-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DG9Tc/eAGK//41V9VpE4CxBE18p9YPDqcZ+aOeGQobZGFhiFgBnHZh2e7Hq8w4Hg +r3PfYMCy0LG9QE3IYFqDg== 0000950152-94-000777.txt : 19940810 0000950152-94-000777.hdr.sgml : 19940810 ACCESSION NUMBER: 0000950152-94-000777 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN ELECTRIC CO CENTRAL INDEX KEY: 0000059527 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94542149 BUSINESS ADDRESS: STREET 1: 22801 ST CLAIR AVE CITY: CLEVELAND STATE: OH ZIP: 44117 BUSINESS PHONE: 2164818100 10-Q 1 LINCOLN ELECTRIC COMPANY'S 10-Q 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 6 Months Ended Commission File June 30, 1994 No. 0-1402 THE LINCOLN ELECTRIC COMPANY (Exact name of registrant as specified in its charter) State of Incorporation: I.R.S. Employer Ohio Ident. No: 34-0359955 Shares of Common Stock Outstanding: 10,514,324 Shares of Class A Common Stock Outstanding: 499,840 Address of Principal Executive Offices: 22801 St. Clair Avenue Cleveland, Ohio 44117 Registrant's Telephone Number: (216) 481-8100 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Page 1 2 STATEMENTS OF CONSOLIDATED OPERATIONS - "UNAUDITED" THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES (In thousands of dollars except per share data)
Quarter ended June 30 Six months ended June 30 --------------------- ------------------------ 1994 1993 1994 1993 -------- -------- -------- -------- Net sales $234,173 $215,441 $444,698 $426,609 Cost of goods sold 143,857 136,026 272,416 267,438 -------- -------- -------- -------- Gross profit 90,316 79,415 172,282 159,171 Distribution cost/selling, general & administrative expenses 65,818 68,959 126,842 134,606 -------- -------- -------- -------- Operating income 24,498 10,456 45,440 24,565 Other income/(expense): Interest income 299 473 592 914 Other income 809 796 1,257 1,137 Interest expense (4,112) (4,558) (8,010) (9,343) -------- -------- -------- -------- Total other income/(expense) (3,004) (3,289) (6,161) (7,292) -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting change 21,494 7,167 39,279 17,273 Provision for income taxes 9,187 6,172 16,565 11,472 -------- -------- -------- -------- Income before cumulative effect of accounting change 12,307 995 22,714 5,801 Cumulative effect to January 1, 1993 of change in method of accounting for income taxes (Note E) 2,468 -------- -------- -------- -------- Net income $ 12,307 $ 995 $ 22,714 $ 8,269 ======== ======== ======== ======== Net income per share: Income before cumulative effect of accounting change $ 1.12 $ 0.09 $ 2.08 $ 0.53 Cumulative effect to January 1, 1993 of change in method of accounting for income taxes 0.23 -------- -------- -------- -------- Net income $ 1.12 $ 0.09 $ 2.08 $ 0.76 ======== ======== ======== ======== Dividends paid per share $ 0.18 $ 0.18 $ 0.36 $ 0.36 ======== ======== ======== ======== Average number of shares outstanding: (000's) 10,963 10,827 10,932 10,818 ====== ====== ====== ====== See notes to consolidated financial statements.
Page 2 3 STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES (In thousands of dollars)
"Unaudited" June 30, 1994 December 31, 1993 -------------- ----------------- ASSETS Current Assets Cash and cash equivalents $ 23,565 $ 20,381 Accounts receivable (less allowance for doubtful accounts of $6,815 in 1994 and $6,258 in 1993) 133,556 110,504 Inventories: (Note C) Raw materials and in-process 67,179 66,987 Finished goods 77,389 76,698 -------- -------- 144,568 143,685 Deferred income taxes 42,606 42,960 Prepaid expenses 3,638 3,241 Other current assets 7,144 4,937 -------- -------- TOTAL CURRENT ASSETS 355,077 325,708 OTHER ASSETS Notes receivable from employees 3,615 4,747 Goodwill 39,983 39,732 Other 21,796 19,665 -------- -------- 65,394 64,144 PROPERTY, PLANT AND EQUIPMENT Land 13,200 12,802 Buildings 116,433 113,927 Machinery, tools and equipment 296,383 279,933 -------- -------- 426,016 406,662 Less allowances for depreciation and amortization (250,829) (236,971) -------- -------- 175,187 169,691 -------- -------- TOTAL ASSETS $595,658 $559,543 ======== ========
Page 3 4
"Unaudited" June 30, 1994 December 31, 1993 -------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 49,580 $ 43,471 Notes payable to banks 10,896 23,198 Salaries, wages and amounts withheld 10,224 12,779 Taxes, including income 40,961 23,061 Dividends payable 2,007 1,959 Current portion of long-term debt 9,902 10,200 Accrued restructuring charges 23,320 29,618 Other current liabilities (Note D) 55,773 31,569 -------- -------- TOTAL CURRENT LIABILITIES 202,663 175,855 Long-term debt, less current portion 190,649 216,915 Deferred taxes, long-term 5,735 6,128 Other long-term liabilities 17,111 9,221 Minority interest 6,631 7,929 Shareholders' equity Common Stock 2,103 2,076 Common Class A Capital Stock 100 100 Additional paid-in-capital 24,799 22,926 Retained earnings 156,077 137,307 Cumulative translation adjustments (10,210) (18,914) -------- -------- 172,869 143,495 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $595,658 $559,543 ======== ======== See notes to consolidated financial statements.
