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, 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. 1
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, ---------------------------------- 2000 1999 -------------- ----------- <S> <C> <C> 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 </TABLE> See notes to these consolidated financial statements. 2
3 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands of dollars) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2000 1999 ----------- ----------- (UNAUDITED) (NOTE A) <S> <C> <C> 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 ======== ======== </TABLE> See notes to these consolidated financial statements. 3
4 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands of dollars, except share data) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2000 1999 ------------ ----------- (UNAUDITED) (NOTE A) <S> <C> <C> 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 ======== ======== </TABLE> See notes to these consolidated financial statements. 4
5 LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands of dollars) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------ 2000 1999 ----------- ----------- <S> <C> <C> 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 ========== ========== </TABLE> See notes to these consolidated financial statements. 5
6 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 6
7 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 <TABLE> <CAPTION> (Dollars in thousands) UNITED OTHER STATES EUROPE COUNTRIES ELIMINATIONS CONSOLIDATED --------- ---------- --------- ----------- ------------ <S> <C> <C> <C> <C> <C> 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 </TABLE> 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. 7
8 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. 8
9 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: <TABLE> <CAPTION> Three months ended March 31, (dollars in millions) 2000 1999 ----------------------- ---------------------- AMOUNT % OF SALES AMOUNT % OF SALES ------ ---------- ------ ---------- <S> <C> <C> <C> <C> 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% ======= ======= ======= ======= </TABLE> 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. 9
10 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. 10
11 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. 11
12 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. 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 12, 2000 13