<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the six months ended June 30, 1996 Commission File No. 0-1402
THE LINCOLN ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
OHIO 34-0359955
(State of incorporation) (I.R.S. Employer Identification No.)
22801 St. Clair Avenue, Cleveland, Ohio 44117
(Address of principal executive offices) (Zip Code)
(216) 481-8100
(Registrant's telephone number, including area code)
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
------- -------
The number of shares outstanding of the issuer's classes of common stock as of
June 30, 1996 were as follows:
<TABLE>
<S> <C>
Common Shares..................................... 10,509,098
Class A Common Shares............................. 13,862,861
Class B Common Shares............................. 487,117
----------
Total outstanding shares................. 24,859,076
==========
</TABLE>
<PAGE> 2
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 284,508 $ 268,199 $ 563,220 $ 531,606
Cost of goods sold 174,751 160,984 346,909 322,529
--------- --------- --------- ---------
Gross profit 109,757 107,215 216,311 209,077
Distribution cost / selling, general &
administrative expenses 77,552 76,566 156,012 148,381
--------- --------- --------- ---------
Operating income 32,205 30,649 60,299 60,696
Other income / (expense):
Interest income 895 320 1,306 712
Other income 929 552 1,386 946
Interest expense (1,908) (3,559) (4,119) (7,536)
--------- --------- --------- ---------
Total other income / (expense) (84) (2,687) (1,427) (5,878)
--------- --------- --------- ---------
Income before income taxes 32,121 27,962 58,872 54,818
Income taxes 11,898 10,577 22,092 21,379
--------- --------- --------- ---------
Net income $ 20,223 $ 17,385 $ 36,780 $ 33,439
========= ========= ========= =========
Net income per share (Note B) $ 0.81 $ 0.79 $ 1.48 $ 1.52
Cash dividends declared per share $ 0.12 $ 0.10 $ 0.24 $ 0.20
Average number of shares outstanding 24,870 22,034 24,882 22,032
(in thousands)
</TABLE>
1995 share and per share amounts reflect the June 12, 1995 stock dividend.
See notes to these consolidated financial statements.
1
<PAGE> 3
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
(Amounts in thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14,241 $ 10,087
Accounts receivable (less allowance for doubtful accounts of
$4,123 at June 30, 1996 and $3,916 at December 31, 1995) 156,103 140,833
Inventories: (Note C)
Raw materials and in-process 89,929 86,335
Finished goods 99,676 96,530
--------- ---------
189,605 182,865
Deferred income taxes 9,776 9,738
Prepaid expenses 16,518 6,713
Other current assets 7,013 6,847
--------- ---------
TOTAL CURRENT ASSETS 393,256 357,083
OTHER ASSETS
Goodwill - net 38,060 39,154
Other 21,225 15,929
--------- ---------
59,285 55,083
PROPERTY, PLANT AND EQUIPMENT
Land 11,618 12,396
Buildings 121,336 123,360
Machinery, tools and equipment 363,170 354,855
--------- ---------
496,124 490,611
Less allowance for depreciation (293,073) (285,017)
--------- ---------
203,051 205,594
--------- ---------
TOTAL ASSETS $ 655,592 $ 617,760
========= =========
</TABLE>
2
<PAGE> 4
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
(Amounts in thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 54,940 $ 53,882
Notes payable to banks 1,970 28,541
Salaries, wages and amounts withheld (Note D) 46,972 17,080
Taxes, including income taxes 40,678 33,160
Dividends payable 2,983 2,988
Current portion of long-term debt 804 1,269
Other current liabilities 36,256 31,729
--------- ---------
TOTAL CURRENT LIABILITIES 184,603 168,649
Long-term debt, less current portion 83,398 93,582
Deferred income taxes 7,083 7,063
Other long-term liabilities 14,298 13,021
Minority interest in subsidiary 5,602 5,499
SHAREHOLDERS' EQUITY
Common Shares 2,102 2,104
Class A Common Shares 2,773 2,776
Class B Common Shares 97 97
Additional paid-in capital 103,953 102,652
Retained earnings 259,365 228,555
Cumulative translation adjustments (7,682) (6,238)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 360,608 329,946
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 655,592 $ 617,760
========= =========
</TABLE>
See notes to these consolidated financial statements.
