-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BRgZxHZPk6e98vEIJfazOaT8QSSNUcYpSm4b42eFr0RWGKjPlIJodlNn+9zBQJAc /p16LASjv94r+/Xx5ylpow== 0000950152-96-002271.txt : 19960513 0000950152-96-002271.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950152-96-002271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN ELECTRIC CO CENTRAL INDEX KEY: 0000059527 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 340359955 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01402 FILM NUMBER: 96560206 BUSINESS ADDRESS: STREET 1: 22801 ST CLAIR AVE CITY: CLEVELAND STATE: OH ZIP: 44117 BUSINESS PHONE: 2164818100 10-Q 1 LINCOLN ELECTRIC 10-Q 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 three months ended March 31, 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 April 30, 1996 were as follows: Common Shares...................................10,519,262 Class A Common Shares...........................13,873,025 Class B Common Shares........................... 487,117 ---------- Total outstanding shares...............24,879,404 ========== 2 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS (Amounts in thousands of dollars except share data) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1996 1995 --------- --------- Net sales $278,712 $263,407 Cost of goods sold 172,158 161,545 --------- --------- Gross profit 106,554 101,862 Distribution cost/selling, general & administrative expenses 78,460 71,815 --------- --------- Operating income 28,094 30,047 Other income/(expense): Interest income 411 392 Other income 457 394 Interest expense (2,211) (3,977) --------- --------- Total other income/(expense) (1,343) (3,191) --------- --------- Income before income taxes 26,751 26,856 Income taxes 10,194 10,802 --------- --------- Net income $ 16,557 $ 16,054 ========= ========= Net income per share (Note B) $ 0.67 $ 0.73 Cash dividends declared per share $ 0.12 $ 0.10 Average number of shares outstanding (in thousands) 24,894 22,031
1995 share and per share amounts reflect the June 12, 1995 stock dividend. See notes to these consolidated financial statements. 3 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION (Amounts in thousands of dollars) (UNAUDITED)
MARCH 31, DECEMBER 31, 1996 1995 -------- -------- ASSETS Current Assets Cash and cash equivalents $ 14,009 $ 10,087 Accounts receivable (less allowance for doubtful accounts of $4,079 at March 31, 1996 and $3,916 at December 31, 1995) 156,419 140,833 Inventories: (Note C) Raw materials and in-process 83,728 86,335 Finished goods 98,460 96,530 -------- -------- 182,188 182,865 Deferred income taxes 9,895 9,738 Prepaid expenses 5,690 6,713 Other current assets 7,189 6,847 -------- -------- TOTAL CURRENT ASSETS 375,390 357,083 OTHER ASSETS Goodwill - net 38,650 39,154 Other 16,352 15,929 -------- -------- 55,002 55,083 PROPERTY, PLANT AND EQUIPMENT Land 11,988 12,396 Buildings 123,110 123,360 Machinery, tools and equipment 361,306 354,855 -------- -------- 496,404 490,611 Less allowance for depreciation (290,897) (285,017) -------- -------- 205,507 205,594 -------- -------- TOTAL ASSETS $635,899 $617,760 ======== ========
4 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION (Amounts in thousands of dollars) (UNAUDITED)
MARCH 31, DECEMBER 31, 1996 1995 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 55,972 $ 53,882 Notes payable to banks 2,828 28,541 Salaries, wages and amounts withheld (Note D) 30,465 17,080 Taxes, including income taxes 43,063 33,160 Dividends payable 3,019 2,988 Current portion of long-term debt 976 1,269 Other current liabilities 38,905 31,729 -------- -------- TOTAL CURRENT LIABILITIES 175,228 168,649 Long-term debt, less current portion 88,575 93,582 Deferred income taxes 7,138 7,063 Other long-term liabilities 14,338 13,021 Minority interest in subsidiary 5,553 5,499 Shareholders' equity Common Shares 2,104 2,104 Class A Common Shares 2,776 2,776 Class B Common Shares 97 97 Additional paid-in-capital 104,217 102,652 Retained earnings 242,124 228,555 Cumulative translation adjustments (6,251) (6,238) -------- -------- TOTAL SHAREHOLDERS' EQUITY 345,067 329,946 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $635,899 $617,760 ======== ========
