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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number 0-17116
Lindsay Manufacturing Co.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 47-0554096
--------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 NORTH 108TH STREET, SUITE 102, OMAHA, NEBRASKA 68164
- ---------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
402-829-6801
- ------------
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
At January 10, 2003, 11,733,144 shares of common stock, $1.00 par value, of the
registrant were outstanding.
1
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
INDEX FORM 10-Q
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets, November 30, 2002 and 2001
and August 31, 2002 3
Consolidated Statements of Operations for the three-months
ended November 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the three-months
ended November 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 9-13
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 14
ITEM 4 - CONTROLS AND PROCEDURES 14
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE 16
CERTIFICATIONS 17-18
2
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2002 AND 2001 AND AUGUST 31, 2002
(UNAUDITED) (UNAUDITED)
NOVEMBER NOVEMBER AUGUST
($ IN THOUSANDS, EXCEPT PAR VALUES) 2002 2001 2002
- ----------------------------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,906 $ 15,864 $ 12,425
Marketable securities 15,279 4,621 13,289
Receivables, net 28,589 24,523 23,385
Inventories, net 16,812 13,555 15,583
Deferred income taxes 2,798 2,164 2,573
Other current assets 1,175 852 782
-------------- -------------- --------------
Total current assets 68,559 61,579 68,037
Long-term marketable securities 27,333 24,017 25,419
Property, plant and equipment, net 14,453 14,527 14,512
Other noncurrent assets 6,793 4,119 4,715
-------------- -------------- --------------
Total assets $ 117,138 $ 104,242 $ 112,683
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,898 $ 7,897 $ 6,068
Other current liabilities 13,917 12,415 13,640
-------------- -------------- --------------
Total current liabilities 21,815 20,312 19,708
Noncurrent liabilities 2,108 2,088 2,311
-------------- -------------- --------------
Total liabilities 23,923 22,400 22,019
-------------- -------------- --------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, ($1 par value, 2,000,000 shares
authorized, no shares issued and outstanding) -- -- --
Common stock, ($1 par value, 25,000,000 shares
authorized, 17,452,621, 17,362,743 and 17,430,348 shares
issued in November 2002 and 2001 and August 2002) 17,453 17,363 17,430
Capital in excess of stated value 2,454 1,824 2,472
Retained earnings 164,047) 153,222 161,574
Less treasury stock, (at cost, 5,724,069) (89,898) (89,898) (89,898)
Accumulated other comprehensive loss (841) (669) (914)
-------------- -------------- --------------
Total shareholders' equity 93,215 81,842 90,664
-------------- -------------- --------------
Total liabilities and shareholders' equity $ 117,138 $ 104,242 $ 112,683
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
3
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
NOVEMBER NOVEMBER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2001
- ---------------------------------------- ------------- -------------
Operating revenues $ 33,462 $ 28,545
Cost of operating revenues 26,451 22,935
------------- -------------
Gross profit 7,011 5,610
------------- -------------
Operating expenses:
Selling expense 2,640 2,116
General and administrative expense 2,578 2,025
Engineering and research expense 598 512
------------- -------------
Total operating expenses 5,816 4,653
------------- -------------
Operating income 1,195 957
Interest income, net 423 437
Other income, net 1,787 179
------------- -------------
Earnings before income taxes 3,405 1,573
Income tax provision 521 478
------------- -------------
Net earnings $ 2,884 $ 1,095
============= =============
Basic net earnings per share $ 0.25 $ 0.09
============= =============
Diluted net earnings per share $ 0.24 $ 0.09
============= =============
Average shares outstanding 11,713 11,630
Diluted effect of stock options 217 162
------------- -------------
Average shares outstanding assuming dilution 11,930 11,792
============= =============
Cash dividends per share $ 0.035 $ 0.035
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
4
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(UNAUDITED)
NOVEMBER NOVEMBER
($ IN THOUSANDS) 2002 2001
- ---------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,884 $ 1,095
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 871 907
Amortization of marketable securities premiums, net (43) (74)
Loss on sale of fixed assets -- 93
Provision for uncollectible accounts receivable (60) (56)
Equity in net earnings of equity-method investments (178) (174)
Other, net 47 --
Changes in assets and liabilities:
Receivables, net (5,264) (3,151)
Inventories, net (1,229) (3,402)
Other current assets (393) (378)
Accounts payable 1,830 2,307
Other current liabilities (867) 1,026
Current taxes payable 1,144 155
Noncurrent assets and other liabilities (485) (93)
-------------- --------------
Net cash used in operating activities (1,743) (1,745)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (784) (625)
