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, 1999 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) Common Stock $1.00 par Value New York Stock Exchange, Inc. (Symbol LNN) - ---------------------------- ------------------------------------------ Title of Class Name of each exchange on which registered Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 12,541,358 --------------------------------------------- Outstanding Common Shares as of June 17, 1999 Exhibit index is located on page 2. Total number of pages 16. -1-
2 LINDSAY MANUFACTURING CO. AND CONSOLIDATED SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets, May 31, 1999 and 1998 and August 31, 1998 3 Consolidated Statements of Operations for the three months and nine months ended May 31, 1999 and 1998 4 Consolidated Statements of Cash Flows for the nine months ended May 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Position 8-13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 Part II - Other Information Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibit Index 27 - Financial Data Schedule 16 -2-
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Lindsay Manufacturing Co. CONSOLIDATED BALANCE SHEETS May 31, 1999 and 1998 and August 31, 1998 ($ in thousands, except par values) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- (Unaudited (Unaudited) May May August 1999 1998 1998 --------- --------- --------- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents.................................. $ 6,926 $ 10,869 $ 3,794 Marketable securities...................................... 18,924 15,025 18,704 Receivables................................................ 17,949 25,457 14,066 Inventories................................................ 6,568 8,737 10,198 Deferred income taxes...................................... 3,796 3,837 3,861 Other current assets....................................... 267 269 92 --------- --------- --------- Total current assets..................................... 54,430 64,194 50,715 Long-term marketable securities.............................. 31,171 40,459 43,164 Property, plant and equipment, net........................... 14,587 12,571 14,071 Other noncurrent assets...................................... 1,020 1,143 964 --------- --------- --------- Total assets................................................. $101,208 $118,367 $108,914 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, trade.................................... $ 3,621 $ 4,654 $ 4,936 Other current liabilities.................................. 14,015 13,859 11,723 Current portion of capital lease obligation................ 147 153 142 --------- --------- --------- Total current liabilities................................ 17,783 18,666 16,801 Other noncurrent liabilities................................. 1,052 1,221 1,125 Obligation under capital lease less current portion........... 0 147 108 --------- --------- --------- Total liabilities............................................ 18,835 20,034 18,034 --------- --------- --------- Contingencies Shareholders' equity: Preferred stock, ($1 par value, 2,000,000 shares authorized, no shares issued and outstanding in May 1999 and 1998 and August 1998) Common stock, ($1 par value, 25,000,000 shares authorized, 17,056,595, 16,982,068 and 16,993,949 shares issued in May 1999 and 1998 and August 1998)........... 17,057 16,982 16,994 Capital in excess of stated value........................ 1,446 0 855 Retained earnings........................................ 132,710 121,414 123,764 Less treasury stock, (at cost, 4,515,237, 2,994,045 and 3,399,788 shares in May 1999 and 1998 and August 1998). (68,840) (40,063) (50,733) --------- --------- --------- Total shareholders' equity................................... 82,373 98,333 90,880 --------- --------- --------- Total liabilities and shareholders' equity................... $101,208 $118,367 $108,914 ========= ========= ========= </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, 1999 and 1998 (in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended -------------------------- ----------------------------- May May May May 1999 1998 1999 1998 ----------- ------------ ------------ ------------ <S> <C> <C> <C> <C> Operating revenues.......................... $ 42,990 $ 43,904 $ 95,719 $ 131,060 Cost of operating revenues.................. 31,680 31,711 72,070 95,455 ----------- ------------ ------------ ------------ Gross profit................................ 11,310 12,193 23,649 35,605 ----------- ------------ ------------ ------------ Operating expenses: Selling expense........................... 1,268 1,479 3,688 4,137 General and administrative expense........ 2,253 2,136 5,914 6,209 Engineering and research expense.......... 425 435 1,297 1,304 ----------- ------------ ------------ ------------ Total operating expenses.................... 3,946 4,050 10,899 11,650 ----------- ------------ ------------ ------------ Operating income............................ 