<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 the Nine Months Ended Commission File
September 30, 1995 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
Common Shares Outstanding: 10,520,820
Class A Common Shares Outstanding: 13,880,171
Class B Common Shares 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
STATEMENTS OF CONSOLIDATED OPERATIONS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars except per share data)
"UNAUDITED"
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1995 1994 1995 1994
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $249,525 $230,752 $781,131 $675,450
Cost of goods sold 155,995 140,848 478,524 413,264
-------- -------- -------- --------
Gross profit 93,530 89,904 302,607 262,186
Distribution cost/selling,
general & administrative
expenses 68,533 66,470 216,914 193,312
-------- -------- -------- --------
Operating income 24,997 23,434 85,693 68,874
Other income/(expense):
Interest income 472 414 1,184 1,006
Other income 522 1,455 1,468 2,712
Interest expense (2,518) (3,804) (10,054) (11,814)
------- -------- -------- --------
Total other income/(expense) (1,524) (1,935) (7,402) (8,096)
------- -------- -------- --------
Income before income taxes 23,473 21,499 78,291 60,778
Income taxes 8,763 9,830 30,142 26,395
-------- -------- -------- --------
Net income $ 14,710 $ 11,669 $ 48,149 $ 34,383
======== ======== ======== ========
Net income per share $ 0.59 $ 0.53 $ 2.10 $ 1.57
Cash dividends paid per
share $ 0.10 $ 0.09 $ 0.30 $ 0.27
Average number of Common Shares
outstanding: (in thousands
of shares) 24,879 22,028 22,886 21,914
</TABLE>
NOTE: All shares and per share amounts have been adjusted to reflect the
stock dividend on June 12, 1995 of one Class A Common Share for each
outstanding Common Share and Class B Common Share held on the record
date of June 5, 1995.
See notes to consolidated financial statements.
<PAGE> 3
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
"UNAUDITED"
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 14,415 $ 10,424
Accounts receivable (less allowances
of $4,232 in 1995; $4,251 in 1994) 147,835 126,007
Inventories: (Note B)
Raw materials and in-process 94,951 72,302
Finished goods 97,475 82,974
-------- --------
192,426 155,276
Deferred income taxes 11,479 11,601
Prepaid expenses 6,505 2,899
Other current assets 6,854 7,220
-------- --------
TOTAL CURRENT ASSETS 379,514 313,427
OTHER ASSETS
Notes receivable from employees 327 3,151
Goodwill, net 39,139 39,213
Other 17,227 16,855
-------- --------
56,693 59,219
PROPERTY, PLANT AND EQUIPMENT
Land 12,883 12,655
Buildings 123,106 118,903
Machinery, tools and equipment 348,273 312,957
-------- --------
484,262 444,515
Less allowances for depreciation
and amortization 280,343 260,304
-------- --------
203,919 184,211
-------- --------
TOTAL ASSETS $640,126 $556,857
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
"UNAUDITED"
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 54,841 $ 54,766
Notes payable to banks 17,593 15,843
Salaries, wages and amounts withheld 11,955 12,405
Taxes, including income taxes 35,704 21,783
Dividends payable 2,503 2,203
Current portion of long-term debt 1,423 2,272
Accrued restructuring charges 7,971 8,968
Other current liabilities (Note C) 73,270 25,877
-------- --------
TOTAL CURRENT LIABILITIES 205,260 144,117
Long-term debt, less current portion 84,989 194,831
Deferred income taxes 5,744 6,631
Other long-term liabilities 14,849 10,337
Minority interest in subsidiaries 6,693 6,808
Shareholders' equity (Notes D & E)
Common Shares 2,104 2,103
Class A Common Shares 2,776
Class B Common Shares 100 100
Additional paid-in-capital 104,070 25,447
Retained earnings 218,217 176,965
Cumulative translation adjustments (4,676) (10,482)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 322,591 194,133
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $640,126 $556,857
</TABLE> ======== ========
See notes to consolidated financial statements.
