Annual Report (Form 10-K), fiscal year 1994

Item 1. BUSINESS
As used in Item 1 of this report, the term "Company", except as otherwise indicated by the context, means The Lincoln Electric Company and its subsidiaries. The Lincoln Electric Company was incorporated under the laws of the State of Ohio in 1906. The Company is a full-line manufacturer of welding products and integral horsepower industrial electric motors. Welding products include arc welding machines, power sources, automated wire feeding systems and arc welding consumable electrodes. The Company also sells industrial gases, regulators and torches used in oxy-fuel welding and cutting. Sales of arc welding and other welding products accounted for 93% of the Company's net sales in 1994.
The arc welding machines, power sources and automated wire feeding systems manufactured by the Company range in technology from basic units used for light manufacturing and maintenance to highly sophisticated machines for robotic applications, high production welding and fabrication. Three primary types of arc welding electrodes are produced: (1) coated manual or stick electrodes, (2) solid electrodes produced in coil form for continuous feeding in mechanized welding, and (3) cored electrodes produced in coil form for continuous feeding in mechanized welding. The integral horsepower electric motors manufactured by the Company range in size from 1/3 to 1,250 horsepower.
The Company's products are sold in both domestic and international markets. In the domestic market, they are sold directly by the Company's own sales organization as well as by distributors. In the international markets, the Company's products are sold principally by foreign subsidiary companies. The Company also has an international sales organization comprised of international direct sales distributors, agents and dealers that operate in more than eighty-six countries. The Company has manufacturing facilities located in the United States, Australia, Canada, Mexico, England, France, Ireland, Italy, The Netherlands, Norway and Spain. See Note G to the consolidated financial statements with respect to geographic area information.
The Company is not dependent on a single customer or a few customers. The loss of any one customer would not have a material adverse effect on its business. The Company's business is not seasonal.
Conditions in the arc welding industry are highly competitive. The Company believes that it is one of the largest manufacturers of consumables and machinery in a field of three or four major domestic competitors and numerous smaller competitors covering the industry. The Company continues to pursue strategies to heighten its competitiveness in international markets. Competition in the electric arc welding industry is on the basis of price, brand preference, product quality and performance, warranty, delivery, service and technical support. All of these factors have contributed to the Company's position as one of the leaders in the industry.
Virtually all of the Company's products may be classified as standard commercial articles and are manufactured for stock. The Company believes its products are unique because of its highly trained technical sales force and the support of its welding research and development staff which allow it to uniquely assist the consumers of its products in solving their welding application problems. The Company utilizes this technical expertise to present its Guaranteed Cost Reduction Program to end users in which the Company guarantees that the user will save money in its manufacturing process when it utilizes the Company's products. This allows the Company to introduce its products to new users and to establish and maintain very close relationships with the consumers. This close relationship between the technical sales force and the direct consumers, together with its supportive relationship with its distributors, who are particularly interested in handling the broad breadth of the Company's products, is an important element of the Company's market success and a valuable asset of the Company.
The principal raw materials essential to the Company's business are various chemicals, steel, copper and aluminum, all of which are normally available for purchase in the open market.
The Company's operations are not materially dependent upon patents, licenses, franchises or concessions.
The Company's facilities are subject to federal, state and local environmental control regulations. To date, compliance with these environmental regulations has not had a material effect on the Company's earnings nor has it required the Company to make significant capital expenditures.
The Company conducts a significant amount of its business and has a number of operating facilities in countries outside the United States. As a result, the Company is subject to business risks inherent in non-U.S. activities, including political uncertainty, import and export limitations, exchange controls and currency fluctuations. The Company believes risks related to its foreign operations are mitigated due to the political and economic stability of the countries in which its largest foreign operations are located.
Research activities relating to the development of new products and the improvement of existing products in 1994 were all Company-sponsored. These activities were primarily related to the development of new products utilizing the latest electronic technology. The number of professional employees engaged full-time in these research activities was 113. Refer to Note A to the consolidated financial statements with respect to total costs of research and development.
The number of persons employed by the Company worldwide at December 31, 1994 was 5,693. Effects of plant closures have reduced worldwide employment levels in 1994. Refer to Note C to the consolidated financial statements with respect to restructuring activities.
The table below sets forth consolidated net sales by product line for the most recent three years:
Item 2.



Item 2. PROPERTIES
The Company's corporate headquarters and principal United States manufacturing facilities are located in the Cleveland, Ohio area. Total Cleveland area property consists of 230 acres, of which present manufacturing facilities comprise an area of approximately 2,658,410 square feet. While current utilization of existing facilities is high, the Company is adding capacity as necessary.
In addition to the principal facilities in Ohio, the Company operates two other manufacturing locations in the United States plus 12 manufacturing locations in 10 foreign countries, the locations of which are as follows:
Manufacturing facilities located in Germany, Venezuela, Japan and Brazil were closed in early 1994 under the Company's restructuring program.
All property relating to the Company's Cleveland, Ohio headquarters and manufacturing facilities is owned outright by the Company. In addition, the Company maintains operating leases for its distribution centers and many sales offices throughout the world. See Note J to the consolidated financial statements with respect to leases. Most of the Company's foreign subsidiaries own manufacturing facilities in the foreign country where they are located. At December 31, 1994, $7.9 million of indebtedness was secured by property, plant and equipment.