7,364 8,143 12,750 23,955 Interest income, net........................ 676 784 2,088 2,342 Other income, net........................... 78 4,107 308 4,300 ----------- ------------ ------------ ------------ Earnings before income taxes................ 8,118 13,034 15,146 30,597 Income tax provision........................ 2,598 4,237 4,847 9,945 ----------- ------------ ------------ ------------ Net earnings................................ $ 5,520 $ 8,797 $ 10,299 $ 20,652 =========== ============ ============ ============ Basic net earnings per share................ $ 0.44 $ 0.63 $ 0.79 $ 1.48 =========== ============ ============ ============ Diluted net earnings per share.............. $ 0.42 $ 0.60 $ 0.77 $ 1.41 =========== ============ ============ ============ Average shares outstanding.................. 12,685 13,946 13,026 13,996 Diluted effect of stock options............. 430 609 397 653 ---------- ----------- ----------- ----------- Average shares outstanding assuming dilution 13,115 14,555 13,423 14,649 ========== =========== =========== =========== Cash dividends per share.................... $ 0.035 $ 0.033 $ 0.105 $ 0.090 =========== ============ ============ ============ </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, 1999 and 1998 ($ in thousands) (Unaudited) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------- May May 1999 1998 ---------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings........................................................... $ 10,299 $ 20,652 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................................... 1,942 1,695 Amortization of marketable securities premiums, net................. 142 131 (Gain) on sale of fixed assets...................................... (90) (145) (Gain) on maturities of marketable securities held-to-maturity...... (5) (1) Provision for uncollectible accounts receivable..................... (2) 0 Deferred income taxes............................................... 65 710 Changes in assets and liabilities: Receivables......................................................... (3,881) (6,557) Inventories......................................................... 3,630 1,258 Other current assets................................................ (175) (192) Accounts payable.................................................... (1,315) (339) Other current liabilities........................................... (1,161) (2,047) Current taxes payable............................................... 3,453 1,569 Other noncurrent assets and liabilities............................. (129) (136) ---------- --------- Net cash provided by operating activities.............................. 12,773 16,598 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment............................. (2,480) (2,984) Proceeds from sale of property, plant and equipment.................... 112 157 Purchases of marketable securities held-to-maturity.................... (500) (6,675) Proceeds from maturities of marketable securities held-to-maturity..... 12,136 8,940 ---------- --------- Net cash provided by (used in) investing activities.................... 9,268 (562) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments under capital lease obligation...................... (103) (111) Proceeds from issuance of common stock under stock option plan......... 654 708 Dividends paid......................................................... (1,353) (1,256) Purchases of treasury stock............................................ (18,107) (8,739) ---------- --------- Net cash used in financing activities.................................. (18,909) (9,398) ---------- --------- Net increase in cash and cash equivalents.............................. 3,132 6,638 Cash and cash equivalents, beginning of period......................... 3,794 4,231 ---------- --------- Cash and cash equivalents, end of period............................... $ 6,926 $ 10,869 ========== ========= Supplemental Cash Flow Information: Income taxes paid...................................................... $ 1,356 $ 7,652 Interest paid.......................................................... $ 6 $ 39 </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, 1998 Annual Report to Shareholders. 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, 1999, Lindsay's cash equivalents were held primarily by one financial institution. Marketable securities and long-term marketable securities are categorized as held-to-maturity. Investments in the held-to-maturity category are carried at amortized cost. 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. Investments in the held-to-maturity category are included in marketable securities ($18.9 million) and long-term marketable securities ($31.2 million). The total amortized cost, gross unrealized holding gains, gross unrealized holding losses, and aggregate fair value for held-to-maturity securities are $50.1 million, $0.4 million, $0.0 million, and $50.5 million, respectively. There have not been any sales of held-to-maturity securities for the first nine months of Fiscal 1999. In the held-to-maturity category, $18.9 million in securities mature within one year and $31.2 million have maturities ranging from one to three and one-fourth years. 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. (in thousands) ---------------------------------- May May August 1999 1998 1998 --------- --------- -------- Total manufactured goods First-in, first-out inventory $10,294 $12,960 $14,361 LIFO reserves (2,791) (3,577) (3,228) Obsolescence reserve (935) (646) (935) --------- --------- -------- Total inventories $ 6,568 $ 8,737 $10,198 ========= ========= ======== -6-
