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 February 28, 1998 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, $1.00 par value 9,269,220 - ----------------------------- -------------------------------- Title of Class Outstanding as of March 19, 1998 Exhibit index is located on page 2. Total number of pages 21. -1-
2 LINDSAY MANUFACTURING CO. AND CONSOLIDATED SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets, February 28, 1998 and 1997 and August 31, 1997 3 Consolidated Statements of Operations for the three months and six months ended February 28, 1998 and 1997 4 Consolidated Statements of Cash Flows for the six months ended February 28, 1998 and 1997 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Position 9-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Part II - Other Information Item 1. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibit Index 10 (a) - Lindsay Manufacturing Co., Executive Compensation 16-20 Plan 27 - Financial Data Schedule 21 </TABLE> -2-
3 PART I. FINANCIAL STATEMENTS Item 1. Financial Statements Lindsay Manufacturing Co. CONSOLIDATED BALANCE SHEETS February 28, 1998 and 1997 and August 31, 1997 ($ in thousands, except par values) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) February February August 1998 1997 1997 ASSETS ---------- ---------- ---------- <S> <C> <C> <C> Current assets: Cash and cash equivalents....................................... $ 67 $ 2,141 $ 4,231 Marketable securities........................................... 11,197 15,060 12,077 Receivables..................................................... 30,421 33,671 18,900 Inventories..................................................... 10,779 9,882 9,995 Deferred income taxes........................................... 4,281 3,426 4,547 Other current assets............................................ 471 659 77 ---------- ---------- ---------- Total current assets.......................................... 57,216 64,839 49,827 Long-term marketable securities................................... 45,667 29,341 45,802 Property, plant and equipment, net................................ 11,757 10,739 11,294 Other noncurrent assets........................................... 1,140 1,131 1,060 ---------- ---------- ---------- Total assets...................................................... $ 115,780 $ 106,050 $ 107,983 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade......................................... $ 11,531 $ 7,453 $ 4,993 Other current liabilities....................................... 12,789 12,529 14,337 Current portion of capital lease obligation..................... 151 0 149 ---------- ---------- ---------- Total current liabilities..................................... 24,471 19,982 19,479 Other noncurrent liabilities...................................... 1,139 1,198 1,274 Obligation under capital lease less current portion............... 186 0 262 ---------- ---------- ---------- Total liabilities................................................. 25,796 21,180 21,015 ---------- ---------- ---------- Contingencies Stockholders' equity: Preferred stock, ($1 par value, 2,000,000 shares authorized, no shares issued and outstanding in February 1998 and 1997 and August 1997)..................... Common stock, ($1 par value, 25,000,000 shares authorized, 11,265,250, 11,182,625 and 11,203,256 shares issued in February 1998 and 1997 and August 1997)........... 11,265 11,183 11,203 Capital in excess of stated value............................. 1,079 0 450 Retained earnings............................................. 117,703 98,151 106,639 Less treasury stock, (at cost, 1,996,030, 1,578,630 and 1,794,030 shares in February 1998 and 1997 and August 1997). (40,063) (24,464) (31,324) ---------- ---------- ---------- Total stockholders' equity........................................ 89,984 84,870 86,968 ---------- ---------- ---------- Total liabilities and stockholders' equity........................ $ 115,780 $ 106,050 $ 107,983 ========== ========== ========== </TABLE> The accompanying notes are an integral part of the financial statements. -3-
4 Lindsay Manufacturing Co. CONSOLIDATED STATEMENTS OF OPERATIONS For the three months and six months ended February 28, 1998 and 1997 ($ in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended ---------------------------- ------------------------------ February February February February 1998 1997 1998 1997 ----------- ----------- ------------ ----------- <S> <C> <C> <C> <C> Operating revenues.......................... $ 49,708 $ 45,693 $ 87,156 $ 85,160 Cost of operating revenues.................. 35,853 33,942 63,744 63,945 ----------- ----------- ------------ ----------- Gross profit................................ 13,855 11,751 23,412 21,215 ----------- ----------- ------------ ----------- Operating expenses: Selling expense........................... 