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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2000 Commission File No. 0-1402
LINCOLN ELECTRIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1860551
(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 class of common stock as of
March 31, 2000 was 42,527,771.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars, except per share data)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------
2000 1999
-------------- -----------
Net sales $281,804 $282,868
Cost of goods sold 185,689 186,301
--------- ---------
Gross profit 96,115 96,567
Selling, general & administrative expenses 56,679 58,483
Loss on disposal of motor business -- 32,015
--------- ---------
Operating income 39,436 6,069
Other income / (expense):
Interest income 136 312
Other income 772 709
Interest expense (1,971) (1,429)
--------- ---------
Total other income / (expense) (1,063) (408)
--------- ---------
Income before income taxes 38,373 5,661
Income taxes 13,975 1,354
--------- ---------
Net income $ 24,398 $ 4,307
========= =========
Basic earnings per share $ 0.56 $ 0.09
Diluted earnings per share $ 0.56 $ 0.09
Cash dividends declared per share $ 0.14 $ 0.12
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars)
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED) (NOTE A)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,712 $ 8,675
Accounts receivable (less allowances of $3,577 in 2000; $3,687 in 1999) 181,930 169,986
Inventories:
Raw materials and in-process 81,076 82,451
Finished goods 110,940 109,161
---------- ----------
192,016 191,612
Deferred income taxes 25,294 23,311
Other current assets 31,162 33,011
---------- ----------
TOTAL CURRENT ASSETS 441,114 426,595
PROPERTY, PLANT AND EQUIPMENT
Land 11,960 11,050
Buildings 131,077 119,519
Machinery, tools and equipment 418,949 419,831
--------- ---------
561,986 550,400
Less: accumulated depreciation and amortization 283,410 279,610
--------- ---------
278,576 270,790
OTHER ASSETS
Goodwill - net 42,119 33,263
Other 59,757 44,751
--------- ---------
101,876 78,014
---------- ---------
TOTAL ASSETS $821,566 $775,399
======== ========
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars, except share data)
MARCH 31, DECEMBER 31,
2000 1999
------------ -----------
(UNAUDITED) (NOTE A)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 19,909 $ 16,425
Trade accounts payable 68,250 64,482
Accrued employee compensation and benefits 46,109 32,326
Accrued expenses 14,163 15,202
Taxes, including income taxes 54,592 41,326
Dividend payable 5,954 6,228
Other current liabilities 29,674 28,882
Current portion of long-term debt 12,404 11,503
--------- ----------
TOTAL CURRENT LIABILITIES 251,055 216,374
Long-term debt, less current portion 86,663 47,207
Deferred income taxes 27,832 28,771
Other long-term liabilities 30,561 31,532
SHAREHOLDERS' EQUITY
Preferred Shares, without par value - at stated capital amount:
Authorized - 5,000,000 shares in 2000 and 1999;
Issued and Outstanding - none in 2000 and 1999 -- --
Common Shares, without par value - at stated capital amount:
Authorized - 120,000,000 shares in 2000 and 1999; Issued - 49,283,950
shares in 2000 and 1999;
Outstanding - 42,527,771 shares in 2000 and 44,483,366 shares in 1999 4,928 4,928
Additional paid-in capital 104,903 104,891
Retained earnings 501,907 483,463
Accumulated other comprehensive income (50,326) (43,524)
Treasury shares, at cost - 6,756,179 shares in 2000 and 4,800,584 shares
in 1999 (135,957) (98,243)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 425,455 451,515
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $821,566 $775,399
======== ========
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net income $ 24,398 $ 4,307
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,403 7,280
(Gain) loss on disposal of fixed assets and motor business (18) 31,982
Changes in operating assets and liabilities:
(Increase) in accounts receivable (15,664) (14,824)
Decrease (increase) in inventories 2,907 (9,577)
Decrease (increase) in other current assets 1,973 (466)
(Decrease) increase in accounts payable (519) 6,030
Increase in other current liabilities 28,645 8,314
Gross change in other non-current assets and liabilities 1,843 3,308
Other - net (766) (5,363)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 51,202 30,991
INVESTING ACTIVITIES
Capital expenditures (11,068) (23,685)
Acquisitions of businesses and equity investment (19,107) --
Proceeds from maturities of marketable securities 5 164
Proceeds from sale of fixed assets and motor business 102 536
---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES (30,068) (22,985)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 13,496 17,544
Payments on short-term borrowings (15,123) (11,302)
Notes payable to banks - net 5,205 11,632
Proceeds from long-term borrowings 48,526 15,016
Payments on long-term borrowings (27,014) (5,010)
Purchase of shares for treasury (37,714) (57,883)
Cash dividends paid (6,228) (5,770)
Other -- (125)
---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES (18,852) (35,898)
Effect of exchange rate changes on cash and cash equivalents (245) (447)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,037 (28,339)
Cash and cash equivalents at beginning of period 8,675 39,095
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,712 $ 10,756
========== ==========
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
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 Form 10-Q and Article 10 of
Regulation S-X. Accordingly, these consolidated financial statements do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of management, these consolidated financial statements contain all the
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the financial position, results of operations and changes in cash
flows for the interim periods. Operating results for the three-months ended
March 31, 2000 are not necessarily indicative of the results to be expected for
the year ending December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements.