7 Lindsay Manufacturing Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The estimated percentage distribution between major classes of inventory before reserves is as follows: May May August 1999 1998 1998 ------- ------- ------- Raw materials 18% 19% 18% Work in process 6% 6% 6% Purchased parts 35% 30% 35% Finished goods 41% 45% 41% 4. Property, Plant and Equipment Property, plant and equipment are stated at cost. (in thousands) --------------------------------- May May August 1999 1998 1998 ------- ------- ------- Plant and equipment: Land $ 70 $ 70 $ 70 Buildings 5,043 5,113 5,043 Equipment 26,684 24,387 25,023 Other 5,492 3,938 5,280 Capital lease: Equipment 458 458 458 ------- ------- ------- Total plant, equipment & capital lease 37,747 33,966 35,874 Accumulated depreciation & amortization: Plant and equipment (22,968) (21,308) (21,690) Capital lease (192) (87) (113) ------- ------- ------- Property, plant and equipment, net $14,587 $12,571 $14,071 ======= ======= ======= 5. Credit Arrangements Lindsay entered into an agreement in December, 1998 for a $10.0 million unsecured revolving line of credit through October 25, 1999 with a commercial bank to be used for working capital and general corporate purposes including stock repurchases. There have been no borrowings outstanding under such unsecured revolving line of credit. Borrowings will bear interest at a rate equal to one percent per annum under the rate in effect from time to time and designated by the commercial bank as it's National Base Rate. No covenants limit the ability of Lindsay to merge or consolidate, to encumer assets, to sell significant portions of its assets, to pay dividends, or to repurchase common stock. 6. 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, resolution of these actions will not result in a material adverse effect on Lindsay's consolidated financial position, results of operations or cash flows. 7. Net Earnings Per Share Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding. Diluted net earnings per share includes the dilutive effect of stock options. -7-
8 Lindsay Manufacturing Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Options to purchase 140,250 shares of common stock at a weighted average price of $26.41 per share were outstanding during the third quarter of fiscal 1999, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options expire on September 3, 2007, through November 6, 2007. 8. Stock Split On May 6, 1998, the Board of Directors declared a three-for-two split of Lindsay's common stock effective June 15, 1998, to stockholders of record on June 5, 1998. Accordingly, the average number of shares outstanding and per share information have been adjusted to reflect the stock split. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table provides highlights for the three month and nine month periods indicated of Fiscal Year 1999 as compared to the same periods of Fiscal Year 1998. <TABLE> <CAPTION> Three Months Ended Nine Months Ended --------------------------- ----------------------------- Percent Percent Increase Increase ($ in thousands) 5/31/99 5/31/98 (Decrease) 5/31/99 5/31/98 (Decrease) - ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Consolidated Operating Revenues .....................$42,990 $43,904 (2.1)% $ 95,719 $131,060 (27.0)% Cost of Operating Revenues .............$31,680 $31,711 (0.1) $ 72,070 $ 95,455 (24.5) Gross Profit ...........................$11,310 $12,193 (7.2) $ 23,649 $ 35,605 (33.6) Gross Margin ........................... 26.3% 27.8% 24.7% 27.2% Selling, Eng. & Research, and G&A Expense ..........................$ 3,946 $ 4,050 (2.6) $ 10,899 $ 11,650 (6.4) Operating Income .......................$ 7,364 $ 8,143 (9.6) $ 12,750 $ 23,955 (46.8) Operating Margin ....................... 17.1% 18.6% 13.3% 18.3% Interest Income, net ...................$ 676 $ 784 (13.8) $ 2,088 $ 2,342 (10.8) Other Income, net ......................$ 78 $ 4,107 (98.1) $ 308 $ 4,300 (92.8) Income Tax Provision ...................$ 2,598 $ 4,237 (38.7) $ 4,847 $ 9,945 (51.3) Effective Income Tax Rate .............. 32.0% 32.5% 32.0% 32.5% Net Earnings............................