3
<PAGE> 5
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Amounts in thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 36,780 $ 33,439
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 15,967 13,067
Minority interest 144 214
Changes in operating assets and liabilities:
(Increase) in accounts receivable (16,570) (29,316)
(Increase) in inventories (9,110) (30,009)
(Increase) decrease in other current assets (8,893) 1,435
Increase in accounts payable 1,529 11,486
Increase in other current liabilities 41,323 53,185
(Increase) decrease in other noncurrent assets (2,291) 212
Increase in other noncurrent liabilities 1,433 2,124
Other - net 2,910 1,057
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 63,222 56,894
INVESTING ACTIVITIES
Capital expenditures (18,443) (25,604)
Proceeds from sale of property, plant and equipment 1,349 1,263
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (17,094) (24,341)
FINANCING ACTIVITIES
Short-term borrowings - net (26,489) 506
Short-term borrowings, maturities greater than three months - net (10) 1,546
Proceeds from long-term borrowings 5,058 211,274
Repayments on long-term borrowings (15,734) (242,466)
Dividends paid (5,975) (4,406)
Other (550) 2,784
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (43,700) (30,762)
Effect of exchange rate changes on cash and cash equivalents 1,726 (609)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 4,154 1,182
Cash and cash equivalents at beginning of period 10,087 10,424
--------- ---------
Cash and cash equivalents at end of period $ 14,241 $ 11,606
========= =========
</TABLE>
See notes to these consolidated financial statements.
4
<PAGE> 6
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to the preparation of the
quarterly report on Form 10-Q. Accordingly, these consolidated financial
statements do not include all of the information and notes required for complete
financial statements. These consolidated financial statements contain all the
adjustments (consisting of normal recurring accruals) necessary to fairly
present the financial position, results of operations and changes in cash flows
for the interim period. Operating results for the three and six months ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the year ending December 31, 1996. 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, 1995.
NOTE B - EARNINGS PER SHARE
On May 24, 1995, the Board of Directors of the Company 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). The
per share amounts and the shares used in the computation of per share amounts
for the three and six months ended June 30, 1995 have been adjusted to reflect
this dividend distribution.
NOTE C - INVENTORY VALUATION
The 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 and are subject to the final
year-end LIFO inventory calculation.
NOTE D - SALARIES, WAGES AND AMOUNTS WITHHELD
Salaries, wages and amounts withheld at June 30, 1996 include provisions for
possible year-end bonuses and related payroll taxes of $34.1 million. The
payment of bonuses is wholly discretionary and is determined each year by the
Board of Directors.
NOTE E - SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
In 1995, the Company received net proceeds of approximately $81.2 million from
the sale of 2,863,507 shares of Class A Common Shares which were used to reduce
the Company's outstanding indebtedness. Had the proceeds been received and
applied to reduce indebtedness as of January 1, 1995, net income per share,
adjusted for the stock dividend described in Note B above, for the three and six
months ended June 30, 1995 would have been $0.73 and $1.41, respectively.
