1 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 May 31, 1996 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.) Box 156, East Highway 91, Lindsay, Nebraska 68644 - ------------------------------------------- --------- (Address of principal executive offices) (Zip Code) 402-428-2131 ------------------------------- (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 --- --- Common Stock, $1.00 par value 6,416,844 - ----------------------------- ------------------------------- Title of Class Outstanding as of June 19, 1996 Exhibit index is located on page 2. Total number of pages 15. -1-
2 LINDSAY MANUFACTURING CO. AND CONSOLIDATED SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information Consolidated Balance Sheets, May 31, 1996 and 1995 3 and August 31, 1995 Consolidated Statements of Operations for the three 4 months and nine months ended May 31, 1996 and 1995 Consolidated Statements of Cash Flows for the nine 5 months ended May 31, 1996 and 1995 Notes to Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Results of Operations 9-12 and Financial Position Part II - Other Information Item 1. Legal Proceedings 12-13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit Index 11 - Statement re Computation of Per Share Earnings 15 -2-
3 PART I FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <CAPTION> Lindsay Manufacturing Co. CONSOLIDATED BALANCE SHEETS May 31, 1996 and 1995 and August 31, 1995 (in thousands, except share amounts) ------------------------------------------------------------------------------------------------ (Unaudited) (Unaudited) May May August 1996 1995 1995 ---------- ---------- ---------- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents.................................. $ 2,869 $ 6,390 $ 4,514 Marketable securities...................................... 21,857 11,005 18,792 Receivables................................................ 20,583 14,139 10,353 Inventories................................................ 7,974 6,220 5,384 Deferred income taxes...................................... 3,030 2,876 2,804 Other current assets....................................... 2,037 2,038 1,891 ---------- ---------- ---------- Total current assets..................................... 58,350 42,668 43,738 Long-term marketable securities.............................. 29,158 40,878 34,003 Property, plant and equipment, net........................... 9,393 6,382 7,164 Other noncurrent assets...................................... 1,221 1,151 1,155 ---------- ---------- ---------- Total assets................................................. $ 98,122 $ 91,079 $ 86,060 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade.................................... $ 5,896 $ 4,624 $ 4,295 Other current liabilities.................................. 13,392 12,910 11,636 ---------- ---------- ---------- Total current liabilities................................ 19,288 17,534 15,931 Other noncurrent liabilities................................. 1,355 1,342 1,386 ---------- ---------- ---------- Total liabilities............................................ 20,643 18,876 17,317 ---------- ---------- ---------- Commitments and contingencies Stockholders' equity: Preferred stock, ($1 par value, 2,000,000 shares authorized, no shares issued and outstanding in May 1996 and 1995 and August 1995) Common stock, ($1 par value, 10,000,000 shares authorized, 7,320,414, 4,840,638 and 4,842,805 shares issued in May 1996 and 1995 and August 1995............ 7,320 4,841 4,843 Capital in excess of stated value........................ 2,754 4,394 4,412 Retained earnings........................................ 85,810 70,584 72,447 Net unrealized holding gains............................. 0 1 0 Less treasury stock, (at cost, 907,120, 318,330 and 474,880 shares in May 1996 and 1995 and August 1995)... (18,405) (7,617) (12,959) ---------- ---------- ---------- Total stockholders' equity................................... 77,479 72,203 68,743 ---------- ---------- ---------- Total liabilities and stockholders' equity................... $ 98,122 $ 91,079 $ 86,060 ========== ========== ========== </TABLE> The accompanying notes are an integral part of the financial statements. -3-
4 <TABLE> <CAPTION> Lindsay Manufacturing Co. CONSOLDATED STATEMENTS OF OPERATIONS For the three months and nine months ended May 31, 1996 and 1995 (in thousands, except per share amounts) (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended ---------------------------- -------------------------- May May May May 1996 1995 1996 1995 --------- ----------- ---------- ----------- <S> <C> <C> <C> <C> Operating revenues................................. $ 41,139 $ 37,451 $ 106,605 $ 89,943 Cost of operating revenues......................... 30,534 28,040 79,775 68,973 ---------- ---------- ---------- ---------- Gross Profit....................................... 10,605 9,411 26,830 20,970 ---------- ---------- ---------- ---------- Operating expenses: Selling expenses........................... 1,068 979 3,129 3,064 General and administrative expense......... 1,661 1,701 4,966 4,615 Engineering and research expense........... 364 354 1,055 979 ---------- ---------- ---------- ---------- Total operating expenses............................ 