$ 5,520 $ 8,797 (37.3)% $ 10,299 $ 20,652 (50.1)% </TABLE> As the above table displays, operating revenues for the three month period ended May 31, 1999, were 2.1 percent ($0.9 million) lower than the comparable period of the prior year. The reduction in third quarter revenue was the result of a 1 percent ($0.4 million) increase in U.S. irrigation equipment revenues, a 16 percent ($1.2 million) increase in export irrigation euqipment revenues and a 34 percent ($2.5 million) decrease in diversified products and other revenues. For the nine month period ended May 31, 1999, operating revenues were down 27.0 percent ($35.3 million) from the comparable period of the prior year. U.S. irrigation equipment revenue was off 27 percent ($23.3 million), export irrigation equipment revenue was off 18 percent ($3.9 million) and diversified products and other revenues for the nine month period were off 36 percent ($8.1 million). -8-
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Lindsay believes that the long-term demand drivers for irrigation equipment consisting of the need for farmers to conserve water, energy and labor while at the same time improving crop yields and increasing crop production remain in place in both its U.S. market and in its markets outside the U.S. However, these long-term demand drivers are currently being somewhat offset in the U.S. by the expectation of lower farm income in calendar 1999. This expectation of lower farm income in the U.S. is the result of low crop and other agricultural commodity prices due to near record 1998 production in the U.S. (increased supply) occurring concurrently with the economic downturn in Asia and other developing economic regions leading to a reduced ability in those regions for the purchase and importation of grain and meat commodities (reduced demand). U.S. demand for and shipments of center pivots peaked during Lindsay's fiscal third quarter this year - one quarter later than that of the prior two years. In the prior two years the company was able to somewhat smooth the seasonal demand curve in the U.S. market for irrigation equipment by using it's floor plan and other marketing programs to pull orders ahead from the January through May peak selling period. Concerns over weak agricultural commodity prices and anticipated lower farm income, however, caused most farmers to be more conservative in purchasing capital equipment this year, with many delaying their purchase decisions as far into the Spring of 1999 as possible. This dynamic was evidenced by the year-over-year increase in unit volume of our domestic irrigation equipment during our third quarter. Domestic irrigation equipment pricing (net of discounts and promotional program allowances) on units shipped and sold during the three months ended May 31, 1999 was, on average, approximately equal to that of the prior year's comparative three month period. Irrigation equipment costs (at standard cost and before warranty expenses) on units shipped and sold during the third quarter of fiscal 1999 were, on average, also equal to that of the prior year's third quarter. Export Irrigation equipment revenues for both the three and nine month periods ended May 31, 1999, were negatively affected by the same low agricultural commodity price situation that affected the U.S. irrigation equipment market. However, Lindsay did have a $2.0 million lateral move irrigation equipment sale and shipment to Romania during the quarter at a gross margin significantly below normal irrigation equipment margins. Both year-to-date and third quarter fiscal 1999 diversified products and other revenues were lower primarily due to reduced sales of agricultural related outsource manufacturing products to Deere & Company and New Holland North America, Inc. Large diameter tubing revenues during both the nine month and three month periods of fiscal 1999 were also lower than the prior year's comparative periods, but to a lesser degree. Outsource manufacturing product revenue due to our sales to Caterpillar Inc. were only slightly lower than that of the prior year's comparable periods. Deere & Company has notified Lindsay that one group of products which Lindsay has been manufacturing for them will move back to Deere's own facility as part of Deere's strategy to better utilize their own manufacturing capacity. This group of products generated approximately 20 percent of Lindsay projected fiscal 1999 diversified product revenues of $14 to $15 million. -9-