Item 3.

Item 3. 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 a co-defendant in eighteen cases 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. Two similar cases have been tried, both to defense verdicts.
The Company is also a defendant in one case, and one of several co-defendants in three other cases, alleging that exposure to welding fumes generally impaired the respiratory system of the plaintiffs. The plaintiffs seek compensatory and punitive damages, in most cases for unspecified sums. During the preceding five years, thirty-eight similar cases have resulted in ten 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 nine thousand seven hundred fifty-eight (9,758); in each instance, the Company is one of a large number of defendants. Approximately (4,416) of these asbestos claims are pending in Orange County, Texas and 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, all to defense verdicts. Voluntary dismissals on such claims total fourteen thousand one hundred sixty-eight (14,168); summary judgments for the defense total fifty-nine.
The Company, together with the hundreds of other co-defendants, is a defendant in state court in Morris County, Texas, in litigation on behalf of three thousand forty-two (3,042) 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 costs of defending those of its product liability cases arising and filed after 1990. In many cases where there are multiple defendants, cost sharing efficiencies are arranged. Subject to the Company's per claim retention under its insurance coverage, the Company has tendered the manganese, fume, asbestos and Morris County, Texas cases to its insurance carrier which has accepted such tender for all situations except those where liability would result solely from asbestos; no such situations have arisen to date.
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 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended December 31, 1994.
PART II
Item 5.

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter market. The number of record holders of Common Stock at December 31, 1994 was 2,545.
There is no public trading market for Class A Common Stock, which has only been issued to the Company's Employee Stock Ownership Plan.
Quarterly high and low stock prices, based on end of month quotes, and dividends paid for the last two years were:
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* Source: Ohio Dealers' Data Service
** Includes special dividend of $.02 per share.
Future dividends, which are subject to limitations under the Credit Agreement and the Senior Note Agreement, will be based on financial performance of the Company (see Note D to the consolidated financial statements for a further description of these limitations.)
Item 6.

Item 6. SELECTED FINANCIAL DATA
See Note C to the consolidated financial statements with respect to restructuring activities in 1993 and 1992.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged primarily in the design, manufacture and sale of arc welding and other welding products, which represented 93% of the Company's 1994 net sales. The Company is one of the world's largest manufacturers of arc welding products. The Company also designs, manufactures and sells integral horsepower industrial electric motors.
In 1994, the Company reported the highest net sales, net income and net income per common share in its history. This sales increase was broadly based and was primarily attributable to increased volume, higher selling prices and improved economic conditions in the United States, Canada and Europe. The Company believes that the high quality of its products, advanced engineering expertise and strong distributor network coupled with its large technically trained sales force, has permitted the Company to increase global market share.
The Company's 1992 and 1993 earnings were negatively affected by restructuring charges taken by the Company to consolidate and reorganize foreign operations. In 1992, the Company recorded a restructuring charge of $23.9 million (without tax benefit, or $2.21 per share) as a result of decisions by management at that time to downsize and streamline certain non-U.S. operations (principally in Europe). The 1992 restructuring charge was primarily for severance pay, redundancies and other liabilities relating to the reorganization of the sales and distribution operations.
In 1993, the Company decided to terminate operations in early 1994 of its Messer Lincoln subsidiary in Germany (the "German Subsidiary") as well as manufacturing operations in Brazil, Venezuela and Japan. Sales, marketing and distribution activities continue in these countries. The 1993 restructuring resulted in a charge of $70.1 million ($40.9 million after-tax, or $3.77 per share). The elements of this charge were: (i) asset writedowns in the amount of $45.9 million including goodwill of $8.9 million; (ii) severance and other redundancy costs of $27.5 million; and (iii) a net credit of $3.3 million comprised of a claim settlement and other restructuring liabilities including estimated losses through the final facility closing dates in 1994. To date, approximately 1,400 employees have been terminated as a result of the 1992 and 1993 restructuring programs. The remaining cash outlays to complete the restructuring are expected to be incurred in 1995 and 1996. Management believes it has adequately provided for costs and expenses of the restructuring. Although European sales and profitability remained constrained in 1994, the 1992 and 1993 restructuring programs have returned the Company's European operations to profitability.
Research and development expenditures by the Company, exluding the German Subsidiary expenditures, increased approximately 16.5% to $17.6 million in 1993 and increased 5.2% to $18.5 million in 1994. The Company believes that, over the past three years, expenditures for research and development activities have been adequate to maintain the Company's product lines and to introduce new products at an appropriate rate to sustain future growth. Expenditures on research and development are expected to increase in 1995.
