,228 12,802
Buildings 117,848 113,927
Machinery, tools and equipment 305,475 279,933
-------- --------
436,551 406,662
Less allowances for depreciation
and amortization (257,715) (236,971)
-------- --------
178,836 169,691
-------- --------
TOTAL ASSETS $584,682 $559,543
======== ========
</TABLE>
Page 3
<PAGE> 4
<TABLE>
<CAPTION>
"Unaudited"
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 47,577 $ 43,471
Notes payable to banks 15,456 23,198
Salaries, wages and amounts withheld 12,226 12,779
Taxes, including income 26,605 23,061
Dividends payable 1,995 1,959
Current portion of long-term debt 1,772 10,200
Accrued restructuring charges 14,039 29,618
Other current liabilities (Note D) 71,994 31,569
-------- --------
TOTAL CURRENT LIABILITIES 191,664 175,855
Long-term debt, less current portion 179,198 216,915
Deferred taxes, long-term 5,251 6,128
Other long-term liabilities 18,395 9,221
Minority interest 6,773 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 165,764 137,307
Cumulative translation adjustments (9,365) (18,914)
-------- --------
183,401 143,495
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $584,682 $559,543
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 4
<PAGE> 5
<TABLE>
STATEMENTS OF CONSOLIDATED CASH FLOWS - "UNAUDITED"
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
<CAPTION>
Nine Months Ended
SEPTEMBER 30
----------------------
1994 1993
------- --------
<S> <C>
OPERATING ACTIVITIES
Net income $34,383 $ 11,975
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 19,903 21,712
Cumulative effect of accounting change (2,468)
Provision (Benefit) for deferred income taxes 19,974 (487)
Minority interest 364 (336)
Change in operating assets and liabilities:
(Increase) in accounts receivable (19,962) (14,874)
(Increase) decrease in inventories (4,591) 7,199
(Increase) in other current assets (1,018) (12,601)
Increase in accounts payable 2,256 742
Increase in other current liabilities 26,462 36,054
Gross change in other noncurrent assets (3,003) 7,446
Gross change in other noncurrent liabilities 5,999 4,021
Other-net 2,836 429
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 83,603 58,812
INVESTING ACTIVITIES
Purchases of property, plant and equipment (23,223) (11,697)
Proceeds from sale of property, plant and equipment 2,614 2,025
Acquisition of minority interest (8,518)
------- -------
NET CASH (USED) BY INVESTING ACTIVITIES (20,609) (18,190)
FINANCING ACTIVITIES
Proceeds from the sale of common stock under the
Employees' Stock Purchase Plan 1,438 679
Short-term borrowings-net (6,130) 33,181
Repayment on short-term borrowings, maturities
greater than three months (24,734) (19,512)
Proceeds on short-term borrowings, maturities
greater than three months 22,476
Proceeds from long-term borrowings 232,286 23,746
Repayments on long-term borrowings (282,378) (69,032)
Dividends paid (5,903) (5,832)
Other (429) (344)
-------- --------
NET CASH (USED) BY FINANCING ACTIVITIES (63,374) (37,114)
Effect of exchange rate changes on cash and
cash equivalents 1,309 (1,275)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 929 2,233
Cash and cash equivalents at beginning of period 20,381 20,627
------- -------
Cash and cash equivalents at end of period $ 21,310 $ 22,860
======= =======
Cash paid during the period: Interest $ 12,484 $ 15,281
Income taxes $ 5,107 $ 10,325
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS "UNAUDITED"
(In thousands of dollars except per share data)
September 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 notes 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
Other current liabilities includes provisions for anticipated year-end bonus,
Employees' Stock Ownership Plan and contributions. These expenditures are
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 nine months ended September 30, 1993 was not material; however,
the cumulative effect of the change increased net income by $2,468 or $.23 per
share.
Page 6
<PAGE> 7
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 September 30, 1994 were $230,800 or 10.3%,
higher than the $209,200 reported for the similar prior year period. For the
first nine months of 1994, net sales were $675,500, or 6.2%, higher than the
$635,800 net sales reported for the prior year's nine-month period.
