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, 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, $1.00 par value 13,874,404 - ----------------------------- ------------------------------ Title of Class Outstanding as of June 19,1998 Exhibit index is located on page 2. Total number of pages 15. -1-
2 LINDSAY MANUFACTURING CO. AND CONSOLIDATED SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets, May 31, 1998 and 1997 and August 31, 1997 3 Consolidated Statements of Operations for the three months and nine months ended May 31, 1998 and 1997 4 Consolidated Statements of Cash Flows for the nine months ended May 31, 1998 and 1997 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Position 9-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Part II - Other Information Item 1. Legal Proceedings 13-14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibit Index 27 - Financial Data Schedule 16 </TABLE> -2-
3 PART I FINANCIAL INFORMATION Item 1. Financial Statements Lindsay Manufacturing Co. CONSOLIDATED BALANCE SHEETS May 31, 1998 and 1997 and August 31, 1997 ($ in thousands, except par values) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------ (Unaudited) (Unaudited) May May August 1998 1997 1997 ASSETS ---------- ---------- ---------- <S> <C> <C> <C> Current assets: Cash and cash equivalents.................................. $ 10,869 $ 3,288 $ 4,231 Marketable securities...................................... 15,025 16,564 12,077 Receivables................................................ 25,457 20,479 18,900 Inventories................................................ 8,737 9,719 9,995 Deferred income taxes...................................... 3,837 3,800 4,547 Other current assets....................................... 269 639 77 ---------- ---------- ---------- Total current assets..................................... 64,194 54,489 49,827 Long-term marketable securities.............................. 40,459 37,591 45,802 Property, plant and equipment, net........................... 12,571 11,248 11,294 Other noncurrent assets...................................... 1,143 1,131 1,060 ---------- ---------- ---------- Total assets................................................. $ 118,367 $ 104,459 $ 107,983 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade.................................... $ 4,654 $ 4,662 $ 4,993 Other current liabilities.................................. 13,859 13,431 14,337 Current portion of capital lease obligation................ 153 0 149 ---------- ---------- ---------- Total current liabilities................................ 18,666 18,093 19,479 Other noncurrent liabilities................................. 1,221 1,273 1,274 Obligation under capital lease less current portion.......... 147 0 262 ---------- ---------- ---------- Total liabilities............................................ 20,034 19,366 21,015 ---------- ---------- ---------- Contingencies Stockholders' equity: Preferred stock, ($1 par value, 2,000,000 shares authorized, no shares issued and outstanding in May 1998 and 1997 and August 1997) Common stock, ($1 par value, 25,000,000 shares authorized, 16,982,068, 11,190,866 and 11,203,256 shares issued in May 1998 and 1997 and August 1997............ 16,982 11,191 11,203 Capital in excess of stated value........................ 0 20 450 Retained earnings........................................ 121,414 103,874 106,639 Less treasury stock, (at cost, 2,994,045, 1,753,030 and 1,794,030 shares in May 1998 and 1997 and August 1997). (40,063) (29,992) (31,324) ---------- ---------- ---------- Total stockholders' equity................................... 98,333 85,093 86,968 ---------- ---------- ---------- Total liabilities and stockholders' equity................... $ 118,367 $ 104,459 $ 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 nine months ended May 31, 1998 and 1997 ($ in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended --------------------------------- ----------------------------------- May May May May 1998 1997 1998 1997 ------------- --------------- -------------- --------------- <S> <C> <C> <C> <C> Operating revenues.......................... $ 43,904 $ 41,663 $ 131,060 $ 126,823 Cost of operating revenues.................. 31,711 30,370 95,455 94,315 ------------- --------------- -------------- --------------- Gross profit................................ 12,193 11,293 35,605 32,508 ------------- --------------- -------------- --------------- Operating expenses: Selling expense........................... 1,479 1,235 4,137 3,534 General and administrative expense........ 2,136 1,574 6,209 5,319 Engineering and research expense.......... 435 361 1,304 1,117 ------------- --------------- -------------- --------------- Total operating expenses.................... 