5
<PAGE> 7
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
The following table sets forth the Company's results of operations for the three
and six month periods ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------
(amounts in millions of dollars) 1996 1995
------------------ ------------------
AMOUNT % OF SALES AMOUNT % OF SALES
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Net sales $284.5 100.0% $268.2 100.0%
Cost of goods sold 174.7 61.4% 161.0 60.0%
------ ------ ------ ------
Gross profit 109.8 38.6% 107.2 40.0%
Distribution cost/selling, general
and administrative expenses 77.6 27.3% 76.6 28.6%
------ ------ ------ ------
Operating income 32.2 11.3% 30.6 11.4%
Other income 0.9 0.3% 0.6 0.2%
Interest expense, net (1.0) (0.3%) (3.2) (1.2%)
------ ------ ------ ------
Income before income taxes 32.1 11.3% 28.0 10.4%
Income taxes 11.9 4.2% 10.6 3.9%
------ ------ ------ ------
Net income $ 20.2 7.1% $ 17.4 6.5%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------
(amounts in millions of dollars) 1996 1995
------------------ ------------------
AMOUNT % OF SALES AMOUNT % OF SALES
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Net sales $563.2 100.0% $531.6 100.0%
Cost of goods sold 346.9 61.6% 322.5 60.7%
------ ------ ------ ------
Gross profit 216.3 38.4% 209.1 39.3%
Distribution cost/selling, general
and administrative expenses 156.0 27.7% 148.4 27.9%
------ ------ ------ ------
Operating income 60.3 10.7% 60.7 11.4%
Other income 1.4 0.2% 0.9 0.2%
Interest expense, net (2.8) (0.5%) (6.8) (1.3%)
------ ------ ------ ------
Income before income taxes 58.9 10.4% 54.8 10.3%
Income taxes 22.1 3.9% 21.4 4.0%
------ ------ ------ ------
Net income $ 36.8 6.5% $ 33.4 6.3%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
- -----------------------------------------------------------------------------
NET SALES. Net sales for the quarter ended June 30, 1996 increased $16.3 million
or 6.1% to $284.5 million from $268.2 million for the quarter ended June 30,
1995. Net sales from the Company's U.S. operations totaled $193.9 million for
the second quarter of 1996, an increase of 4.2% or $7.8 million over the prior
year. U.S. third party export sales included in these amounts were $23.6 million
for the second quarter of 1996, an increase of 4.9% from $22.5 million in the
second quarter of 1995. Non-U.S. sales totaled $90.6 million for the second
quarter of 1996, representing an increase of 10.4% or $8.5 million over the
second quarter of 1995. The sales increase from U.S. operations was driven by
comparable volume and price increases. Sales volume increases contributed most
significantly to the non-U.S. sales growth. The effect of exchange rate
movements on non-U.S. sales was not significant for the quarter ended June 30,
1996.
GROSS PROFIT. Gross profit increased to $109.8 million for the second quarter
1996, an increase of $2.6 million or 2.4% from the second quarter of 1995. Gross
profit as a percentage of net sales declined 1.4% from the prior year to
6
<PAGE> 8
38.6%. The decline in gross profit percentage was largely due to competitive and
market factors overseas, as the Company continues its market penetration in
developing economies and its efforts to enhance its presence in Europe. Domestic
profit margins have been somewhat impacted by higher labor costs.
DISTRIBUTION COST/SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A
expenses increased $1.0 million to $77.6 million for the second quarter 1996 as
compared to 1995. The increase in SG&A expenses from the second quarter last
year is due to higher planned sales promotion costs, both domestic and overseas,
greater research and development spending, and higher distribution costs as a
result of the increased sales volume. Second quarter 1995 SG&A expenses include
a $1.9 million charge related to the retirement of an officer of the Company.
Included in SG&A expenses are costs of $16.6 million and $17.9 million for the
second quarters 1996 and 1995, respectively, related to the Company's
discretionary year-end employee bonus program, net of hospitalization costs
deducted therefrom. The final bonus payout for 1996 is subject to approval by
the Company's Board of Directors during the fourth quarter.
INTEREST EXPENSE, NET. Interest expense, net was $1.0 million for the quarter
ended June 30, 1996 compared to $3.2 million for the quarter ended June 30,
1995, a decrease of 68.8%. Lower interest expense is due to reduced debt levels
resulting from the paydown of debt from the proceeds of the equity offering and
from increased operating cash flows. See supplemental earnings per share
information in Note E to the consolidated financial statements regarding the
proforma effect of reduced interest cost on quarterly earnings.
INCOME TAXES. Income taxes for the quarter ended June 30, 1996 were $11.9
million on income before income taxes of $32.1 million, an effective rate of
37.1%, as compared with income taxes of $10.6 million on income before taxes of
$28.0 million, or an effective rate of 37.9% for the same period in 1995. The
decreased effective tax rate reflects the projected utilization of foreign net
operating loss carryforwards.
NET INCOME. Net income increased 16.1% to $20.2 million or $0.81 per share for
the quarter ended June 30, 1996 compared with $17.4 million or $0.79 per share
for the comparable period in 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
- -------------------------------------------------------------------------
NET SALES. Net sales for the six months ended June 30, 1996 increased $31.6
million or 5.9% to $563.2 million from $531.6 million for the six months ended
June 30, 1995. Net sales from the Company's U.S. operations totaled $384.9
million for the first six months of 1996, an increase of 4.3% or $16.0 million
over the prior year. U.S. third party export sales included in these amounts
were $46.0 million for the six months ended June 30, 1996, an increase of $5.1
million or 12.5% from $40.9 million in the first half of 1995. Non-U.S. sales
totaled $178.3 million for the first six months of 1996, representing an
increase of 9.6% or $15.6 million over the first six months of 1995. The
increase in U.S. net sales over the prior year was due to both price and volume
increases, while overseas sales growth was due primarily to increased volume.