<PAGE> 5
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
"UNAUDITED"
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
1995 1994
---------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 48,149 $ 34,383
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 20,307 19,903
Provision (Benefit) for deferred income taxes (766) 19,974
Minority interest 273 364
Change in operating assets and liabilities:
(Increase) in accounts receivable (19,504) (19,962)
(Increase) in inventories (34,593) (4,591)
(Increase) in other current assets (1,975) (1,018)
Increase (decrease) in accounts payable (674) 2,256
Increase in other current liabilities 57,141 26,462
Gross change in other noncurrent assets (623) (3,003)
Gross change in other noncurrent liabilities 4,435 5,999
Other-net 1,274 2,836
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 73,444 83,603
INVESTING ACTIVITIES
Purchases of property, plant and equipment (36,126) (23,223)
Proceeds from sale of property, plant and equipment 1,508 2,614
------- -------
NET CASH (USED) BY INVESTING ACTIVITIES (34,618) (20,609)
FINANCING ACTIVITIES
Proceeds, net of underwriting discount, from the
sale of Common Class A Shares 81,180
Proceeds from the sale of Common Shares under
the Employees' Stock Purchase Plan 1,438
Short-term borrowings-net 350 (6,130)
Repayment on short-term borrowings, maturities
greater than three months (30,897) (24,734)
Proceeds on short-term borrowings, maturities
greater than three months 31,542 22,476
Proceeds from long-term borrowings 246,476 232,286
Repayments on long-term borrowings (359,348) (282,378)
Cash dividends (6,610) (5,903)
Other 2,920 (429)
--------- --------
NET CASH (USED) BY FINANCING ACTIVITIES (34,387) (63,374)
Effect of exchange rate changes on cash and
cash equivalents (448) 1,309
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 3,991 929
Cash and cash equivalents at beginning of period 10,424 20,381
-------- -------
Cash and cash equivalents at end of period $ 14,415 $ 21,310
======== =======
Cash paid during the period for: Interest $ 10,406 $ 12,484
Income taxes $ 16,703 $ 5,107
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS "UNAUDITED"
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
September 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and contain all 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. Operating results for the quarter and nine months ended
September 30, 1995 are not necessarily indicative of the results which may be
expected for the remaining interim period or for the year ending December 31,
1995. 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, 1994.
NOTE B - INVENTORY VALUATION
The actual valuation of inventory under the last-in first-out (LIFO) method is
made at the end of each year based on inventory levels and costs at that time.
Accordingly, interim LIFO calculations by necessity are based on estimates of
expected year-end inventory levels and costs. Accordingly, interim results are
subject to the final year-end LIFO inventory calculation.
NOTE C - OTHER CURRENT LIABILITIES
Other current liabilities at September 30, 1995 include accruals for possible
year-end bonuses and related payroll taxes of $49.9 million. The payment of
bonuses is wholly discretionary and is determined each year by the Board of
Directors.
NOTE D - RECAPITALIZATION AND STOCK DISTRIBUTION
At the Annual Meeting on May 23, 1995, the shareholders of the Company
approved, among other things, an amendment to the Company's Articles of
Incorporation to:
(1) Change the existing class of Common Stock, without par
value into Common Shares;
(2) Change the existing class of Class A Common Stock, without
par value, into Class B Common Shares;
(3) Authorize a new class of non-voting shares to be designated
Class A Common Shares;
(4) Increase the total number of authorized common shares of all
classes from seventeen million (17,000,000) to sixty-two
million (62,000,000) shares consisting of thirty million
(30,000,000) Common Shares, thirty million (30,000,000)
Class A Common Shares and two million (2,000,000) Class B
Common Shares.
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS "UNAUDITED"
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
September 30, 1995
On May 24, 1995, the Board of Directors of the Company approved the filing of
Restated Articles of Incorporation with the Secretary of the State of Ohio, and
authorized a dividend payable on June 12, 1995 to shareholders of record on
June 5, 1995 of one Class A Common Share for each outstanding Common Share
(formerly known as Common Stock) and Class B Common Share (formerly known as
Class A Common Stock). All per share amounts and the shares used in the
computation of per share amounts have been adjusted to reflect the
recapitalization and dividend distribution.
