SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 2003
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 1-13419
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Lindsay Manufacturing Co.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 47-0554096
-------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 NORTH 108TH STREET, SUITE 102, OMAHA, NEBRASKA 68164
---------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
402-428-2131
------------
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[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] No[ ]
At October 8, 2003, 11,735,692 shares of common stock, $1.00 par value, of the
registrant were outstanding.
1
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
INTRODUCTORY NOTE TO AMENDMENT
Lindsay Manufacturing Co. ("the Company") is amending its quarterly reports on
Form 10-Q for each of the quarters in fiscal year 2003 in order to restate
previously issued financial statements for two accounting issues.
The Company had previously recorded other non-operating income of $1.7 million
during its quarter ended November 30, 2002, in order to account for the
previously unrecorded cumulative cash surrender value of certain life insurance
policies that had accumulated since 1994. After reviewing this accounting
treatment further, the Company has restated previously reported quarterly
results for fiscal 2003 and comparable prior periods presented to record the
cumulative cash surrender value as a correction of error.
During fiscal 2003, the Company did not previously record certain components as
inventory when they were delivered to the Company based on a belief that these
components had been received on a consignment basis. After completing a year-end
review of the fiscal 2003 supply agreement for these components, it was
determined that the Company had assumed the risk of ownership of these
components upon receipt throughout fiscal 2003 and therefore should account for
them as a purchase of inventory at the time of their receipt. Accordingly, the
Company has restated the previously reported quarterly balance sheets for fiscal
2003 to record the inventory and related accounts payable. The value of the
related inventory was $1.9 million, $2.9 million and $2.8 million at November
30, 2002, February 28, 2003 and May 31, 2003, respectively. There is no impact
on previously reported operating cash flows because the determining factor for
timing of the payment to the supplier is based on when the Company consumes the
components in its normal operations. This adjustment to the balance sheets did
not impact the operating income, net earnings, financial condition or operating
cash flows of the Company during fiscal 2003.
See Note 2 to the consolidated financial statements for further disclosure of
these restatement adjustments.
2
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
INDEX FORM 10-Q/A
Page No.
--------
PART I -- FINANCIAL INFORMATION
ITEM 1 -- CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets, February 28, 2003 and 2002
and August 31, 2002 4
Consolidated Statements of Operations for the three-months and
six-months ended February 28, 2003 and 2002 5
Consolidated Statements of Cash Flows for the six-months
ended February 28, 2003 and 2002 6
Notes to Consolidated Financial Statements 7-12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 13-18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 19
ITEM 4 -- CONTROLS AND PROCEDURES 19
PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 20
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 21
CERTIFICATIONS 22-25
3
PART I -- FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2003 AND 2002 AND AUGUST 31, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED)
FEBRUARY FEBRUARY AUGUST
($ IN THOUSANDS, EXCEPT PAR VALUES) 2003 2002 2002
----------------------------------- ---- ---- ----
RESTATED RESTATED RESTATED
ASSETS
Current assets:
Cash and cash equivalents $ 5,431 $ 7,646 $ 12,425
Marketable securities 7,971 9,916 13,289
Receivables, net 36,657 31,624 23,729
Inventories, net 24,315 15,309 15,583
Deferred income taxes 2,355 1,870 2,573
Other current assets 944 553 782
--------- --------- ---------
Total current assets 77,673 66,918 68,381
Long-term marketable securities 27,813 24,354 25,419
Property, plant and equipment, net 14,270 13,927 14,512
Other noncurrent assets 7,176 6,213 6,406
--------- --------- ---------
Total assets $ 126,932 $ 111,412 $ 114,718
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,900 $ 7,623 $ 6,068
Other current liabilities 13,946 14,653 13,984
--------- --------- ---------
Total current liabilities 26,846 22,276 20,052
Noncurrent liabilities 2,114 1,847 2,311
--------- --------- ---------
Total liabilities 28,960 24,123 22,363
--------- --------- ---------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, ($1 par value, 2,000,000 shares
authorized, no shares issued and outstanding) - - -
Common stock, ($1 par value, 25,000,000 shares
authorized, 17,458,052, 17,409,900 and 17,430,348 shares
issued in February 2003 and 2002 and August 2002, respectively) 17,458 17,410 17,430
Capital in excess of stated value 2,467 2,039 2,472
Retained earnings 168,589 158,398 163,265
Less treasury stock, (at cost, 5,724,069) (89,898) (89,898) (89,898)
Accumulated other comprehensive loss (644) (660) (914)
--------- --------- ---------
Total shareholders' equity 97,972 87,289 92,355
--------- --------- ---------
Total liabilities and shareholders' equity $ 126,932 $ 111,412 $ 114,718
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
4
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED FEBRUARY 28, 2003 AND 2002
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
---------------------------------------- ----- ----- ----- ----
RESTATED RESTATED RESTATED
Operating revenues $ 48,127 $ 40,668 $ 81,589 $ 69,213
Cost of operating revenues 35,865 30,586 62,316 53,521
-------- -------- -------- --------
Gross profit 12,262 10,082 19,273 15,692
-------- -------- -------- --------
Operating expenses:
Selling expense 2,459 2,043 5,099 4,159
General and administrative expense 2,693 2,051 5,271 4,076
Engineering and research expense 634 574 1,232 1,086
-------- -------- -------- --------
Total operating expenses 5,786 4,668 11,602 9,321
-------- -------- -------- --------
-------- -------- -------- --------
Operating income 6,476 5,414 7,671 6,371
Interest income, net 390 356 813 793
Other income (expense), net 242 (7) 338 189
-------- -------- -------- --------
Earnings before income taxes 7,108 5,763 8,822 7,353
-------- -------- -------- --------
Income tax provision 2,156 1,791 2,677 2,269
-------- -------- -------- --------
======== ======== ======== ========
Net earnings $ 4,952 $ 3,972 $ 6,145 $ 5,084
======== ======== ======== ========
Basic net earnings per share $ 0.42 $ 0.34 $ 0.52 $ 0.44
======== ======== ======== ========
Diluted net earnings per share $ 0.42 $ 0.34 $ 0.52 $ 0.43
======== ======== ======== ========
Average shares outstanding 11,733 11,655 11,723 11,642
Diluted effect of stock options 158 168 188 165
-------- -------- -------- --------
Average shares outstanding assuming dilution 11,891 11,823 11,911 11,807