3,093 3,034 9,150 8,658 ---------- ---------- ---------- ---------- Operating income.................................... 7,512 6,377 17,680 12,312 Interest income, net................................ 615 674 1,987 2,028 Other income, net................................... 43 65 348 132 ---------- ---------- ---------- ---------- Earnings before income taxes........................ 8,170 7,116 20,015 14,472 Income tax provision................................ 2,451 2,277 6,005 4,631 ---------- ---------- ---------- ---------- Net earnings........................................ 5,719 4,839 14,010 9,841 ========== ========== ========== ========== Net earnings per share: Primary.......................................... $ 0.84 $ 0.69 $ 2.07 $ 1.38 ========== ========== ========== ========== Fully diluted................................... $ 0.84 $ 0.69 $ 2.05 $ 1.38 ========== ========== ========== ========== Cash dividends per share............................ $ 0.05 $ 0.00 $ 0.10 $ 0.00 ========== ========== ========== ========== </TABLE> The accompanying notes are an integral part of the financial statements. -4-
5 <TABLE> <CAPTION> Lindsay Manufacturing Co. CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended May 31, 1996 and 1995 (in thousands) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ May May 1996 1995 ------------- ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,010 $ 9,841 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,084 920 Amortization of marketable securities premiums, net . . . . . . . . . . . . . . . . . . . . 247 269 Gain on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) (59) Loss on sale of marketable securities held-to-maturity . . . . . . . . . . . . . . . . . . 0 2 Loss on maturities of marketable securities held-to-maturity . . . . . . . . . . . . . . . 7 0 Gain on sale of marketable securities available-for-sale . . . . . . . . . . . . . . . . . (8) (1) Provision for uncollectible accounts receivable . . . . . . . . . . . . . . . . . . . . . . (65) 45 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (226) 667 Changes in assets and liabilities: Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,165) (3,104) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,590) 28 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (146) (167) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601 336 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,946 (2,506) Current taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190) 719 Other noncurrent assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (97) (95) --------- --------- Net cash flow provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . 5,354 6,895 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . (3,338) (1,715) Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . 79 68 Purchases of marketable securities held-to-maturity . . . . . . . . . . . . . . . . . . . . (11,744) (6,361) Proceeds from sale of marketable securities held-to-maturity . . . . . . . . . . . . . . . 0 2,998 Proceeds from maturities of marketable securities held-to-maturity . . . . . . . . . . . . 9,753 7,515 Proceeds from sale of marketable securities available-for-sale . . . . . . . . . . . . . . 3,525 1,001 --------- -------- Net cash flow provided (used in ) investing activities . . . . . . . . . . . . . . . . . . (1,725) 3,506 --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock under stock option plan . . . . . . . . . . . . . . 821 575 Three-for-two stock split fractional shares paid in cash . . . . . . . . . . . . . . . . . (2) 0 Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (647) 0 Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,446) (6,298) ---------- -------- Net cash flow used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . (5,274) (5,723) --------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . (1,645) 4,678 Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . 4,514 1,712 --------- --------- Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,869 $ 6,390 ========= ========= Supplemental Cash Flow Information: Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,464 $ 3,323 Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86 $ 8 </TABLE> The accompanying notes are an integral part of the financial statements. -5-
6 Lindsay Manufacturing Co. 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 generally accepted accounting principles or those normally made in the registrant's annual Form 10-K filing. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Lindsay Manufacturing Co. (Lindsay) August 31, 1995 Annual Report to Stockholders. In the opinion of management the unaudited consolidated financial statements of Lindsay reflect all adjustments of a normal recurring nature necessary to present a fair statement of the results of operations for the respective interim periods. The results for interim periods are not necessarily indicative of trends or results expected for a full year. 2. Cash Equivalents, Marketable Securities and Long-Term Marketable Securities Cash equivalents are included at cost, which approximates market. At May 31, 1996, Lindsay's cash equivalents were held primarily by one financial institution. Marketable securities and long-term marketable securities are categorized as