-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U+DCmtHPbeSxsJ9W1QbSSJrUfNFYgnyK0poX/U+jrXiLwJ9hsGhUqMMd+O/UzaBD 3tzEaKdP7kRCpr3Y8Vhqug== 0000950152-99-004644.txt : 19990518 0000950152-99-004644.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950152-99-004644 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN ELECTRIC HOLDINGS INC CENTRAL INDEX KEY: 0000059527 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 340359955 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-55406 FILM NUMBER: 99628058 BUSINESS ADDRESS: STREET 1: 22801 ST CLAIR AVE CITY: CLEVELAND STATE: OH ZIP: 44117 BUSINESS PHONE: 2164818100 FORMER COMPANY: FORMER CONFORMED NAME: LINCOLN ELECTRIC CO DATE OF NAME CHANGE: 19920703 10-Q 1 LINCOLN ELECTRIC HOLDINGS, INC. 10-Q 1 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, 1999 Commission File No. 0-1402 LINCOLN ELECTRIC HOLDINGS, INC. AS SUCCESSOR TO THE LINCOLN ELECTRIC COMPANY (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 April 30, 1999 was 45,253,124. 2 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands of dollars, except per share data) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 1998 --------- --------- Net sales $ 282,868 $ 302,962 Cost of goods sold 171,895 185,879 --------- --------- Gross profit 110,973 117,083 Distribution cost / selling, general & administrative expenses 72,889 78,680 Loss on disposal of motor business 32,015 -- --------- --------- Operating income 6,069 38,403 Other income / (expense): Interest income 312 956 Other income 709 41 Interest expense (1,429) (1,319) --------- --------- Total other income / (expense) (408) (322) --------- --------- Income before income taxes 5,661 38,081 Income taxes 1,354 14,351 --------- --------- Net income $ 4,307 $ 23,730 ========= ========= Basic earnings per share $ 0.09 $ 0.48 Diluted earnings per share $ 0.09 $ 0.48 Cash dividends declared per share $ 0.12 $ 0.10
See notes to these consolidated financial statements. 2 3 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands of dollars) (UNAUDITED)
MARCH 31, DECEMBER 31, 1999 1998 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,756 $ 39,095 Marketable securities 191 311 Accounts receivable (less allowances of $3,583 in 1999; $3,563 in 1998) 181,878 167,830 Inventories: Raw materials and in-process 79,924 82,030 Finished goods 113,251 104,291 -------- -------- 193,175 186,321 Deferred income taxes 16,979 17,751 Other current assets 25,511 25,533 -------- -------- TOTAL CURRENT ASSETS 428,490 436,841 PROPERTY, PLANT AND EQUIPMENT Land 11,134 11,447 Buildings 114,346 115,538 Machinery, tools and equipment 408,470 424,307 -------- -------- 533,950 551,292 Less: accumulated depreciation and amortization 277,172 291,501 -------- -------- 256,778 259,791 OTHER ASSETS Goodwill - net 34,689 35,747 Other 48,553 50,527 -------- -------- 83,242 86,274 -------- -------- TOTAL ASSETS $768,510 $782,906 ======== ========
See notes to these consolidated financial statements. 3 4 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands of dollars, except share data) (UNAUDITED)
MARCH 31, DECEMBER 31, 1999 1998 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to banks $ 20,628 $ 2,792 Trade accounts payable 65,122 60,502 Salaries, wages and amounts withheld 31,141 19,366 Taxes, including income taxes 34,787 38,434 Dividend payable 5,441 5,770 Other current liabilities 66,936 57,147 Current portion of long-term debt 11,149 11,100 --------- --------- TOTAL CURRENT LIABILITIES 235,204 195,111 Long-term debt, less current portion 56,637 46,766 Deferred income taxes 23,425 23,158 Other long-term liabilities 29,615 26,938 SHAREHOLDERS' EQUITY Preferred Shares, without par value - at stated capital amount: Authorized - 5,000,000 shares in 1999 and 1998; Issued and Outstanding - none -- -- Common Shares, without par value - at stated capital amount: Authorized - 120,000,000 shares in 1999 and 1998; Issued - 49,283,950 shares in 1999 and 1998; Outstanding - 45,345,624 shares in 1999 and 48,083,246 shares in 1998 4,928 4,928 Additional paid-in capital 104,697 104,641 Retained earnings 431,105 432,283 Accumulated other comprehensive income (36,550) (28,251) Treasury shares, at cost - 3,938,326 shares in 1999 and 1,200,704 shares in 1998 (80,551) (22,668) --------- --------- TOTAL SHAREHOLDERS' EQUITY 423,629 490,933 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 768,510 $ 782,906 ========= =========