4,050 3,170 11,650 9,970 ------------- --------------- -------------- --------------- Operating income............................ 8,143 8,123 23,955 22,538 Interest income, net........................ 784 724 2,342 2,172 Other income, net........................... 4,107 55 4,300 228 ------------- --------------- -------------- --------------- Earnings before income taxes................ 13,034 8,902 30,597 24,938 Income tax provision........................ 4,237 2,849 9,945 7,980 ------------- --------------- -------------- --------------- Net earnings................................ $ 8,797 $ 6,053 $ 20,652 $ 16,958 ============= =============== ============== =============== Average shares outstanding - Basic 13,946,190 14,240,724 13,995,827 14,281,700 Net earnings per share - Basic.............. $ 0.63 $ 0.43 $ 1.48 $ 1.19 ============= =============== ============== =============== Average shares outstanding - Diluted 14,554,704 14,890,404 14,648,595 15,043,146 Net earnings per share - Diluted............ $ 0.60 $ 0.41 $ 1.41 $ 1.13 ============= =============== ============== =============== Cash dividends per share.................... $ 0.033 $ 0.023 $ 0.090 $ 0.068 ============= =============== ============== =============== </TABLE> The accompanying notes are an integral part of the financial statements. -4-
5 Lindsay Manufacturing Co. CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended May 31, 1998 and 1997 ($ in thousands) (Unaudited) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------- May May 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES ---------- ---------- <S> <C> <C> Net earnings........................................................... $ 20,652 $ 16,958 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................................... 1,695 1,496 Amortization of marketable securities premiums, net................. 131 171 (Gain) on sale of fixed assets...................................... (145) (57) (Gain) on maturities of marketable securities held-to-maturity...... (1) (14) Provision for uncollectible accounts receivable..................... 0 45 Deferred income taxes............................................... 710 (431) Changes in assets and liabilities: Receivables......................................................... (6,557) (396) Inventories......................................................... 1,258 (1,919) Other current assets................................................ (192) (369) Accounts payable.................................................... (339) (1,253) Other current liabilities........................................... (2,047) 222 Current taxes payable............................................... 1,569 427 Other noncurrent assets and liabilities............................. (136) (19) ---------- ---------- Net cash flow provided by operating activities......................... 16,598 14,861 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment............................. (2,984) (3,073) Proceeds from sale of property, plant and equipment.................... 157 77 Purchases of marketable securities held-to-maturity.................... (6,675) (18,329) Proceeds from maturities of marketable securities held-to-maturity..... 8,940 16,089 ---------- ---------- Net cash flow used in investing activities............................. (562) (5,236) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments under capital lease obligation...................... (111) 0 Proceeds from issuance of common stock under stock option plan......... 708 815 Three-for-two stock split fractional shares paid in cash............... 0 (2) Dividends paid......................................................... (1,256) (968) Purchases of treasury stock............................................ (8,739) (8,544) ---------- ---------- Net cash flow used in financing activities............................. (9,398) (8,699) ---------- ---------- Net increase in cash and cash equivalents.............................. 6,638 926 Cash and cash equivalents, beginning of period......................... 