Domestic net sales were up 17.3%, or $25,000, for the third quarter of 1994,
and 17.7%, or $72,300, for the first nine months of 1994 compared to the
similar periods in 1993. The domestic market is expected to continue its
positive growth throughout the remainder of the year. The Company's foreign
markets experienced a decrease of 5.3%, or $3,400, in net sales for the third
quarter of 1994 compared to the similar period in 1993 and for the first nine
months of 1994, net sales were down 14.3%, or $32,600, compared to the prior
year's similar nine month period. The decline in foreign sales is the direct
result of the closing of certain manufacturing facilities, principally in
Germany and South America at the end of 1993. Although a portion of these
sales were absorbed by other foreign manufacturing facilities, the
comparability between periods has been affected. Overall operating results for
the nine months of 1994 have been positively impacted by the Company's 1993
decision to close several manufacturing facilities in an effort to reduce
foreign operating losses. Management anticipates that these effects will
continue throughout the remainder of 1994.
Gross profit was $89,900 (39.0% of sales) in the third quarter of 1994, as
compared with $80,300 (38.4% of sales) for the same period in 1993. Gross
profit for the first nine months of 1994 was $262,200 (38.8% of sales) as
compared with $239,500 (37.7% 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 $66,500
(28.8% of sales) for the third quarter of 1994 and $66,600 (31.8% of sales) for
the same period in 1993. For the nine months ended September 30, 1994,
distribution cost/selling, general and administrative expenses were $193,300
(28.6% of sales) compared to $201,200 (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 and management's measures in the current year to control
operating costs throughout its foreign operations.
Operating income increased to $23,400 (10.1% of sales) in the third quarter of
1994, as compared with $13,700 (6.5% of sales) for the prior period. For the
nine months ended September 30, 1994, operating income was $68,900 (10.2% of
sales) as compared with $38,300 (6.0% of sales) for the comparable prior year
period.
Income taxes for the quarter ended September 30, 1994 were $9,800 on income
before income taxes of $21,500, compared with income taxes of $6,800 on similar
income in 1993 of $10,500. For the nine months ended September 30, 1994,
income taxes were $26,400 on income before income taxes of $60,800, compared
with $18,200 on income before income taxes and cumulative effect of accounting
change of $27,700 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 $11,700, or $1.06 per share, for the quarter ended
September 30, 1994 as compared with $3,700, or $.34 per share, for the prior
year period. Net income for the first nine months of 1994 was $34,400, or
$3.14 per share, as compared with $9,500, or $.87 per share, for the comparable
year-ago period, excluding the cumulative effect of accounting change of
$2,500, or $.23 per share, reported in 1993.
Page 7
<PAGE> 8
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Continued (In thousands of dollars)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows for the nine months ended September 30, 1994 and 1993
are presented in the consolidated statements of cash flows. Cash provided from
operating activities for the nine months ended September 30, 1994 amounted to
$83,600 compared to $58,800 for the comparable period in 1993. Cash flows from
operations for 1994 were used primarily for net capital expenditures of
$20,600, net debt repayments of $58,500 and the payment of dividends in the
amount of $5,900. These uses of cash offset by the proceeds from other
financing activities and positive translation effects resulted in an increase
in cash and cash equivalents to $21,300 at September 30, 1994 compared to
$20,400 at December 31, 1993.
Total debt at September 30, 1994 was $196,400 compared to $250,300 at December
31, 1993. At September 30, 1994, debt was 52% 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 nine-month period ended September 30, 1994 and the cyclical
nature of the Company's cash requirements. Management points out, however,
that the payment of incentive bonuses at the end of 1994 will result in an
increase in the debt-to-equity ratio as compared to the ratio at September 30,
1994.
The ratio of current assets to current liabilities was 1.8 at the end of the
third quarter of 1994, compared to 1.9 at the prior year-end which reflects a
satisfactory liquidity position.
On October 31, 1994, the Company's Credit Agreement and 8.98% Senior Note
Agreement were amended. The Amendment, which permits an accounts receivable
financing agreement up to $50 million, extended the due date of the credit
facility to October 1, 1997 and modified certain of the terms (interest and
commitment fees) and financial covenants. The Company's borrowing capacity
under the Credit Agreement was $230,000 but on October 31, 1994, the Company
elected to reduce the capacity to $200,000.