======== ======== ======== ========
Cash dividends per share $ 0.035 $ 0.035 $ 0.070 $ 0.070
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
5
Lindsay Manufacturing Co. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2003 AND 2002
(UNAUDITED)
FEBRUARY FEBRUARY
($ IN THOUSANDS) 2003 2002
---------------- ---- ----
RESTATED RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,145 $ 5,084
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 1,759 1,819
Amortization of marketable securities premiums, net (97) (111)
Gain on sale of fixed assets - (23)
Provision for uncollectible accounts receivable (141) (11)
Equity in net earnings of equity method investments (157) -
Deferred income taxes 218 294
Other, net (70) (203)
Changes in assets and liabilities:
Receivables, net (13,131) (10,297)
Inventories, net (8,732) (5,156)
Other current assets (162) (79)
Accounts payable, trade 6,832 2,033
Other current liabilities (1,105) 2,056
Current taxes payable 1,411 1,363
Other noncurrent assets and liabilities (428) (686)
-------- --------
Net cash used in operating activities (7,658) (3,917)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,553) (1,062)
Acquisition of business - (255)
Proceeds from sale of property, plant and equipment 52 209
Purchases of marketable securities held-to-maturity (6,135) (9,230)
Proceeds from maturities of marketable securities held-to-maturity 9,153 5,215
Equity investment - (80)
-------- --------
Net cash provided by (used in) investing activities 1,517 (5,203)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock option
plan, net of repurchases and cancellations 23 2
Dividends paid (821) (812)
-------- --------
Net cash used in financing activities (798) (810)
-------- --------
Effect of exchange rate changes on cash (55) 1
Net decrease in cash and cash equivalents (6,994) (9,929)
Cash and cash equivalents, beginning of period 12,425 17,575
-------- --------
Cash and cash equivalents, end of period $ 5,431 $ 7,646
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
6
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by accounting principles generally
accepted in the United States of America for annual reporting purposes or those
made in the Company's annual Form 10-K filing. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Lindsay Manufacturing Co. (the
"Company" or "Lindsay") Form 10-K for fiscal 2002.
In the opinion of management, the unaudited consolidated financial
statements of the Company reflect all adjustments of a normal recurring nature
necessary to present a fair statement of the financial position and the results
of operations and cash flows for the respective interim periods. The results for
interim periods are not necessarily indicative of trends or results expected for
a full year. Certain reclassifications have been made to prior financial
statements and notes to conform to the current presentation.
Notes to the consolidated financial statements describe various
elements of the financial statements and the assumptions on which specific
amounts were determined. While actual results could differ from those estimated
at the time of preparation of the consolidated financial statements, management
is committed to preparing financial statements, which incorporate accounting
policies, assumptions, and estimates that promote the representational
faithfulness, verifiability, neutrality, and transparency of the accounting
information included in the consolidated financial statements.
(2) RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated its financial statements as follows:
The Company had previously recorded other non-operating income of $1.7 million
during its quarter ended November 30, 2002, in order to account for the
previously unrecorded cumulative cash surrender value of certain life insurance
policies the Company maintains on current and former executive officers that had
accumulated since 1994. These policies were obtained in 1993 to insure the
potential liability under the supplemental retirement plan for these executives.
The Company is the sole named beneficiary and owner of these policies, which are
held in trust. The annual premium payments for these policies were made from
calendar years 1993 through 2000. The Company had previously expensed the
premiums when paid and had not recorded the increases in the cash surrender
value of the policies.
After reviewing this accounting treatment further, the Company has
restated previously reported quarterly results for fiscal 2003 to record the
cumulative cash surrender value as a correction of error in prior periods.
Accordingly, the Company has restated its unaudited financial statements for
each of the quarters in fiscal year 2003, reducing previously reported
non-operating income by $1.7 million. This reduction in other non-operating
income did not impact the operating income or financial condition of the Company
during fiscal 2003. In addition, the Company has restated the corresponding
prior period financial statements presented to reflect the correction of error
treatment.
The following table reflects the financial statement line items for the
Company's unaudited statements of operation, showing the material effects of the
previously reported and related restated amounts for this accounting issue:
In thousands, except per share amounts SIX-MONTHS ENDED 2/28/03
-----------------------------
AS REPORTED RESTATED
--------------- -------------
Other non-operating income $ 2,029 $ 338
Earnings before income taxes 10,513 8,822
Net earnings 7,836 6,145
Basic earnings per share $ 0.67 $ 0.52
Diluted earnings per share $ 0.66 $ 0.52
The accumulation of the cash surrender value from fiscal years 1994
through 2002 was not material to the Company's net earnings, financial position
or operating cash flows for any prior year reported. The Company now records the
change in the cash surrender value of these life insurance policies to other
income on a current basis.
During fiscal 2003, the Company did not previously record certain
components as inventory when they were delivered to the Company based on a
belief that these components had been received on a consignment basis. After
completing a year-end review of the fiscal 2003 supply agreement for these
components, it was determined that the Company had assumed the
7
risk of ownership of these components upon receipt throughout fiscal 2003 and
therefore should account for them as a purchase of inventory at the time of
their receipt. Accordingly, the Company has restated the previously reported
quarterly balance sheets for fiscal 2003 to record the inventory and related
accounts payable. The value of the related inventory was $1.9 million, $2.9
million and $2.8 million at November 30, 2002, February 28, 2003 and May 31,
2003, respectively. There is no impact on previously reported operating cash
flows because the determining factor for timing of the payment to the supplier
is based on when the Company consumes the components in its normal operations.
This adjustment to the balance sheets did not impact the operating income, net
earnings, financial condition or operating cash flows of the Company during
fiscal 2003.