Acquisition of business -- (255)
Cash surrender value of insurance policies (1,723) --
Purchases of marketable securities held-to-maturity (4,324) (1,175)
Proceeds from maturities of marketable securities held-to-maturity 460 2,755
-------------- --------------
Net cash (used in) provided by investing activities (6,371) 700
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock option
plan, net of repurchases and cancellations 5 (260)
Dividends paid (410) (407)
-------------- --------------
Net cash used in financing activities (405) (667)
-------------- --------------
Effect of exchange rate changes on cash -- 1
Net decrease in cash and cash equivalents (8,519) (1,711)
Cash and cash equivalents, beginning of period 12,425 17,575
-------------- --------------
Cash and cash equivalents, end of period $ 3,906 $ 15,864
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
5
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by accounting principles generally
accepted in the United States of America for annual reporting purposes or those
made in the Company's annual Form 10-K filing. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Lindsay Manufacturing Co. ( the
"Company" or "Lindsay") Form 10-K for fiscal 2002.
In the opinion of management, the unaudited consolidated financial
statements of the Company reflect all adjustments of a normal recurring nature
necessary to present a fair statement of the financial position and the results
of operations and cash flows for the respective interim periods. The results for
interim periods are not necessarily indicative of trends or results expected for
a full year.
Notes to the consolidated financial statements describe various
elements of the financial statements and the assumptions on which specific
amounts were determined. While actual results could differ from those estimated
at the time of preparation of the consolidated financial statements, management
is committed to preparing financial statements which incorporate accounting
policies, assumptions, and estimates that promote the representational
faithfulness, verifiability, neutrality, and transparency of the accounting
information included in the consolidated financial statements.
(2) CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM MARKETABLE SECURITIES
Cash equivalents are included at cost, which approximates market. At November
30, 2002, the Company's cash equivalents were held primarily by one financial
institution. Marketable securities and long-term marketable securities are
categorized as held-to-maturity as management of the Company has determined that
it has the positive intent and ability to hold these securities to maturity.
Held to maturity securities are carried at amortized cost. The Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents, while those having original maturities in excess of
three months are classified as marketable securities or as long-term marketable
securities when maturities are in excess of one year. Marketable securities and
long-term marketable securities consist of investment-grade municipal bonds.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at November 30, 2002, were $42.7 million, $412,000, $72,000 and $43.0
million, respectively. Marketable securities with an amortized cost of $15.3
million mature within one year and long term marketable securities with an
amortized cost of $27.4 million have maturities ranging from 12 to 42 months.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at November 30, 2001 were $28.6 million, $415,000, $6,000 and $29.0
million, respectively. Marketable securities with an amortized cost of $4.6
million mature within one year and long term marketable securities with an
amortized cost of $24.0 million have maturities ranging from 12 to 42 months.
(3) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for most inventories. Cost is determined by the
weighted average method for inventories at the Company's foreign subsidiary in
France and at the Company's dealership subsidiary, Irrigation Specialists. The
Company reserves for obsolete, slow moving and excess inventory by estimating
the net realizable value based on the potential future use of such inventory.
NOVEMBER NOVEMBER AUGUST
$ IN THOUSANDS 2002 2001 2002
- --------------- ------------- ------------- -------------
First-in, first-out (FIFO) inventory ........ $ 15,573 $ 13,646 $ 14,461
LIFO reserves ............................... (3,153) (2,551) (3,153)
Weighted Average Inventory .................. 4,801 3,079 4,634
Obsolescence reserve ........................ (409) (619) (359)
------------- ------------- -------------
Total inventories ........................... $ 16,812 $ 13,555 $ 15,583
============= ============= =============
6
The estimated percentage distribution between major classes of inventory before
reserves is as follows:
NOVEMBER NOVEMBER AUGUST
2002 2001 2002
-------- -------- ------
Raw materials ........................................................... 11% 12% 11%
Work in process ......................................................... 4% 5% 4%
Finished goods and purchased parts....................................... 85% 83% 85%
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment and capitalized lease assets are stated at cost, net
of depreciation.