4,231 2,362 ---------- ---------- Cash and cash equivalents, end of period............................... $ 10,869 $ 3,288 ========== ========== Supplemental Cash Flow Information: Income taxes paid...................................................... $ 7,652 $ 7,942 Interest paid.......................................................... $ 39 $ 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. (the "Company" or "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 May 31, 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 May 31, 1998. Investments in the held-to-maturity category are included in marketable securities ($15.0 million) and long-term marketable securities ($40.5 million). The total amortized cost, gross unrealized holding gains, gross unrealized holding losses, and aggregate fair value for held-to-maturity securities are $55.5 million, $0.4 million, $0.0 million, and $55.9 million, respectively. There have not been any sales of held-to-maturity securities for the first nine months of Fiscal 1998. In the held-to-maturity category, $15.0 million in securities mature within one year and $40.5 million have maturities ranging from one to three and one-fourth 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 1998 1997 1997 ---------- ---------- ---------- <S> <C> <C> <C> Total manufactured goods First-in, first-out inventory $12,960 $14,582 $14,164 LIFO reserves (3,577) (4,185) (3,500) Obsolescence reserve (646) (678) (669) ---------- ---------- ---------- Total inventories $ 8,737 $ 9,719 $ 9,995 ========== ========== ========== </TABLE> The estimated percentage distribution between major classes of inventory before reserves is as follows: <TABLE> <CAPTION> May May 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) ------------------------------------ May May August 1998 1997 1997 ---------- ---------- ---------- <S> <C> <C> <C> Plant and equipment: Land $ 70 $ 70 $ 70 Buildings 5,113 4,945 5,033 Equipment 24,387 22,782 23,769 Other 3,938 3,301 2,135 Capital lease: Equipment 458 0 458 ---------- ---------- ---------- Total plant, equipment & capital lease 33,966 31,098 31,465 Accumulated depreciation & amortization: Plant and equipment (21,308) (19,850) (20,145) Capital lease (87) 0 (26) ---------- ---------- ---------- Property, plant and equipment, net $12,571 $11,248 $11,294 ========== ========== ========== </TABLE> 5. Contingencies The Company and its subsidiaries are defendants in various legal actions arising in the course of their business activities. In the opinion of management, an unfavorable outcome with respect to any existing legal action will not result in a material adverse effect on Lindsay's consolidated financial position, results of operations or cash flows. During fiscal 1996, -7-
8 Lindsay Manufacturing Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Contingencies - continued Lindsay substantially completed certain environmental remediation efforts at its manufacturing facility. Lindsay believed 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 $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. In May 1998 the Company reached an agreement to settle this litigation with an insurer for $4.0 million which is included in other income. 6. Net Earnings Per Share The Company has adopted the Statement of Financial Accounting 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 Nine Months Ended ---------------------- ---------------------- 5/31/98 5/31/97 5/31/98 5/31/97 ------- ------- ------- ------- <S> <C> <C> <C> <C> Numerator for basic and diluted earnings $ 8,797 $ 6,053 $20,652 $16,958 per share - net earnings ======= ======= ======= ======= Denominator for basic earnings per share - weighted average number of common shares outstanding during the period. 13,946 14,241 13,996 14,282 Incremental common shares attributable to exercise of outstanding options 609 649 653 761 ------- ------- ------- ------- Denominator for diluted earnings per share 14,555 14,890 14,649 15,043 ======= ======= ======= ======= Basic earnings per share $ 0.63 $ 0.43 $ 1.48 $ 1.19 ======= ======= ======= ======= Diluted earnings per share $ 0.60 $ 0.41 $ 1.41 $ 1.13 ======= ======= ======= ======= </TABLE> 7. Stock Split On May 6, 1998, the Board of Directors declared a three-for-two split of Lindsay's common stock effective June 15, 1998, to stockholders of record on June 5, 1998. Accordingly, the average number of shares outstanding and per share information have been adjusted to reflect the stock split. -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 nine month periods indicated of Fiscal Year 1998 as compared to the same periods of Fiscal Year 1997. <TABLE> <CAPTION> Three Months Ended Nine Months Ended ---------------------------- ----------------------------- Percent Percent Increase Increase ($ in thousands) 5/31/98 5/31/97 (Decrease) 5/31/98 5/31/97 (Decrease) - -------------------------------------------------------------------------------------------------------- Consolidated - ------------ <S> <C> <C> <C> <C> <C> <C> Operating Revenues .....................$43,904 $41,663 5.4% $131,060 $126,823 3.3% Cost of Operating Revenues .............$31,711 $30,370 4.4 $ 95,455 $ 94,315 1.2 Gross Profit ...........................$12,193 $11,293 8.0 $ 35,605 $ 32,508 9.5 Gross Margin ........................... 27.8% 27.1% 27.2% 25.6% Selling, Eng. & Research, and G&A Expense ..........................$ 4,050 $ 3,170 27.8 $ 11,650 $ 9,970 16.9 Operating Income .......................