held-to-maturity or available-for-sale. Investments in the held-to-maturity category are carried at amortized cost. Investments in the available-for-sale category are carried at fair value with unrealized gains and losses as a separate component of stockholders' equity. Lindsay considers all highly liquid investments with maturities of three months or less to be cash equivalents, while those having 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. On November 15, 1995 the Financial Accounting Standards Board Staff issued a special report on statement 115 "Accounting for Certain Investments in Debt and Equity Securities" that includes special transition provisions for the one-time reassessment and reclassification of securities from the held-to-maturity category during the period November 15, 1995 to December 31, 1995. Lindsay transferred securities maturing July 1, 1996 and August 1, 1996 from the held-to-maturity classification to the available-for-sale classification December 20, 1996. The total amortized cost, gross unrealized holding gains, gross unrealized holding losses and the aggregate fair value for the securities transferred are $3,518,687, $8,233, $0.0 and $3,526,920, respectively. There are no investments in the available-for-sale category included in Marketable securities at May 31, 1996. Investments in the held-to-maturity category are included in Marketable securities ($21.8 million) and Long-term marketable securities ($29.2 million). The total amortized cost, gross unrealized holding gains, gross unrealized holding losses, and aggregate fair value for held-to-maturity securities are $51.0 million, $0.2 million, $0.0 million, and $51.2 million, respectively. There have not been any sales of held-to-maturity securities for the first nine months of Fiscal 1996. In the held-to-maturity category, $21.8 million in securities mature within one year and $29.2 million have maturities ranging from one to four and one-half years. -6-
7 Lindsay Manufacturing Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for all inventories. <TABLE> <CAPTION> (in thousands) ---------------------------------- May May August 1996 1995 1995 ------- -------- -------- <S> <C> <C> <C> Total manufactured goods First-in, first-out inventory $11,539 $10,345 $ 9,626 LIFO reserves (2,948) (3,459) (3,570) Obsolescence reserve (617) (666) (672) -------- --------- --------- Total inventories $ 7,974 $ 6,220 $ 5,384 ======== ======== ======== The estimated percentage distribution between major classes of inventory before reserves is as follows: May May August 1996 1995 1995 -------- -------- -------- Raw materials 21% 21% 21% Work in process 7% 6% 7% Purchased parts 28% 20% 28% Finished goods 44% 53% 44% </TABLE> 4 Property, Plant and Equipment Property, plant and equipment are stated at cost. <TABLE> <CAPTION> (in thousands) ------------------------------------ May May August 1996 1995 1995 ------- ------- --------- <S> <C> <C> <C> Land $ 70 $ 66 $ 66 Buildings 4,426 4,248 4,345 Equipment 19,858 17,879 18,944 Other 4,344 2,532 2,337 ------- ------- ------- 28,698 24,725 25,692 Less accumulated depreciation 19,305 18,343 18,528 ------- ------- ------- Property, plant and equipment, net $ 9,393 $ 6,382 $ 7,164 ======= ======= ======= </TABLE> 5. Commitments and Contingent Liabilities The consolidated balance sheet reflects a reserve of $2.1 million at May 31, 1996, compared to $1.9 million at August 31, 1995, reflecting an increase to the reserve of $0.3 million and costs of $0.1 million during the first quarter of Fiscal 1996 for continued implementation of environmental remediation plans for aquifer and soil and shallow groundwater contaminations. Additionally, second and third quarter costs of $0.5 million were expensed on the consolidated statements of operations and were not reflected in the reserve on -7-
8 Lindsay Manufacturing Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Commitments and Contingent Liabilities - Continued the consolidated balance sheet. In 1987 the insurer agreed to reimburse Lindsay for remediation costs incurred by Lindsay. The insurer reduced its reimbursement of remediation costs in early 1990. In late 1990, Lindsay filed suit against the insurer. The insurer completely stopped reimbursement of remediation costs in 1991 and in 1992 the insurer filed a counterclaim against Lindsay for previously reimbursed remediation costs. In December 1995 the court dismissed Lindsay's suit against the insurer and entered a judgement in the amount of $2.4 million in favor of the insurer. Lindsay is in the process of appealing the dismissal of it's case against the insurer and the judgement against Lindsay. The Company has recorded a probable insurance recovery in other current assets. In the opinion of management, resolution of these matters, for which provision has not been made, will not have a material adverse affect on Lindsay's consolidated financial condition, however, an adverse outcome of these matters could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. The Company and its subsidiaries are defendants in various legal actions arising from other issues in the course of their business activities. In the opinion of management, resolution of these actions will not result in a material adverse effect on Lindsay's consolidated financial position, results of operations or cash flows. Lindsay carries property insurance, with a $10,000 deductible, for replacement value of all of its buildings and non-auto equipment. 