RESULTS OF OPERATIONS
The following table shows the Company's results of operations for the years ended December 31, 1994, 1993 and 1992:
1994 COMPARED TO 1993
Net Sales. Net sales for 1994 were $906.6 million, an increase of $60.6 million or 7.2% from $846.0 million for 1993. Net sales for 1993 include the sales of manufacturing operations (principally in Germany) that were closed in early 1994. Excluding the 1993 sales of the closed operations, sales for 1994 increased 17.0%. A portion of this increase was due to the absorption by the Company's other manufacturing operations of the sales formerly made by the closed operations. Sales from the Company's U.S. operations were $641.6 million in 1994 or 18.1% higher than 1993 sales of $543.5 million, attributable to volume and price increases. Non-U.S. sales in 1994 were $265.0 million compared to $302.5 million in 1993, a decrease of 12.4%. Excluding the 1993 sales of the closed operations, non-U.S. sales for 1994 increased 14.7% over non-U.S. sales for 1993 reflecting improved economic conditions in Europe and elsewhere in the world. A portion of this increase was also due to the absorption by the Company's other manufacturing operations of the sales formerly made by the Company's closed German Subsidiary. Total U.S. export sales were $105.3 million in 1994, an increase of $18.1 million or 20.8% from $87.2 million in 1993. This increase in export sales largely reflects improved worldwide economic conditions. In 1994, sales of certain new products were restricted by capacity limitations inherent in tooling up production which have now been resolved.
Gross Profit. Gross profit increased to $350.4 million in 1994 as compared with $313.2 million in 1993. Gross profit as a percentage of sales improved to 38.7% in 1994 from 37.0% in 1993. This improvement in gross profit is largely attributable to a greater percentage of total sales coming from the higher margin U.S. operations in 1994. In addition, 1993 gross profit was unfavorably affected as it included lower gross profit levels for the manufacturing operations that were closed in early 1994. Gross profit for the Company's U.S. operations in 1994 remained substantially consistent with 1993 at 40.2%.
Distribution Cost/Selling, General and Administrative Expenses. Distribution cost/selling, general and administrative expenses were $261.7 million in 1994, or 28.9% of sales (28.6% at the Company's U.S. operations), as compared to $277.0 million, or 32.7% of sales in 1993 (29.9% at the Company's U.S. operations). The decrease in these expenses as a percentage of sales evidences the effects of the closing of the German Subsidiary, the Company's restructuring program and management's initiatives to control operating costs throughout the Company. The higher expense level in 1993 was principally due to the inclusion of the operating results of the Company's closed German Subsidiary. Included in distribution cost/selling, general and administrative expenses are the costs ($68.4 million in 1994 and $61.9 million in 1993) related to the Company's discretionary employee bonus program.
Interest Expense, Net. Interest expense, net was $14.3 million in 1994 as compared with $16.0 million in 1993, a decrease which reflects the effect of lower debt levels offset partially by higher interest rates.
Income Taxes. Income taxes in 1994 were $32.2 million on income before income taxes of $80.2 million, an effective rate of 40.1%, as compared to a tax benefit of $6.4 million on a loss before income taxes of $47.0 million in 1993. The 1993 tax benefit principally reflects the tax benefits attributable to the plant closure and liquidation of the German Subsidiary. Results from 1993 also benefited from the cumulative effect of a change in accounting for income taxes, which decreased the net loss by $2.5 million or $0.23 per share.
Net Income. As a result of the restructuring programs in 1992 and 1993 and the improvement in economic conditions in Europe, the United States and Canada, net income for 1994 was $48.0 million as compared to a net loss of $38.1 million in 1993. Results in 1993 were adversely affected by a $40.9 million net-of-tax restructuring charge. 1994 results benefited from a net reversal of $2.7 million of restructuring charges recorded previously.
1993 COMPARED TO 1992
Net Sales. Net sales for 1993 were $846.0 million, a decrease of $7.0 million or less than 1.0% from 1992 sales of $853.0 million. Excluding the 1993 and 1992 sales of the operations closed in early 1994, sales increased 5.7%. Sales from the Company's U.S. operations in 1993 were $543.5 million or 11.6% higher than 1992 sales of $487.1 million, attributable to volume and price increases. Non-U.S. sales in 1993 were $302.5 million compared to $365.9 million in 1992, a decrease of 17.3%. Excluding the sales of operations closed in early 1994, non-U.S. sales for 1993 decreased 5.8% from 1992 non-U.S. sales. Currency translation adversely affected these 1993 sales by $23.5 million. Total U.S. export sales were $87.2 million in 1993, a decrease of $10.4 million or 10.6% from $97.6 million in 1992. This decrease in export sales reflects the depressed economic conditions in Europe and lower intercompany export sales due to inventory reductions at the Company's foreign subsidiaries.
Gross Profit. Gross profit increased to $313.2 million in 1993 as compared with $299.9 million in 1992. Gross profit as a percentage of sales improved to 37.0% in 1993 (40.3% at the Company's U.S. operations) from 35.2% in 1992 (37.1% at the Company's U.S. operations). This improvement in gross profit was largely attributable to U.S. sales volume increases and improved absorption of manufacturing costs. Gross profit in 1993 was also favorably impacted by reduced overhead costs as a result of restructurings in 1992 and reduced price pressures in Europe. In 1992, gross profit was adversely affected by inventory adjustments as a result of management's decisions to reduce certain inventory.
Distribution Cost/Selling, General and Administrative Expenses. Distribution cost/selling, general and administrative expenses were $277.0 million in 1993, or 32.7% of sales (29.9% at the Company's U.S. operations), as compared to $299.2 million, or 35.1% of sales in 1992 (31.3% at the Company's U.S. operations). Expenses for 1993 include $3.7 million for asset disposals and other non-recurring costs as compared to expenses for 1992 which include $18.9 million relating to certain one-time costs at the Company's closed German Subsidiary, asset disposals and certain other non-recurring costs. Included in distribution cost/selling, general and administrative expenses are the costs ($61.9 million in 1993 and $55.3 million in 1992) related to the Company's discretionary employee bonus program.