$ 8,143 $ 8,123 0.2 $ 23,955 $ 22,538 6.3 Operating Margin ....................... 18.6% 19.5% 18.3% 17.8% Interest Income, net ...................$ 784 $ 724 8.3 $ 2,342 $ 2,172 7.8 Other Income, net ......................$ 4,107 $ 55 N/A $ 4,300 $ 228 N/A Income Tax Provision ...................$ 4,237 $ 2,849 48.7 $ 9,945 $ 7,980 24.6 Effective Income Tax Rate .............. 32.5% 32.0% 32.5% 32.0% Net Earnings............................$ 8,797 $ 6,053 45.3% $ 20,652 $ 16,958 21.8% </TABLE> As the above table displays, operating revenues for the three month period ended May 31, 1998, increased 5.4 percent ($2.2 million) from the comparable period of the prior year. The increase in third quarter revenue was the net result of a 15 percent ($3.7 million) increase in domestic irrigation equipment revenues, a 7 percent ($0.5 million) decrease in export irrigation euqipment revenues and a 11 percent ($0.9 million) decrease in diversified products and other revenues. For the nine month period ended May 31, 1998, operating revenues were up 3.3 percent ($4.2 million) from the comparable period of the prior year. U.S. irrigation equipment revenue was up 6 percent ($4.9 million), diversified products and other revenue was essentially equal to the comparable period of the prior year and export irrigation equipment revenues for the nine month period were down 3 percent ($0.6 million). Domestic irrigation equipment revenues for both the three and nine month periods of fiscal 1998 continued to be favorably impacted by the long term demand drivers of farmer emphasis on conserving water, energy, and labor. Generally low equipment financing interest rates and rising farm land values have been additional positive factors for ongoing demand for center pivot and lateral move irrigation equipment in the U.S. We believe that current agricultural commodity prices and the outlook for continued low agricultural prices for 1998 and early 1999 (particularly for corn, wheat and soybeans) have had a negative influence on demand. In export irrigation equipment, revenue increases from the Canadian, South and Central African, Australian, and Middle Eastern markets during both the three and nine month periods were more than offset by lower revenues from the Mexican and Latin American and Western European markets as compared to the prior year's comparative periods. -9-
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) The decline in diversified products and other revenues during the third quarter of fiscal 1998 as compared to the third quarter of fiscal 1997 was due to reduced activity in both outsource manufacturing and large diameter steel tubing sales. For the nine month period, an increase in outsource manufacturing revenues was essentially offset by a reduction in large diameter steel tubing revenues. Gross margin for the three months ended May 31, 1998, as a percent of operating revenues, was 27.8 percent - up from 27.1 percent of the prior year's comparative period. For the nine months ended May 31, 1998, gross margin as a percent of operating revenues was 27.2 percent as compared to 25.6 percent for the nine months ended May 31, 1997. Demand for irrigation equipment in the U.S. market for both the three and nine months periods resulted in a continued favorable pricing environment. Additionally, increased automation resulted in improved productivity during both the three and nine month periods of the current year. Raw material costs, in total, continued to be relatively stable. Selling, general and administrative, and engineering and research expenses for the three month period ended May 31, 1998, were $4.1 million as compared to $3.2 million during the prior year's comparative period. For the nine month period, fiscal 1998 selling, general and administrative, and engineering and research expenses totaled $11.7 million as compared to $10.0 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 nine month periods. Third quarter fiscal year 1998 "Other Income" of $4.1 million includes income of $4.0 million due to an agreement the Company reached with an insurer to settle litigation which Lindsay initiated in 1990 concerning coverage issues. Third quarter fiscal 1998 interest income of $0.8 million versus $0.7 million for the third quarter of fiscal 1997 and $2.3 million year-to-date fiscal 1998 versus $2.2 million year-to-date fiscal 1997 is primarily derived from our investments in short and medium term municipal bonds. The effective tax rate for both the three month and nine month periods ended May 31, 1998 was 32.5 percent. This compares to an effective tax rate of 32.0 percent for both the comparable three month and nine month periods of the prior year. Due to the federal income tax exempt status of interest income from its municipal bond investment, 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 36.8 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 $16.6 million for the first nine months of fiscal 1998 increased from $14.9 million for the first nine months of fiscal 1997. The increase in cash flows provided by operating -10-