NOVEMBER NOVEMBER AUGUST
$ IN THOUSANDS 2002 2001 2002
- -------------- ------------- ------------- -------------
Property, plant and equipment:
Land ................................. $ 336 $ 70 $ 336
Buildings ............................ 9,074 8,626 9,072
Equipment ............................ 35,775 32,512 35,242
Other ................................ 2,988 2,781 2,897
------------- ------------- -------------
Total property, plant and equipment ....... 48,173 43,989 47,547
Accumulated depreciation .................. (33,720) (29,462) (33,035)
------------- ------------- -------------
Property, plant and equipment, net ........ $ 14,453 $ 14,527 $ 14,512
============= ============= =============
(5) CREDIT ARRANGEMENTS
The Company may borrow up to $10.0 million under an unsecured revolving line of
credit agreement with a commercial bank. Borrowings under this line of credit,
if any, are to be used for working capital and general corporate purposes
including stock repurchases. At November 30, 2002 and 2001, the Company has not
borrowed any proceeds from this line. Borrowings will bear interest at an annual
rate equal to 1% under the bank's National Base Rate in effect from time to time
(4.25% at November 30, 2002); provided that the National Base Rate will not be
less than 4.00%. The revolving line of credit agreement expires on December 28,
2003 at which time the Company expects to renew the line of credit on
substantially similar terms.
(6) NET EARNINGS PER SHARE
Basic net earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding. Diluted net earnings per share
includes the dilutive effect of stock options.
At November 30, 2002, options to purchase 203,562 shares of common
stock at a weighted average price of $25.97 per share were outstanding, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of the common shares. These
options expire between September 3, 2007 and May 3, 2012.
At November 30, 2001, options to purchase 323,125 shares of common
stock at a weighted average price of $21.19 per share were outstanding, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of the common shares. These
options expire between September 3, 2007 and September 3, 2011.
(7) INDUSTRY SEGMENT INFORMATION
The Company manages its business activities in two reportable segments:
Irrigation: This segment includes the manufacture and marketing of center
pivot, lateral move and hose reel irrigation systems.
Diversified Products: This segment includes providing outsource
manufacturing services and the manufacturing and selling of large diameter
steel tubing.
The accounting policies of the two reportable segments are the same as
those described in the "Accounting Policies" in Note A. of the financial
statements included in the Form 10-K for the fiscal year ended August 31, 2002.
The Company evaluates the performance of its operating segments based on segment
sales, gross profit and operating income, with operating income for segment
purposes excluding general and administrative expenses (which include corporate
expenses), engineering and research expenses, interest income net, other income
and expenses net, income taxes, and assets. Operating income for segment
purposes does include selling expenses and other overhead charges directly
attributable to the segment. There are no intersegment sales.
7
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
FOR THE THREE MONTHS ENDED
NOVEMBER NOVEMBER
$ IN THOUSANDS 2002 2001
- -------------- ------------- -------------
Operating revenues:
Irrigation .................................... $ 30,631 $ 24,843
Diversified products .......................... 2,831 3,702
------------- -------------
Total operating revenues ......................... $ 33,462 $ 28,545
============= =============
Operating income:
Irrigation .................................... $ 4,080 $ 3,119
Diversified products .......................... 291 375
------------- -------------
Segment operating income ......................... 4,371 3,494
Unallocated general & administrative and
engineering & research expenses ............... 3,176 2,537
Interest and other income, net ................... 2,210 616
------------- -------------
Earnings before income taxes ..................... $ 3,405 $ 1,573
============= =============
(8) OTHER NONCURRENT ASSETS
NOVEMBER NOVEMBER AUGUST
$ IN THOUSANDS 2002 2001 2002
- --------------- ------------ ------------ ------------
Cash surrender value of life insurance policies .. $ 1,723 $ -- $ --
Equity method investments ........................ 1,489 1,152 1,311
Goodwill, net .................................... 1,130 708 1,082
Split dollar life insurance ...................... 894 875 878
Intangible pension assets ........................ 511 580 511
Other intangibles, net ........................... 686 195 709
Other ............................................ 360 609 224
------------ ------------ ------------
Total noncurrent assets .......................... $ 6,793 $ 4,119 $ 4,715
============ ============ ============
The cash surrender value of life insurance policies reflects cumulative cash
surrender value generated primarily by payment of life insurance premiums
between 1993 and 2000. The Company had not previously recorded the increases in
the cash surrender value of the policies. The change in the cash surrender value
of these life insurance policies is not material to the Company's net earnings
for any previous period reported. The Company anticipates that the future annual
change in the cash value of these policies will also not be material.