NOTE E - SALE OF CLASS A COMMON SHARES
On June 29, 1995, the Company sold in an underwritten public offering 2,796,914
Class A Common Shares for $28.35 per share, net of the underwriting discount.
The closing date for the transaction was July 6, 1995 at which time the Company
received the net proceeds of $79.3 million which were used to reduce debt of
the Company. On August 2, 1995, the Company sold an additional 66,593 Class A
Common Shares for $28.35 per share under an over allotment provision of the
Underwriting Agreement and received additional net proceeds of $1.9 million
which were also used to reduce debt of the Company.
NOTE F - SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
As set forth in Note E to the consolidated financial statements, on July 6,
1995 and August 2, 1995, the Company received approximately $79.3 million and
$1.9 million, respectively, from the sale of 2,796,914 and 66,593 shares of
Class A Common Shares which was used to reduce the Company's outstanding
indebtedness. Had these proceeds been received and applied to reduce
indebtedness as of July 1, 1995 and July 1, 1994, net income per share for the
three months ended September 30, 1995 would have been unchanged and for the
three months ended September 30, 1994, $0.50 per share. Had the proceeds been
received and applied to reduce indebtedness as of January 1, 1995 and 1994, net
income per share for the nine months ended September 30, 1995 and 1994 would
have been $2.00 and $1.48, respectively.
<PAGE> 8
Part 1 - Item 2
Management's Discussion of Financial Condition and Results
- - - - - ----------------------------------------------------------
of Operations
- - - - - -------------
Quarterly and Nine-Month Results of Operations
The following table shows the Company's results of operations for the three and
nine month periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Three months ended September 30,
1995 1994
--------------- -------------
% of % of
Amount Sales Amount Sales
------ ------ ------ -----
(in millions of dollars)
<S> <C> <C> <C> <C>
Net Sales $249.5 100.0 % $230.8 100.0 %
Cost of Goods Sold 156.0 62.5 % 140.9 61.0 %
------ ------ ----- -----
Gross Profit 93.5 37.5 % 89.9 39.0 %
Distribution Cost/Selling
General & Adm. Expenses 68.5 27.5 % 66.5 28.8 %
------ ------ ------ -----
Operating Income 25.0 10.0 % 23.4 10.2 %
Other Income 0.5 0.2 % 1.5 0.6 %
Interest expense, Net (2.0) (0.8)% (3.4) (1.5)%
------ ------ ------ ------
Income before Income Taxes 23.5 9.4 % 21.5 9.3 %
Income Taxes 8.8 3.5 % 9.8 4.2 %
------ ------ ------ ------
Net Income $ 14.7 5.9 % $ 11.7 5.1 %
====== ====== ====== ======
Nine months ended September 30,
1995 1994
-------------- --------------
% of % of
Amount Sales Amount Sales
------ ------ ------ ------
(in millions of dollars)
Net Sales $781.1 100.0 % $675.5 100.0 %
Cost of Goods Sold 478.5 61.3 % 413.3 61.2 %
------ ------ ------ ------
Gross Profit 302.6 38.7 % 262.2 38.8 %
Distribution Cost/Selling
General & Adm. Expenses 216.9 27.8 % 193.3 28.6 %
------ ------ ------ ------
Operating Income 85.7 10.9 % 68.9 10.2 %
Other Income 1.4 .2 % 2.7 0.4 %
Interest expense, Net (8.8) (1.1)% (10.8) (1.6)%
------ ------ ------ ------
Income before Income Taxes 78.3 10.0 % 60.8 9.0 %
Income Taxes 30.2 3.8 % 26.4 3.9 %
------ ------ ------ ------
Net Income $ 48.1 6.2 % $ 34.4 5.1 %
====== ====== ====== ======
</TABLE>
<PAGE> 9
Management's Discussion of Financial Condition and Results
- - - - - ----------------------------------------------------------
of Operations
- - - - - -------------
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED
- - - - - --------------------------------------------------------------------
SEPTEMBER 30, 1994.