See notes to these consolidated financial statements. 4 5 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands of dollars) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 1998 -------- -------- OPERATING ACTIVITIES Net income $ 4,307 $ 23,730 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,280 6,310 Loss on disposal of fixed assets and motor business 31,982 2,805 Changes in operating assets and liabilities: (Increase) in accounts receivable (14,824) (15,518) (Increase) in inventories (9,577) (19,585) (Increase) in other current assets (466) (225) Increase in accounts payable 6,030 23,388 Increase in other current liabilities 8,314 31,346 Gross change in other noncurrent assets and liabilities 3,308 (1,076) Other - net (5,363) (630) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 30,991 50,545 INVESTING ACTIVITIES Capital expenditures, including acquisitions (23,685) (12,515) Proceeds from maturities of marketable securities 164 10,000 Proceeds from sale of property, plant and equipment 536 1,627 -------- -------- NET CASH (USED) BY INVESTING ACTIVITIES (22,985) (888) FINANCING ACTIVITIES Short-term borrowings - net 17,874 (1,130) Long-term borrowings - net 10,006 (4,639) Net (purchase) reissuance of shares for treasury (57,883) -- Dividends paid (5,770) (4,922) Other (125) 429 -------- -------- NET CASH (USED) BY FINANCING ACTIVITIES (35,898) (10,262) Effect of exchange rate changes on cash and cash equivalents (447) (277) -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (28,339) 39,118 Cash and cash equivalents at beginning of period 39,095 46,562 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,756 $ 85,680 ======== ========
See notes to these consolidated financial statements. 5 6 LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the preparation of the quarterly report on Form 10-Q. Accordingly, these consolidated financial statements do not include all of the information and notes required for complete financial statements. These consolidated financial statements contain all the adjustments (consisting of normal recurring accruals) necessary to fairly present the financial position, results of operations and changes in cash flows for the interim periods. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. 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, 1998. Certain amounts have been reclassified to conform to the current period presentation. 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, 1999 1998 ------- ------- Numerator: Net income $ 4,307 $23,730 ======= ======= Denominator: Denominator for basic earnings per share - Weighted-average shares 46,575 49,234 Effect of dilutive securities - Employee stock options 165 204 ------- ------- Denominator for diluted earnings per share - Adjusted weighted-average shares 46,740 49,438 ======= ======= Basic earnings per share $ 0.09 $ 0.48 Diluted earnings per share $ 0.09 $ 0.48
Share amounts have been adjusted for the recapitalization. See NOTE F of these consolidated financial statements. NOTE C - COMPREHENSIVE INCOME The components of comprehensive (loss) income follow:
Three months ended March 31, (Dollars in thousands) 1999 1998 -------- -------- Net income $ 4,307 $ 23,730 Other comprehensive income: Change in currency translation adjustment (8,299) (2,658) -------- -------- Comprehensive (loss) income $ (3,992) $ 21,072 ======== ========
6 7 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 - SALARIES, WAGES AND AMOUNTS WITHHELD Salaries, wages and amounts withheld at March 31, 1999 include provisions for year-end bonuses and related payroll taxes of approximately $15 million related to Lincoln employees worldwide. The payment of bonuses is discretionary and is subject to approval by the Board of Directors. NOTE F - CORPORATE REORGANIZATION AND RECAPITALIZATION On May 19, 1998, shareholders approved a reorganization of the capital and corporate structure of The Lincoln Electric Company (the "reorganization"). As a result of the reorganization, a new holding company, Lincoln Electric Holdings, Inc., was created. Each Common Share and each Class A Common Share (non-voting) of The Lincoln Electric Company was converted into two voting common shares of Lincoln Electric Holdings, Inc., which also had the economic effect of a two-for-one stock split. The reorganization also resulted in the authorization of 5,000,000 Preferred Shares, none of which were issued or outstanding at March 31, 1999 or December 31, 1998. The historical share and per share amounts disclosed in these consolidated financial statements have been restated to reflect the share conversion. NOTE G - SEGMENT INFORMATION
(Dollars in thousands) United Other States Europe Countries Eliminations Consolidated ------ ------ --------- ------------ ------------ 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 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 Three months ended March 31, 1998: Net sales to unaffiliated customers $ 208,696 $ 54,204 $ 40,062 $ -- $ 302,962 Inter-segment sales 20,265 2,386 2,778 (25,429) -- --------- --------- --------- --------- --------- Total $ 228,961 $ 56,590 $ 42,840 $ (25,429) $ 302,962 ========= ========= ========= ========= ========= Income before interest and income taxes $ 31,719 $ 4,288 $ 3,177 $ (740) $ 38,444 Interest income 956 Interest expense (1,319) --------- Income before income taxes $ 38,081 ========= Total assets $ 552,698 $ 165,150 $ 119,259 $ (53,203) $ 783,904