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. 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. 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.
Page 8
<PAGE> 9
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 -- None.
Item 5. Other Information -- None.
Item 6. Exhibits and Reports on Form 8-K:
Exhibit No. Description
----------- ----------------------------------------------------
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(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 further amended
by letter dated as of November 19, 1993 (filed as
Exhibit 4(a) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1993, SEC File
No. 0-1402 and incorporated herein by reference and
made a part hereof); as further amended by letter
dated as of October 31, 1994 (filed herewith).
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 (filed as Exhibit 4(b) to Form 10-K of The Lincoln
Electric Company for the year ended December 31, 1993,
SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof); as further amended
by Amendment No. 2 to Credit Agreement dated October
31, 1994 (filed herewith).
27 Financial Data Schedule
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
Vice President, Chief Financial Corporate Controller
Officer, Treasurer and Acting
Secretary
November 14, 1994 November 14, 1994
Page 9
<PAGE> 1
Exhibit 4(a)
LEONARD H. LILLARD, IV, CFA
ThePRUDENTIAL [logo] Vice President
PRUDENTIAL CAPITAL GROUP
Two Prudential Plaza, Suite 5600
Chicago, IL 60601-6716
312 540-4216 Fax: 312 540-4222
October 31, 1994
The Lincoln Electric Company
22801 St. Clair Avenue
Cleveland, Ohio 44117
Attention: Chief Financial Officer
Ladies and Gentlemen:
Reference is made to that certain Note Agreement dated November 20, 1991 (as
amended from time to time, the "Note Agreement") between The Lincoln Electric
Company, an Ohio corporation (the "Company"), and The Prudential Insurance
Company of America ("Prudential"), pursuant to which the Company issued and
sold and Prudential purchased the Company's 8.73% senior note in the original
principal amount of $75,000,000, due November 26, 2003 (the "Note"). Pursuant
to that certain letter agreement dated March 18, 1993, the interest rate on the
Note was increased to 8.98% per annum. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to such terms in
the Note Agreement.
The Company has advised Prudential that it proposes to enter into a second
amendment, dated as of the date hereof (the "Bank Amendment"), to that certain
Credit Agreement dated as of March 18, 1993 (the "Credit Agreement") among the
Company, the banks listed therein (the "Banks") and Society National Bank, as
agent (the "Agent"). In order to satisfy a condition to closing under the Bank
Amendment and the requirements of the Note Agreement, the Company desires to
modify the terms of the Note Agreement in accordance with this letter. A copy
of the Bank Amendment is attached hereto as EXHIBIT F.
Pursuant to the request of the Company and in accordance with the provisions of
paragraph 11C of the Note Agreement, Prudential and the Company hereby agree as
follows:
SECTION 1. AMENDMENT. From and after the date this letter becomes effective
in accordance with its terms, the Note Agreement is amended as follows:
<PAGE> 2
The Lincoln Electric Company
October 31, 1994
Page 2
1.1 REFERENCES TO BANK AGREEMENT AND CREDIT AGREEMENT. Paragraph 10B of the
Note Agreement is amended to delete the defined term "Credit Agreement"
appearing therein and to add thereto the following definition in alphabetical
order:
"BANK AGREEMENT" and "CREDIT AGREEMENT" shall mean and refer to that
certain Credit Agreement dated as of March 18, 1993 among the Company, the
banks listed therein and Society National Bank, as agent, as modified by
the amendment thereto dated as of November 19, 1993, a copy of which is
attached hereto as EXHIBIT E and as further modified by the amendment
thereto dated as of October 31, 1994, a copy of which is attached hereto
as EXHIBIT F."
1.2 NEW EXHIBIT F. The Note Agreement is hereby amended to add thereto, the
Bank Amendment which is attached hereto as EXHIBIT F.
SECTION 2. EFFECT OF CHANGES TO CREDIT AGREEMENT. All references herein to
sections of the Credit Agreement and the Company's compliance with the terms
thereof as required hereunder shall be based upon the Credit Agreement as in
effect on March 18, 1993, as modified by the amendments attached as EXHIBIT E
and EXHIBIT F to the Note Agreement, without giving effect to any other
amendment, waiver or other modification of the Credit Agreement unless the
Company shall have obtained the written consent of the Required Holder(s) to
any such amendment, waiver or modification. No termination of the Credit
Agreement in whole or in part shall affect the continued applicability of the
sections of the Credit Agreement referred to herein.