(9) COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED
NOVEMBER NOVEMBER
$ IN THOUSANDS 2002 2001
- -------------- ------------- -------------
Comprehensive Income:
Net earnings ............................................ $ 2,884 $ 1,095
Other comprehensive income:
Foreign currency translation ............................ 73 5
------------- -------------
Total comprehensive income ................................. $ 2,957 $ 1,100
============= =============
The difference between our reported net earnings and comprehensive income for
each period presented is primarily the change in the foreign currency
translation adjustment. Accumulated other comprehensive loss shown in our
consolidated balance sheets includes the accumulated foreign currency
translation adjustment.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
make a variety of decisions which impact the reported amounts and the related
disclosures. These decisions include the selection of the appropriate accounting
principles to be applied and the assumptions on which to base accounting
estimates. In making these decisions, management applies its judgment based on
its understanding and analysis of the relevant circumstances and the Company's
historical experience. The Company's significant accounting policies are
described in Note A to the Consolidated Financial Statements in the Company's
Form 10-K for fiscal 2002.
Certain of the Company's accounting policies have been deemed by
management to be critical because of their overall importance to the
presentation of the Company's consolidated results of operations and financial
condition or because they require the greatest use of judgments and estimates by
management. The following accounting policies are those management considers
critical to the Company's consolidated results of operations and financial
condition. Management periodically re-evaluates and adjusts the estimates that
are used as circumstances change. There were no significant changes in critical
accounting policies during the three-months ended November 30, 2002.
REVENUE RECOGNITION
Revenues from the sale of the Company's products to its dealers or
customers are generally recognized upon the delivery of the product to the
Company's dealers or customers. The Company recognizes revenue of certain low
volume products only upon the earlier of the date a product is delivered by the
dealer to an end-user customer or the date the dealer makes payment on the sale
to the Company. The costs related to revenues, including the allowance for
doubtful accounts, are recognized in the same period in which the specific
revenues are recognized. Estimates used in the Company's revenue recognition and
cost recognition process include, but are not limited to, estimates for rebates
payable, cash discounts expected to be allowed, and the allowance for doubtful
or uncollectible accounts. The Company does not record any revenue that is
contingent or that is dependent upon future performance.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most inventories. Cost is
determined by the weighted average method for inventories at the Company's
foreign subsidiary in France and at the Company's dealership subsidiary
Irrigation Specialists. The Company reserves for obsolete, slow moving and
excess inventory by estimating the net realizable value based on the potential
future use of such inventory.
9
RESULTS OF OPERATIONS
The following table provides highlights of the Company's consolidated results of
operations for the three-month periods ended November 30, 2002 and 2001. The
information presented below should be read together with the accompanying
Consolidated Statements of Operations and with the industry segment information
in Note (7) to the consolidated financial statements contained herein.
FOR THE THREE MONTHS ENDED
------------------------------------------------
PERCENT
NOVEMBER NOVEMBER INCREASE
($ IN THOUSANDS) 2002 2001 (DECREASE)
- ---------------- ------------- ------------- ---------
Consolidated
Operating revenues ........................ $ 33,462 $ 28,545 17.2%
Cost of operating revenues ................ $ 26,451 $ 22,935 15.3
Gross profit ............................. $ 7,011 $ 5,610 25.0
Gross margin .............................. 21.0% 19.7%
Selling, engineering & research and
general & administrative expense .... $ 5,816 $ 4,653 25.0
Operating income .......................... $ 1,195 $ 957 24.9
Operating margin .......................... 3.6% 3.4%
Interest income, net ......................... $ 423 $ 437 (3.2)
Other income (expense), net .............. $ 1,787 $ 179 N/A
Income tax provision ...................... $ 521 $ 478 9.0
Effective income tax rate ................. 15.3% 30.4%
Net earnings .............................. $ 2,884 $ 1,095 163.5
Irrigation Equipment Segment (See Note (7))
Operating revenues ........................ $ 30,631 $ 24,843 23.3
Operating income .......................... $ 4,080 $ 3,119 30.8
Operating margin .......................... 13.3% 12.6%
Diversified Products Segment (See Note (7))
Operating revenues ....................... $ 2,831 $ 3,702 (23.5)
Operating income .......................... $ 291 $ 375 (22.4)%
Operating margin .......................... 10.3% 10.1%
Operating revenues for the three-months ended November 30, 2002 were
$33.5 million as compared to $28.5 million for the same prior year period.