The Company has reclassified distribution costs from selling, general &
administrative expenses to cost of goods sold. Those two line items on the
consolidated income statement have been restated for 1999 to conform to current
year classification.
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, 1999.
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
(Dollars and shares in thousands, THREE MONTHS ENDED
except per share amounts) ------------------
MARCH 31,
---------
2000 1999
-------- -------
Numerator:
Net income $ 24,398 $ 4,307
======== =======
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 43,690 46,575
Effect of dilutive securities -
Employee stock options 32 165
------ ------
Denominator for diluted earnings per share -
Adjusted weighted-average shares 43,722 46,740
====== ======
Basic earnings per share $0.56 $0.09
Diluted earnings per share $0.56 $0.09
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NOTE C - COMPREHENSIVE INCOME
The components of comprehensive income follow:
THREE MONTHS ENDED MARCH 31,
----------------------------
(Dollars in thousands)
2000 1999
-------- --------
Net income $ 24,398 $ 4,307
Other comprehensive income:
Change in currency translation adjustment (6,802) (8,299)
-------- --------
Comprehensive income $ 17,596 $ (3,992)
======== ========
NOTE D - 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 final year-end
LIFO inventory calculations.
NOTE E - ACCRUED EMPLOYEE COMPENSATION AND BENEFITS
Accrued employee compensation and benefits at March 31, 2000 include provisions
for year-end bonuses and related payroll taxes of approximately $19 million
related to Lincoln employees worldwide. The payment of bonuses is discretionary
and is subject to approval by the Board of Directors.
NOTE F - SEGMENT INFORMATION
(Dollars in thousands) UNITED OTHER
STATES EUROPE COUNTRIES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- ----------- ------------
Three months ended March 31, 2000:
Net sales to unaffiliated customers $192,236 $ 47,641 $ 41,927 $ -- $281,804
Inter-segment sales 18,522 3,005 5,979 (27,506) ---
---------- ---------- ---------- ---------- --------
Total $210,758 $ 50,646 $ 47,906 $ (27,506) $281,804
======== ======== ======== ========= ========
Income before interest and income taxes $ 34,598 $ 3,336 $ 2,356 $ (82) $ 40,208
Interest income 136
Interest expense (1,971)
---------
Income before income taxes $ 38,373
=========
Total assets $550,230 $193,866 $158,356 $(80,886) $821,566
Three months ended March 31, 1999:
Net sales to unaffiliated customers $194,728 $ 48,970 $ 39,170 $ -- $282,868
Inter-segment sales 16,217 1,713 3,592 (21,522) ---
---------- ----------- ---------- --------- ---------
Total $210,945 $ 50,683 $ 42,762 $(21,522) $282,868
======== ========= ======== ======== =========
Income (loss) before interest and
income taxes $ (786) $ 4,063 $ 2,757 $ 744 $ 6,778
Interest income 312
Interest expense (1,429)
---------
Income before income taxes $ 5,661
=========
Total assets $ 532,476 $ 177,246 $127,040 $ (68,252) $ 768,510
Included in the United States segment for the three months ended March 31, 1999
was a $32 million pre-tax charge related to the disposal of the motor business.
See Note H to these consolidated financial statements.
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NOTE G - ACQUISITIONS
In January 2000, the Company purchased a 35% interest in Kuang Tai, the leading
welding wire producer in the Taiwan and mainland Chinese welding markets, for
$16.6 million in cash. The Company accounts for its investment in Kuang Tai
under the equity method.
In February 2000, the Company purchased 100% of the Italian-based C.I.F.E. Spa,
the market leader in Europe in the production of MIG wire for the arc welding
industry. The total cost of this acquisition was $2.5 million, plus debt assumed
of $10.1 million, and was accounted for as a purchase.