1,386 1,266 2,658 2,299 General and administrative expense........ 2,218 1,989 4,073 3,745 Engineering and research expense.......... 409 373 869 756 ----------- ----------- ------------ ----------- Total operating expenses.................... 4,013 3,628 7,600 6,800 ----------- ----------- ------------ ----------- Operating income............................ 9,842 8,123 15,812 14,415 Interest income, net........................ 767 674 1,558 1,448 Other income, net........................... 2 166 193 173 ----------- ----------- ------------ ----------- Earnings before income taxes................ 10,611 8,963 17,563 16,036 Income tax provision........................ 3,448 2,867 5,708 5,131 ----------- ----------- ------------ ----------- Net earnings................................ $ 7,163 $ 6,096 $ 11,855 $ 10,905 =========== =========== ============ =========== Average shares outstanding - Basic 9,303,734 9,545,840 9,347,097 9,534,792 Net earnings per share - Basic.............. $ 0.77 $ 0.64 $ 1.27 $ 1.14 ============ =========== ============ =========== Average shares outstanding - Diluted 9,738,910 10,068,263 9,797,027 10,079,679 Net earnings per share - Diluted............ $ 0.74 $ 0.61 $ 1.21 $ 1.08 ============ =========== ============ =========== Cash dividends per share.................... $ 0.050 $ 0.033 $ 0.085 $ 0.067 ============ =========== =========== =========== </TABLE> The accompanying notes are an integral part of the financial statements. -4-
5 Lindsay Manufacturing Co. CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended February 28, 1998 and 1997 (in thousands) (Unaudited) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------- February February 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES ---------- ---------- <S> <C> <C> Net earnings........................................................... $ 11,855 $ 10,905 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization....................................... 1,113 990 Amortization of marketable securities premiums, net................. 85 123 Gain on sale of fixed assets........................................ (56) (10) (Gain) on sale of marketable securities held-to-maturity............ 0 (14) Provision for uncollectible accounts receivable..................... 0 30 Deferred income taxes............................................... 266 (57) Changes in assets and liabilities: Receivables......................................................... (11,521) (13,573) Inventories......................................................... (784) (2,082) Other current assets................................................ (394) (389) Accounts payable.................................................... 6,538 1,538 Other current liabilities........................................... (2,573) (1,085) Current taxes payable............................................... 1,025 832 Other noncurrent assets and liabilities............................. (215) (94) ---------- ---------- Net cash flows provided by (used in) operating activities.............. 5,339 (2,886) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment............................. (1,576) (2,057) Proceeds from sale of property, plant and equipment.................... 56 29 Purchases of marketable securities held-to-maturity.................... (6,675) (8,527) Proceeds from maturities of marketable securities held-to-maturity..... 7,605 16,089 ---------- ---------- Net cash flows (used in) provided by investing activities.............. (590) 5,534 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments under capital lease obligation ..................... (74) 0 Proceeds from issuance of common stock under stock option plan......... 691 787 Three-for-two stock split fractional shares paid in cash............... 0 (2) Dividends paid......................................................... (791) (638) Purchases of treasury stock............................................ (8,739) (3,016) ---------- ---------- Net cash flows used in financing activities............................ (8,913) (2,869) ---------- ---------- Net decrease in cash and cash equivalents.............................. (4,164) (221) Cash and cash equivalents, beginning of period......................... 4,231 2,362 ---------- ---------- Cash and cash equivalents, end of period............................... $ 67 $ 2,141 ========== ========== Supplemental Cash Flow Information: Income taxes paid...................................................... $ 4,389 $ 4,391 Interest paid.......................................................... $ 29 $ 1 </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, 1997 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 February 28, 1998, 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. The carrying amounts of the securities used in computing unrealized and realized gains and losses are determined by specific identification. 