Page 4 5 STATEMENTS OF CONSOLIDATED CASH FLOWS - "UNAUDITED" THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES (In thousands of dollars)
Six Months Ended June 30 ---------------------- 1994 1993 ------- -------- OPERATING ACTIVITIES Net income $ 22,714 $ 8,269 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,914 14,456 Cumulative effect of accounting change (2,468) Employee stock ownership plan 1,100 Minority interest 234 (438) Change in operating assets and liabilities: (Increase) in accounts receivable (19,851) (15,727) Decrease in inventories 2,948 9,651 (Increase) decrease in other current assets 2,755 (7,270) Increase (decrease) in accounts payable 4,189 (4,095) Increase in other current liabilities 34,125 21,939 Gross change in other noncurrent assets (1,182) 5,228 Gross change in other noncurrent liabilities (706) 1,705 Other-net 60 4,405 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 58,200 36,755 INVESTING ACTIVITIES Purchases of property, plant and equipment (13,375) (6,600) Proceeds from sale of property, plant and equipment 1,273 1,814 Acquisition of minority interest (8,518) ------- ------- NET CASH (USED) BY INVESTING ACTIVITIES (12,102) (13,304) FINANCING ACTIVITIES Short-term borrowings-net (316) 38,846 Repayment on short-term borrowings, maturities greater than three months (26,698) (20,423) Proceeds on short-term borrowings, maturities greater than three months 13,801 Proceeds from long-term borrowings 183,765 367,026 Repayments on long-term borrowings (213,017) (411,568) Dividends paid (3,920) (3,882) Other 1,323 1,093 ------- ------- NET CASH (USED) BY FINANCING ACTIVITIES (45,062) (28,908) Effect of exchange rate changes on cash and cash equivalents 2,148 (958) ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,184 (6,415) Cash and cash equivalents at beginning of period 20,381 20,627 ------- ------- Cash and cash equivalents at end of period $ 23,565 $ 14,212 ======= ======= Cash paid during the period: Interest $ 8,184 $ 11,258 Income taxes $ 4,434 $ 6,022 See notes to consolidated financial statements.
Page 5 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS "UNAUDITED" (In thousands of dollars except per share data) June 30, 1994 NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and contain the adjustments (consisting of only normal recurring accruals) necessary to fairly present the financial position, results of operations and changes in cash flows for the interim periods. Results of operations for any interim period are not necessarily indicative of the results to be expected for the year. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1993. NOTE B - RECLASSIFICATIONS Certain reclassifications have been made to amounts previously presented to conform with the current reporting presentations. NOTE C - INVENTORY VALUATION An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Since these are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. NOTE D - OTHER CURRENT LIABILITIES The other current liabilities category includes provisions for possible year-end bonus, annuity expense, Employees' Stock Ownership Plan and contributions. These expenditures are wholly discretionary each year as determined by the Board of Directors NOTE E - CHANGE IN THE METHOD OF ACCOUNTING FOR INCOME TAXES Effective January 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes." Under Statement No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement No. 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. As permitted by Statement No. 109, the Company has elected not to restate the financial statements of any prior years. The effect of the change on pretax income for the six months ended June 30, 1993 was not material; however, the cumulative effect of the change increased net income by $2,468 or $.23 per share. Page 6 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 June 30, 1994 were $234,200, or 8.7%, higher than the $215,400 reported for the similar prior year period. For the first six months of 1994, net sales were $444,700, or 4.2%, higher than the $426,600 net sales reported for the prior year's six-month period. Domestic net sales were up 17.3%, or $23,400, for the second quarter of 1994, and 18.0%, or $47,300, for the first six months of 1994 compared to the similar periods in 1993. The domestic market is expected to remain strong throughout 1994. At the end of 1993, the Company closed certain foreign manufacturing facilities, principally in Germany and South America, which affects the comparability between the periods. While the sales of these facilities are absent in 1994, a portion of these sales were transferred to other manufacturing facilities of the Company. For the second quarter of 1994, foreign net sales were down 5.9%, or $4,600, and for the first six months of 1994, were down 17.8%, or $29,200, compared to the similar periods in 1993. While foreign markets have shown modest improvement, sales remain depressed which continues to affect the profitability of the Company's foreign operations. Gross profit was $90,300 (38.6% of sales) in the second quarter of 1994, as compared with $79,400 (36.9% of sales) for the same period in 1993. Gross profit for the first six months of 1994 was $172,300 (38.7% of sales) as compared with $159,200 (37.3% of sales) for the similar period in 1993. Improvement in gross profit was largely attributable to the domestic sales volume increases, coupled with the effects of improved absorption of manufacturing