The following table reflects the financial statement line items for the
Company's unaudited balance sheets, showing the effects of the adjustments on
previously reported and restated amounts for this accounting issue:
In thousands, except per share amounts AS OF 2/28/03
---------------------------------
AS REPORTED RESTATED
---------------- ----------------
Inventories, net $21,423 $24,315
Accounts payable 10,008 12,900
(3) CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM MARKETABLE SECURITIES
Cash equivalents are included at cost, which approximates market. At February
28, 2003, the Company's cash equivalents were held primarily by one financial
institution. Marketable securities and long-term marketable securities are
categorized as held-to-maturity as management of the Company has determined that
it has the intent and ability to hold these securities to maturity. Held to
maturity securities are carried at amortized cost. The Company considers all
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. The Company's marketable securities and
long-term marketable securities consist of investment-grade municipal bonds.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at February 28, 2003, were $35.8 million, $717,000, $6,000 and $36.5
million, respectively. Marketable securities with an amortized cost of $8.0
million mature within one year and long term marketable securities with an
amortized cost of $27.8 million have maturities ranging from 14 to 41 months.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at February 28, 2002 were $34.3 million, $550,000, $22,000 and $34.8
million, respectively. Marketable securities with an amortized cost of $9.9
million mature within one year and long term marketable securities with an
amortized cost of $24.4 million have maturities ranging from 15 to 40 months.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at August 31, 2002 were $38.7 million, $595,000, $56,000 and $39.2
million, respectively. Marketable securities with an amortized cost of $13.3
million mature within one year and long term marketable securities with an
amortized cost of $25.4 million have maturities ranging from 12 to 42 months.
8
(4) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for most inventories. Cost is determined by the
weighted average method for inventories at the Company's foreign subsidiaries
and at the Company's dealership subsidiary, Irrigation Specialists. The Company
reserves for obsolete, slow moving and excess inventory by estimating the net
realizable value based on the potential future use of such inventory.
FEBRUARY FEBRUARY AUGUST
$ IN THOUSANDS 2003 2002 2002
--------------- ---- ---- ----
RESTATED
First-in, first-out (FIFO) inventory.. $ 20,143 $ 15,788 $ 13,274
LIFO reserves ........................ (3,154) (2,551) (3,154)
Weighted average inventory ........... 7,900 2,680 5,942
Obsolescence reserve ................. (574) (608) (479)
-------- -------- --------
Total inventories .................... $ 24,315 $ 15,309 $ 15,583
======== ======== ========
The estimated percentage distribution between major classes of inventory before
reserves is as follows:
FEBRUARY FEBRUARY AUGUST
2003 2002 2002
---- ---- ----
RESTATED
Raw materials ...................... 15% 12% 11%
Work in process .................... 5% 5% 4%
Finished goods and purchased parts.. 80% 83% 85%
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment and capitalized lease assets are stated at cost, net
of depreciation.
FEBRUARY FEBRUARY AUGUST
$ IN THOUSANDS 2003 2002 2002
-------------- ---- ---- ----
Property, plant and equipment:
Land ........................... $ 336 $ 70 $ 336
Buildings ...................... 9,304 8,625 9,072
Equipment ...................... 36,598 32,333 35,242
Other .......................... 2,443 3,022 2,897
-------- -------- --------
Total property, plant and equipment.. 48,681 44,050 47,547
Accumulated depreciation ............ (34,411) (30,123) (33,035)
-------- -------- --------
Property, plant and equipment, net.. $ 14,270 $ 13,927 $ 14,512
======== ======== ========
(6) CREDIT ARRANGEMENTS
The Company may borrow up to $10.0 million under an unsecured revolving line of
credit agreement with a commercial bank. Borrowings under this line of credit,
if any, are to be used for working capital and general corporate purposes
including stock repurchases. At February 28, 2003 and 2002, the Company has not
borrowed any proceeds from this line. Borrowings will bear interest at an annual
rate equal to 1% under the bank's National Base Rate in effect from time to time
(4.25% at February 28, 2003); provided that the National Base Rate will not be
less than 4.00%. The revolving line of credit agreement expires on December 28,
2003 at which time the Company expects to renew the line of credit on
substantially similar terms.
9
(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.
At February 28, 2003, options to purchase 196,062 shares of common
stock at a weighted average price of $25.89 per share were outstanding, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of the common shares. These
options expire between September 3, 2007 and May 3, 2012.
At February 28, 2002, options to purchase 89,625 shares of common stock
at a weighted average price of $27.59 per share were outstanding, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares. These options
expire between September 3, 2007 and September 3, 2008.
(8) INDUSTRY SEGMENT INFORMATION
The Company manages its business activities in two reportable segments:
Irrigation: This segment includes the manufacture and marketing of
center pivot, lateral move and hose reel irrigation systems and related
control and ancillary equipment.
Diversified Products: This segment includes providing outsource
manufacturing services and the manufacturing and selling of large
diameter steel tubing.
The accounting policies of the two reportable segments are the same as
those described in the "Accounting Policies" in Note A. of the financial
statements included in the Form 10-K for the fiscal year ended August 31, 2002.
The Company evaluates the performance of its operating segments based on segment
sales, gross profit and operating income, with operating income for segment
purposes excluding general and administrative expenses (which include corporate
expenses), engineering and research expenses, interest income net, other income
and expenses net, income taxes, and assets. Operating income for segment
purposes does include selling expenses and other overhead costs directly
attributable to the segment. There are no intersegment sales.