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Gross margin for the three months ended May 31, 1999, as a percent of operating revenues, was 26.3 percent, down from 27.8 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 24.7 percent as compared to 27.2 percent for the nine months ended May 31, 1998. Reduced manufacturing throughput resulted in unfavorable manufacturing overhead variances (as compared to the prior year's comparable periods) which negatively impacted the Company's gross margin. Selling, general and administrative, and engineering and research expenses for the three month period ended May 31, 1999, were $3.9 million as compared to $4.1 million during the prior year's comparative period. For the nine month period, fiscal 1999 selling, general and administrative, and engineering and research expenses totaled $10.9 million as compared to $11.7 million in fiscal 1998. Lower wage and salary costs (due primarily to lower bonus earn out accruals) partially offset by higher legal fee and legal settlement accruals generated the majority of the reduction in selling, general and administrative and engineering and research expenses for both the three and nine month periods. The $4.0 million decline in other income during both the third quarter and year-to-date of fiscal 1999 as compared to the prior year's comparative periods was due to fiscal 1998's $4.0 million litigation settlement from an insurer. The effective tax rate for both the three month and nine month periods ended May 31, 1999 was 32.0 percent. This compares to an effective tax rate of 32.5 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 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 35.8 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 these items through funds provided by operations. Cash flows provided by operations of $12.8 million for the first nine months of fiscal 1999 compared to cash flows provided by operations of $16.6 million for the first nine months of fiscal 1998. The cash flows provided by operating activities in fiscal 1999 was primarily due to net earnings, decreased inventories and decreased current taxes payable partially offset by increased receivables. Fiscal 1998 cash flows provided by operating activities was principally due to net earnings partially offset by increased receivables. Receivables of $17.9 million at May 31, 1999 increased $3.8 million from $14.1 million at August 31, 1998 and decreased $7.6 million from $25.5 million at May 31, 1998. The increase from August 31, 1998, was principally due to the higher level of U.S. irrigation equipment sales activity during May 1999 as compared to August 1998. The decrease from May 31, 1998, was primarily due to the lower -10-
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) level of sales during May 1999 and reduced use of a marketing program that offered deferred payment terms to our dealers. Inventories at May 31, 1999, totaled $6.6 million, lower than their $10.2 million balance at August 31, 1998 and $8.7 million balance at May 31, 1998. Current liabilities of $17.8 million at May 31, 1999 are higher than their $16.8 million balance at August 31, 1998 and lower than their $18.7 million balance at May 31, 1998. The increase from August 31, 1998 is principally due to a higher accrual for taxes payable partially offset by decreased trade payables and lower accruals for payroll and vacation pay and international dealer prepayments. The decrease from May 31, 1998 is primarily due to decreased trade payables and a lower accrual for payroll and vacation partially offset by higher accruals for taxes payable and legal fee and legal settlement. Cash flows provided by investing activities of $9.3 million for the first nine months of fiscal 1999 compared to cash flows used in investing activities of $0.6 million for the first nine months of fiscal 1998. The cash flows provided by investing activities in fiscal 1999 was attributable to maturities of marketable securities partially offset by capital expenditures and purchases of marketable securities. Fiscal 1998 cash flows used in investing activities was primarily due 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, 1999, as compared to $22.5 million at August 31, 1998, and $25.9 million at May 31, 1998. At May 31, 1999, Lindsay had $31.2 million invested in long-term marketable securities which represent intermediate term (one to three and one-fourth year maturities) municipal debt, as compared to $43.2 million at August 31, 1998 and from $40.5 million at May 31, 1998. Cash flows used in financing activities of $18.9 million for the first nine months of fiscal 1999 increased from $9.4 million for the first nine months of fiscal 1998 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 decreased to $82.4 million at May 31, 1999 from $90.9 million at August 31, 1998, due to its net earnings of $10.3 million, less $18.1 million used to repurchase 1,115,449 shares of common stock per Lindsay's previously announced stock repurchase plan, plus the proceeds of $0.7 million from the issuance of 62,646 shares of common stock under Lindsay's employee stock option plan, less dividends paid of $1.4 million. Lindsay's equity at May 31, 1998 was $98.3 million. Capital expenditures totaling $2.5 million for the first nine months of 1999 were used primarily for converting a major fabrication process started in fiscal year 1998 to further automate Lindsay's facility, and a new employee breakroom and office renovation and expansion. Lindsay expects its fiscal 1999 capital expenditures to be approximately $4.0 to $5.0 million which will be used primarily to improve Lindsay's existing facilities, complete the new employee breakroom and office renovation and expansion and expand its manufacturing capabilities. -11-