6. Net Earnings Per Share Primary net earnings per share are calculated by dividing the earnings by the weighted average number of common and common equivalent (stock options) shares outstanding of 6,804,187 for the three months and 6,771,402 for the nine months ended May 31, 1996 as compared to 7,027,971 for the three months and 7,134,918 for the nine months ended May 31, 1995. The difference between shares for primary and fully diluted earnings per share was not significant in any period. On January 29, 1996, the Board of Directors declared a three-for-two split of Lindsay's common stock effective February 22, 1996, to stockholders of record on February 7, 1996. Accordingly, the average number of shares outstanding, per share information and stock option data have been adjusted to reflect the stock split. -8-
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table provides highlights for the three month and nine month periods indicated of Fiscal Year 1996 as compared to the same periods of Fiscal Year 1995. <TABLE> <CAPTION> Three Months Ended Nine Months Ended -------------------------------- ------------------------------------- Percent Percent Increase Increase ($ in thousands) 5/31/96 5/31/95 (Decrease) 5/31/96 5/31/95 (Decrease) - -------------------------------------------------------------------------------------------------------------------------- <S>> <C> <C> <C> <C> <C> <C> Consolidated Operating Revenues .....................$41,139 $37,451 9.8 % $106,605 $89,943 18.5% Cost of Operating Revenues .............$30,534 $28,040 8.9 $ 79,775 $68,973 15.7 Gross Profit ...........................$10,605 $ 9,411 12.7 $ 26,830 $20,970 27.9 Gross Margin ........................... 25.8% 25.1% 25.2% 23.3% Selling, Eng. & Research, and G&A Expense ..........................$ 3,093 $ 3,034 1.9 $ 9,150 $ 8,658 5.7 Operating Income .......................$ 7,512 $ 6,377 17.8 $ 17,680 $12,312 43.6 Operating Margin ....................... 18.3% 17.0% 16.6% 13.7% Interest Income, net ...................$ 615 $ 674 (8.8) $ 1,987 $ 2,028 (2.0) Other Income, net ......................$ 43 $ 65 (33.8) $ 348 $ 132 163.6 Income Tax Provision ...................$ 2,451 $ 2,277 7.6 $ 6,005 $ 4,631 29.7 Effective Income Tax Rate .............. 30.0% 32.0% 30.0% 32.0% Net Earnings............................$ 5,719 $ 4,839 18.2% $ 14,010 $ 9,841 42.4% </TABLE> As the above table displays, operating revenues for the three month period ended May 31, 1996 increased 9.8 percent ($3.7 million) from the comparable period of the prior year. For the nine month period ended May 31, 1996, operating revenues were up 18.5 percent ($16.7 million). The increase in third quarter revenue was the net result of an 18 percent ($4.8 million) increase in North American irrigation equipment revenues, no change in export irrigation equipment revenues and a 17 percent ($1.1 million) decrease in diversified products and other revenues. For the nine month period, fiscal 1996 North American irrigation equipment and export irrigation equipment revenues were up 21 percent ($13.6 million) and 75 percent ($5.2 million), respectively, as compared to the prior year. Diversified products and other revenues for the nine month period were down 11 percent ($2.1 million). North American irrigation equipment revenues for both the three and nine month periods of fiscal 1996 were favorably impacted by the long term demand drivers of continued farmer emphasis on conserving water, energy, and labor. Additionally, strong farm commodity prices favorably impacted North American activity for the three and nine month periods. As indicated above, export irrigation equipment revenues for the third quarter of fiscal 1996 were equal to those of the third quarter of the prior year. The increase in export irrigation equipment revenues for the nine month period of fiscal 1996 was due to stronger sales activity in our Western European and Latin American markets. -9-
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) The reduction in year-to-date fiscal 1996 diversified products and other revenues was due primarily to lower sales of large diameter steel tubing. For the third quarter of fiscal 1996, the reduction in diversified products and other revenue was caused by lower sales to both our outsource manufacturing and our large diameter steel tubing customers. Gross margin for the three months ended May 31, 1996, as a percent of operating revenues, was 25.8 percent as compared to 25.1 percent of the prior year's comparative period. For the nine months ended May 31, 1996, gross margin as a percent of operating revenues was 25.2 percent as compared to 23.3 percent for the nine months ended May 31, 1995. Strong demand for irrigation equipment in the North American market for both the three and nine month periods resulted in a continued favorable pricing environment. Additionally, raw material costs, in total, increased only slightly during both the three and nine month periods of the current year. Selling, general and administrative, and engineering and research expenses for the three month period