Irrigation equipment revenues totaled $30.6 million as compared to $24.8 million
for the same prior year period. Revenues increased due to new operations and
products, and dry weather conditions. New business operations established after
the three-months ended November 30, 2001 contributed $3.4 million in new
irrigation revenues for the three-months ended November 30, 2002. Diversified
products revenues were $2.8 million during the three-months ended November 30,
2002, lower than the same period prior year revenues of $3.7 million. The
decrease in diversified product revenues was primarily due to contract
manufacturing customers relying less on outsourced manufacturing. The Company
expects diversified products revenues for the remaining fiscal 2003 to be
comparable to the same prior year periods.
Gross margin for the three-months ended November 30, 2002 was 21.0% as
compared to 19.7% for the same prior year period. The increase in gross margin
was the result of modest sales price increases partially offset by higher
materials costs.
Selling, general and administrative and engineering and research
expenses during the three-months ended November 30, 2002 totaled $5.8 million as
compared to $4.7 million for the same prior year period. The increase was due to
primarily to incremental expenses related to new business operations established
after the three-months ended November 30, 2001.
Net interest income during the three-months ended November 30, 2002
totaled $423,000 as compared to $437,000 for the same prior year period.
10
Other income during the three-months ended November 30, 2002 totaled
$1.8 million as compared to $179,000 for the same prior year period. During the
three-months ended November 30, 2002, the Company recorded both other income and
other non-current assets of $1.7 million to reflect the cumulative cash
surrender value of four life insurance policies that the Company maintains on
current and former executive officers. These policies were established in 1993
to insure the potential liability under the supplemental retirement plan for
these executives. The Company is the sole named beneficiary and owner of these
policies, which are held in trust. The $1.7 million cumulative cash surrender
value was generated largely through annual premium payments made from 1993
through 2000. The Company had not previously recorded the increases in the cash
surrender value of the policies. The change in the cash surrender value of these
life insurance policies is not material to the Company's net earnings for any
previous period reported. The Company anticipates that the future annual change
in the cash value of these policies will also not be material.
The effective tax rate during the three-months ended November 30, 2002
was 15.3% as compared to 30.4% for the same period of the prior year. The
principal reason for the significantly lower effective tax rate during the first
quarter of fiscal 2003 was the impact of the other income associated with the
cash surrender value of life insurance policies described above, all of which is
exempt from state and federal income taxes. Without the impact of this other
income, the Company's effective tax rate for the quarter would have been 31.0%.
The Company benefits from an effective tax rate which is lower than the combined
federal and state statutory rate primarily due to the federal income tax exempt
status of interest income from its municipal bond investments.
Excluding the impact of the other income associated with the cash
surrender value of life insurance policies discussed above, which amounted to
$0.14 per diluted share, net earnings rose 6% to $1.2 million, or $0.10 per
diluted share, for the first quarter of fiscal 2003 compared with $1.1 million,
or $0.09 per diluted share, in the first quarter of fiscal 2002.
Long term, the Company believes that the agricultural irrigation
equipment demand drivers remain solidly in place; farmers need to conserve
water, energy and labor while at the same time improve and stabilize crop yields
and increase food production for a growing world population. The Company's order
backlog at November 30, 2002, totaled $19.4 million compared with $26.4 million
at November 30, 2001, and $18.9 million at August 31, 2002. Early domestic
fiscal 2003 orders for new irrigation equipment sales have lagged somewhat
despite recent dry weather conditions. While the U.S. 2002 Farm Bill legislation
is generally positive for farmers, management believes some growers are simply
waiting to make their purchase decisions until they know if they will receive a
subsidy for the purchase under the Environmental Quality Incentive Program.