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) FINANCIAL POSITION AND LIQUIDITY - Continued activities in fiscal 1998 was primarily due to net earnings partially offset by increased receivables. Fiscal 1997 cash flows provided by operating activities was principally due to net earnings. Receivables of $25.5 million at May 31, 1998 increased from $18.9 million at August 31, 1997 and $20.5 million at May 31, 1997 primarily due to a $4.0 million litigation settlement receivable from an insurer. Inventories at May 31, 1998 totaled $8.7 million, lower than their $10.0 million balance at August 31, 1997 and $9.7 million balance at May 31, 1997. Current liabilities of $18.7 million at May 31, 1998 are lower than their $19.5 million balance at August 31, 1997 and higher than their $18.1 million balance at May 31, 1997. The decrease from August 31, 1997 is principally due to decreased trade payables and lower accruals for domestic dealership payments, marketing, investor relations and international dealer prepayments partially offset by a higher accrual for taxes payable state and federal. The increase from May 31, 1997 is primarily due to higher accruals for taxes payable state and federal and payroll and vaction partially offset by lower accruals for international dealer prepayments. Cash flows used in investing activities of $0.6 million for the first nine months of fiscal 1998 decreased from $5.2 million for the first nine months of fiscal 1997 and for both periods was primarily attributable to purchases of marketable securities and capital expenditures, partially offset by proceeds from marketable securities. Lindsay's cash and short-term marketable securities totaled $25.9 million at May 31, 1998, as compared to $16.3 million at August 31, 1997, and $19.9 million at May 31, 1997. At May 31, 1998, Lindsay had $40.5 million invested in long-term marketable securities which represent intermediate term (one to three and one-fourth year maturities) municipal debt, as compared to $45.8 million at August 31, 1997 and from $37.6 million at May 31, 1997. Cash flows used in financing activities of $9.4 million for the first nine months of fiscal 1998 increased from $8.7 million for the first nine months of fiscal 1997 and for both periods was primarily attributable to dividends paid and to purchases of treasury stock partially offset by proceeds from the issuance of common stock under the Company's stock option plan. Lindsay's equity increased to $98.3 million at May 31, 1998 from $87.0 million at August 31, 1997, due to its net earnings of $20.7 million, less $8.7 million used to repurchase 303,000 (split adjusted) shares of common stock per Lindsay's previously announced stock repurchase plan, plus the proceeds of $0.7 million from the issuance of 118,123 shares of common stock under Lindsay's employee stock option plan, less dividends paid of $1.3 million. Lindsay's equity at May 31, 1997 was $85.1 million. Capital expenditures totaling $3.0 million for the first nine 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. -11-
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) FINANCIAL POSITION AND LIQUIDITY - Continued 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 repurchases 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 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, 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 nine 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 May 31, 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. If the EPA or the NDEC require remediation which is in addition to or different from the current plan, this reserve could increase or decrease depending on the nature of the change in events. Lindsay believed 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. 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. In May 1998 the Company reached an agreement to settle this litigation with an insurer for $4.0 million which is included in other income. -13-
14 OTHER INFORMATION 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 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 27 - Financial Data Schedule (b) Reports on Form 8-K - No Form 8-K was filed during the quarter ended May 31, 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: June 23, 1998 Bruce C. Karsk ------------- ------------------------- Bruce C. Karsk Vice President - Finance, Treasurer and Secretary; Principal Financial and Accounting Officer Date: June 23, 1998 Ralph J. Kroenke ------------- ------------------------- Ralph J. Kroenke Controller -15-