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
$ IN THOUSANDS 2003 2002 2003 2002
-------------- ---- ---- ---- ----
RESTATED RESTATED RESTATED
Operating revenues:
Irrigation .......................... $45,372 $37,025 $76,003 $61,868
Diversified products ................ 2,755 3,643 5,586 7,345
------- ------- ------- -------
Total operating revenues ............... $48,127 $40,668 $81,589 $69,213
======= ======= ======= =======
Operating income:
Irrigation .......................... $ 9,371 $ 7,388 $13,451 $10,507
Diversified products ................ 432 651 723 1,026
------- ------- ------- -------
Segment operating income ............... 9,803 8,039 14,174 11,533
Unallocated general & administrative and
engineering & research expenses ..... 3,327 2,625 6,503 5,162
Interest and other income, net ......... 632 349 1,151 982
------- ------- ------- -------
Earnings before income taxes ........... $ 7,108 $ 5,763 $ 8,822 $ 7,353
======= ======= ======= =======
(9) OTHER NONCURRENT ASSETS
FEBRUARY FEBRUARY AUGUST
$ IN THOUSANDS 2003 2002 2002
--------------- ---- ---- ----
RESTATED RESTATED
Cash surrender value of life insurance policies.. $1,764 $1,658 $1,691
Equity method investments ....................... 1,468 1,228 1,311
Goodwill, net ................................... 1,113 806 1,082
Split dollar life insurance ..................... 894 875 878
Intangible pension assets ....................... 511 580 511
Other intangibles, net .......................... 642 188 709
Other ........................................... 784 878 224
------ ------ ------
Total noncurrent assets ......................... $7,176 $6,213 $6,406
====== ====== ======
10
(10) COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
$ IN THOUSANDS 2003 2002 2003 2002
-------------- ---- ---- ---- ----
RESTATED RESTATED RESTATED
Comprehensive Income:
Net earnings ................. $4,952 $3,972 $6,145 $5,084
Other comprehensive income:
Foreign currency translation.. 197 9 270 14
------ ------ ------ ------
Total comprehensive income ...... $5,149 $3,981 $6,415 $5,098
====== ====== ====== ======
The difference between our reported net earnings and comprehensive income for
each period presented is primarily the change in the foreign currency
translation adjustment. Accumulated other comprehensive loss shown in our
consolidated balance sheets includes the accumulated foreign currency
translation adjustment.
(11) GUARANTEES
The Company is currently party to various guarantee arrangements. These
agreements arose in transactions related to dealer/customer financing, the
guarantee of debt for an equity investment and product warranties.
The Company has adopted FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Other (the "Interpretation"). The Interpretation
requires a guarantor to recognize a liability for the non-contingent component
of the guarantee, this is the obligation to stand ready to perform in the event
that specified triggering events or conditions occur. The initial measurement of
this liability is the fair value of the guarantee at inception. The recognition
of the liability is required even if it is not probable that any payments will
be required under the guarantee or if the guarantee has premium payments or as
part of a transaction with multiple events. The Company has adopted the
disclosure requirements of the Interpretation and will apply the recognition and
measurement provisions for all guarantees entered into or modified after
December 31, 2002 when those guarantees are estimable. The following table
provides the maximum amount of potential future payments for each major group of
guarantees:
FEBRUARY
$ IN THOUSANDS 2003
-------------- ----
Guarantees on third party debt of equity investment........... $ 671
Customer equipment financing recourse......................... 2,908
Product warranties............................................ -
-------
Total guarantees.............................................. $ 3,579
=======
GUARANTEES ON THIRD PARTY DEBT OF EQUITY INVESTMENT
The Company holds a minority investment in an irrigation dealership that is
accounted for on the equity method. The dealership has bank notes outstanding
for which the general assets of the dealership have been pledged as collateral.
To enhance the credit standing of the dealership, the Company has guaranteed a
portion of the principal value of the bank notes. Additionally, the majority
owner of the dealership has guaranteed a portion of the principal value of the
bank notes. One of the bank notes matures in December 2006, while the other bank
notes originally matured on December 31, 2002, but were extended to March 2003
and have subsequently been refinanced. The total guarantee by the Company
granted on the dealership bank notes was $502,000 on February 28, 2003. Separate
but related to this dealership, the Company has provided a standby letter of
credit, which expires in December 2003, for $169,000 to enhance the credit
standing of the majority owner of the dealership.
11
CUSTOMER EQUIPMENT FINANCING RECOURSE
In the normal course of business, the Company has arranged for unaffiliated
financial institutions to make favorable financing terms available to end-user
purchasers of the Company's irrigation equipment. In order to facilitate these
arrangements, the Company provided the financial institutions with limited
recourse guarantees or full guarantees, as more fully described below.
The Company maintains an agreement with a single financial institution
that guarantees the financial institution's related portfolio limited to $1.4
million as of February 28, 2003. Generally, the Company's exposure is limited to
unpaid interest and principal where the first and/or second annual customer
payments have not yet been made as scheduled. The maximum exposure is generally
representative of 2.75% of the original loan amount financed or the total
equipment cost related to a lease. Related to this exposure amount, the Company
has accrued $356,000 within other current liabilities as of February 28, 2003.
The amount accrued is based, in large part, on the Company's experience with
this agreement and related transactions.
Separately, the Company maintains limited customer financing recourse
agreements with three financial institutions including the one referred to
above. Generally, the Company's exposure is limited to unpaid interest and
principal where the first and/or second annual customer payments have not yet
been made as scheduled. In some specific cases, the guarantee may cover up to
all scheduled payments of a loan. The original amount of existing guarantees is
approximately $1.5 million at February 28, 2003. The Company's recourse
guarantee is collateralized by the value of the equipment. No liability has been
accrued for the value of the limited customer guarantees.