Additionally, because improved commodity pricing reduced government commodity
price support payments, some farmers may be feeling near-term cash flow
pressure. The Company will continue to search for appropriate acquisitions that
are congruent with its mission to be the worldwide leader in providing
intelligent water and plant nutrient management systems, while adding
incremental value for shareholders.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash for financing its receivables, inventories,
capital expenditures, stock repurchases and dividends. Historically, the Company
has financed its growth through funds provided by operations. In addition, the
Company maintains a $10.0 million bank line of credit. The Company has not
borrowed any funds under this line of credit and the entire $10.0 million is
available to the Company. Management believes that funds provided by operations,
supplemented if necessary by borrowings under the line of credit, will be
sufficient to cover reasonably expected working capital needs of the Company,
including the payment of dividends, and any planned capital expenditures during
fiscal 2003. The Company also held marketable securities of $42.6 million as of
November 30, 2002. Although these are liquid assets that could be readily
converted into cash if needed, the Company intends to hold these as investments
until maturity, and does not anticipate that the sale of any of these assets
will be necessary to meet its reasonably foreseeable cash requirements.
Maturities of these securities range from 0 to 42 months.
During the three months ended November 30, 2002, the Company's net cash
position decreased from $12.4 million to $3.9 million. The decrease in the net
cash position was a result of cash used in operating activities of $1.7 million,
cash used in investing activities of $6.4 million and cash used in financing
activities of $405,000 during the period.
The Company used cash in operating activities primarily to finance an
increase in receivables and inventories, which was offset by the Company's net
earnings and an increase in payables. Receivables increased $5.2 million from
the level of August 31, 2002 due primarily to the seasonality of the Company's
dealer stock program. Inventories at November 30, 2002, increased $1.2 million
as compared to August 31, 2002 due to seasonal production scheduling. Accounts
Payable increased $1.8 million due to the timing of production materials
purchases.
11
During the first quarter of fiscal 2003, the Company used cash in
investing activities in order to purchase $4.3 million of additional marketable
securities, for the increase in cash surrender value of life insurance of $1.7
million and to make capital expenditures of $784,000. These uses of cash were
offset during the period by $460,000 of proceeds from maturing marketable
securities. Capital expenditures during the period were used primarily to
upgrade and further automate the Company's manufacturing facilities. The Company
expects that total capital expenditures for fiscal 2003 will be approximately
$3.0 to $4.0 million and that they will be made to further improve the Company's
manufacturing facilities.
Approximately $405,000 of cash was used in financing activities during
the three-months ended November 30, 2002. This use of cash was primarily for the
payment of dividends on the Company's common stock.
The Company's equity increased to $93.2 million at November 30, 2002
from $90.7 million at August 31, 2002 due to its net earnings of $2.9 million,
net of dividends paid of $410,000. The Company's equity at November 30, 2001 was
$81.8 million.
SEASONALITY
Irrigation equipment sales are seasonal by nature. Farmers generally order
systems to be delivered and installed before the growing season. Shipments to U.
S. customers usually peak during the Company's second and third quarters for the
spring planting period.
CUSTOMERS
Management believes that overall the Company is not dependent on a single
customer. The diversified manufacturing segment, however, is largely dependent
on a few customers. While the loss of any substantial customer could have a
material short-term impact on the Company's business, the Company believes that
its diverse distribution channels and customer base reduces the long-term impact
of any such loss.
OTHER FACTORS
The Company's irrigation equipment sales are highly dependent upon the need for
irrigated agricultural production which, in turn, depends upon many factors
including total worldwide crop production, the profitability of agricultural
production, agricultural commodity prices, aggregate net cash farm income,
governmental policies regarding the agricultural sector, water and energy
conservation policies and the regularity of rainfall. In addition, irrigation
equipment sales are affected by the Company's ability to develop new products
and the market acceptance of these products, expenditures on advertising and
other promotions, competition from other manufacturers of these products;
changes in our distributors' or dealers' purchasing practices and financial
viability.