SECTION 3. REPRESENTATION AND WARRANTY. The Company hereby represents and
warrants that this letter and the Substitute Note are legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally or general principles of equity.
SECTION 4. CONDITIONS PRECEDENT. This letter shall become effective only on
the first date on which all of the following conditions precedent shall have
been satisfied:
(i) Prudential shall have received a duly executed counterpart of this
letter signed by the Company; and
(ii) Prudential shall have received a fully executed copy of the Bank
Amendment.
<PAGE> 3
The Lincoln Electric Company
October 31, 1994
Page 3
SECTION 5. GOVERNING LAW. This letter amendment shall be governed by the
internal laws and decisions of the State of Ohio.
SECTION 6. MISCELLANEOUS. Except as specifically set forth in this letter,
the Company's obligations under the Note Agreement are neither altered nor
amended, and all terms and conditions of the Note Agreement remain in full
force and effect. Upon the effectiveness of this letter, each reference to the
Note Agreement shall mean and be a reference to the Note Agreement as amended
by this letter. This letter may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.
Sincerely,
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Leonard H. Hilliard
----------------------------
Vice President
Acknowledged and Agreed:
THE LINCOLN ELECTRIC COMPANY
By: /s/ D. F. Hastings
------------------------
Its: Chairman and
------------------------
Chief Executive Officer
By: /s/ H. Jay Elliot
------------------------
Its: Chief Financial Officer, Treasurer
------------------------
and Acting Secretary
<PAGE> 1
Exhibit 4(b)
[EXECUTION COPY]
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT dated as of October 31, 1994 among THE LINCOLN ELECTRIC COMPANY
(the "Company"), the BANKS listed on the signature pages hereof (the "Banks")
and SOCIETY NATIONAL BANK, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a Credit Agreement
dated as of March 18, 1993 (as amended from time to time, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the date hereof refer to the Agreement as
amended hereby.
SECTION 2. NEW DEFINITIONS. Section 1.01 is amended by:
(a) amending the definition of "Debt" contained therein by:
(x) renumbering the existing clauses (vi) and (vii) thereof as clauses (vii)
and (viii), respectively,
(y) adding the following new clause (vi) immediately following clause (v)
thereof:
<PAGE> 2
"(vi) any Receivables Financing entered into by such Person as transferor,",
and (z) adding the following sentence at the end thereof:
"The aggregate amount of Debt described in clause (vi) of this definition at
any time shall be the aggregate Receivables Financing Amount with respect to
such Debt at such time."
(b) amending the definitions of "Consolidated Current Assets", "Consolidated
Current Liabilities", "Consolidated Interest Expense" and "Termination Date"
contained therein to read in their entirety as follows:
"Consolidated Current Assets" means at any date (i) the consolidated current
assets of the Company and its Consolidated Subsidiaries determined as of such
date PLUS (ii) to the extent not reflected in clause (i), the aggregate
outstanding amount of Receivables (if any) of the Company and its Consolidated
Subsidiaries transferred on or prior to such date in connection with one or
more Receivables Financings which constitute Debt solely by virtue of clause
(vi) of the definition of Debt.
"Consolidated Current Liabilities" means at any date (i) the consolidated
current liabilities (including the current portion of long-term debt and the
aggregate Receivables Financing Amount with respect to all Receivables
Financings completed by the Company on or prior to such date which constitute
Debt solely by virtue of clause (vi) of the definition of Debt) of the Company
and its Consolidated Subsidiaries (other than the Loans) PLUS (ii) the current
liabilities of any Person (other than the Company or a Consolidated Subsidiary)
which are Guaranteed by the Company or a Consolidated Subsidiary, all
determined as of such date.
"Consolidated Interest Expense" means, for any period, the sum of (i) the
interest expense of the Company and its Consolidated Subsidiaries and (ii) with
respect of any Receivables Financing which constitutes Debt solely by virtue of
clause (vi) of the definition of Debt, interest-equivalent financing charges,
in each case determined on a consolidated basis for such period.