costs and the relative stability of these costs in relation to the price increases realized during 1994. In addition, overall gross profit was enhanced by the effects of improved efficiencies of foreign operations and manufacturing facility closings at the end of 1993. Distribution cost/selling, general and administrative expenses were $65,800 (28.1% of sales) for the second quarter of 1994 and $69,000 (32.0% of sales) for the same period in 1993. For the six months ended June 30, 1994, distribution cost/selling, general and administrative expenses were $126,800 (28.5% of sales) compared to $134,600 (31.6% of sales) for the similar period in 1993. The decrease of distribution cost/selling, general and administrative expenses in relation to sales volume evidences the effect of prior year's restructuring. Operating income increased to $24,500 (10.5% of sales) in the second quarter of 1994, as compared with $10,500 (4.9% of sales) for the prior period. For the six months ended June 30, 1994, operating income was $45,400 (10.2% of sales) as compared with $24,600 (5.8% of sales) for the comparable year-ago period. Income taxes for the quarter ended June 30, 1994 were $9,200 on income before income taxes of $21,500, compared with income taxes of $6,200 on similar income in 1993 of $7,200. For the six months ended June 30, 1994, income taxes were $16,600 on income before income taxes of $39,300, compared with $11,500 on income before income taxes and cumulative effect of accounting change of $17,300 for the comparable prior period of 1993. The decrease in the effective tax rate is principally the result of the decrease in the amount of foreign losses without tax benefits made possible by the prior year's restructuring. Net income increased to $12,300, or $1.12 per share, for the quarter ended June 30, 1994 as compared with $1,000, or $.09 per share, for the prior year period. Net income for the first six months of 1994 was $22,700, or $2.08 per share, as compared with $5,800, or $.53 per share, for the comparable year-ago period, excluding the cumulative effect of accounting change of $2,468, or $.23 per share, reported in 1993. Liquidity and Capital Resources - - ------------------------------- The Company's cash flows for the six months ended June 30, 1994 and 1993 are presented in the consolidated statements of cash flows. Cash provided from operating activities for the six months ended June 30, 1994 amounted to $58,200 compared to $36,800 for the Page 7 8 Management's Discussion of Financial Condition and Results of Operations-- - - ------------------------------------------------------------------------ Continued (In thousands of dollars) comparable period in 1993. Cash flows from operations for 1994 were used primarily for net capital expenditures of $13,400, net debt repayments of $42,500 and the payment of dividends in the amount of $3,900 with the balance increasing the amount of cash and cash equivalents at June 30, 1994. Total debt at June 30, 1994 was $211,500 compared to $250,300 at December 31, 1993. At June 30, 1994 debt was 55% of total capitalization (shareholders' equity and debt) compared with 64% at year-end 1993. The improvement in the ratio of debt to total capitalization was the result of the reduction in debt and the increase in shareholders' equity as a result of the earnings for the six-month period ended June 30, 1994 and the cyclical nature of the Company's cash requirements. The payment of incentive bonuses at the end of 1994 will affect the debt-to-equity ratio. The ratio of current assets to current liabilities was 1.8 at the end of the second quarter of 1994, compared to 1.9 at the prior year-end which reflects a satisfactory liquidity position. The Company's Credit Agreement and 8.98% Senior Note Agreement contain various financial covenants that place limitations on the payments of dividends, the purchase of unrestricted stock, capital expenditures, and the incurrence of additional indebtedness. While the losses for 1993 and 1992 have placed constraints on the Company's financial flexibility, the Company is in compliance with the financial covenants of the agreements and management believes that the Company will continue to meet such covenants throughout 1994. Management believes that the current financing arrangement and cash flows generated from operations will provide adequate funds to support the operations of the Company and satisfy both its capital requirements and operating needs throughout the term of the Credit Agreement. The Company reviews its dividend on a quarterly basis. Part II - Other Information Item 1. Legal proceedings -- No change. Item 2. Changes in Securities -- No change. Item 3. Defaults Upon Senior Securities -- None. Item 4. Submission of Matter to a vote of Security Holdings: (a) The Annual Meeting was held on May 24, 1994. (b) The following were elected Directors at the meeting: For term ending in 1997: Donald F. Hastings Hugh L. Libby David C. Lincoln G. Russell Lincoln Henry L. Meyer III Frank L. Steingass Item 5. Other Information -- None. Item 6. Exhibits and Reports on Form 8-K -- None. Page 8 9 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE LINCOLN ELECTRIC COMPANY /s/ Jay Elliott /s/ Graham A. Peters - - -------------------------- ----------------------- Jay Elliott Graham A. Peters Chief Financial Officer, Corporate Controller Treasurer and Acting Secretary August 8, 1994 August 8, 1994 Page 9 -----END PRIVACY-ENHANCED MESSAGE-----