Approximately 28% and 21% of the Company's operating revenues for the
three-months ended November 30, 2002 and 2001 were generated from international
irrigation sales. Factors that affect the Company's international irrigation
sales include, economic, political and social conditions in individual
international markets; the value of the U.S. dollar against the foreign
currencies, especially the Euro, Brazilian real, Australian dollar, Canadian
dollar, South African rand and Mexican peso; heightened security for import and
export shipments of goods and changes in tariffs, import duties and other taxes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", replacing SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". The adoption of SFAS No. 144 has not had a material impact on the Company's
consolidated financial statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, and eliminates the use of the
pooling-of-interests method. SFAS No. 141 also provides new criteria to
determine whether an acquired intangible asset should be recognized separately
from goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized but instead tested for impairment
at least annually at the reporting unit level using a two-step impairment test.
The Company has adopted the provisions of SFAS No. 142 during the first quarter
of fiscal 2003, as required, and accordingly no longer amortizes any goodwill.
The adoption of SFAS No. 142 has not had a material impact on the Company's
consolidated financial statements.
12
CONCERNING FORWARD-LOOKING STATEMENTS - This quarterly report on Form 10-Q
contains not only historical information, but also forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Statements that are not historical are
forward-looking and reflect expectations for future company performance. In
addition, forward-looking statements may be made orally or in press releases,
conferences, reports, on the Company's worldwide web site, or otherwise, in the
future by or on behalf of the Company. When used by or on behalf of the company,
the words "expect", "anticipate", "estimate", "believe", "intend", and similar
expressions generally identify forward-looking statements. For these statements,
the Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to the Company and the markets it serves.
Particular risks and uncertainties that could affect the Company's overall
financial position include the continuing slowdown in the global and domestic
economy that began in 2000; additional economic uncertainty created by the
threat of continued terrorist acts and war, both of which could further reduce
growth in the U.S. and worldwide economy; the effect of the economic slowdown on
the Company's customers' ability to pay amounts owed to the Company; weather
conditions affecting demand, including warm winters and wet or cold spring and
dry summer weather; inability to raise prices of products due to market
conditions; changes in market demographics; actions of competitors; inability to
achieve earnings growth in fiscal 2003; increased insurance costs; the Company's
ability to develop and manufacture new and existing products based on
anticipated investments in manufacturing capacity and engineering; market
acceptance of existing and new products relative to expectations and based on
current commitments to fund advertising and promotions; increased competition in
the Company's businesses; financial viability of some distributors and dealers;
the Company's ability to acquire, develop, and integrate new businesses and
manage alliances successfully; changes in distributor and dealer ownership and
purchasing practices; the Company's ability to cost-effectively expand existing,
open new, move production between, and close manufacturing facilities; the
Company's ability to manage costs and capacity constraints at its manufacturing
facilities; the Company's ability to cost-effectively eliminate any
non-performing product lines; the Company's ability to manage inventory levels
and fully realize recorded inventory value; the impact of unexpected trends in
warranty claims or unknown product defects; the ability to hire, retain and
maintain good relationships with quality employees; threatened or pending
litigation action relating to patent infringement, employment, commercial
disputes and other matters; government action, including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce, infrastructure spending, health, and safety; availability of raw
materials and unforeseen price fluctuations for commodity raw materials; and the
impact of new accounting standards.
Particular risks and uncertainties facing the Company's international
business at the present include weak economic conditions in global markets;
political and social conditions in individual international markets; the value
of the U.S. dollar against foreign currencies, especially the Euro, Brazilian
real, Australian dollar, Canadian dollar, South African rand and Mexican peso;
heightened security for import and export shipments of goods and changes in
tariffs, import duties and other taxes.
Readers are cautioned to not place undue reliance on any
forward-looking statement and to recognize that the statements are predictions
of future results, which may not occur as anticipated. Actual results could
differ materially from those anticipated in the forward-looking statements and
from historical results, due to the risks and uncertainties described above, as
well as others not now anticipated. The foregoing statements are not exclusive
and further information concerning the Company and its businesses, including
factors that potentially could materially affect the Company's financial
results, may emerge from time to time. The Company assumes no obligation to
update forward-looking statements to reflect actual results or changes in
factors or assumptions affecting such forward-looking statements.