Interest Expense, Net. Interest expense, net was $16.0 million in 1993 as compared with $15.6 million in 1992, reflecting the use of credit facilities with more favorable terms in 1993, offset by lower interest income in 1993.
Income Taxes. The 1993 tax benefit of $6.4 million on a loss before income taxes of $47.0 million compares to the 1992 provision for income taxes of $11.4 million on a loss before income taxes of $34.4 million. The 1993 tax benefit principally reflects the tax benefits attributable to the plant closure and liquidation of the German Subsidiary. The higher effective rate experienced in 1992 was principally due to losses from non-U.S. subsidiaries that were in net operating loss carryover positions. Results from 1993 also benefited from the cumulative effect of a change in accounting for income taxes, which decreased the net loss by $2.5 million or $0.23 per share.
Net Loss. The net loss for 1993 was $38.1 million as compared to a net loss of $45.8 million in 1992. Results were adversely affected by restructuring charges of $40.9 million net-of-tax and $23.9 million without tax benefit in 1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the three years ended December 31, 1994, the Company has relied primarily on cash flow from operations and borrowings to finance working capital, investments, capital expenditures and the payment of dividends. Cash provided from operating activities during 1994 amounted to $68.7 million, an increase of $40.0 million over 1993. This increase in cash flow resulted primarily from the Company's increase in net income; partially offset by increased working capital requirements associated with increased sales volume. Cash provided from operating activities amounted to $28.7 million in 1993 and $23.6 million in 1992 despite net losses of $38.1 million and $45.8 million, respectively.
In 1993, the Company acquired the outstanding minority interest in its subsidiary in Spain for $8.5 million. In 1992, the Company acquired the outstanding minority interest in its subsidiary Lincoln Norweld and a small Mexican Company for a total of $37.3 million.
In October 1994, the Company amended its unsecured, multi-currency Credit Agreement and reduced its committed line under the Credit Agreement from $230.0 million to $200.0 million. The amended Credit Agreement also permits the establishment of an accounts receivable facility of up to $50 million. See Note D to the consolidated financial statements for additional information regarding the terms and financial covenants of the Company's borrowing arrangements. Under such covenants, the Company's ability to borrow under the Credit Agreement at December 31, 1994 was limited to aggregate borrowings of $176.9 million. At December 31, 1994, $100.9 million was outstanding under the Credit Agreement.
Total debt at December 31, 1994 was $212.9 million compared to $250.3 million at December 31, 1993 reflecting the significantly improved 1994 financial results and cash flow from operating activities. At December 31, 1994, total debt was 52.3% of total capitalization compared with 64.0% at year end 1993.
Capital expenditures for property, plant and equipment totaled $37.4 million in 1994 and $19.1 million in 1993. These expenditures for property, plant and equipment represent the Company's continued commitment to support and develop advanced technologies, support new products, expand current capacity and reduce future manufacturing costs. The Company is continuing the modernization and expansion of its motor division, has established a separate facility in Cleveland dedicated to motor manufacturing and is increasing its testing and design capacity to be able to reduce costs, increase output, and meet scheduled higher industry efficiency standards.
The Company continues to closely monitor its capital expenditures and is adding to capacity and modernizing facilities as necessary. While the financial covenants of the Company's debt agreements place limitations on capital expenditures, capital expenditures for 1995 are expected to increase over 1994 expenditures.
A total of $8.1 million in dividends, including a special dividend, was paid in 1994. Although the Company paid a special dividend of $.02 per share in the fourth quarter of 1994, management expressed its intention of not continuing such a practice in the future. The Company's amended credit facility and 8.98% Senior Note Agreement contain various financial covenants that place limitations on the payments of dividends, the purchase of unrestricted stock, capital expenditures, and the incurrence of additional indebtedness. The losses of 1993 and 1992 placed constraints on the Company's financial flexibility, the impact of which was reduced, but not eliminated, by the strong 1994 performance.
The Company's Board of Directors believes that the Company's future growth and success would be enhanced by a reduction in the Company's leverage and access to greater capital. The Company has explored a variety of alternative forms of equity financings, both private and public. On March 30, 1995, the Board of Directors authorized presentation to the Company's shareholders of amendments to the Company's Articles of Incorporation that would provide the basis for a plan of recapitalization to include the creation of a new class of non-voting common stock. If the Company's shareholders approve the amendments to the Articles of Incorporation, the Company anticipates that the Board of Directors would declare a dividend of one share of non-voting common stock for each outstanding share of common stock. The Company anticipates that concurrently with such dividend, it would engage in a public offering of non-voting common stock. The size and timing of such offering is dependent on a variety of factors, many of which are outside the Company's control. There is no certainty that such offering will be accomplished. In the event such offering is not accomplished, the Company would reconsider alternative sources of equity financing. There is no certainty that any such alternatives will be approved by the Company's Board of Directors or, if so approved, be available. While additional capital resources would allow a higher rate of capital expenditures and provide more flexibility for growth, management believes that the current financing arrangements and the cash flows generated from operations will provide adequate funds to support the existing operations of the Company and satisfy both its capital requirements and regular dividend practices throughout the term of the Credit Agreement.