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. There are no investments in the available-for-sale category included in marketable securities at February 28, 1998. Investments in the held-to-maturity category are included in marketable securities ($11.2 million) and long-term marketable securities ($45.7 million). The total amortized cost, gross unrealized holding gains, gross unrealized holding losses, and aggregate fair value for held-to-maturity securities are $56.9 million, $0.0 million, $0.5 million, and $57.4 million, respectively. There have not been any sales of held-to-maturity securities for the first six months of Fiscal 1997. In the held-to-maturity category, $11.2 million in securities mature within one year and $45.7 million have maturities ranging from one to three 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) ------------------------------------ February February August 1998 1997 1997 ---------- ---------- ---------- <S> <C> <C> <C> Total manufactured goods First-in, first-out inventory $14,940 $14,774 $14,164 LIFO reserves (3,499) (4,211) (3,500) Obsolescence reserve ( 662) ( 681) ( 669) ---------- ---------- ---------- Total inventories $10,779 $ 9,882 $ 9,995 ========== ========== ========== </TABLE> The estimated percentage distribution between major classes of inventory before reserves is as follows: <TABLE> <CAPTION> February February August 1998 1997 1997 ---------- ---------- ---------- <S> <C> <C> <C> Raw materials 19% 16% 19% Work in process 6% 8% 6% Purchased parts 30% 32% 30% Finished goods 45% 44% 45% </TABLE> 4. Property, Plant and Equipment Property, plant and equipment are stated at cost. <TABLE> <CAPTION> (in thousands) ------------------------------------ February February August 1998 1997 1997 ---------- ---------- ---------- <S> <C> <C> <C> Plant and equipment: Land $ 70 $ 70 $ 70 Buildings 5,118 4,825 5,033 Equipment 24,008 22,553 23,769 Other 3,237 3,175 2,135 Capital lease: Equipment 458 0 458 ---------- ---------- ---------- Total plant, equipment & capital lease 32,891 30,623 31,465 Accumulated depreciation & amortization: Plant and equipment (21,073) (19,884) (20,145) Capital lease (61) 0 (26) ---------- ---------- ---------- Property, plant and equipment, net $ 11,757 $10,739 $11,294 ========== ========== ========== </TABLE> 5. Contingencies The Company and its subsidiaries are defendants in various legal actions arising in the course of their business activities. During fiscal 1996, Lindsay substantially completed certain environmental remediation efforts at its manufacturing facility. Lindsay believes that its insurer should cover the costs of certain remediation costs. 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 judgment in the amount of -7-
8 Lindsay Manufacturing Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Contingencies - Continued $2.4 million in favor of the insurer. In July 1997, the United States Court of Appeals reversed the judgment of $2.4 million and remanded the case to the district court for further proceedings. The Company has not made a provision for the previously reimbursed remediation costs. In the opinion of management, an unfavorable outcome with respect to any or all of these matters will not result in a material adverse effect on Lindsay's consolidated financial position, results of operations or cash flows. 6. Net Earnings Per Share The Company has adopted the Statement of Financial Accounts Standards ("SFAS") No. 128, "Earnings per Share" (SFAS No. 128). Primary and fully diluted earnings per share has been replaced with basic and diluted earnings per share. Diluted earnings per share takes into consideration outstanding shares plus the effect of common shares from options. All earnings per share amounts have been restated to conform to the SFAS No. 128 requirements. The following table illustrates the computation of basic and diluted earnings per share: <TABLE> <CAPTION> (in thousands) ---------------------------------------------------- Three Months Ended Six Months Ended ----------------------- ---------------------- 2/28/98 2/28/97 2/28/98 2/28/97 -------- -------- -------- ------- <S> <C> <C> <C> <C> Numerator for basic and diluted earnings $ 7,163 $ 6,096 $11,855 $10,905 per share - net earnings ======= ======= ======= ======= Denominator for basic earnings per share - weighted average number of common shares outstanding during the period. 9,304 9,546 9,347 9,535 Incremental common shares attributable to exercise of outstanding options 435 522 450 545 ------ ------ ------ ------ Denominator for diluted earnings per share 9,739 10,068 9,797 10,080 ======= ======= ======= ======= Basic earnings per share $ 0.77 $ 0.64 $ 1.27 $ 1.14 ======= ======= ======= ======= Diluted earnings per share $ 0.74 $ 0.61 $ 1.21 $ 1.08 ======= ======= ======= ======= </TABLE> Options to purchase 53,000 shares of common stock at $42.25 per share were outstanding during the second quarter of fiscal year 1998, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options expire on November 6, 2007. -8-