- - - - - ------------------
NET SALES. Net sales were $249.5 million for the quarter ended September 30,
1995, an increase of 8.1% over the $230.8 million reported for the third
quarter of 1994. Net sales from the Company's U.S. operations were $172.7
million for the third quarter of 1995, an increase of 4.8% or $7.8 million over
the comparable prior year period. Included in net sales from the Company's
U.S. operations were third party export sales of $19.6 million, which
represents a 26.7% increase over the same period in 1994. Non-U.S. sales were
$76.8 million for the third quarter of 1995, an increase of 16.5% or $10.9
million over the same period last year. Although U.S. demand has softened in
the 1995 third quarter, volume and price increases contributed to growth in net
sales both in the U.S. and overseas with volume growth being the most important
factor overseas and increased selling prices having the most significance
domestically.
GROSS PROFIT. Gross profit was $93.5 million (37.5% of net sales) for the
third quarter of 1995 as compared with $89.9 million (39.0% of net sales) for
the same period in 1994 as the U.S. operations experienced slightly diminished
gross profit margins. Results were impacted by reduced overhead absorption
from reduced production schedules caused by changes in inventory targets, as
well as by increased training and associated costs of new employees added to
support a growth in capacity over the prior year. Costs were also affected by
start-up expenses of the new motor plant which amounted to at least $1.5
million in the quarter. These effects were offset partially by improvement in
the gross profit margins on non-U.S. sales, mainly attributable to greater
absorption of manufacturing expenses over higher sales volume and the effects
of general price increases instituted in 1995.
DISTRIBUTION COST/SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A
expenses were $68.5 million (27.5% of net sales) for the third quarter of 1995
as compared with $66.5 million (28.8% of net sales) for the same period in
1994. The decrease in costs as a percentage of net sales reflects improved
economies of scale achieved by higher worldwide sales volume. Additionally,
the quarter includes reductions in certain discretionary employment costs
related to prior interim periods less a one-time severance cost which net to a
decrease in third quarter SG&A expenses of approximately $1.6 million ($1.0
million after tax or $0.04 per share). Subsequent to the accrual adjustments,
total costs included in SG&A expense related to the Company's discretionary
year-end bonus program were approximately $16.4 million ($18.7 million in
1994).
<PAGE> 10
Management's Discussion of Financial Condition and Results
- - - - - ----------------------------------------------------------
of Operations
- - - - - -------------
INTEREST EXPENSE, NET. Interest expense, net was $2.0 million for the third
quarter of 1995 as compared with $3.4 million for the third quarter of 1994
reflecting lower average debt levels principally as a result of a successful
public offering of Class A Common Shares and the application of the proceeds to
reduce indebtedness, offset partially by higher interest rates.
INCOME TAXES. Income taxes for the third quarter of 1995 were $8.8 million on
income before income taxes of $23.5 million (an effective rate of 37.3%) as
compared with income taxes of $9.8 million on income before income taxes of
$21.5 million (an effective rate of 45.7%) for the same period last year. The
decrease in the effective tax rate is a consequence of a higher proportion of
the Company's income being generated from entities (principally the Company's
European subsidiaries) which are utilizing tax loss carryovers. In the 1995
third quarter, the estimated 1995 annual effective income tax rate was reduced
to 38.5% from 39.0% as reported in the 1995 second quarter.
NET INCOME. Net income increased 26.1% to $14.7 million, or $0.59 per share
for the third quarter of 1995, as compared with $11.7 million or $0.53 per
share for the prior year. Net income and net income per share for the third
quarter of 1995 give effect to the sale of 2,863,507 Class A Common Shares for
approximately $81.2 million, and the application of the proceeds to reduce
indebtedness. Had these proceeds been received and applied to reduce
indebtedness as of July 1, 1994, net income per share for the three months
ended September 30, 1994 would have been $0.50 per share.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
- - - - - ------------------------------------------------------------------
SEPTEMBER 30, 1994.