Item 8.


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report following the signature page.
Item 9.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
A definitive proxy statement will be filed pursuant to Regulation 14A of the Securities Exchange Act prior to April 29, 1995. Therefore, information required under this part, unless set forth below, is incorporated herein by reference from such definitive proxy statement.
PART IV
Item 14.







Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included in a separate section of this report following the signature page:
Statements of Consolidated Financial Condition -- December 31, 1994 and
Statements of Consolidated Operations -- Year ended December 31, 1994, 1993 and 1992
Statements of Consolidated Shareholders' Equity -- Year ended December 31, 1994, 1993 and 1992
Statements of Consolidated Cash Flows -- Year ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements -- December 31, 1994
Reports of Independent Auditors
(a) (2) FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of the Company is included in a separate section of this report following the signature page:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
(a) (3) EXHIBITS
* Reflects executive compensatory arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this Report.
Upon request, The Lincoln Electric Company will furnish to security holders copies of any exhibit to the Form 10-K report upon payment of a reasonable fee. Any requests should be made in writing to: Mr. H. Jay Elliott, Vice President, Chief Financial Officer and Treasurer, The Lincoln Electric Company, 22801 St. Clair Avenue, Cleveland, Ohio 44117, Phone: (216) 481-8100.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 ------------------------------------ (Registrant)
/s/ H. JAY ELLIOTT ------------------------------------ H. Jay Elliott Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 31, 1995.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors The Lincoln Electric Company
We have audited the consolidated financial statements of The Lincoln Electric Company and subsidiaries listed in the accompanying index to financial statements Item 14 (a1). Our audits also included the financial statement schedule listed in the Index at Item 14 (a2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the consolidated financial statements of The Lincoln Electric Company (Australia) Proprietary Limited and subsidiaries and, for 1992, the consolidated financial statements of Lincoln-Norweld B.V. and subsidiaries and the consolidated financial statements of Messer Lincoln GmbH and subsidiary, all consolidated subsidiaries, which statements reflect total assets constituting 7% in 1994 and 5% in 1993 and total revenues constituting 5% in 1994 and 1993 and 36% in 1992 of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for The Lincoln Electric Company (Australia) Proprietary Limited and subsidiaries and, for 1992, Lincoln Norweld B.V. and subsidiaries and Messer Lincoln GmbH and subsidiary, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Lincoln Electric Company and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Cleveland, Ohio March 3, 1995
To the Board of Directors of The Lincoln Electric Company
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows (none of which are presented separately herein) present fairly, in all material respects, the financial position of The Lincoln Electric Company (Australia) Proprietary Limited and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Parramatta, Australia March 27, 1995
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Messer Lincoln GmbH
We have audited the consolidated balance sheet of Messer Lincoln GmbH and its subsidiary as of December 31, 1992 and the balance sheet of Messer Lincoln GmbH as of December 31, 1991 and the related (consolidated) statements of income, retained earnings, and cash flows for the year ended December 31, 1992 and the period ended December 31, 1991. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements (none of which are presented separately herein) based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The Company is a subsidiary of The Lincoln Electric Company based in Cleveland, Ohio, USA, which is responsible for management of the Company. The financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered considerable losses in 1992 and 1991 and is dependent on the continued support of The Lincoln Electric Company for the continuance of its operations. The Lincoln Electric Company has confirmed that it will provide financial and other support to enable the Company to continue to trade as a viable and solvent business entity at least through December 31, 1993.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Messer Lincoln GmbH and its subsidiary as of December 31, 1992 and of Messer Lincoln GmbH as of December 31, 1991, and the results of its operations and its cash flows for the year ended December 31, 1992 and the period ended December 31, 1991 in conformity with generally accepted accounting principles.
Dusseldorf, March 12, 1993
KPMG KLYNVELD PEAT MARWICK GOERDELER Gesellschaft mit beschrankter Haftung Wirtschaftsprufungsgesellschaft
To the board of directors of Lincoln-Norweld B.V.
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of Lincoln-Norweld B.V. and subsidiaries as of December 31, 1992, and the related consolidated statement of income, retained earnings and cash flows for the year ended December 31, 1992 (none of which are presented separately herein). These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet and statement of income are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lincoln-Norwald B.V. and subsidiaries as of December 31, 1992, and the results of its operations and its cash flows for the year then ended in conformity with United States generally accepted accounting principles.
Arnhem, The Netherlands
March 23, 1993
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED OPERATIONS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
See notes to consolidated financial statements.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
DECEMBER 31, 1994
NOTE A -- ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of The Lincoln Electric Company and its subsidiaries (the "Company") after elimination of all significant intercompany accounts, transactions and profits.
Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market. For domestic inventories, cost is determined principally by the last-in, first-out (LIFO) method, and for foreign inventories cost is determined by the first-in, first-out (FIFO) method. At December 31, 1994 and 1993, approximately 62% and 60%, respectively, of total inventories were valued using the LIFO method. The excess of current cost over LIFO cost amounted to $51,739 at December 31, 1994 and $48,876 at December 31, 1993. During 1992, certain LIFO inventories were reduced, resulting in liquidations of LIFO inventory quantities carried at the lower costs of prior years, as compared with their 1992 costs. The effect of these liquidations was to reduce the 1992 net loss after tax, by $1,018 ($.09 per share).
Property, Plant and Equipment: Property, plant and equipment, including facilities and equipment under capital leases (not material), are stated at cost and include improvements which significantly extend the useful lives of existing plant and equipment. Depreciation and amortization are computed by both accelerated and straight-line methods.
Research and Development: Research and development costs, which are expensed as incurred, were $18,473 in 1994, $19,210 in 1993 and $19,364 in 1992.
Goodwill: The excess of the purchase price over the fair value of net assets acquired (goodwill) is amortized by the straight-line basis over periods not exceeding 40 years. Amounts are stated net of accumulated amortization of $5,784 and $2,363 in 1994 and 1993, respectively.
The carrying value of goodwill is reviewed if facts and circumstances indicate a potential impairment of carrying value utilizing relevant cash flow and profitability information.
Translation of Foreign Currencies: For subsidiaries in countries which do not have highly inflationary economies, asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are reflected as a component of shareholders' equity.
For subsidiaries in countries with highly inflationary economies (Venezuela and Brazil) inventories, property, plant and equipment and related depreciation are translated into U.S. dollars at historical exchange rates. Other asset and liability accounts are translated at exchange rates in effect at the balance sheet date and revenues and expenses, excluding depreciation, are translated at average monthly exchange rates. Translation adjustments for these subsidiaries, as well as transaction gains and losses of all other subsidiaries, are included in the statements of consolidated operations in distribution cost/selling, general and administrative expenses. The Company recorded transaction losses of $3,746 in 1994, $228 in 1993 and $859 in 1992. The increase in transaction losses in 1994 is attributable to the effect of the devaluation of the Mexican peso on a U.S. dollar denominated debt obligation.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE A -- ACCOUNTING POLICIES -- (CONTINUED) Financial Instruments: The Company on a limited basis has used forward exchange contracts to hedge exposure to exchange rate fluctuations on anticipated future purchase and sales transactions and certain intercompany transactions. Any contracts that are entered into are written on a short-term basis, are not held for trading purposes, and are not held for purposes of speculation. Gains and losses on forward exchange contracts described herein are recognized in the statements of consolidated operations in the periods the exchange rates change. At December 31, 1994, the Company had no outstanding forward exchange contracts.
Accounting Change: 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 under which 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 elected not to restate the financial statements of any prior year. The cumulative effect of the change decreased the net loss for 1993 by $2,468 or $.23 per share.
Net Income (Loss) per Share: Net income (loss) per share is based on the average number of all shares outstanding during the year (10,969,991 in 1994; 10,851,991 in 1993 and 10,796,410 in 1992).
Other: Included in Distribution cost/selling, general & administrative expenses are the costs related to the Company's discretionary employee bonus ($68,370 in 1994; $61,883 in 1993; and $55,282 in 1992.)
Notes receivable from employees are secured by Company Common Stock owned by the employee.
Reclassification: Certain reclassifications have been made to prior year financial statements to conform to current year classifications.
NOTE B -- SHAREHOLDERS' EQUITY
The Lincoln Electric Company Employees' Stock Purchase Plan ("Plan") which provided that employees could purchase shares of the Company's Common Stock, when offered, at its estimated fair value, was terminated by the Board of Directors in February 1995 effective March 30, 1995. Under the Plan, the Company had the option to repurchase the shares, but in 1992 the Company suspended the repurchase of all shares and the employees were permitted to sell their shares on the open market. Upon termination of the Plan, all shares issued under the Plan (1,639,686) became unrestricted shares.
The Lincoln Electric Company 1988 Incentive Equity Plan ("Incentive Equity Plan") provides for the award or sale of Common Stock to officers and other key employees of the Company and its subsidiaries. Distribution of shares is based on certain specified performance and other conditions being satisfied. As a result of conditions being fulfilled in 1991 with respect to certain of the Company's subsidiaries, the Company awarded 32,524 shares (including 524 shares issued for dividends accrued during the deferral period) of which 10,660 shares were distributed in 1992, 11,510 shares in 1993, and 10,354 shares in 1994. These shares, along with 15,000 shares issued to a former officer of the Company, are restricted as to resale rights with the Company having a right of first refusal at a purchase price based on the book value of the shares. Additionally, in 1994, 15,000 shares were issued to certain officers of the Company. Such shares vest equally over a three-year period, commencing in 1995 and ending in 1997. At December 31, 1994, there were no other outstanding awards under the Plan, and 952,476 shares are reserved for future issuance under the Incentive Equity Plan.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B -- SHAREHOLDERS' EQUITY -- (CONTINUED) The Lincoln Electric Company Employee Stock Ownership Plan (the "ESOP") is a non-contributory profit-sharing plan established to provide deferred compensation benefits for all eligible employees. The cost of the plan is borne by the Company through contributions to an employee stock ownership trust as determined annually by the Board of Directors. In May 1989, shareholders authorized 2,000,000 shares of Class A Common Stock ("Class A Common Stock"), without par value. The Company's Common Stock and Class A Common Stock are identical in all respects, except that holders of Class A Common Stock are subject to certain transfer restrictions and the Class A Common Stock is only issued to the ESOP. In 1994, no shares of stock were issued to the ESOP. In 1993, the Company issued 49,220 shares (92,680 shares in 1992) to the ESOP with an estimated fair value of $916 ($2,060 in 1992) which was recorded as compensation expense. The difference between the total stated capital amount of $.20 per share and the estimated fair value was recorded as additional paid-in-capital. At December 31, 1994 and 1993, 1,500,160 authorized but unissued shares are available for future issuance to the ESOP.