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table provides highlights for the three month and six month periods indicated of Fiscal Year 1998 as compared to the same periods of Fiscal Year 1997. <TABLE> <CAPTION> Three Months Ended Six Months Ended --------------------------- ---------------------------- Percent Percent Increase Increase ($ in thousands) 2/28/98 2/28/97 (Decrease) 2/28/98 2/28/97 (Decrease) - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Consolidated - ------------ Operating Revenues ....................$49,708 $45,693 8.8% $87,156 $85,160 2.3% Cost of Operating Revenues ............$35,853 $33,942 5.6 $63,744 $63,945 (0.3) Gross Profit ..........................$13,855 $11,751 17.9 $23,412 $21,215 10.4 Gross Margin ........................... 27.9% 25.7% 26.9% 24.9% Selling, Eng. & Research, and G&A Expense .........................$ 4,013 $ 3,628 10.6 $ 7,600 $ 6,800 11.8 Operating Income ......................$ 9,842 $ 8,123 21.2 $15,812 $14,415 9.7 Operating Margin ...................... 19.8% 17.8% 18.2% 16.9% Interest Income, net ..................$ 767 $ 674 13.8 $ 1,558 $ 1,448 7.6 Other Income, net .....................$ 2 $ 166 (98.8) $ 193 $ 173 11.6 Income Tax Provision ..................$ 3,448 $ 2,867 20.3 $ 5,708 $ 5,131 11.2 Effective Income Tax Rate ............. 32.5% 32.0% 32.5% 32.0% Net Earnings...........................$ 7,163 $ 6,096 17.5% $11,855 $10,905 8.7% </TABLE> As the above table displays, operating revenues for the three month period ended February 28, 1998 increased 8.8 percent ($4.0 million) from the comparable period of the prior year. The increase in second quarter revenue was the net result of a 5 percent ($1.8 million) increase in domestic irrigation equipment revenues, a 47 percent ($2.0 million) increase in export irrigation equipment revenues and a 3 percent ($0.2 million) increase in diversified products and other revenues. For the six month period ended February 28, 1998, operating revenues were up 2.3 percent ($2.0 million) from the comparable period of the prior year. U.S. irrigation equipment revenue was up 2 percent ($1.2 million), export irrigation equipment revenue was essentially equal to the comparable period of the prior year and diversified products and other revenues for the six month period were up 6 percent ($0.9 million). Domestic irrigation equipment revenues for both the three and six month periods of fiscal 1998 continued to be favorably impacted by the long term demand drivers of continued farmer emphasis on conserving water, energy, and labor. Additionally, creative fall and winter sales and marketing programs and mild winter weather favorably impacted U.S. activity for the three and six month periods. Export irrigation equipment revenues for both the three and six month periods of fiscal 1998 benefited from increases in the Canadian, Australian, Western European and African markets partially offset by a slower Latin American market. Diversified products and other revenues grew during both the three and six month periods of fiscal 1998 due to increased outsource manufacturing revenues partially offset by reduced revenues from sales of large diameter tubing. -9-
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Gross margin for the three months ended February 28, 1998, as a percent of operating revenues, was 27.9 percent - up from 25.7 percent of the prior year's comparative period. For the six months ended February 28, 1998, gross margin as a percent of operating revenues was 26.9 percent as compared to 24.9 percent for the six months ended February 29, 1997. Strong demand for irrigation equipment in the U.S. market for both the three and six month periods resulted in a continued favorable pricing environment. Additionally, production efficiency increased during both the three and six month period of the current year and raw material costs were, in total, relatively stable. Selling, general and administrative, and engineering and research expenses for the three month period ended February 28, 1998, were $4.0 million as compared to $3.6 million during the prior year's comparative period. For the six month period, fiscal 1998 selling, general and administrative, and engineering and research expenses totaled $7.6 million as compared to $6.8 million in fiscal 1997. Increased wage, salary and benefit costs (including group health insurance) and increased advertising and dealer promotion expenditures comprise the majority of the increased expenses for both the three and six month periods. The effective tax rate for both the three month and six month periods ended February 28, 1998 was 32.5 perent. This compares to an effective tax rate of 