The effect of exchange rate movements on non-U.S. sales was not significant for
the six months ended June 30, 1996.
GROSS PROFIT. Gross profit increased to $216.3 million for the first six months
of 1996, an increase of $7.2 million or 3.4% from the first six months of 1995.
Gross profit as a percentage of net sales decreased to 38.4% from 39.3%. Gross
profit percentage has declined due to the larger portion of the Company's sales
growth being generated by non-U.S. operations, which have lower margins due to
competitive and market factors overseas.
7
<PAGE> 9
DISTRIBUTION COST/SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A
expenses increased $7.6 million to $156.0 million for the first six months of
1996 from $148.4 million for the first six months of 1995. SG&A expenses for the
Company's U.S. operations were $110.2 million, which includes a $3.4 million
charge ($2.1 million after tax, or $0.08 per share) for costs related to the
settlement of a class action lawsuit initiated by a former director and officer
of the Company. The increase in SG&A expenses from the first half of last year
is due to larger research and development spending, planned sales initiatives
producing higher promotion costs, and increased distribution costs as a result
of the higher sales volume, particularly overseas. Expenses for the six months
ended June 1995 reflect a charge to earnings without tax benefit of
approximately $2.3 million related to the devaluation of the Mexican peso on a
U.S. dollar-denominated loan at the Company's Mexican subsidiary, which was
settled in 1995. Reflected in SG&A expenses are costs related to the Company's
discretionary year-end employee bonus program, net of hospitalization costs
deducted therefrom, of $33.7 million and $35.5 million for the six months ended
June 30, 1996 and 1995, respectively. The final bonus payout for 1996 is
subject to approval by the Company's Board of Directors during the fourth
quarter.
INTEREST EXPENSE, NET. Interest expense, net was $2.8 million for the six months
ended June 30, 1996 compared to $6.8 million for the first six months of 1995, a
decrease of 58.8%. Lower interest expense is a consequence of the reduction in
debt levels from the proceeds of the equity offering and from greater operating
cash flows.
INCOME TAXES. Income taxes for the six months ended June 30, 1996 were $22.1
million on income before income taxes of $58.9 million, an effective tax rate of
37.5%, as compared with income taxes of $21.4 million on income before taxes of
$54.8 million, an effective rate of 39.0% for the same period in 1995. The
decreased effective tax rate reflects the projected utilization of foreign net
operating loss carryforwards. The effective tax rate for the year ended December
31, 1995 was 38.3%.
NET INCOME. Net income increased 10.2% to $36.8 million or $1.48 per share for
the six months ended June 30, 1996 compared with $33.4 million or $1.52 per
share for the comparable period in 1995. As described above, the cost of the
settlement of a class action lawsuit during the first quarter reduced net income
for the six months ended June 30, 1996 by $2.1 million or $0.08 per share. See
supplemental earnings per share information in Note E to the consolidated
financial statements regarding the proforma effect of reduced interest cost and
additional shares issued in connection with the 1995 public offering.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided from operating activities for the six months ended June 30, 1996
was $63.2 million compared with $56.9 million for the same period in 1995. The
increase in cash flows from operations is primarily a result of the Company's
increased operating profit and the ability to achieve increased sales growth
without a proportionate increase in operating working capital compared to the
prior year. Increased accounts receivables at June 30, 1996 as compared to
December 31, 1995 and through the second quarter 1995 reflects higher sales
volume.
Capital expenditures decreased to $18.4 million for the first half of 1996
compared to $25.6 million for the same period in 1995. Larger than usual
spending occurred during 1995 related to the new electric motor facility in
Cleveland, Ohio and added welding consumable manufacturing capacity.