PRODUCT WARRANTIES
The Company generally warrants its products against certain manufacturing and
other defects. These product warranties are provided for specific periods of
time and/or usage of the product. The Company had accrued liabilities of $1.2
million and $1.4 million as of February 28, 2003 and 2002, respectively,
relating to product warranty claims. The accrued product warranty costs are for
a combination of specifically identified items and other unidentified items
based primarily on historical experience of actual warranty claims. Warranty
claims expense were $215,000 and $226,000 for the three month period ended
February 28, 2003 and 2002, respectively, and $609,000 and $552,000 for the six
month period ended February 28, 2003 and 2002, respectively. The following table
provides the changes in the Company's product warranties:
FOR THE SIX MONTHS ENDED
------------------------
FEBRUARY FEBRUARY
$ IN THOUSANDS 2003 2002
-------------- ---- ----
Product warranty accrual balance, September 1 ........ $ 1,266 $ 1,396
Liabilities accrued for warranties during the period.. 120 119
Warranty claims paid during the period ............... (200) (164)
------- -------
Product warranty accrual balance, February 28 ........ $ 1,186 $ 1,351
======= =======
FOR THE FISCAL YEARS ENDED
--------------------------
AUGUST AUGUST AUGUST
$ IN THOUSANDS 2002 2001 2000
-------------- ---- ---- ----
Product warranty accrual balance, September 1 ........ $ 1,396 $ 757 $ 657
Liabilities accrued for warranties during the period.. 364 710 166
Warranty claims paid during the period ............... (494) (71) (66)
------- ------- -------
Product warranty accrual balance, August 31 .......... $ 1,266 $ 1,396 $ 757
======= ======= =======
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
make a variety of decisions, which impact the reported amounts and the related
disclosures. These decisions include the selection of the appropriate accounting
principles to be applied and the assumptions on which to base accounting
estimates. In making these decisions, management applies its judgment based on
its understanding and analysis of the relevant circumstances and the Company's
historical experience. The Company's significant accounting policies are
described in Note A to the Consolidated Financial Statements in the Company's
Form 10-K for fiscal 2002.
Certain of the Company's accounting policies have been deemed by
management to be critical because of their overall importance to the
presentation of the Company's consolidated results of operations and financial
condition or because they require the greatest use of judgments and estimates by
management. The following accounting policies are those management considers
critical to the Company's consolidated results of operations and financial
condition. Management periodically re-evaluates and adjusts the estimates that
are used as circumstances change. There were no significant changes in critical
accounting policies during the six-months ended February 28, 2003.
REVENUE RECOGNITION
Revenues from the sale of the Company's products to its dealers or
customers are generally recognized upon the delivery of the product to the
Company's dealers or customers. The Company recognizes revenue of certain low
volume products only upon the earlier of the date a product is delivered by the
dealer to an end-user customer or the date the dealer makes payment on the sale
to the Company. The costs related to revenues, including the allowance for
doubtful accounts, are recognized in the same period in which the specific
revenues are recognized. Estimates used in the Company's revenue recognition and
cost recognition process include, but are not limited to, estimates for rebates
payable, cash discounts expected to be allowed, and the allowance for doubtful
or uncollectible accounts. The Company does not record any revenue that is
contingent or that is dependent upon future performance.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most inventories. Cost is
determined by the weighted average method for inventories at the Company's
foreign subsidiary in France and at the Company's dealership subsidiary
Irrigation Specialists. The Company reserves for obsolete, slow moving and
excess inventory by estimating the net realizable value based on the potential
future use of such inventory.
13
RESULTS OF OPERATIONS
The following table provides highlights of the Company's consolidated results of
operations for the three-month and six-month periods ended February 28, 2003 and
2002. The information presented below should be read together with the
accompanying Consolidated Statements of Operations and with the industry segment
information in Note (8) to the consolidated financial statements contained
herein.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
PERCENT PERCENT
FEBRUARY FEBRUARY INCREASE FEBRUARY FEBRUARY INCREASE
($ IN THOUSANDS) 2003 2002 (DECREASE) 2003 2002 (DECREASE)
---------------- ---- ---- ---------- ---- ---- ---------
RESTATED RESTATED RESTATED
Consolidated
Operating revenues ...................... $ 48,127 $ 40,668 18.3% $ 81,589 $ 69,213 17.9%
Cost of operating revenues .............. $ 35,865 $ 30,586 17.3 $ 62,316 $ 53,521 16.4
Gross profit ........................... $ 12,262 $ 10,082 21.6 $ 19,273 $ 15,692 22.8
Gross margin ............................ 25.5% 24.8% 23.62% 22.7%
Selling, engineering & research and
general & administrative expense .. $ 5,786 $ 4,668 24.0 $ 11,602 $ 9,321 24.5
Operating income ........................ $ 6,476 $ 5,414 19.6 $ 7,671 $ 6,371 20.4
Operating margin ........................ 13.5% 13.3% 9.4% 9.2%
Interest income, net .................... $ 390 $ 356 9.6 $ 813 $ 793 2.6
Other income (expense), net ............ $ 242 $ (7) N/A $ 338 $ 189 78.8
Income tax provision .................... $ 2,156 $ 1,791 20.4 $ 2,677 $ 2,269 18.0
Effective income tax rate ............... 30.3% 31.1% 30.3% 30.9%
Net earnings ............................ $ 4,952 $ 3,972 24.7 $ 6,145 $ 5,084 20.9
Irrigation Equipment Segment (See Note (8))
Operating revenues ...................... $ 45,372 $ 37,025 22.5 $ 76,003 $ 61,868 22.8
Operating income ........................ $ 9,371 $ 7,388 26.8 $ 13,451 $ 10,507 28.0
Operating margin ........................ 20.7% 20.0% 17.7% 17.0%
Diversified Products Segment (See Note (8))
Operating revenues ...................... $ 2,755 $ 3,643 (24.4) $ 5,586 $ 7,345 (23.9)
Operating income ........................ $ 432 $ 651 (33.6%) $ 723 $ 1,026 (29.5%)
Operating margin ........................ 15.7% 17.9% 12.9% 14.0%
COMPARISON OF THE THREE-MONTHS ENDED FEBRUARY 28, 2003 AND 2002
Operating revenues for the three-months ended February 28, 2003 were $48.1
million as compared to $40.7 million for the same prior year period.
Acquisitions and new business operations contributed $5.6 million in revenues
for the three-months ended February 28, 2003. Irrigation equipment revenues
totaled $45.4 million as compared to $37.0 million for the same prior year
period. Revenues increased primarily due to new operations. Additionally, new
products and firm agricultural commodity prices contributed modestly to the
increase in irrigation revenue. Diversified products revenues were $2.8 million
during the three-months ended February 28, 2003, lower than the same period
prior year revenues of $3.6 million. The decrease in diversified product
revenues was primarily due to contract manufacturing customers relying less on
outsourced manufacturing.
Gross margin for the three-months ended February 28, 2003 was 25.5% as
compared to 24.8% for the same prior year period. The increase in gross margin
was primarily the result of modest price increases along with a continuation of
cost controls.
