<PAGE> 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.
<PAGE> 2
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
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
</TABLE>
See notes to these consolidated financial statements.
2
<PAGE> 3
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
ASSETS
<S> <C> <C>
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
======== ========
</TABLE>
See notes to these consolidated financial statements.
3
<PAGE> 4
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
See notes to these consolidated financial statements.
4
<PAGE> 5
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See notes to these consolidated financial statements.
5
<PAGE> 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:
<TABLE>
<CAPTION>
(Dollars and shares in thousands, Three months ended
except per share amounts) March 31,
1999 1998
------- -------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Three months ended
March 31,
(Dollars in thousands) 1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
6
<PAGE> 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
<TABLE>
<CAPTION>
(Dollars in thousands) United Other
States Europe Countries Eliminations Consolidated
------ ------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
------------------------ ------------------------
Amount % of Sales Amount % of Sales
------------------------ ------------------------
<S> <C> <C> <C> <C>
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%
======== ===== ======== =====
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,756
<SECURITIES> 191
<RECEIVABLES> 185,461
<ALLOWANCES> 3,583
<INVENTORY> 193,175
<CURRENT-ASSETS> 428,490
<PP&E> 533,950
<DEPRECIATION> 277,172
<TOTAL-ASSETS> 768,510
<CURRENT-LIABILITIES> 235,204
<BONDS> 56,637
0
0
<COMMON> 4,928
<OTHER-SE> 418,701
<TOTAL-LIABILITY-AND-EQUITY> 768,510
<SALES> 282,868
<TOTAL-REVENUES> 282,868
<CGS> 171,895
<TOTAL-COSTS> 171,895
<OTHER-EXPENSES> 103,883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,429
<INCOME-PRETAX> 5,661
<INCOME-TAX> 1,354
<INCOME-CONTINUING> 4,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,307
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