"Termination Date" means October 1, 1997 or such later date to which the
Commitments shall have been extended pursuant to Section 2.19 or, if any such
day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business
Day unless such succeeding Euro-Dollar Business Day
2
<PAGE> 3
falls in another calendar month, in which case the Termination Date shall be
the next preceding Euro-Dollar Business Day.
(c) adding the following new definitions in alphabetical order:
"Applicable Funded Debt to Capital Ratio" means, on any day, the Funded Debt
to Capital Ratio as at the last day of the fiscal quarter of the Company most
recently ended prior to such day for which the Company has delivered financial
statements pursuant to Section 5.01(a) or 5.01(b), as the case may be.
"Applicable Interest Coverage Ratio" means, on any day, the ratio of EBIT to
Consolidated Interest Expense for the period of four fiscal quarters of the
Company most recently ended prior to such day for which the Company has
delivered financial statements pursuant to Section 5.01(a) or 5.01(b), as the
case may be.
"Funded Debt" means at any date the Debt of the Company and its Consolidated
Subsidiaries, determined on a consolidated basis as of such date.
"Funded Debt to Capital Ratio" means, at any date, the ratio of (i) Funded
Debt at such date to (ii) the sum of (A) Funded Debt at such date PLUS (B) the
stockholders' equity of the Company and its Consolidated Subsidiaries at such
date determined on a consolidated basis.
"Receivables" means all accounts, contract rights, chattel paper,
instruments, general intangibles and other rights to payment arising out of a
sale or lease of goods or the rendering of services by the Company or any of
its Subsidiaries.
"Receivables Financing" means any transaction involving the transfer (by way
of sale, pledge or otherwise) by the Company or any of its Subsidiaries of
Receivables (or interest therein) and associated assets to any Person other
than the Company or any of its Subsidiaries (other than any such transfer in
bulk as part of a sale of a line or division of business).
"Receivables Financing Amount" means, at any time, (i) with respect to any
Receivables Financing that constitutes Debt (other than solely pursuant to
clause (vi) of the definition of Debt), the outstanding principal amount
thereof at such time and (ii) with respect to any Receivables Financing that
constitutes Debt solely pursuant
3
<PAGE> 4
to clause (vi) of the definition of Debt, the amount of the proceeds received
by the transferor to the extent the transferee is entitled at such time to the
recovery of such amount out of the proceeds of the assets transferred.
"Target Date" means the first day after any period of three consecutive
fiscal quarters of the Company in which, for each day during such period, the
Applicable Interest Coverage Ratio on such day has been at least equal to 4.5.
(d) deleting the definitions of "Applicable Leverage Ratio", "Consolidated
Debt", "Level I Status", "Level II Status", "Level III Status" and "Level IV
Status" contained therein.
SECTION 3. DECREASE IN INTEREST RATES. (a) Section 2.06(a) is amended to
read as follows:
Each Base Rate Loan shall bear interest on the outstanding principal amount
thereof, for each day from the date such Loan is made until it becomes due,
at a rate per annum equal to the Base Rate for such day. Such interest shall
be payable for each Interest Period on the last day thereof. Any overdue
principal of or interest on any Base Rate Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the rate otherwise applicable to Base Rate Loans for such day.
(b) The definition of "CD Margin" in Section 2.06(b) is amended to read in
its entirety as follows:
"CD Margin" means for any day the percentage set forth below based on the
Applicable Funded Debt to Capital Ratio and the Applicable Interest Coverage
Ratio, in each case as determined on such day:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
|#==============================+===================================================================#|
|| Applicable | Applicable Interest Coverage Ratio ||
|| Funded Debt to | ||
|| Capital Ratio | ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| | * 6.5 | * 4.5 and | * 3.5 and | < 3.5 ||
|| | | < 6.5 | < 4.5 | ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| # .35 | .50% | .625% | .75% | .875% ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| # .40 and > .35 | .625% | .75% | .875% | 1% ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| # .45 and > .40 | .75% | .875% | 1.0% | 1.125% ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| > .45 | .875% | 1% | 1.125% | 1.25% ||
|#==============================+================+=================+==================+=============#|
<FN>
* Greater than or equal to
# Less than or equal to
</TABLE>
4
<PAGE> 5
;PROVIDED that (A) the CD Margin for any day on or prior to December 31, 1994
shall be 1.125%, (B) if the Company shall fail to timely deliver the
information required to be delivered by it pursuant to Section 5.01(a) or
Section 5.01(b), as the case may be (and such failure shall not have been
waived by the Required Banks in accordance with Section 11.05), the CD Margin
for each day from and including the day on which such information is required
to be delivered to but excluding the day on which such information is delivered
shall be 1.25% and (C) the effective date of any increase or decrease in the CD
Margin after December 31, 1994 (other than any increase pursuant to clause (B)
of this proviso) shall be the fifth Domestic Business Day after the Company
shall have delivered financial statements pursuant to Section 5.01(a) or
5.01(b), as the case may be, on the basis of which statements any such increase
or decrease is calculated.