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDIITON (Continued) Lindsay believes its capitalization (including cash and marketable securities balances), operating cash flow and line of credit 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 U.S. 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 18 and 16 percent of Lindsay's operating revenues for the first nine months of 1999 and 1998 respectively, were generated from export sales. For the full year of 1998, approximately 18 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. YEAR 2000 ISSUES The Company, in late fiscal 1996, began to informally address Year 2000 issues with its Information Technology ("IT") systems with a decision to replace its in-house-developed manufacturing and financial software with Year 2000 compliant standardized Enterprise Resource Planning ("ERP") software. Management selected Systems Software Associates, Inc.'s ("BPCS") ERP software in early 1997. Hardware procurement and BPCS ERP software implementation progressed during fiscal 1997, fiscal 1998 and year-to-date fiscal 1999. Implementation of the manufacturing modules of this BPCS ERP software is estimated to be 90 to 95% complete as of May 31, 1999. Implementation of the financial modules of the BPCS ERP software will be undertaken in Fiscal 2000. Additionally, the Company, in March 1998, commenced a more comprehensive review of its Year 2000 issues with the formation of a Year 2000 Task Force. This task force has inventoried and assessed both its IT and non-IT systems (embedded technology such as micro-controllers or programmable logic controllers in manufacturing equipment or in the products Lindsay sells). The task force is continuing the process of inventorying, assessing and confirming the Year 2000 compliance status of the Company's critical suppliers and third-party providers. To date, 84 percent of these suppliers have responded to our inquiry indicating full year 2000 compliance or expected year 2000 compliance prior to December 1999. -12-
13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) The Company believes that 90 to 95% of the remediation work to become Year 2000 compliant has been completed, however final testing is continuing. Lindsay believes that it will be fully Year 2000 compliant in the September 1999,/ October 1999, timeframe. Lindsay believes that its costs for becoming Year 2000 compliant are expected to total approximately $2.5 million of which 80% has been incurred to date (approximately $0.9 million in both fiscal 1997 and 1998 and $0.2 million in year-to-date fiscal 1999). These costs include hardware costs, software costs and outside consulting costs but do not include the costs for time that its employees have or are expected to spend on Year 2000 issues. The Company believes that its most reasonable likely worst case Year 2000 scenario includes a short-term interruption in its ability to manufacture and ship product because: (1) one or more of the company's suppliers or third- party providers are unable to provide the material or services expected, and (2) one or more parts of the Company's IT or non-IT systems operate incorrectly. Because of the progress which has been made toward achieving Year 2000 compliance, the Company has not made specific formal contingency plans. However, informal contingency plans have been made. If knowledge of outside providers' noncompliance becomes evident or events occur that are adverse to the Company's plan for compliance, the Company will develop and implement specific formal contingency plans as required. Despite the Company's efforts to address its Year 2000 issues, there can be no assurances that Year 2000 related failures of the Company's IT or non-IT systems, or that Year 2000 related failures by suppliers or third parties with which the Company interacts, will not have a material effect on the Company. CONCERNING FORWARD LOOKING STATEMENTS - This Report on Form 10-Q, including the Management's Discussion and Analysis, Year 2000 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. -13-
14 ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is not subject to material market risks with respect to its marketable securities. Part II OTHER INFORMATION Item 1. Legal Proceedings Lindsay is a party to a number of lawsuits 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 consolidated financial condition, results of operations or cash flows. 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, 1999. -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: July 2, 1999 Bruce C. Karsk ------------ ------------------------- Bruce C. Karsk Vice President - Finance, Treasurer and Secretary; Principal Financial and Accounting Officer Date: July 2, 1999 Ralph J. Kroenke ------------ ------------------------ Ralph J. Kroenke Controller -15-