NOTE C -- RESTRUCTURING CHARGES
In 1993, the Company substantially completed its plan to downsize and streamline its foreign operations (principally in Europe) and close manufacturing facilities in Germany, Japan and South America. Management's decisions resulted in a restructuring charge in 1993 of $70,100 ($40,900 after tax or $3.77 per share) which was comprised of (1) asset write-downs in the amount of $45,900 including goodwill of $8,900; (2) severance and other redundancy costs of $27,500; and (3) a net credit of $3,300 comprised of a claim settlement and other restructuring liabilities including estimated losses through the final facility closing dates in 1994.
In 1992, the Company recorded a restructuring charge of $23,900 (without tax benefit, or $2.21 per share) as a result of decisions by management at that time to downsize and streamline certain foreign operations (principally in Europe). This charge was primarily for severance pay, redundancies and other liabilities relating to the reorganization of the sales and distribution operations in Europe.
In 1994, all of the planned facility closings were completed and one of the facilities was disposed of. In total, approximately 1,400 employees were terminated as a result of the 1992 and 1993 restructuring programs. In 1994 the restructuring accruals were adjusted to reflect management's current cost estimates to complete the program which resulted in a credit to income of $2,735. Included in property, plant and equipment, are facilities held for sale with a net carrying value of $4,700. The remaining expenditures, which include costs related to the sale of real estate and holding costs to be incurred through the estimated date of disposal, are anticipated to be incurred in 1995 and 1996.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- SHORT-TERM AND LONG-TERM DEBT
In October 1994, the Company amended its unsecured, multi-currency Credit Agreement with ten banks and reduced its committed line under the Credit Agreement from $230,000 to $200,000 which the Company believes is sufficient to meet future financing needs. Under the terms of the amended agreement which expires October 1, 1997, but provides for a mechanism for annual extensions, the interest rate on outstanding borrowings is determined based upon defined leverage rates for the pricing option selected. The interest rate can range from the LIBOR plus .375% to LIBOR plus 1.125% depending upon the defined leverage rate. The agreement also provides for commitment fees ranging from .2% to .375% per annum on the unused credit lines based upon the defined leverage rate. Prior to the amendment, the interest rates ranged from LIBOR plus 1% to LIBOR plus 2%, and the commitment fees were from .375% to .5%.
Simultaneously, with the signing of the Credit Agreement, the $75,000 8.98% Senior Note due in 2003 was amended to change the financial covenants to conform with the financial covenants of the amended Credit Agreement, which requires a 1.35 to 1 consolidated current ratio and the maintenance of consolidated tangible net worth of $125,000 plus 50% of net income subsequent to January 1, 1995. In addition, there are requirements with respect to interest coverage and funded debt to capital ratios (.60 to 1 decreasing to .50 to 1 after December 31, 1995), and limitations on capital expenditures. Purchases of unrestricted stock and the payment of dividends are limited to 50% of cumulative net income from January 1, 1993, plus $25,000. At December 31, 1994, the Company was in compliance with all of its financial covenants and $13,800 was available for dividends and the purchase of unrestricted stock. The limitations on capital expenditures, purchases of unrestricted common stock and payment of dividends can be waived based on the achievement of a certain interest coverage ratio for three consecutive quarters.
Maturities of long-term debt for the five years succeeding December 31, 1994 are $2,272 in 1995, $10,652 in 1996, $120,884 in 1997, $9,861 in 1998; $9,612 in 1999 and $43,822 thereafter.
At December 31, 1994, certain loans ($7,900) were collateralized by property and equipment.
Interest expense capitalized to property, plant and equipment was $244 in 1994, $71 in 1993 and $320 in 1992. Total interest paid was $17,400 in 1994, $19,000 in 1993 and $17,500 in 1992. Weighted average interest rates on notes payable to banks at December 31, 1994 and 1993 were 6.8% and 9.1%, respectively.
In 1992, the Company terminated an interest rate swap agreement with a notional borrowing amount of $75,000 and received $2,586 which was amortized ($904 in 1994; $986 in 1993 and $696 in 1992) over the original swap term as a yield adjustment to interest expense on the underlying $75,000 debt.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- SHORT-TERM AND LONG-TERM DEBT -- (CONTINUED) In connection with the expansion of its motor plant, the Company received in 1994 $6,000 of low interest rate loans from certain governmental entities. The Company also received in 1994 $1,750 of government grants which were recorded as a reduction in property, plant and equipment.