Selling, general and administrative, and engineering and research
expenses during the three-months ended February 28, 2003 totaled $5.8 million as
compared to $4.7 million for the same prior year period. The increase was due to
primarily to incremental expenses related to new business operations established
after the three-months ended February 28, 2002. Excluding the new operations,
selling, general and administrative and engineering and research expenses
increased $247,000 over the same prior year period. Incremental engineering and
research expenses reflect new product initiatives.
Other income during the three-months ended February 28, 2003 totaled
$242,000 as compared to other expense of $7,000 for the same prior year period.
Foreign currency gains were the primary cause of the increase in other income
compared to the same prior year period.
14
The effective tax rate during the three-months ended February 28, 2003
was 30.3% as compared to 31.1% for the same prior year period. Overall, the
Company benefits from an effective tax rate which is lower than the combined
federal and state statutory rate primarily due to the federal income tax exempt
status of interest income from its municipal bond investments.
Net earnings rose 25% to $5.0 million, or $0.42 per diluted share, for
the quarter ended February 28, 2003 compared with $4.0 million, or $0.34 per
diluted share, for the same prior year period.
COMPARISON OF THE SIX-MONTHS ENDED FEBRUARY 28, 2003 AND 2002
Operating revenues for the six-months ended February 28, 2003 were $81.6 million
as compared to $69.2 million for the same prior year period. Acquisitions and
new business operations contributed $8.5 million in revenues for the six-months
ended February 28, 2003. Irrigation equipment revenues totaled $76.0 million as
compared to $61.9 million for the same prior year period. Irrigation revenues
increased primarily due to new operations. Additionally, new products and firm
agricultural commodity prices contributed modestly to the increase in irrigation
revenue. Diversified products revenues were $5.6 million during the six-months
ended February 28, 2003, lower than the same prior period revenues of $7.3
million. The decrease in diversified product revenues was primarily due to
contract manufacturing customers relying less on outsourced manufacturing.
Gross margin for the six-months ended February 28, 2003 was 23.6% as
compared to 22.7% for the same prior year period. The increase in gross margin
was primarily the result of modest price increases along with a continuation of
tighter cost controls.
Selling, general and administrative, and engineering and research
expenses during the six-months ended February 28, 2003 totaled $11.6 million as
compared to $9.3 million for the same prior year period. The increase was due
primarily to incremental expenses related to new business operations established
after the six-months ended February 28, 2002. Excluding the new operations,
selling, general and administrative and engineering and research expenses
increased $709,000 over the same prior year period. Incremental engineering and
research expenses reflect new product initiatives.
Other income during the six-months ended February 28, 2003 totaled
$338,000 as compared to $189,000 for the same prior year period. The increase in
other income compared to the same prior year period reflects the impact of
foreign currency transaction gains.
The effective tax rate during the six-months ended February 28, 2003
was 30.3% as compared to 30.9% for the same period of the prior year. Overall,
the Company benefits from an effective tax rate which is lower than the combined
federal and state statutory rate primarily due to the federal income tax exempt
status of interest income from its municipal bond investments.
Net earnings rose 21% to $6.1 million, or $0.52 per diluted share, for
the first six-month period of fiscal 2003 compared with $5.1 million, or $0.43
per diluted share, in the first six-months of fiscal 2002.
OUTLOOK
Long term, the Company believes that the drivers for agricultural irrigation
equipment demand remain solidly in place; farmers need to conserve water, energy
and labor while at the same time improve and stabilize crop yields and increase
food production for a growing world population. The Company's order backlog at
February 28, 2003, grew to $20.4 million compared with $17.4 million at February
28, 2002, and $18.9 million at August 31, 2002. Management believes the Company
will continue to realize growth in total revenues during the second half of
fiscal 2003. The growth expectations have been somewhat dampened by current
economic and geopolitical factors which will likely constrain total industry
growth for the remainder of the fiscal year; however, it is expected the Company
will continue to achieve revenue and earnings growth through new products,
expanded parts sales initiatives and geographical expansion. Additionally, the
Company has been managing a search process to seek business extensions through
acquisitions that are congruent with its mission to be the worldwide leader in
providing intelligent water and plant nutrient management systems, while adding
incremental value for shareholders.
15
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash for financing its receivables, inventories, any
acquisitions, capital expenditures, any stock repurchases and dividends.
Historically, the Company has financed its growth through funds provided by
operations. In addition, the Company maintains a $10.0 million bank line of
credit. The Company has not borrowed any funds under this line of credit and the
entire $10.0 million is available to the Company. Management believes that funds
provided by operations, supplemented if necessary by borrowings under the line
of credit, will be sufficient to cover reasonably expected working capital needs
of the Company, including the payment of dividends, and any planned capital
expenditures during fiscal 2003. As of February 28, 2003, the Company held cash
and marketable securities of $41.2 million as compared to $41.9 million as of
the same prior year period. Although the Company's marketable securities could
be readily converted into cash if needed, the Company intends to hold these as
investments until maturity, and does not anticipate that the sale of any of its
marketable securities will be necessary to meet its reasonably foreseeable cash
requirements. Remaining maturities of these securities range from 4 to 41
months.
During the six months ended February 28, 2003, the Company's net cash
position decreased from $12.4 million to $5.4 million. The decrease in the net
cash position was a result of cash used in operating activities of $7.7 million,
cash provided by investing activities of $1.5 million and cash used in financing
activities of $798,000 during the period.
The Company used cash in operating activities primarily to finance an
increase in receivables and inventories, which was offset by the Company's net
earnings and an increase in payables. Receivables increased $13.3 million from
the level of August 31, 2002 primarily due to new business operations
established after February 28, 2002 and the seasonality of sales including the
Company's dealer stock program. Inventories at February 28, 2003 increased $5.8
million as compared to August 31, 2002 primarily due to new business operations
established after February 28, 2002 and seasonal production scheduling. Accounts
payable increased $3.9 million primarily due to the timing of production
materials purchases and new business operations established after February 28,
2002.