ended May 31, 1996, were $3.1 million as compared to $3.0 million during the prior year's comparative period. For the nine month period, fiscal 1996 selling, general and administrative, and engineering and research expenses totaled $9.2 million as compared to $8.7 million for the first nine months of fiscal 1995. Higher wage & salary and advertising expenditures offset partially by lower insurance and legal fee expenditures comprise the majority of the increased expenses for both the three and nine month periods. The effective tax rate for both the three month and nine month periods ended May 31, 1996 was 30.0 percent. This compares to effective tax rate of 32.0 percent for both the comparable three month and nine month periods of the prior year. Due to the tax free status of interest earned on municipal bonds (for federal income tax purposes) and state economic development tax credits, Lindsay continues to benefit from an effective tax rate that is lower than the combined federal and state statutory rates (currently estimated at 38.5 percent). FINANCIAL CONDITION Lindsay's equity increased to $77.5 million at May 31, 1996 from $68.7 million at August 31, 1995, due to its net earnings of $14.0 million, less $5.4 million used to repurchase 194,800 (split adjusted) shares of common stock per Lindsay's previously announced stock repurchase plan, plus the proceeds of $0.8 million from the issuance of 57,051 shares of common stock under Lindsay's employee stock option plan, less dividends paid of $0.6 million. Lindsay announced the initiation of a regular cash dividend on February 7, 1996. A 5-cent dividend was paid March 15, 1996 and May 31, 1996. Lindsay's equity at May 31, 1995 was $72.2 million. Lindsay's cash and short-term marketable securities totaled $24.7 million at May 31, 1996, as compared to $23.3 million at August 31, 1995, and $17.4 million at May 31, 1995. Receivables of $20.6 million at May 31, 1996 increased $10.2 million from $10.4 million at August 31, 1995 and $6.5 million from $14.1 million at May 31, 1995 due to a deferred payment program which was part of Lindsay's 1996 marketing plan. Inventories at May 31, 1996 totaled -10-
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) $8.0 million, higher than their $5.4 million balance at August 31, 1995 and their $6.2 million balance at May 31, 1995, but continuing in an acceptable range. At May 31, 1996, Lindsay had $29.2 million invested in long-term marketable securities which represent intermediate term (one to four and one- half year maturities) municipal debt. This is down from $34.0 million at August 31, 1995 and $40.9 million at May 31, 1995. Current liabilities of $19.3 million at May 31, 1996 are higher than their $15.9 million balance at August 31, 1995 and their $17.5 million balance at May 31, 1995. The increase from August 31, 1995 is principally due to increased trade payables and higher accruals for warranty and international dealer prepayments. The increase from May 31, 1995 is primarily due to increased trade payables and a higher accrual for warranty, partially offset by lower accruals for taxes payable and legal settlement. Capital expenditures totaling $3.3 million for the first nine months of 1996 were used primarily for upgrading manufacturing plant equipment. Lindsay expects its fiscal 1996 capital expenditures to be approximately $3.5 million. Lindsay believes its capitalization (including cash and marketable securities balances) and operating cash flow are sufficient to cover expected working capital needs, planned capital expenditures and repurchase of common stock. SEASONALITY Irrigation equipment sales are seasonal by nature. Farmers generally order systems to be delivered and installed before the growing season. Shipments to North American customers usually peak during March and April for the spring planting period. Lindsay's expansion into diversified products complements its irrigation operations by using available capacity and reducing seasonality. OTHER FACTORS Lindsay's domestic and international 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, profitability of agricultural production, commodity prices, aggregate net farm income, governmental policies regarding the agricultural sector, water and energy conservation policies, and regularity of rainfall. Approximately 11 and 8 percent of Lindsay's operating revenues for the first nine months of 1996 and 1995 respectively, were generated from export sales. For the full year of 1995, approximately 10 percent of Lindsay's operating revenues were generated from export sales. Lindsay does not believe it has significant exposure to foreign currency translation risks because its export sales are all in U.S. dollars and are generally all shipped against prepayments or backed by irrevocable letters of credit which are confirmed by a U.S. bank. -11-