NOTE H - DISPOSAL OF MOTOR BUSINESS
On May 28, 1999, the Company sold its motor business to Regal-Beloit, Inc. The
Company recorded a pre-tax charge of $32 million ($19.7 million after-tax, or
$0.42 per diluted share) in the first quarter of 1999 reflecting the loss on the
sale of motor business assets. Sales attributable to the motor business for the
three-month period ended March 31, 1999 were $13.1 million. The operating
results of the motor business for the quarter-ended March 31, 1999 were not
material.
NOTE I - NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement will become effective for the Company for
fiscal year 2001. The Company is evaluating the effect of this Statement on its
accounting and reporting policies, but does not presently expect adoption to
have a material impact on the Company's consolidated financial statements.
NOTE J - SUBSEQUENT EVENT
On April 26, 2000, the Company made a recommended cash offer in the United
Kingdom to purchase all of the outstanding shares of Charter plc, a British
industrial holding company, for approximately $765 million in cash (using an
estimated exchange rate of $1.62 to GBP 1). The total cost of the
transaction, including refinanced debt, is expected to be approximately $1.2
billion and will be financed by committed bank facilities. Should the
acquisition occur, the Company would be obligated to cease dividend payments
pursuant to the new credit agreements until such time that acquisition debt was
reduced to appropriate levels. The Company has also suspended its share
repurchase program, pending the outcome of the proposed acquisition. The closing
date of this transaction is dependent upon a number of conditions, including
regulatory approval.
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Part 1 - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table sets forth the Company's results of operations for the
three-month periods ended March 31, 2000 and 1999:
Three months ended March 31,
(dollars in millions)
2000 1999
----------------------- ----------------------
AMOUNT % OF SALES AMOUNT % OF SALES
------ ---------- ------ ----------
Net sales $281.8 100.0% $282.9 100.0%
Cost of goods sold 185.7 65.9% 186.3 65.9%
------ --------- ------ -------
Gross profit 96.1 34.1% 96.6 34.1%
Selling, general & administrative expenses 56.7 20.1% 58.5 20.7%
Loss on disposal of motor business -- -- 32.0 11.3%
----------- ------------ ------- -------
Operating income 39.4 14.0% 6.1 2.1%
Interest income 0.1 0.0% 0.3 0.1%
Other income 0.8 0.3% 0.7 0.3%
Interest expense (1.9) (0.7%) (1.4) (0.5%)
-------- ------- -------- -------
Income before income taxes 38.4 13.6% 5.7 2.0%
Income taxes 14.0 4.9% 1.4 0.5%
-------- ------- -------- -------
Net income $ 24.4 8.7% $ 4.3 1.5%
======= ======= ======= =======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
NET SALES. Net sales for the first quarter 2000 were $281.8 million, a $1.1
million or 0.4% decline from $282.9 million last year. Prior year's net sales
included $13.1 million in sales from the divested motor business. Excluding
these sales from the prior year, sales from continuing businesses increased
$12.0 million or 4.4%. Net sales from U.S. operations were $192.2 million for
the quarter, down 1.3% from $194.7 million for the first quarter last year.
Excluding sales of the divested motor business, U.S. sales in the first quarter
1999 would have been $181.6 million, a year-over-year increase of 5.8%. This
increase reflects higher U.S. demand, primarily in the consumables product line.
Export sales from the U.S. of $15.2 million were down $2.0 million or 11.6% from
last year. U.S. exports have declined primarily because the Company has shifted
some product sourcing of the Latin American market to its new plant in Torreon,
Mexico. U.S. exports to other world regions were flat or higher compared with
last year. Non-U.S. sales increased 1.6% to $89.6 million in the first quarter
2000, compared with $88.1 million last year. The strengthening of the U.S.
dollar had a significant negative impact on non-U.S. sales, particularly in
Europe, where exchange rate movements impacted sales by more than 11.0% compared
with last year. In local currencies, European sales increased 9.4%. European
sales were supplemented by increased MIG wire capacity with the February 2000
acquisition of C.I.F.E. Spa. In the rest of the world, the Company's sales
increased 7.0%.
GROSS PROFIT. Gross profit of $96.1 million for the first quarter 2000 declined
0.5% or $0.5 million from last year. Gross profit as a percentage of net sales
was flat compared with the first quarter last year. Gross profit percentage was
higher in the U.S. in 2000 due to the absence of lower margin motor sales.
Non-U.S. gross margins were down year-over-year due to a change in sales mix to
lower margin products and by increasing raw material prices.
SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses decreased $1.8
million or 3.1% to $56.7 million for the first quarter 2000, compared with
$58.5 million for 1999. SG&A expense as a percentage of net sales declined to
20.1% from 20.7% in the 1999 period. The reduction in SG&A expenses were due to
planned reductions in selling, administrative and research and development
costs. SG&A expenses include costs related to the Company's discretionary year-
end employee bonus program, net of hospitalization costs. The final 2000 bonus
payout will be subject to approval by the Company's Board of Directors during
the fourth quarter.
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LOSS ON DISPOSAL OF MOTOR BUSINESS. On May 28, 1999, the Company sold its motor
business. The Company recorded a pre-tax charge of $32 million ($19.7 million
after-tax, or $0.42 per diluted share) in the first quarter of 1999 reflecting
the loss on the sale of its motor business assets. Sales of the motor business
for the first quarter of 1999 were $13.1 million. The operating results of the
motor business for the first quarter 1999 were not material.
INTEREST EXPENSE. Interest expense increased to $1.9 million in the first
quarter 2000 from $1.4 million for the same period last year. The increase in
interest expense was commensurate with increased short- and long-term borrowings
to fund the share repurchase program and the acquisitions of C.I.F.E Spa and a
35% stake in Kuang Tai.
INCOME TAXES. Income taxes for the first quarter 2000 were $14.0 million on
income before income taxes of $38.4 million, an effective rate of 36.4%, as
compared with income taxes of $1.4 million on income before income taxes of $5.7
million, or an effective rate of 23.9% for the same period in 1999. Excluding
the motor charge from 1999, the first quarter 1999 effective tax rate was 36.3%.
NET INCOME. Net income for the first quarter 2000 of $24.4 million was $20.1
million higher than last year. Excluding the motor charge from the prior year,
net income for 1999 would have been $24.0 million. Diluted earnings per share
for 2000 increased to $0.56 per share from $0.09 per share in 1999 (or $0.51
excluding the motor charge). The effect of foreign currency exchange rate
movements on net income was not significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities for the three months ended March 31,
2000 was $51.2 million compared with $31.0 million for 1999. Higher cash flow
from operations is due to improvements in working capital management,
particularly inventory, the timing of income tax payments and higher deferred
tax liabilities.
The Company's ratio of total debt to total capitalization increased to 21.9% at
March 31, 2000 from 14.3% at December 31, 1999. Debt was accumulated during the
first quarter to fund the share repurchases and acquisitions. The stock
repurchase program has continued to lower the Company's equity base. During the
first quarter of 2000, the Company purchased 1,960,930 shares of its common
stock at a cost of $37.7 million. Since the share repurchase program was first
begun in September 1998, the Company has purchased a total of 6,908,180 shares
of its common stock on the open market at a cost of $138.7 million through March
31, 2000. On May 2, 2000, the share repurchase program was suspended, pending
completion of the proposed acquisition.
Capital expenditures decreased $12.6 million to $11.1 million in the first
quarter of 2000, compared with $23.7 million in 1999. This decline was
predominantly related to spending on information systems in the U.S. and Europe
in 1999 that did not recur in 2000. During the first quarter 2000, the Company
acquired a 35% interest in Kuang Tai, a Taiwan-based manufacturer of welding
wire for $16.6 million and 100% of C.I.F.E. Spa, an Italian-based manufacturer
of MIG wire for $2.5 million, plus assumed debt of $10.1 million.
The Company paid cash dividends of $6.2 million or $0.14 per share during the
first three months of 2000, a 7.9% increase over the $5.8 million paid in the
first quarter 1999. Cash dividends declared per share increased 16.7%
year-over-year.
The quarterly dividend of $0.14 per share was paid April 14, 2000, to holders of
record on March 31, 2000. On May 2, 2000, a dividend of $0.14 per share was
declared which will be payable on July 14, 2000 to shareholders of record as of
June 30, 2000.
As part of the proposed acquisition of Charter plc, the Company announced that
dividend payments would cease indefinitely and that the share repurchase program
would be suspended.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements by its
employees or information included in its filings with the Securities and
Exchange Commission (including those portions of this Management's Discussion
and Analysis that refer to the future) may contain forward-looking statements
that are not historical facts. Those statements are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, and the Company's future performance, operating
results, financial position and liquidity, are subject to a variety of factors
that could materially affect results, including:
- - Business Acquisition. The Company currently plans to complete its
acquisition of the stock of Charter plc toward the end of the third quarter
of 2000. While management believes the acquisition presents an excellent
strategic business opportunity, there is also a significant degree of
uncertainty involved in major acquisitions, particularly given that Charter
plc holds two different business units, ESAB and Howden. The Company
expects to dedicate significant resources towards a successful acquisition.