13
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market value of the Company's marketable securities will fluctuate inversely
with movements in interest rates. However, the Company does not consider itself
to be subject to material market risks with respect to its marketable securities
because of the relatively short maturities (0 to 42 months) of the securities
held by the Company and because the Company intends to hold the investments in
these marketable securities to maturity and has the ability to do so.
The Company has manufacturing operations in the United States, France
and Brazil and is starting manufacturing operations in South Africa. The Company
sells products in over 90 countries throughout the world and purchases a portion
of its components from third-party foreign suppliers. Export sales made from the
United States are principally U.S. dollar denominated. Accordingly, these sales
are not subject to a material currency translation risk. However, a majority of
the Company's revenue generated from operations outside the United States is
denominated in the currency of the customer location. The Company's most
significant transactional foreign currency exposures are the Euro and the
Brazilian real in relation to the U.S. dollar. Fluctuations in the value of
foreign currencies create exposures, which can adversely affect the Company's
results of operations. The Company attempts to manage its transactional foreign
exchange exposure by monitoring foreign currency cash flow forecasts and
commitments arising from the settlement of receivables and payables, and from
future purchases and sales.
The Company's translation exposure resulting from translating the
financial statements of foreign subsidiaries into U.S. dollars is not hedged.
The most significant translation exposures are the Euro and the Brazilian real
in relation to the U.S. dollar.
ITEM 4 - CONTROLS AND PROCEDURES
A review and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO") and Chief Financial Officer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14 under the
Securities Exchange Act of 1934) as of a date within 90 days prior to the filing
of this quarterly report. Based on that review and evaluation, the CEO and CFO
have concluded that the Company's current disclosure controls and procedures, as
designed and implemented, were effective to ensure that information the Company
is required to disclose in this quarterly report is recorded, processed,
summarized and reported in the time period required by the rules of the
Securities and Exchange Commission. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation. There were no
significant material weaknesses identified in the course of such review and
evaluation and, therefore, no corrective measures were taken by the Company.
14
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the ordinary course of its business operations, the Company is involved, from
time to time, in commercial litigation, employment disputes, administrative
proceedings and other legal proceedings. While the ultimate results of any known
legal matter are unknown at this time, management does not believe that these
matters, individually or in the aggregate, are likely to have a material adverse
effect on the Company's consolidated financial condition, results of operations
or cash flows.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
3(a) Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit to the Company's Report
on Form 10-Q for the fiscal quarter ended February 28, 1997.
3(b) Certificate of Amendment of the Restated Certificate of
Incorporation of Lindsay Manufacturing Co. dated February
7, 1997, incorporated by reference to Exhibit 3(b) to the
Company's Report on Form 10-Q for the fiscal quarter ended
February 28, 1997.
3(c) By-Laws of the Company amended and restated by the Board of
Directors on April 28, 2000, incorporated by reference to
Exhibit 3(b) of the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 2000.
4 Specimen Form of Common Stock Certificate incorporated by
reference to Exhibit 4 to the Company's Report on Form 10-Q
for the fiscal quarter ended November 30, 1997.
10(a)* Lindsay Manufacturing Co. Management Incentive Plan (MIP) 2003
Plan Year. (pages 19-23)
(b) Reports on Form 8-K -
No Form 8-K was filed during the quarter ended November 30, 2002.
* Certain confidential portions of this Exhibit were omitted by means
of redacting a portion of the text. This Exhibit has been filed
separately with the Secretary of the Commission with the redacted text
pursuant to the Company's Application Requesting Confidential Treatment
under Rule 24b-2 of the Securities Exchange Act of 1934.
15
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 13th day of
January, 2003.
LINDSAY MANUFACTURING CO.
By: /s/ BRUCE C. KARSK
------------------------------
Name: Bruce C. Karsk
Title: Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)
16
CERTIFICATION
I, Richard W. Parod, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lindsay
Manufacturing Co.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ RICHARD W. PAROD President and Chief Executive Officer
--------------------- January 13, 2003
Richard W. Parod
17
CERTIFICATION
I, Bruce C. Karsk, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lindsay
Manufacturing Co.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ BRUCE C. KARSK Executive Vice President and
------------------- Chief Financial Officer
Bruce C. Karsk January 13, 2003
18