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In October 1995, FASB issued statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans and transactions in which goods or services are the consideration received for the issuance of equity instruments. This statement requires that an employer's financial statements include certain disclosures about stock-based employee compensation regardless of the method used to account for them. Adoption is required for fiscal years, beginning after December 15, 1995, Lindsay's Fiscal 1997. Lindsay expects to continue its accounting in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees". Part II OTHER INFORMATION Item 1. Legal Proceedings Lindsay is a party to a number of lawsuits arising from environmental and other issues in the ordinary course of its business. Management does not believe that these lawsuits, either individually or in the aggregate, are likely to have a material adverse effect on Lindsay's financial condition, results of operations or cash flows. Environmental contamination at Lindsay's manufacturing facility occurred in 1982 when a drill, operated by a sub-contractor installing groundwater monitoring wells, punctured a silt and sand lens and an underlying clay layer beneath a clay-lined lagoon. The 1982 puncture of the clay layer caused acid and solvent leachate to enter the sand and gravel aquifer. Since 1983, Lindsay has worked actively with the Nebraska Department of Environmental Control ("NDEC") to remediate this contamination by purging and treating the aquifer. In October 1989, the Environmental Protection Agency ("EPA") added Lindsay to the list of priority Superfund sites. In 1988, a sampling which was performed in connection with an investigation of the extent of aquifer groundwater contamination, revealed solvent contamination (volatile organic compounds) in the soil and shallow groundwater in three locations at and in the vicinity of the plant. Under a 1988 agreement with the EPA and NDEC, Lindsay conducted a Remedial Investigation/Feasibility Study ("RI/FS"). This study was completed in June 1990. Lindsay does not believe that there is any other soil or groundwater contamination at the manufacturing facility. In September 1990, the EPA issued its Record of Decision ("ROD") selecting a plan for completing the remediation of both contaminations. The plan selected for aquifer remediation was in line with Lindsay's expectations. However, the plan for remediation of the soil and shallow groundwater contamination proposed a higher degree of remediation than the company had previously expected. Therefore, Lindsay recognized an additional $2.9 million accrual in the fourth quarter of Fiscal 1990. The selected plan implementation was delayed until finalization of the Consent Decree in April 1992. Due to this delay, Lindsay -12-
13 OTHER INFORMATION (Continued) recognized an additional accrual of $0.6 million in the fourth quarter of fiscal 1991 and $0.8 million in the fourth quarter of fiscal 1992. The final remediation plans were approved in 1993 and 1994 and the remediation plans were fully implemented during fiscal 1995. The total balance sheet reserve for this remediation was $2.1 million at May 31, 1996 compared to $1.9 million at fiscal 1995 year end, reflecting an increase to the reserve of $0.3 million and costs of $0.1 million during the first quarter of fiscal 1996 for the continued implementation of the plans. Additionally, second and third quarter costs of $0.5 million were expensed on the consolidated statements of operations and was not reflected in the reserve on the consolidated balance sheet. Lindsay believes that the current reserve is sufficient to cover the estimated total cost for complete remediation of both the aquifer and soil and shallow groundwater contaminations under the final plans. Lindsay believes that its insurer should cover costs associated with the contamination of the aquifer that was caused by the puncture of the clay layer in 1982. However, Lindsay and the insurer are in litigation over the extent of the insurance coverage. In 1987 the insurer agreed to reimburse Lindsay for remediation costs incurred by Lindsay. The insurer reduced its reimbursement of remediation costs in early 1990. In late 1990, Lindsay filed suit against the insurer. The insurer completely stopped reimbursement of remediation costs in 1991 and in 1992 the insurer filed a counterclaim against Lindsay for previously reimbursed remediation costs. In December 1995 the court dismissed Lindsay's suit against the insurer and entered a judgement in the amount of $2.4 million in favor of the insurer. Lindsay is in the process of appealing the dismissal of it's case against the insurer and the judgement against Lindsay. If the EPA or the NDEC require remediation which is in addition to or different from the current plan and depending on the success of Lindsay's litigation against the insurer, this reserve could increase or decrease depending on the nature of the change in events. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 4 - Specimen Form of Common Stock Certificate incorporated by reference to Exhibit 4 of Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 33-23084), filed September 23, 1988. 11 - Statement re Computation of Per Share Earnings. (b) Reports on Form 8-K - No Form 8-K was filed during the quarter ended May 31, 1996. -13-
14 SIGNATURES 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. LINDSAY MANUFACTURING CO. Date: July 1, 1996 Bruce C. Karsk ----------------- Bruce C. Karsk Vice President - Finance, Treasurer and Secretary; Principal Financial and Accounting Officer Date: July 1, 1996 Ralph J. Kroenke -------------------- Ralph J. Kroenke Controller -14-