32.0 percent for both the comparable three month and six month periods of the prior year. Due to the federal income tax exempt status of interest income from its municipal bond investments, the state economic development tax credits, and the foreign sales corporation federal tax provisions as they relate to export sales, Lindsay benefits from an effective tax rate that is lower than the combined federal and state statutory rates, currently estimated at 36.7 percent. FINANCIAL POSITION AND LIQUIDITY The discussion of financial position and liquidity focuses on the balance sheet and statement of cash flows. Lindsay requires cash for financing its receivables, inventories, capital expenditures, stock repurchases and dividends. Over the years, Lindsay has financed its growth through funds provided by operations. Cash flows provided by operations of $5.3 million for the first six months of fiscal 1998 compared to cash flows used in operations of $2.9 million for the first six months of fiscal 1997. The cash flows provided by operating activities in fiscal 1998 was primarily due to an increase in accounts payable and net earnings partially offset by increased receivables. Fiscal 1997 cash flows used in operating activities was principally due to an increase in receivables and inventories partially offset by net earnings and increased accounts payable. Receivables of $30.4 million at February 28, 1998 increased $11.5 million from $18.9 million at August 31, 1997 and decreased $3.3 million from $33.7 million at February 28, 1997. The increase from August 31, 1997, was principally due to the higher level of North American irrigation equipment sales activity during February 1998 as compared to August 1997 and marketing programs that offered extended payment terms to our dealers and customers during the first and second quarters of fiscal 1998. The decrease from February 28, 1997, was primarily due to the lower level of sales and deliveries under a marketing program that offered deferred payment terms to our dealers. Inventories at -10-
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) February 28, 1998 totaled $10.8 million, higher than their $10.0 million balance at August 31, 1997 and $9.9 million balance at February 28, 1997. Inventory was increased to adequately service the higher level of sales activity the Company was projecting. Current liabilities of $24.5 million at February 28, 1998 are higher than their $19.5 million balance at August 31, 1997 and their $20.0 million balance at February 28, 1997. The increase from August 31, 1997 is principally due to increased trade payables and a higher accrual for taxes payable partially offset by lower accruals for international dealer prepayments and payroll and vacation pay. The increase from February 28, 1997 is primarily due to increased trade payables and a higher accrual for payroll and vacation pay partially offset by a lower accrual for international dealer prepayments. Cash flows used in investing activities of $0.6 million for the first six months of fiscal 1998 compared to $5.5 million provided by investing activities for the first six months of fiscal 1997 and for both periods was primarily attributable to proceeds from the maturity of marketable securities, partially offset by purchases of marketable securities and capital expenditures. Fiscal 1997 proceeds from the maturity of marketable securities was at a higher level than fiscal 1998. Lindsay's cash and short-term marketable securities totaled $11.3 million at February 28, 1998, as compared to $16.3 million at August 31, 1997, and $17.2 million at February 28, 1997. At February 28, 1998, Lindsay had $45.7 million invested in long-term marketable securities which represent intermediate term (one to three and one-half year maturities) municipal debt. This is comparable to $45.8 million at August 31, 1997 and an increase from $29.3 million at February 28, 1997. Cash flows used in financing activities of $8.9 million for the first six months of fiscal 1998 increased from $2.9 million for the first six months of fiscal 1997 and for both periods was primarily attributable to purchases of treasury stock and dividends paid partially offset by proceeds from the issuance of common stock under Lindsay's employee stock option plan. Lindsay's equity increased to $90.0 million at February 28, 1998 from $87.0 million at August 31, 1997, due to its net earnings of $11.8 million, less $8.7 million used to repurchase 202,000 shares of common stock per Lindsay's previously announced stock repurchase plan, plus the proceeds of $0.7 million from the issuance of 61,994 shares of common stock under Lindsay's employee stock option plan, less dividends paid of $0.8 million. Lindsay's equity at February 28, 1997 was $84.9 million. Capital expenditures totaling $1.6 million for the first six months of 1998 were used primarily for upgrading manufacturing plant equipment. Lindsay expects its Fiscal 1998 capital expenditures to be approximately $3.5 to $4.0 million which will be used primarily to improve Lindsay's existing facilities and expand its manufacturing capabilities. 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, dividends and repurchase of common stock. -11-