During the first six months of fiscal 2003, the Company used cash in
investing activities in order to purchase $6.1 million of additional marketable
securities and to make capital expenditures of $1.6 million. The capital
expenditures were used primarily to upgrade and further automate the Company's
manufacturing facilities. The Company expects that total capital expenditures
for fiscal 2003 will be approximately $3.0 to $3.5 million and that they will be
made to improve the Company's manufacturing facilities. These uses of cash were
offset during the period by $9.2 million of proceeds from maturing marketable
securities.
Approximately $798,000 of cash was used in financing activities during
the six-months ended February 28, 2003. This net use of cash was primarily for
the payment of dividends on the Company's common stock.
The Company's equity increased to $98.0 million at February 28, 2003
from $92.4 million at August 31, 2002 due primarily to its net earnings of $6.1
million and accumulated other comprehensive income of $270,000 less dividends
paid of $821,000. The Company's equity at February 28, 2002 was $87.3 million.
SEASONALITY
Irrigation equipment sales are seasonal by nature. Farmers generally order
systems to be delivered and installed before the growing season. Shipments to U.
S. customers usually peak during the Company's second and third quarters for the
spring planting period.
CUSTOMERS
Management believes that overall the Company is not dependent on a single
customer. The diversified manufacturing segment, however, is largely dependent
on a few customers. While the loss of any substantial customer could have a
meaningful short-term impact on the Company's business, the Company believes
that its diverse distribution channels and customer base reduces the long-term
impact of any such loss.
OTHER FACTORS
The Company's irrigation equipment sales are highly dependent upon the need for
irrigated agricultural production, which, in turn, depends upon many factors
including total worldwide crop production, the profitability of agricultural
production, agricultural commodity prices, aggregate net cash farm income,
governmental policies regarding the agricultural sector, water and energy
conservation policies and the regularity of rainfall. In addition, irrigation
equipment sales are affected by the Company's ability to develop new products
and the market acceptance of these products, expenditures on advertising and
other promotions, competition from other manufacturers of these products;
changes in our distributors' or dealers' purchasing practices and financial
viability.
Approximately 20% and 15% of the Company's operating revenues for the
three-months ended February 28, 2003 and 2002 were generated from international
irrigation sales. Factors that affect the Company's international irrigation
sales include, economic, political and social conditions in individual
international markets; the value of the U.S. dollar against the foreign
currencies, especially the Euro, Brazilian real, Australian dollar, Canadian
dollar, South African rand and Mexican peso; heightened security for import and
export shipments of goods and changes in tariffs, import duties and other taxes.
16
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (the
Interpretation), which addresses the disclosure to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees.
These disclosure requirements are included in Note 11 to the consolidated
financial statements. The Interpretation also requires the recognition of a
liability by a guarantor at the inception of certain guarantees.
The Interpretation requires the guarantor to recognize a liability for
the non-contingent component of the guarantee, this is the obligation to stand
ready to perform in the event that specified triggering events or conditions
occur. The initial measurement of this liability is the fair value of the
guarantee at inception. The recognition of the liability is required even if it
is not probable that payment will be required under the guarantee or if the
guarantee was issued with premium payments or as part of a transaction with
multiple events.
As noted above, the Company has adopted the disclosure requirements of
the Interpretation (see Note 11) and will apply the recognition and measurement
provisions for all guarantees entered into or modified after December 31, 2002.
In October 2001, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", replacing SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The adoption of
SFAS No. 144 has not had a material impact on the Company's consolidated
financial statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, and eliminates the use of the
pooling-of-interests method. SFAS No. 141 also provides new criteria to
determine whether an acquired intangible asset should be recognized separately
from goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized but instead tested for impairment
at least annually at the reporting unit level using a two-step impairment test.
The Company has adopted the provisions of SFAS No. 142 during the first quarter
of fiscal 2003, as required, and accordingly no longer amortizes any goodwill.
The adoption of SFAS No. 142 has not had a material impact on the Company's
consolidated financial statements.
CONCERNING FORWARD-LOOKING STATEMENTS - This quarterly report on Form 10-Q
contains not only historical information, but also forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Statements that are not historical are
forward-looking and reflect expectations for future company performance. In
addition, forward-looking statements may be made orally or in press releases,
conferences, reports, on the Company's worldwide web site, or otherwise, in the
future by or on behalf of the Company. When used by or on behalf of the company,
the words "expect", "anticipate", "estimate", "believe", "intend", and similar
expressions generally identify forward-looking statements. For these statements,
the Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to the Company and the markets it serves.
Particular risks and uncertainties that could affect the Company's overall
financial position include the continuing slowdown in the global and domestic
economy that began in 2000; additional economic uncertainty created by the war
in Iraq and threat of continued terrorist acts, both of which could further
reduce growth in the U.S. and worldwide economy; the effect of the economic
slowdown on the Company's customers' ability to pay amounts owed to the Company;
weather conditions affecting demand, including warm winters and wet or cold
spring and dry summer weather; inability to raise prices of products due to
market conditions; changes in market demographics; actions of competitors;
inability to achieve earnings growth in fiscal 2003; increased insurance costs;
the Company's ability to develop and manufacture new and existing products based
on anticipated investments in manufacturing capacity and engineering; market
acceptance of existing and new products relative to expectations and based on
current commitments to fund advertising and promotions; increased competition in
the Company's businesses; financial viability of some distributors and dealers;
the Company's ability to acquire, develop, and integrate new businesses and
manage alliances successfully; changes in distributor and dealer ownership and
purchasing practices; the Company's ability to cost-effectively expand existing,
open new, move production between, and close manufacturing facilities; the
Company's ability to manage costs and capacity constraints at its manufacturing
facilities; the Company's ability to cost-effectively eliminate any
non-performing product lines; the Company's ability to manage inventory levels
and fully realize recorded inventory value; the impact of unexpected trends in
warranty claims or unknown product defects; the ability to hire, retain and
maintain good relationships with quality employees; threatened or pending
litigation action relating to patent infringement, employment, commercial
disputes and other matters; government action, including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce, infrastructure spending, health, and safety; availability of raw
materials and unforeseen price fluctuations for commodity raw materials; and the
impact of new accounting standards.