The public equity offering in mid-1995 and increased operating cash flow during
1996 significantly improved the financial position of the Company at June 30,
1996 as compared to 1995. The ratio of total debt to total capitalization
improved to 19.3% at June 30, 1996 from 27.2% at December 31, 1995 and 44.9% at
June 30, 1995.
The Company paid total cash dividends of $6.0 million or $0.24 per share during
the first six months of 1996.
8
<PAGE> 10
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
- ----------------------------------------------
From time to time, information provided by the Company, statements by its
employees or information included in its filings with the Securities and
Exchange Commission (including those portions of this Management's Discussion
and Analysis that refer to the future) may contain forward-looking statements
that are not historical facts. Those statements are "forward looking" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, and the Company's future performance, operating
results, financial position and liquidity, are subject to a variety of factors
that could materially affect results, including:
- - Competition. The Company operates in a highly competitive global
environment, and is subject to a variety of competitive factors such as
pricing, the actions and strength of its competitors, and the Company's
ability to maintain its position as a recognized leader in welding
technology. The intensity of foreign competition is substantially
affected by fluctuations in the value of the United States dollar
against other currencies. The Company's competitive position could also
be adversely affected should new or emerging entrants become more
active in the arc welding business.
- - International Markets. The Company's long term strategy is to increase
its share in growing international markets, particularly Asia, Latin
America, Central Europe and other developing markets. However, there
can be no certainty that the Company will be successful in its
expansion efforts. The Company is subject to the currency risks of
doing business abroad and expansion poses challenging demands within
the Company's infrastructure. Further, many developing economies have
a significant degree of political and economic instability, which may
adversely affect the Company's international operations.
- - Cyclicality and Maturity of the Welding Industry. The United States arc
welding industry is both mature and cyclical. The growth of the
domestic arc welding industry has been and continues to be constrained
by numerous factors, including the substitution of plastics and other
materials in place of fabricated metal parts in many products and
structures. Increased offshore production of fabricated steel
structures has also cut into the domestic demand for arc welding
products.
- - Litigation. The Company, like other manufacturers, is subject to a
variety of lawsuits and potential lawsuits that arise in the ordinary
course of business. See "Item 1. Legal Proceedings." While historical
litigation costs have not been material to the Company, there can be no
assurance that this will remain the case, or that insurance coverage
will be adequate.
- - Operating Factors. The Company is highly dependent on its skilled
workforce and efficient production facilities, which could be adversely
affected by its labor relations, business interruptions at its domestic
facilities and short-term or long-term interruptions in the
availability of supplies or raw materials or in transportation of
finished goods.
- - Research and Development. The Company's continued success depends, in
part, on its ability to continue to meet customer welding needs through
the introduction of new products and the enhancement of existing
product design and performance characteristics. There can be no
assurances that new products or product improvements, once developed,
will meet with customer acceptance and contribute positively to the
operating results of the Company, or that product development will
continue at a pace to sustain future growth.
- - Motor Division. The Company has made substantial capital investments
to modernize and expand its production of electric motors. While
management believes that the profitability of this investment will
improve, success is largely dependent on increased market penetration.
9
<PAGE> 11
Part II - Other Information
Item 1. Legal Proceedings
The Company is subject, from time to time, to a variety of civil and
administrative proceedings arising out of its normal operations, including,
without limitation, employment-related actions, product liability claims and
health, safety and environmental claims. Included in such proceedings are the
cases described below.
The Company is co-defendant in eighteen cases involving thirty-one plaintiffs
alleging that exposure to manganese contained in arc welding electrode products
caused the plaintiffs to develop a neurological condition known as manganism.
The plaintiffs seek compensatory and, in most instances, punitive damages,
usually for unspecified sums. Four similar cases have been tried, all resulting
in defense verdicts.
The Company is one of several co-defendants in three cases alleging that
exposure to welding fumes generally impaired the respiratory system of eleven
plaintiffs. The plaintiffs seek compensatory and punitive damages for
unspecified sums. During the preceding six years, forty-eight similar cases have
resulted in twenty voluntary dismissals, seven defense verdicts or summary
judgments and twenty-one settlements for immaterial amounts.
Claims pending against the Company alleging asbestos induced illness total
approximately 18,000; in each instance, the Company is one of a large number of
defendants. Approximately 4,407 of these asbestos claims are pending in Orange
County, Texas. The asbestos claimants seek compensatory and punitive damages, in
most cases for unspecified sums. Twenty-one cases have been tried to defense
verdicts. Voluntary dismissals on such claims total approximately 15,000;
summary judgments for the defense total 81.