NOTE E -- INCOME TAXES
The components of income (loss) before income taxes and cumulative effect of accounting change are as follows:
Components of income tax expense (benefit) are as follows:
The components of the provision for deferred income taxes for 1992 were as follows:
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE E -- INCOME TAXES -- (CONTINUED) The differences between total income tax expense (benefit) and the amount computed by applying the statutory Federal income tax rate to income (loss) before income taxes and cumulative effect of accounting change are as follows:
Total income tax payments, net of refunds, were $6,115 in 1994, $19,400 in 1993 and $16,500 in 1992.
At December 31, 1994, the Company's foreign subsidiaries have net operating loss carryforwards of approximately $61,100 which expire in various years from 1995 through 2002, except for $5,000 for which there is no expiration date.
Significant components of the Company's deferred tax assets and liabilities at December 31, 1994 and 1993, are as follows:
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE E -- INCOME TAXES -- (CONTINUED) Income taxes currently payable amounted to approximately $10,100 and $12,200 at December 31, 1994 and 1993, respectively.
The Company does not provide deferred income taxes on unremitted earnings of foreign subsidiaries as such funds are deemed permanently reinvested to finance foreign expansion and meet operational needs on an ongoing basis. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes subject to an adjustment for foreign tax credits and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its calculation; however, unrecognized non-U.S. tax credits and non-U.S. withholding taxes paid upon distribution would be available to reduce some portion of the U.S. liability.
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company and its subsidiaries maintain a number of defined benefit and defined contribution plans to provide retirement benefits for their employees in the United States as well as their employees in foreign countries. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974, local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. Pension costs accrued are funded except for the cost associated with a supplemental employee retirement plan for certain key employees.
A summary of the components of total pension expense is as follows:
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -- (CONTINUED) The funded status of the U.S. and Non-U.S. plans at December 31, 1994 and 1993 is as follows:
The decrease in the actuarial present value of accumulated benefit obligations ("ABO") for the U.S. plans is largely due to the change in the discount rate from 7.5% to 8.25%, offset by the addition of a new non-qualified Supplemental Executive Retirement Plan, as well as the normal one year's additional accrual of benefit under all plans. In addition, the increase in the ABO for the foreign plans is largely due to the restructuring of some of the plans, as well as the normal one year's accrual of additional benefits, offset by a change in the weighted average discount rate from 7.5% to 8.2% in 1994.
Assumptions used in accounting for the defined benefit plans as of December 31, 1994 and 1993 for both the U.S. and Non-U.S. plans were as follows:
Plan assets for the U.S. plans consist principally of deposit administration contracts and an investment contract with an insurance company. Other assets held by the U.S. plans not under insurance contracts are invested in equity and fixed income securities. Plan assets for the non-U.S. plans are invested in non-U.S. insurance contracts and non-U.S. equity and fixed income securities.
The Company does not have and does not provide for any postretirement or postemployment benefits other than pensions.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -- (CONTINUED) The Cleveland, Ohio area operations have a Guaranteed Continuous Employment Plan covering substantially all employees, which, in general, provides that the Company will provide work for at least 75% of every standard work week (presently 40 hours). This plan does not guarantee employment when the Company's ability to continue normal operations is seriously restricted by events beyond the control of the Company. The Company has reserved the right to terminate this plan effective at the end of a calendar year by giving notice of such termination not less than six months prior to the end of such year.
NOTE G -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company's primary business is the design, manufacture and sale, in the domestic and international markets of arc and other welding products and related gases used in the welding process. The Company also designs, manufactures and sells integral horsepower industrial electric motors. Financial information by geographic areas follows:
Intercompany sales between geographic regions are accounted for at prices comparable to normal, customer sales and are eliminated in consolidation.
Export sales (excluding intercompany sales) from the United States were $64,400 in 1994, $58,100 in 1993 and $67,100 in 1992.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE H -- ACQUISITIONS
In June 1993, the Company purchased the outstanding minority interest in its subsidiary in Spain for approximately $8,500. In January and May of 1992, respectively, the Company purchased the remaining 29 percent interest in Lincoln Norweld and a small Mexican company for an aggregate of $37,300. These transactions were accounted for as purchases and their results of operations and the increased interest in their results of operations, were included in the consolidated statements of operations from the respective transaction dates.
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash, cash equivalents and short and long-term debt. The Company has determined the estimated fair value of these financial instruments by using available market information and appropriate valuation methodologies which require judgment. Accordingly, the use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. The Company believes the carrying values of its financial instruments approximate their fair value.
NOTE J -- OPERATING LEASES
The Company leases sales offices, warehouses, office equipment and data processing equipment. Such leases, some of which are noncancellable, and in many cases, include renewals, expire at various dates. The Company pays most maintenance, insurance and tax expenses relating to leased assets. Rental expense was $9,226 in 1994, $9,864 in 1993 and $9,840 in 1992.
At December 31, 1994, total minimum lease payments for noncancellable operating leases are as follows:
NOTE K -- CONTINGENCIES
The Company and its subsidiaries are involved in various litigation in the ordinary conduct of its business. Based on information known to the Company, Management believes the outcome of all pending litigation will not have a material effect upon the financial position of the Company.
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE L -- QUARTERLY FINANCIAL DATA (UNAUDITED)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS) --------------------------------------------------------------------------------
INDEX TO EXHIBITS