(c) The definition of "Euro-Dollar Margin" in Section 2.06(c) is amended to
read in its entirety as follows:
"Euro-Dollar Margin" means for any day the percentage set forth below based
on the Applicable Funded Debt to Capital Ratio and the Applicable Interest
Coverage Ratio, in each case as determined on such day:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
|#==============================+===================================================================#|
|| Applicable | Applicable Interest Coverage Ratio ||
|| Funded Debt to | ||
|| Capital Ratio | ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| | * 6.5 | * 4.5 and | * 3.5 and | < 3.5 ||
|| | | < 6.5 | < 4.5 | ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| # .35 | .375% | .50% | .625% | .75% ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| # .40 and > .35 | .50% | .625% | .75% | .875% ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| # .45 and > .40 | .625% | .75% | .875% | 1% ||
|+------------------------------+----------------+-----------------+------------------+-------------+|
|| > .45 | .75% | .875% | 1% | 1.125% ||
|#==============================+================+=================+==================+=============#|
<FN>
* Greater-than or equal to
# Less than or equal to
</TABLE>
;PROVIDED that (A) the "Euro-Dollar Margin" for any day on or prior to December
31, 1994 shall be 1%, (B) if the Company shall fail to timely deliver the
information required to be delivered by it pursuant to Section 5.01(a) or
Section 5.01(b), as the case may be (and such failure shall not have been
waived by the Required Banks in accordance with Section 11.05), the Euro-Dollar
Margin for each day from and including the day on which such information is
required to be delivered to but excluding the day on which such information is
delivered shall be 1.125%
5
<PAGE> 6
and (C) the effective date of any increase or decrease in the Euro-Dollar
Margin after December 31, 1994 (other than any increase pursuant to clause (B)
of this proviso) shall be the fifth Domestic Business Day after the Company
shall have delivered financial statements pursuant to Section 5.01(a) or
5.01(b), as the case may be, on the basis of which statements any such increase
or decrease is calculated.
SECTION 4. DECREASE IN COMMITMENT FEE RATE. The definition of "Commitment
Fee Rate" in Section 2.07(a) is amended to read in its entirety as follows:
"Commitment Fee Rate" means for any day the percentage set forth below based
on the Applicable Interest Coverage Ratio on such day:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
|#===================================================================#|
|| Applicable Interest Coverage Ratio ||
|+----------------+-----------------+------------------+-------------+|
|| * 6.5 | * 4.5 and | * 3.5 and | < 3.5 ||
|| | < 6.5 | < 4.5 | ||
|+----------------+-----------------+------------------+-------------+|
|| .125% | .20% | .25% | .375% ||
|#================+=================+==================+=============#|
<FN>
* Greater-than or equal to
</TABLE>
;PROVIDED that the "Commitment Fee Rate" for any day on or prior to December
31, 1994 shall be .25%.