Included in the United States geographic segment is a $32 million pre-tax charge related to the disposal of the electric motors business. See NOTE I to these consolidated financial statements. 7 8 NOTE H - ACQUISITIONS During the first quarter of 1998 the Company's Canadian subsidiary acquired a 75% interest in Indalco Alloys, Inc. of Canada. The purchase price of the acquisition was not significant. Indalco is a premier supplier of aluminum welding wire and related products. The acquisition was accounted for as a purchase. The results of Indalco, which were not significant, were included in the Company's results of operations beginning in March 1998. During April 1998, a German subsidiary of the Company purchased the assets and business of Uhrhan & Schwill GmbH, located in Germany, a leader in the design and installation of welding systems for pipe mills. The purchase price of the acquisition was not significant. During July 1998, a French subsidiary of the Company acquired a 50% equity interest in AS Kaynak, a market leading welding products manufacturing subsidiary of Eczacibasi Holdings, headquartered in Istanbul, Turkey. The purchase price of the acquisition was not significant. The Company accounts for its investment in AS Kaynak under the equity method. Equity earnings of this investment have been recorded under the caption Other income in the Consolidated Statement of Income. NOTE I - DISPOSAL OF ELECTRIC MOTOR BUSINESS In May 1999, the Company signed a definitive agreement to sell its electric motor business to Regal-Beloit, Inc. The Company expects the transaction to be completed during the second quarter 1999, after government agency review. 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 estimated loss on the sale of motor business assets. Sales of the motor business for the three-month periods ended March 31, 1999 and 1998 were $14 million and $15 million, respectively. The operating results of the motor business for the periods presented were not material. NOTE J - 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 2000. 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 position or results of operations. 8 9 Part 1 - Item 2 MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------ The following table sets forth the Company's results of operations for the three month periods ended March 31, 1999 and 1998:
Three months ended March 31, 1999 1998 ------------------------ ------------------------ Amount % of Sales Amount % of Sales ------------------------ ------------------------ Net sales $ 282.9 100.0% $ 303.0 100.0% Cost of goods sold 171.9 60.8% 185.9 61.4% -------- ----- -------- ----- Gross profit 111.0 39.2% 117.1 38.6% Distribution cost / selling, general and administrative expenses 72.9 25.8% 78.7 26.0% Loss on disposal of motor business 32.0 11.3% -- -- -------- ----- -------- ----- Operating income 6.1 2.1% 38.4 12.6% Interest income 0.3 0.1% 1.0 0.3% Other income 0.7 0.3% 0.0 0.0% Interest expense (1.4) (0.5%) (1.3) (0.4%) -------- ----- -------- ----- Income before income taxes 5.7 2.0% 38.1 12.5% Income taxes 1.4 0.5% 14.4 4.7% -------- ----- -------- ----- Net income $ 4.3 1.5% $ 23.7 7.8% ======== ===== ======== =====
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 NET SALES. Net sales for the first quarter 1999 declined $20.1 million or 6.6% to $282.9 million from $303.0 million last year. Net sales from U.S. operations were $194.7 million for the quarter, down 6.7% from $208.7 million for the first quarter last year. The sales decline was volume driven. Worldwide economic conditions, particularly in Asia and South America, continued to impact U.S. exports, which were down 34.1% to $17.2 in the quarter, compared with $26.1 million last year. Non-U.S. sales decreased 6.5% to $88.2 million in the first quarter 1999, compared with $94.3 million last year. The strengthening of the U.S. dollar has negatively impacted non-U.S. sales by 3%, caused principally by the devaluation of the Canadian, Australian, Brazilian and Mexican currencies. In local currencies, non-U.S. sales have declined by 3.6%. GROSS PROFIT. Gross profit of $111.0 million for the first quarter 1999 decreased 5.2% or $6.1 million from last year. Gross profit as a percentage of net sales increased to 39.2% compared with 38.6% for the first quarter last year. Gross margin percentage increased over the first quarter last year due to improved manufacturing efficiencies, lower raw material costs and a more favorable product sales mix. DISTRIBUTION COST/SELLING, GENERAL & ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses decreased $5.8 million or 7.4% to $72.9 million for the first quarter 1999, compared with $78.7 million for 1998. SG&A expense as a percentage of sales declined to 25.8% from 26.0% in the 1998 period. SG&A expenses include costs related to the Company's discretionary year-end employee bonus program, net of hospitalization costs. The decline in SG&A expenses were primarily due to lower bonus accruals in 1999 compared with 1998. Expected bonus expenses are