- - - - - ------------------
NET SALES. For the first nine months of 1995, net sales were $781.1 million,
or 15.6% higher than the $675.5 million reported for the first nine months of
1994. U.S. sales totaled $541.5 million, representing an increase of 12.7%, or
$61.1 million over the same period last year. Included in net sales from the
Company's U.S. operations were third party export sales of $60.7 million which
represented a 27.7% increase over the same period in 1994. Non-U.S. sales
totaled $239.6 million, representing an increase of 22.8%, or $44.5 million,
over the prior year's nine-month period. Sales increases in the U.S. and
abroad were attributable to a combination of volume and price increases.
European sales benefited from the partial regaining of market share in Germany
where in early 1994 market share had been lost due to the 1993 restructuring
activities. Sales in the U.S. softened in the third quarter and non-U.S. sales
also experienced a softening, but to a lesser extent. Currency translation had
a positive effect of approximately $6.2 million on 1995 non-U.S. sales.
<PAGE> 11
Management's Discussion of Financial Condition and Results
- - - - - ----------------------------------------------------------
of Operations
- - - - - -------------
GROSS PROFIT. Gross profit as a percentage of net sales from the Company's
worldwide operations was substantially consistent with the comparable period in
1994. Margin decreases in the U.S., caused somewhat by higher raw material and
manufacturing overhead costs plus start-up costs of the motor plant, were
essentially offset by improvement in non-U.S. margins, mainly attributable to
greater absorption of manufacturing expenses over higher sales volume and
general price increases.
DISTRIBUTION COST/SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A
expenses as a percentage of net sales diminished slightly as compared with the
prior year period. The improvement is due to improved economies of scale
achieved by higher worldwide sales volume. Included in SG&A expenses are costs
related to the Company's discretionary year-end bonus program amounting to
approximately $56.9 million ($54.7 million in 1994).
INTEREST EXPENSE, NET. For the first nine months of 1995, interest expense net
was $8.8 million compared with $10.8 million for the first nine months of 1994.
The decrease was attributable to lower average debt levels which were offset
partially by higher interest rates in 1995.
INCOME TAXES. For the nine months ended September 30, 1995, income taxes were
$30.2 million on income before income taxes of $78.3 million (an effective tax
rate of 38.5%) as compared with income taxes of $26.4 million on income before
income taxes of $60.8 million (an effective tax rate of 43.4%) for the same
period last year. The decrease in the effective tax rate is a consequence of a
higher proportion of the Company's income being generated in entities
(principally the Company's European subsidiaries) which are utilizing tax loss
carryovers.
NET INCOME. Net income for the first nine months of 1995 increased 40.0% to
$48.1 million, or $2.10 per share, as compared with $34.4 million, or $1.57 per
share for the prior year period. Net income and net income per share for the
nine months ended September 30, 1995, give effect to the sale of the Class A
Common Shares in early July and the application of the proceeds ($81.2 million)
to reduce indebtedness. Had these proceeds been received as of January 1, 1995
and January 1, 1994, net income per share for the nine months ended September
30, 1995 would have been $2.00 per share and for the nine months ended
September 30, 1994, $1.48 per share.
<PAGE> 12
Management's Discussion of Financial Condition and Results
- - - - - ----------------------------------------------------------
of Operations
- - - - - -------------
LIQUIDITY AND CAPITAL RESOURCES. The Company's cash flows for the nine months
ended September 30, 1995 and 1994 are presented in the consolidated statements
of cash flows. Cash provided from operating activities for the nine months
ended September 30, 1995 amounted to $73.4 million as compared with $83.6
million for the comparable period in 1994. Cash flows from operations for
1995, along with the proceeds from a successful public offering of Class A
Common Shares of $81.2 million, were used primarily for net capital
expenditures of $34.6 million, net debt repayments of $111.9 million, and the
payment of dividends in the amount of $6.6 million. Cash flows from operations
for 1994 were used primarily for net capital expenditures of $20.6 million, net
debt repayments of $58.5 million, and the payment of dividends in the amount of
$5.9 million.