SECTION 5. ADDITION OF RENEWAL PROVISION. A new Section 2.19 is added to
read in its entirety as follows:
"SECTION 2.19. EXTENSION OF TERMINATION DATE. The Termination Date may be
extended, in the manner set forth in this Section, on October 1, 1995 and on
each anniversary of such date (an "Extension Date") for a period of one year
after the then current Termination Date. If the Company wishes to request an
extension of the Termination Date on any Extension Date, it shall give written
notice to that effect to the Agent not less than 45 nor more than 120 days
prior to such Extension Date, whereupon the Agent shall notify each of the
Banks of such notice. Each Bank will use its best efforts to respond to such
request, whether affirmatively or negatively, within 30 days. If all Banks
respond affirmatively, then, subject to receipt by the Agent prior to such
Extension Date of counterparts of an Extension Agreement in substantially the
form of Exhibit K duly completed and signed by all of the parties hereto, the
Termination Date shall be extended, effective on such Extension Date, to the
date stated in such Extension Agreement."
6
<PAGE> 7
SECTION 6. DECREASE IN CONSOLIDATED CURRENT RATIO. Section 5.07 is amended
to read in its entirety as follows:
"SECTION 5.07. CONSOLIDATED CURRENT RATIO. The Consolidated Current Ratio
will at all times be greater than 1.35 to 1."
SECTION 7. SUBSTITUTION OF DEBT RATIO. Section 5.10 is amended to read in
its entirety as follows:
"SECTION 5.10. FUNDED DEBT TO CAPITAL RATIO. The Funded Debt to Capital
Ratio will at no time during any period set forth below exceed the ratio set
forth below opposite such period:
Period Ratio
------ -----
October 31, 1994 - June 30, 1995 .60 to 1
July 1, 1995 - December 31, 1995 .55 to 1
January 1, 1996 and thereafter .50 to 1".
SECTION 8. INCREASE IN PERMITTED CAPITAL EXPENDITURES. Section 5.11 is
amended to read in its entirety as follows:
"SECTION 5.11. ADJUSTED CONSOLIDATED CAPITAL EXPENDITURES. Adjusted
Consolidated Capital Expenditures for any fiscal year of the Company ended
prior to the Target Date and all preceding fiscal years of the Company
beginning after December 31, 1992 will not exceed the amount set forth below
opposite such year:
Fiscal Year Amount
----------- ------
1993 $30,000,000
1994 $60,000,000
1995 $95,000,000
1996 $130,000,000
1997 and thereafter $165,000,000".
SECTION 9. LIMITATIONS ON RESTRICTED PAYMENTS. Section 5.12 is amended by
inserting the following phrase at the beginning thereof: "Prior to the Target
Date,".
SECTION 10. LIENS ON RECEIVABLES. Section 5.14 is amended by:
(a) deleting the conjunction "and" at the end of clause (g) thereof,
7
<PAGE> 8
(b) amending clause (h) thereof to read in its entirety as follows:
"(i) Liens (other than Liens on Receivables) not otherwise permitted by
the foregoing clauses of this Section securing Debt in an aggregate
principal amount at any time outstanding not to exceed 5% of Consolidated
Tangible Net Worth.", and
(c) adding a new clause (h) immediately after clause (g) thereof, to read in
its entirety as follows:
"(h) Liens on Receivables of the Company and its Subsidiaries in
connection with Receivable Financings with respect to such Receivables;
PROVIDED that the aggregate outstanding Receivables Financing Amount will at
no time exceed $50,000,000; and".
SECTION 11. SALE OF RECEIVABLES. Section 5.15(c) is amended by adding the
following clause at the end thereof: "except (i) in connection with a
Receivables Financing and (ii) if, immediately after giving effect to any such
Financing, the aggregate outstanding Receivables Financing Amount does not
exceed $50,000,000.".
SECTION 12. DELETION OF WAIVER OF SUBROGATION RIGHTS BY THE COMPANY.
Section 10.05 is amended to read in its entirety as follows:
"SECTION 10.05. SUBROGATION. Upon making any payment hereunder, the Company
shall be subrogated to the rights of the payee against an Eligible Subsidiary
with respect to such payment; PROVIDED that the Company shall not enforce any
payment by way of subrogation until all amounts of principal of and interest on
the Notes and all other amounts payable by all Borrowers under this Agreement
have been paid in full."
SECTION 13. ADDITION OF EXTENSION AGREEMENT EXHIBIT. Exhibit K to this
Amendment is added as Exhibit K to the Agreement.