See notes to these consolidated financial statements. 5 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Amounts in thousands of dollars) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1995 -------- -------- OPERATING ACTIVITIES Net income $ 16,557 $ 16,054 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,804 6,469 Foreign exchange (gain) loss (34) 2,055 Minority interest 95 129 Changes in operating assets and liabilities: (Increase) in accounts receivable (16,035) (21,745) (Increase) in inventories (226) (14,392) Decrease (increase) in other current assets 643 (1,652) Increase in accounts payable 2,278 7,495 Increase in other current liabilities 30,439 40,855 (Increase) in other noncurrent assets (783) (1,066) Increase (decrease) in other noncurrent liabilities 1,453 (408) Other - net 2,402 9 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 44,593 33,803 INVESTING ACTIVITIES Purchases of property, plant and equipment (7,883) (10,688) Proceeds from sale of property, plant and equipment 380 160 -------- -------- NET CASH (USED) BY INVESTING ACTIVITIES (7,503) (10,528) FINANCING ACTIVITIES Short-term borrowings - net (25,715) (818) Short-term borrowings, maturities greater than three months - net 15 467 Proceeds from long-term borrowings 5,058 70,450 Repayments on long-term borrowings (10,302) (93,961) Dividends paid (2,988) (2,203) Other (9) 102 -------- -------- NET CASH (USED) BY FINANCING ACTIVITIES (33,941) (25,963) Effect of exchange rate changes on cash and cash equivalents 773 2,788 -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 3,922 100 Cash and cash equivalents at beginning of period 10,087 10,424 -------- -------- Cash and cash equivalents at end of period $ 14,009 $ 10,524 ======== ========
See notes to these consolidated financial statements. 6 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 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 months ended March 31, 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 months ended March 31, 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 March 31, 1996 include provisions for possible year-end bonuses and related payroll taxes of $17.3 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 months ended March 31, 1995 would have been $0.68. 7 Part 1 - Item 2 MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the Company's results of operations for the three month periods ended March 31, 1996 and 1995:
THREE MONTHS ENDED MARCH 31, ---------------------------------------------------------------- (amounts in millions of dollars) 1996 1995 ----------------------------- ----------------------------- AMOUNT % OF SALES AMOUNT % OF SALES ------ ---------- ------ ---------- Net sales $278.7 100.0% $263.4 100.0% Cost of goods sold 172.2 61.8% 161.5 61.3% ------ ----- ------ ----- Gross profit 106.5 38.2% 101.9 38.7% Distribution cost / selling, general and administrative expenses 78.4 28.2% 71.8 27.3% ------ ----- ------ ----- Operating income 28.1 10.0% 30.1 11.4% Other income 0.5 0.2% 0.4 0.1% Interest expense, net (1.8) (0.6%) (3.6) (1.4%) ------ ----- ------ ----- Income before income taxes 26.8 9.6% 26.9 10.1% Income taxes 10.2 3.7% 10.8 4.1% ------ ----- ------ ----- Net income $ 16.6 5.9% $ 16.1 6.0% ====== ===== ====== =====
NET SALES. Net sales for the quarter ended March 31, 1996 increased $15.3 million or 5.8% to $278.7 million from $263.4 million for the quarter ended March 31, 1995. Net sales from the Company's U.S. operations totaled $191.0 million for the first quarter of 1996, an increase of 4.5% or $8.2 million over the prior year. Non-U.S. sales totaled $87.7 million for the first quarter of 1996, representing an increase of 8.8% or $7.1 million over the first quarter of 1995. The sales increase in both the U.S. and non-U.S. markets from the same period in the prior year is attributable to both increased pricing in all product lines and increased volume in welding equipment sales. Currency translation did not have a significant impact on first quarter 1996 non-U.S. sales. U.S. third party export sales were $22.4 million for the first quarter of 1996, an increase of 21.1% from $18.5 million in the first quarter of 1995. GROSS PROFIT. Gross profit increased to $106.5 million for the first quarter 1996, an increase of $4.6 million or 4.6% from the first quarter of 1995. The slight decline in gross profit as a percentage of sales was due to product mix, with higher machine product sales at the Company's U.S. operations and lower gross margins due to competitive factors at the Company's non-U.S. operations for the first quarter 1996 compared with 1995. DISTRIBUTION COST/SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses increased $6.6 million to $78.4 million for the first quarter 1996 as compared to the first quarter 1995. SG&A expenses for the Company's U.S. operations were $55.0 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 (see "Legal Proceedings"). The increase in SG&A expenses from the first quarter last year is also due to increased research and development spending, higher planned sales promotion costs, and higher distribution costs as a result of the larger sales volume. Expenses for the first quarter 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. Included in distribution cost/selling, general & administrative expenses are costs related to the Company's discretionary year-end employee bonus program, net of hospitalization costs deducted therefrom, of $17.0 million in the first quarter 1996 and $17.6 million in the comparable 1995 period. The bonus payout is subject to approval by the Company's Board of Directors during the fourth quarter 1996. 