Net working capital was $174.3 million at September 30, 1995 compared to $169.3
million at December 31, 1994. The net increase in working capital for the
first nine months of 1995 consisted of increases in current assets of $66.1
million which was primarily a combination of increases in accounts receivable
of $21.8 million and inventories of $37.2 million. Offsetting these effects
were increases in current liabilities of $61.1 million, principally from
increases in accrued taxes, including income taxes of $13.9 million and accruals
included in other current liabilities for possible year-end bonuses and related
payroll taxes of $49.9 million.
Total debt at September 30, 1995 was $104.0 million as compared with $212.9
million at December 31, 1994. At September 30, 1995, total debt was 24.4% of
total capitalization (shareholders' equity plus total debt), as compared with
52.3% at the end of 1994. The improvement in the ratio of total debt to total
capitalization was due principally to the application of cash proceeds received
from the Company's underwritten public offering to reduce indebtedness. Other
factors affecting the ratio include increased equity resulting from earnings
for the period, net of dividend payments, favorable effects of currency
translation of $5.8 million and the cyclical nature of the Company's cash
requirements. The payment of bonuses at the end of 1995 will affect the ratio
of total debt to total capitalization.
Capital expenditures for property, plant and equipment totaled $36.1 million
for the first nine months of 1995, compared to $23.2 million for the comparable
period in 1994. Expenditures for property, plant and equipment represent the
Company's continued commitment to support and develop advanced technologies and
new products, to expand current capacity and reduce future manufacturing costs.
The Company continues to closely monitor its capital expenditures and is adding
to capacity to meet the demand for its products and modernizing facilities as
necessary.
<PAGE> 13
Management's Discussion of Financial Condition and Results
- - - - - ----------------------------------------------------------
of Operations
- - - - - -------------
The Company's Credit Agreement and 8.73% Senior Note Agreement contain various
financial covenants which require the following: (i) a 1.35 to 1 consolidated
current ratio, (ii) the maintenance of consolidated tangible net worth of $125
million plus 50% of net income subsequent to January 1, 1995 (iii) a minimum
interest coverage ratio of 3 to 1 after June 30, 1995, and (iv) funded debt to
capital ratios (.55 to 1 as of July 1, 1995 decreasing to .50 to 1 after
December 31, 1995). The Company is in compliance with all of its financial
covenants and is currently negotiating revisions to its Credit Agreement that
will further increase flexibility.
Part II - Other Information
Item 1. Legal proceedings
Claims pending against the Company alleging asbestos induced illness total
14,307, 12,731 of which have been reported previously; in each instance, the
Company is one of a large number of defendants. Approximately 4,407 of these
asbestos claims are in Orange County, Texas where 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 to ultimate liability, all to defense
verdicts. Voluntary dismissals on such claims total over 15,000, and
approximately 13,000 of such dismissals have been reported previously; summary
judgments for the defense total 76, 74 of which have been reported previously.
Included within the foregoing asbestos claims are approximately 930 claims
pending in the Circuit Court of Kanawha County, West Virginia. On September
12, 1995, a jury returned a special interrogatory in that action finding that
products manufactured and/or sold by the Company and three other welding
companies were defective in certain respects at the time of manufacture and/or
sale. Issues relating to whether or not claimants were exposed to Company
products and, if so, whether Company products caused any injury, have not been
addressed. Nor has there been any discovery relating to the plaintiffs and
their potential compensatory damage claims. The Court has dismissed punitive
damage claims in that action.
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
<PAGE> 14
Part II - Other Information
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No.
-----------
(27) Financial Data Schedule
(b) Reports on Form 8-K -- None
-------------------
<PAGE> 15
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/ H. Jay Elliott /s/ Graham A. Peters
- - - - - ------------------------------- -------------------------------
H. Jay Elliott Graham A. Peters
Vice President, Chief Financial Corporate Controller
Officer and Treasurer
November 6, 1995 November 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
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0
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