SECTION 14. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 15. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if
8
<PAGE> 9
the signatures thereto and hereto were upon the same instrument. This
Amendment shall become effective as of the date hereof when the Agent shall
have received (i) duly executed counterparts hereof signed by the Company and
all the Banks (or, in the case of any party as to which an executed counterpart
shall not have been received, the Agent shall have received telegraphic, telex
or other written confirmation from such party of execution of a counterpart
hereof by such party) and (ii) evidence reasonably satisfactory to the Agent
that the Company and the Prudential Insurance Company of America shall have
entered into an amendment to the Note Agreement dated as of November 20, 1991
with respect to the $75,000,000 8.98% Senior Notes due 2003 of the Company in
form and substance reasonably satisfactory to the Agent.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
THE LINCOLN ELECTRIC COMPANY
By /s/ Donald F. Hastings
-------------------------
Title: Donald F. Hastings
Chairman and Chief Executive Officer
By /s/ H. Jay Elliot
-------------------------
Title: H. Jay Elliot
Chief Financial Officer, Treasurer
and Acting Secretary
SOCIETY NATIONAL BANK
By /s/ W. J. Kysela
-------------------------
Title: Vice President
ABN AMRO BANK N.V.
By /s/ R. D. Hasbrook
-------------------------
Title: Group V.P.
By /s/ Kathrine C. Toth
-------------------------
Title: V.P.
CIBC INC.
By /s/ John J. Mack
-------------------------
Title: Vice President
<PAGE> 11
COMMERZBANK AKTIENGESELLSCHAFT
By /s/ Mark D. Monson
-----------------------------
Title: Mark D. Monson
Assistant Vice President
By /s/ Dr. Helmut R. Tollner
-----------------------------
Title: Dr. Helmut R. Tollner
Executive Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ Mary Ann Klemm
-----------------------------
Title: Authorized Signature
CREDIT LYONNAIS CHICAGO BRANCH
By /s/ Mary Ann Klemm
-----------------------------
Title: Vice President
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ Deborah Slusarczyk
-----------------------------
Title: VP
By /s/ Robert Grella
-----------------------------
Title: V.P.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Timothy S. Broadbent
-----------------------------
Title: /s/ Timothy S. Broadbent
Vice President
<PAGE> 12
NBD BANK, N.A.
By /s/ Winifred S. Pinet
--------------------------
Title: Vice President
NATIONAL CITY BANK
By /s/ W. J. Barlow Mick Williams
------------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ Joseph G. Moran
--------------------------
Title: Vice President
<PAGE> 13
EXHIBIT K
EXTENSION AGREEMENT
-------------------
The Lincoln Electric Company
22801 St. Clair Avenue
Cleveland, Ohio 44117-1199
Society National Bank, as Agent
under the Credit Agreement
referred to below
Gentlemen:
The undersigned hereby agree to extend, effective [Extension Date], the
Termination Date under the Credit Agreement dated as of March 18, 1993 among
The Lincoln Electric Company, the Banks listed therein and Society National
Bank, as Agent (the "Credit Agreement") for one year to [date to which the
Termination Date is extended]. Terms defined in the Credit Agreement are used
herein as therein defined.
This Extension Agreement shall be construed in accordance with and governed
by the law of the State of New York.
[NAME OF BANK]
By_________________________
Title:
Agreed and accepted:
THE LINCOLN ELECTRIC COMPANY
By__________________________
Title:
SOCIETY NATIONAL BANK, as Agent
By_____________________________
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 21310
<SECURITIES> 0
<RECEIVABLES> 138866
<ALLOWANCES> 4535
<INVENTORY> 153717
<CURRENT-ASSETS> 31214
<PP&E> 436551
<DEPRECIATION> 257715
<TOTAL-ASSETS> 584682
<CURRENT-LIABILITIES> 191664
<BONDS> 179198
<COMMON> 2203
0
0
<OTHER-SE> 181198
<TOTAL-LIABILITY-AND-EQUITY> 584682
<SALES> 675450
<TOTAL-REVENUES> 679168
<CGS> 413264
<TOTAL-COSTS> 413264
<OTHER-EXPENSES> 193312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11814
<INCOME-PRETAX> 60778
<INCOME-TAX> 26395
<INCOME-CONTINUING> 34383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34383
<EPS-PRIMARY> 3.14
<EPS-DILUTED> 3.14
</TABLE>