8 INTEREST EXPENSE, NET. Interest expense, net was $1.8 million for the quarter ended March 31, 1996 compared to $3.6 million for the quarter ended March 31, 1995, a decrease of 50.0%. The decreased interest expense is a result of lower 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. INCOME TAXES. Income taxes for the quarter ended March 31, 1996 were $10.2 million on income before income taxes of $26.8 million, an effective rate of 38.1%, as compared with income taxes of $10.8 million on income before taxes of $26.9 million, or an effective rate of 40.2% for the same period in 1995. The effective tax rate for the year ended December 31, 1995 was 38.3%. NET INCOME. Net income increased 3.1% to $16.6 million or $0.67 per share for the quarter ended March 31, 1996 compared with $16.1 million or $0.73 per share for the comparable period in 1995. Net income for the quarter ended March 31, 1996 reflects a charge for a legal settlement amounting to $2.1 million, discussed above. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operating activities for the quarter ended March 31, 1996 was $44.6 million compared with $33.8 million for the same period in 1995. The increase in cash flows from operations is principally a result of the Company's continuing efforts to control inventory levels. Increased accounts receivables at March 31, 1996 as compared to December 31, 1995 and the first quarter 1995 primarily reflects higher sales volumes. Capital expenditures for property, plant and equipment decreased to $7.9 million for the first quarter 1996 from $10.7 million for the same period in 1995 due to spending in 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 significantly improved the financial position of the Company at March 31, 1996 as compared to 1995. The ratio of total debt to total capitalization improved to 21.1% at March 31, 1996 from 27.2% at December 31, 1995 and 47.5% at March 31, 1995. The Company paid a cash dividend of $3.0 million or $0.12 per share during January 1996. 9 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 summarily described below, in which claimants seek recovery for injuries allegedly resulting from exposure to fumes and gases in the welding environment. The Company is co-defendant in eighteen cases involving 27 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 sixteen plaintiffs. The plaintiffs seek compensatory and punitive damages, in most cases for unspecified sums. During the preceding five years, forty-two similar cases have resulted in fifteen 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 19,300; 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 80. The Company has agreed to settle litigation arising out of the 1988 Incentive Equity Plan initiated by Ellis F. Smolik, a former Officer and Director, on behalf of a proposed class of present and former employees. Conditional upon the approval of the fairness of the settlement by the Cuyahoga County, Ohio Common Pleas Court, the Company has agreed to settle the action at an after-tax cost of approximately $2.1 million. Included within that cost is the value of non-qualified options to purchase a total of 77,430 Class A Common Shares at $30 per share, and 85,292 Class A Common Shares at $34 per share. The Company believes that resolution of the pending cases referred to above, individually, or in the aggregate, will not have a material effect upon the Company. Item 2. Changes in Securities -- None. Item 3. Defaults Upon Senior Securities -- None. Item 4. Submission of Matters to a Vote of Security Holders -- None. 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. 10 SIGNATURES 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 May 10, 1996 EX-27 2 EXHIBIT 27
5 1000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 14,009 0 156,419 4,079 182,188 375,390 496,404 290,897 635,899 175,228 88,575 4,977 0 0 340,090 635,899 278,712 278,712 172,158 172,158 77,592 0 2,211 26,751 10,194 16,557 0 0 0 16,557 0.67 0.67
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