To finance the acquisition, the Company will initially be highly leveraged
and there are restrictions in the applicable credit agreements on uses of
cash for capital spending and shareholder dividends.
- - Litigation. The Company, like other manufacturers, is subject to a variety
of lawsuits and potential lawsuits that arise in the ordinary course of
business. See "Item 3. Legal Proceedings" within the Company's annual
report on Form 10-K for the year-ended December 31, 1999, as well as the
update in this report. See also Note K to the consolidated financial
statements for the year-ended December 31, 1999.
- - Competition. The Company operates in a highly competitive global
environment and is subject to a variety of competitive factors such as
pricing, the actions and strength of its competitors, and the Company's
ability to maintain its position as a recognized leader in welding
technology. The intensity of foreign competition is substantially affected
by fluctuations in the value of the United States dollar against other
currencies. The Company's competitive position could also be adversely
affected should new or emerging entrants (particularly where foreign
currencies have been significantly devalued) become more active in the arc
welding business.
- - International Markets. The Company's long-term strategy is to increase its
share in growing international markets, particularly Asia, Latin America,
Central Europe and other developing markets. However, there can be no
certainty that the Company will be successful in its expansion efforts. The
Company is subject to the currency risks of doing business abroad, and
expansion poses challenging demands within the Company's infrastructure.
- - Cyclicality and Maturity of the Welding Industry. The United States arc
welding industry is both mature and cyclical. The growth of the domestic
arc welding industry has been and continues to be constrained by numerous
factors, including the substitution of plastics and other materials in
place of fabricated metal parts in many products and structures. Increased
offshore production of fabricated steel structures has also cut into the
domestic demand for arc welding products in the Company's largest market.
- - Operating Factors. The Company is highly dependent on its skilled workforce
and efficient production facilities, which could be adversely affected by
its labor relations, business interruptions at its domestic facilities and
short-term or long-term interruptions in the availability of supplies or
raw materials or in transportation of finished goods.
- - Research and Development. The Company's continued success depends, in part,
on its ability to continue to meet customer welding needs through the
introduction of new products and the enhancement of existing product design
and performance characteristics. There can be no assurances that new
products or product improvements, once developed, will meet with customer
acceptance and contribute positively to the operating results of the
Company, or that product development will continue at a pace to sustain
future growth.
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Part II - Other Information
Item 1. Legal Proceedings
Defense and indemnity costs of the Company in product liability cases involving
injuries allegedly resulting from exposure to fumes and gases in the welding
environment may be affected by the outcome of pending litigation with the St.
Paul Fire and Marine Insurance Company ("St. Paul"), in which St. Paul and the
Company disagree about the allocation among various liability insurance policies
of defense and indemnity costs of welding fume cases. Following the April, 1998
trial of the Company's case against St. Paul, the United States District Court
for the Northern District of Ohio (Akron) ordered St. Paul to pay the Company
compensatory damages plus prejudgment interest for misallocating past expenses
related to welding fume cases. Additionally, the Court held that the Company may
utilize St. Paul occurrence-based policies sold prior to 1985 for defense and
verdict costs of various pending and potential future fume cases. St. Paul
appealed the decision to the U.S. Court of Appeals for the Sixth Circuit.
On April 27, 2000, the Sixth Circuit rendered a decision that affirmed in part
and reversed in part the lower court decision. The Sixth Circuit affirmed the
lower court's decision on liability, i.e., that St. Paul is liable to the
Company for misallocating past expenses related to welding fume cases. The Sixth
Circuit also affirmed the lower court's decision that the Company may use St.
Paul occurrence-based policies sold prior to 1985 for certain defense and
verdict costs of various pending and potential future fume cases. The Sixth
Circuit reversed the lower court decision on (a) the method for allocating
expenses between and among occurrence policies, and (b) the accrual date from
which prejudgment interest should be calculated. The Court of Appeals remanded
the case to the District Court for further proceedings on the issues that were
the subject of reversal.
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 No. 2(b) - Recommended Cash Offer for Charter plc dated
April 26, 2000
Exhibit No. 3(b) - Amended Code of Regulations of Lincoln Electric
Holdings, Inc.
Exhibit No. 10(p) - Stock Option Plan for Non-employee Directors
Exhibit No. 27 - Financial Data Schedule.
(b) Reports on Form 8-K - None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINCOLN ELECTRIC HOLDINGS, INC.
/S/ H. JAY ELLIOTT
- ------------------------------------------
H. Jay Elliott
Senior Vice President,
Chief Financial Officer and Treasurer
May 12, 2000
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