17
Particular risks and uncertainties facing the Company's international
business at the present include weak economic conditions in global markets;
political and social conditions in individual international markets; the value
of the U.S. dollar against foreign currencies, especially the Euro, Brazilian
real, Australian dollar, Canadian dollar, South African rand and Mexican peso;
heightened security for import and export shipments of goods and changes in
tariffs, import duties and other taxes.
Readers are cautioned not to place undue reliance on any
forward-looking statement and to recognize that the statements are predictions
of future results, which may not occur as anticipated. Actual results could
differ materially from those anticipated in the forward-looking statements and
from historical results, due to the risks and uncertainties described above, as
well as others not now anticipated. The foregoing statements are not exclusive
and further information concerning the Company and its businesses, including
factors that potentially could materially affect the Company's financial
results, may emerge from time to time. The Company assumes no obligation to
update forward-looking statements to reflect actual results or changes in
factors or assumptions affecting such forward-looking statements.
18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market value of the Company's marketable securities will fluctuate inversely
with movements in interest rates. However, the Company does not consider itself
to be subject to material market risks with respect to its marketable securities
because of the relatively short remaining maturities (4 to 41 months) of the
securities held by the Company and because the Company intends to hold the
investments in these marketable securities to maturity and has the ability to do
so.
The Company has manufacturing operations in the United States, France,
Brazil and South Africa. The Company sells products in over 90 countries
throughout the world and purchases a portion of its components from third-party
foreign suppliers. Export sales made from the United States are principally U.S.
dollar denominated. Accordingly, these sales are not subject to significant
currency translation risk. However, a majority of the Company's revenue
generated from operations outside the United States is denominated in the
currency of the customer location. The Company's most significant transactional
foreign currency exposures are the Euro and the Brazilian real in relation to
the U.S. dollar. Fluctuations in the value of foreign currencies create
exposures, which can adversely affect the Company's results of operations. The
Company attempts to manage its transactional foreign exchange exposure by
monitoring foreign currency cash flow forecasts and commitments arising from the
settlement of receivables and payables, and from future purchases and sales.
The Company's translation exposure resulting from translating the
financial statements of foreign subsidiaries into U.S. dollars is not hedged.
The most significant translation exposures are the Euro and the Brazilian real
in relation to the U.S. dollar.
ITEM 4 -- CONTROLS AND PROCEDURES
A review and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO") and Chief Financial Officer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14 under the
Securities Exchange Act of 1934) as of a date within 90 days prior to the filing
of this quarterly report. Based on that review and evaluation, the CEO and CFO
have concluded that the Company's current disclosure controls and procedures, as
designed and implemented, were effective to ensure that information the Company
is required to disclose in this quarterly report is recorded, processed,
summarized and reported in the time period required by the rules of the
Securities and Exchange Commission. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation. There were no
significant material weaknesses identified in the course of such review and
evaluation and, therefore, no corrective measures were taken by the Company.
19
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
In the ordinary course of its business operations, the Company is involved, from
time to time, in commercial litigation, employment disputes, administrative
proceedings and other legal proceedings. While the ultimate results of any known
legal matter are unknown at this time, management does not believe that these
matters, individually or in the aggregate, are likely to have a material adverse
effect on the Company's consolidated financial condition, results of operations
or cash flows.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Lindsay's annual shareholders' meeting was held on January 21, 2003. The
shareholders voted to elect three directors and to ratify the appointment of
KPMG LLP as independent accountants for the fiscal year ending August 31, 2003.
In addition to the election of Mr. Cunningham, Mr. Parod, and Mr. Nahl as
directors, the following were directors at the time of the annual meeting and
will continue in office: Mr. Buffett, Mr. Welsh, Mr. Christodolou and Mr.
McIntosh. There were 11,732,969 shares of common stock entitled to vote at the
meeting and 10,784,227 shares (91.9%) were represented at the meeting.
1. Election of Directors: Larry H. Cunningham For -- 10,757,091 Withheld -- 27,136
Richard W. Parod For -- 10,711,304 Withheld -- 72,923
Michael C. Nahl For -- 10,751,677 Withheld -- 32,550
2. Auditors: Ratification of the appointment of KPMG LLP as
independent auditors for the fiscal year ended August 31, 2003.
For -- 10,308,378 Against -- 469,791 Abstain -- 6,058
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits --
3(a) Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3 (a) to the Company's
Report on Form 10-Q for the fiscal quarter ended
February 28, 1997.
3(b) Certificate of Amendment of the Restated Certificate of
Incorporation of Lindsay Manufacturing Co. dated
February 7, 1997, incorporated by reference to Exhibit 3(b)
to the Company's Report on Form 10-Q for the fiscal quarter
ended February 28, 1997.
3(c) By-Laws of the Company amended and restated by the Board of
Directors on April 28, 2000, incorporated by reference to
Exhibit 3(b) of the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 2000.
4 Specimen Form of Common Stock Certificate incorporated by
reference to Exhibit 4 to the Company's Report on Form 10-Q
for the fiscal quarter ended November 30, 1997.
10(a) Lindsay Manufacturing Co. Management Incentive Plan (MIP)
2003 Plan Year, incorporated by reference to Exhibit 10 (a)
to the Company's Report on Form 10-Q for the fiscal quarter
ended November 30, 2002.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 18 U.S.C.
Section 1350.
32.1 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 18 U.S.C.
Section 1350.
32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 18 U.S.C.
Section 1350.
32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 18 U.S.C.
Section 1350.
Reports on Form 8-K --
The Registrant filed a report on Form 8-K dated December 27, 2002
reporting under Item 5, Other Events. Reference is made to the press
release of Registrant, issued on December 23, 2002, announcing the
Company's First Quarter Fiscal 2003 Results. A copy of the press
release was attached to Form 8-K as Exhibit 99.1.
20
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 10th day of
October, 2003.
LINDSAY MANUFACTURING CO.
By: /s/ BRUCE C. KARSK
-----------------------------------
Name: Bruce C. Karsk
Title: Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)
21