accrued in proportion to expected profitability. Lower bonus accruals are attributable to lower profitability versus objectives, excluding bonus costs, compared to the prior year. The final bonus payout will be subject to approval by the Company's Board of Directors during the fourth quarter. The lower SG&A costs were also attributable to lower distribution costs, which are generally incurred in proportion to sales levels. LOSS ON DISPOSAL OF 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 related to the sale of its electric motor business. In May 1999, the Company signed a definitive agreement to sell this business and expects to complete the transaction 9 10 during the second quarter of 1999, after government agency review. Sales of the motor business for the three-month periods ended March 31, 1999 and 1998 were $14 million and $15 million, respectively. The operating results of the motor business for the periods presented were not material. INTEREST EXPENSE. Interest expense has increased to $1.4 million or 7.7% in the first quarter 1999 from $1.3 million for the same period last year. Borrowing levels have increased to supplement funding for the share buyback program. INCOME TAXES. Income taxes for the first quarter 1999 were $1.4 million on income before income taxes of $5.7 million, an effective rate of 23.9%, as compared with income taxes of $14.4 million on income before income taxes of $38.1 million, or an effective rate of 37.7% for the same period in 1998. Excluding the charge for the disposal of the motor division, the effective income tax rate would have been 36.3% for the first quarter 1999. This lower rate reflects tax planning initiatives in the U.S. and the change in the mix of earnings among foreign subsidiaries. NET INCOME. Excluding the charge for the disposal of the motor division, net income for the first quarter 1999 increased $0.3 million or 1.3% compared with the same period last year, while diluted earnings per share increased 6.3% over the same period. The greater increase in EPS is attributable to the effect of share repurchases occurring since September 1998. 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, 1999 was $31 million compared with $50.5 million for 1998. The decrease in operating cash flows is attributable to the relative year-over-year reduction in working capital improvements. The Company's ratio of total debt to total capitalization increased to 17.3% at March 31, 1999 from 11.0% at December 31, 1998. The Company began to increase its long-term borrowings for the first time in three years to supplement funding for its share repurchase program and to support a higher level of capital spending. During the first quarter of 1999, the Company purchased 2,757,550 shares of its common stock. Under its 5,000,000 share repurchase program begun in September 1998, the Company has purchased 4,021,450 shares of its common stock on the open market at a cost of $82.1 million through March 31, 1999. In 1999 the Board of Directors authorized an extension of the share repurchase program to an additional 5,000,000 shares. Capital expenditures increased $11.2 million to $23.7 million in the first quarter of 1999, compared with $12.5 million in 1998. This increase was primarily related to spending on information systems in the U.S. and Europe and additional manufacturing capacity in Mexico and Canada. During 1998, the Company acquired a 75% interest in Indalco Alloys Inc. of Canada whose operating results are included within those of the Company beginning in March 1998. The results of Indalco for the periods presented were not significant. The Company paid cash dividends of $5.8 million or $0.12 per share during the first quarter of 1999. On May 5, 1999, the Board of Directors declared a cash dividend of $0.12 per share payable on July 15, 1999 to shareholders of record June 30, 1999. INFORMATION SYSTEMS IMPLEMENTATION AND YEAR 2000 ISSUE - ------------------------------------------------------ The Company is replacing many of its legacy Information Technology (IT) Systems and believes with conversions to new software and computer systems, the Year 2000 Issue will be mitigated. Accordingly, all of the Company's business units are actively involved in its Year 2000 conversion plan. The Company is utilizing both internal and external resources to replace and test software. The Company is also replacing systems used in the manufacture and distribution of its products and does not anticipate disruptions in the supply of products to its customers. In addition, to assure continuous flow of products to end customers, the Company has surveyed and is now assessing Year 2000 readiness on the part of the Company's supply chain. The majority of the suppliers responding to the Company's survey indicated that they 10 11 were in the process of implementing their own Year 2000 compliance programs. Based upon the outcome of the Company's final assessment of its external supply chain components, business