Included within the foregoing asbestos claims are approximately 930 claims
pending in the Circuit Court of Kanawha County, West Virginia. In September
1995, a jury returned a special interrogatory 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 the 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 claimants and their potential
compensatory damage claims. The Court has dismissed punitive damage claims.
The Company, together with hundreds of other co-defendants, is a defendant in
state court in Morris County, Texas, in litigation on behalf of three thousand
twenty-five (3,025) claimants, all prior employees of a local pipe fabricator,
alleging that occupational exposures caused a wide variety of illnesses. The
plaintiffs seek compensatory and punitive damages of unspecified sums.
The Company bears the cost of defending its product liability cases arising and
filed after 1990, with some contribution by its lead insurance carrier if an
aggregate threshold is reached. In many cases where there are multiple
defendants, cost sharing efficiencies are arranged. Defense and indemnity costs
of the Company in product liability cases involving injuries allegedly resulting
from exposure to fumes and gases in the welding environment may be affected by
the outcome of pending litigation with the St. Paul Fire and Marine Insurance
Company, which is discussed in the following paragraph.
St. Paul Fire and Marine Insurance Company and the Company disagree about the
allocation among various liability insurance policies of defense and indemnity
costs of welding fume cases. Lawsuits were filed in March 1996 by St. Paul and
the Company in Federal District Court in Minnesota and in Ohio, respectively,
but it is expected that following the resolution of pending motions the dispute
will proceed in one of those two venues.
10
<PAGE> 12
On May 22, 1996, the Company was added as a co-defendant in a property damage
case pending in Superior Court, California, County of Los Angeles, SAINT JOHN'S
MEDICAL PLAZA v. DILLINGHAM CONSTRUCTION ET.AL. The seven count complaint names
the Company as an additional defendant on two of the seven counts, negligence
and strict product liability. The complaint alleges that an electrode
manufactured by the Company was used in the construction of a medical office
building that experienced structural damage as a result of the January 1994
earthquake in Southern California. Compensatory damages in excess of $10 million
and unspecified punitive damages are sought. As to the Company, the action is
in its earliest stages.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting was held on May 28, 1996.
(b) The following individuals were elected Directors at
the meeting:
For terms ending in 1999:
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C> <C>
Harry Carlson 7,717,037 86,668
David H. Gunning 7,591,411 212,294
Edward E. Hood, Jr. 7,650,101 153,604
Paul E. Lego 7,638,495 165,210
</TABLE>
(c) The following matter was voted upon by security
holders:
Appointment of Independent Auditors: The security
holders ratified the appointment of Ernst & Young LLP
as independent auditors of the Company for the fiscal
year ending December 31, 1996. The results are set
forth below:
<TABLE>
<CAPTION>
Number of
Votes Cast
----------
<S> <C>
For 7,695,737
Against 32,019
Abstain 23,199
Broker Non-Vote 52,750
</TABLE>
Item 5. Other Information -- None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K -- None.
11
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LINCOLN ELECTRIC COMPANY
/s/ H. Jay Elliott
- ---------------------------------------
H. Jay Elliott
Senior Vice President,
Chief Financial Officer and Treasurer
August 13, 1996
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,241
<SECURITIES> 0
<RECEIVABLES> 156,103
<ALLOWANCES> 4,123
<INVENTORY> 189,605
<CURRENT-ASSETS> 393,256
<PP&E> 496,124
<DEPRECIATION> 293,073
<TOTAL-ASSETS> 655,592
<CURRENT-LIABILITIES> 184,603
<BONDS> 83,398
<COMMON> 4,972
0
0
<OTHER-SE> 355,636
<TOTAL-LIABILITY-AND-EQUITY> 655,592
<SALES> 563,220
<TOTAL-REVENUES> 563,220
<CGS> 346,909
<TOTAL-COSTS> 346,909
<OTHER-EXPENSES> 153,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,119
<INCOME-PRETAX> 58,872
<INCOME-TAX> 22,092
<INCOME-CONTINUING> 36,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,780
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
</TABLE>