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) 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 Lindsay's second and third quarters 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, the 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 16 and 17 percent of Lindsay's operating revenues for the first six months of 1998 and 1997 respectively, were generated from export sales. For the full year of 1997, approximately 20 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 irrevocable letters of credit which are confirmed by a U.S. bank or other secured means. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. Lindsay is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will have no impact on Lindsay's consolidated results of operations, financial position or cash flows. ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. -12-
13 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 selected plan implementation was delayed until finalization of the Consent Decree in April 1992. The final remediation plans were approved in 1993 and 1994 and the remediation plans were fully implemented during Fiscal 1995. The balance sheet reserve for this remediation was $0.2 million at February 28, 1998 and $0.3 million at August 31, 1997. 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 judgment in the amount of $2.4 million in favor of the insurer. In July 1997, the United States Court of Appeals reversed the judgment of $2.4 million and remanded the case to the District Court for further proceedings. The Company has not made a provision for the previously reimbursed remediation costs. 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. -13-
14 OTHER INFORMATION (Continued) CONCERNING FORWARD LOOKING STATEMENTS - This Report on Form 10-Q, including the Management's Discussion and Analysis and other sections, contains forward looking statements that are subject to risks and uncertainties and which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward looking statements include the information concerning possible or assumed future results of operations of the Company and those statements preceded by, followed by or include the words "future", "position", "anticipate(s)", "expect", "believe(s)", "see", "plan", "further improve", "outlook", "should", or similar expressions. 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. Readers of this Report should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in these forward looking statements; availability of and price of raw materials, product pricing, competitive environment and related domestic and international market conditions, operating efficiencies and actions of domestic and foreign governments. Any changes in such factors could result in significantly different results. Item 4. Submission of Matters to a Vote of Security Holders Lindsay's annual shareholder's meeting was held on January 23, 1998. The shareholders voted to elect two directors, to adopt the Company's executive compensation plan for certain awards to qualify as "performance-based compensation" not subject to the limitations on deductibility of executive compensation provided for in Section 162(m) of the Internal Revenue Code of 1986, and to ratify the appointment of Coopers & Lybrand L.L.P. as independent accountants for the fiscal year ending August 31, 1998. There were 9,346,356 shares of common stock entitled to vote at the meeting and a total of 8,891,065 shares (95.13%) were represented at the meeting. 1. ELECTION OF DIRECTORS: FOR WITHHOLD Howard G. Buffett 8,843,713 47,352 George W. Plossl 8,749,319 141,746 2. EXECUTIVE COMPENSATION PLAN. Approval of the adoption of the Company's Executive Compensation Plan. FOR - 8,727,686 AGAINST - 119,167 ABSTAIN - 44,212 BROKER NON-VOTE - 0 3. AUDITORS. Ratification of the appointment of Coopers & Lybrand L.L.P. as independent auditors for the fiscal year ended August 31, 1998 FOR - 8,860,346 AGAINST - 7,178 ABSTAIN - 23,541 BROKER NON-VOTE - 0 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 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. Executive Compensation Plan 27 - Financial Data Schedule (b) Reports on Form 8-K - No Form 8-K was filed during the quarter ended February 28, 1998 -14-
15 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: March 19, 1998 Bruce C. Karsk -------------------------------- Bruce C. Karsk Vice President - Finance, Treasurer and Secretary; Principal Financial and Accounting Officer Date: March 19, 1998 Ralph J. Kroenke -------------------------------- Ralph J. Kroenke Controller -15-