process and systems contingency plans will be developed and implemented. Although plans have not yet been fully developed, the Company anticipates these plans will include identification of alternative suppliers and increasing inventory safety stocks. The Company's Year 2000 readiness activities include IT areas such as business systems, technical infrastructure and end-user computing and non-IT areas such as manufacturing, warehousing and servicing equipment, environmental operations, supplier base and end products. These activities require the identification of affected systems and equipment, impact analysis, compliance strategy and implementation and testing of remediation. The Company has completed or is currently on schedule with various phases of its compliance program and has made significant progress towards the completion of its total planned efforts. The Company expects the Year 2000 compliance efforts to be substantially completed by the second quarter of 1999. Incremental spending for Information Systems expenditures, including system enhancements and non-IT Year 2000 projects, was $60 million through March 31, 1999, of which $12 million has been expensed. The Company expects to incur approximately $5 million to $10 million to complete these projects. Substantially all of the costs to be incurred relate to replacement costs for hardware and software which will provide enhanced functionality over current IT systems. Cash flows related to these costs have been and will continue to be provided by funds generated from operations. The Company's total project cost and estimated time to complete the project are based on presently available information. The Company requires periodic project status reporting and cost estimates are revised as information becomes available. The Company plans to complete its IT Implementation and Year 2000 projects and have all systems compliant before December 31, 1999. However, there are no assurances that the systems of other companies on which the Company relies also will be Year 2000 compliant. Disruptions caused by suppliers or customers would impair the Company's ability to obtain materials and services for production or the ability to sell to customers. If a disruption occurred, the Company would experience lost sales and profits. The Company's assessment and remediation program is addressing this uncertainty but its ability to ascertain the readiness of its suppliers and customers is limited. Any failure by the Company to meet its current timetable or by the Company's vendors or customers to achieve Year 2000 compliance could have a material adverse effect on the Company's systems, results of operations and financial condition. 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: - - Information Systems Implementation and Year 2000 Issue. The Company is presently replacing many of its legacy systems and believes that with conversions to new software, the Year 2000 Issue will be mitigated. However, if such modifications and conversions are not made, or are not completed in a timely fashion, the Year 2000 Issue could have a material impact on the operations of the Company. See also "Information Systems Implementation and Year 2000 Issue" above. - - 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, 1998, as well as the update in this report. See also Note K to the consolidated financial statements for the year-ended December 31, 1998. 11 12 - - 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. Further, many developing economies have deteriorated over the last two years and are now experiencing significant degrees of political and economic instability, making international growth difficult. - - 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. - - 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. Part II - Other Information Item 1. Legal Proceedings The Company was dismissed from a lawsuit filed against the Company in the Superior Court of California by a building owner in Los Angeles arising from alleged property damage claimed to have been discovered after the Northridge earthquake of January 1994. The Company also settled another such case. A total of six of these cases have been voluntarily dismissed, and six others have been settled. The Company remains a defendant or co-defendant in eight such cases. 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. 27 - Financial Data Schedule. (b) Reports on Form 8-K - None. 12 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LINCOLN ELECTRIC HOLDINGS, INC. /s/ H. JAY ELLIOTT - ----------------------------- H. Jay Elliott Senior Vice President, Chief Financial Officer and Treasurer May 17, 1999 13 EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 10,756 191 185,461 3,583 193,175 428,490 533,950 277,172 768,510 235,204 56,637 0 0 4,928 418,701 768,510 282,868 282,868 171,895 171,895 103,883 0 1,429 5,661 1,354 4,307 0 0 0 4,307 0.09 0.09
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