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 May 31, 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
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 $2.8 million at November
30, 2002, February 28, 2003 and May 31, 2003, respectively. There is no impact
on previously reported operating cash flows because the determining factor for
timing of the payment to the supplier is based on when the Company consumes the
components in its normal operations. This adjustment to the balance sheets did
not impact the operating income, net earnings, financial condition or operating
cash flows of the Company during fiscal 2003.
See Note 2 to the consolidated financial statements for further disclosure of
these restatement adjustments.
2
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
INDEX FORM 10-Q/A
Page No.
--------
PART I -- FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets, May 31, 2003 and 2002
and August 31, 2002 4
Consolidated Statements of Operations for the three-months and
nine-months ended May 31, 2003 and 2002 5
Consolidated Statements of Cash Flows for the nine-months
ended May 31, 2003 and 2002 6
Notes to Consolidated Financial Statements 7-13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 14-18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 19
ITEM 4 - CONTROLS AND PROCEDURES 19
PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 20
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 21
CERTIFICATIONS 22-25
3
PART I -- FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
LINDSAY MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 2003 AND 2002 AND AUGUST 31, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED)
MAY MAY AUGUST
($ IN THOUSANDS, EXCEPT PAR VALUES) 2003 2002 2002
----------------------------------- ---- ----- ----
RESTATED RESTATED RESTATED
ASSETS
Current Assets:
Cash and cash equivalents $ 12,970 $ 15,232 $ 12,425
Marketable securities 9,288 8,915 13,289
Receivables, net 29,303 26,697 23,729
Inventories, net 20,972 16,820 15,583
Deferred income taxes 2,369 2,088 2,573
Other current assets 953 603 782
---------- --------- ---------
Total current assets 75,855 70,355 68,381
Long-term marketable securities 31,943 26,768 25,419
Property, plant and equipment, net 13,956 14,883 14,512
Other noncurrent assets 7,190 6,775 6,406
---------- --------- ---------
Total assets $ 128,944 $ 118,781 $ 114,718
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $8,967 $8,721 $6,068
Other current liabilities 14,327 16,296 13,984
---------- --------- ---------
Total current liabilities 23,294 25,017 20,052
Pension benefits liability 1,688 1,250 1,688
Other noncurrent liabilities 432 617 623
---------- --------- ---------
Total liabilities 25,414 26,884 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, 17,430,348 and 17,430,348 shares
issued in May 2003 and 2002 and August 2002, respectively) 17,458 17,431 17,430
Capital in excess of stated value 2,467 2,203 2,472
Retained earnings 173,000 162,821 163,265
Less treasury stock, (at cost, 5,724,069 shares) (89,898) (89,898) (89,898)
Accumulated other comprehensive gain (loss) 503 (660) (914)
---------- --------- ---------
Total shareholders' equity 103,530 91,897 92,355
---------- --------- ---------
Total liabilities and shareholders' equity $ 128,944 $ 118,781 $ 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 NINE MONTHS ENDED MAY 31, 2003 AND 2002
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ---------------------------
MAY MAY MAY MAY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
---------------------------------------- ---- ---- ---- ----
RESTATED RESTATED RESTATED
Operating revenues $ 48,833 $ 44,133 $130,422 $113,346
Cost of operating revenues 36,334 32,580 98,650 86,101
-------- -------- -------- --------
Gross profit 12,499 11,553 31,772 27,245
-------- -------- -------- --------
Operating expenses:
Selling expense 2,662 2,260 7,761 6,419
General and administrative expense 2,737 2,259 8,008 6,335
Engineering and research expense 675 595 1,907 1,681
-------- -------- -------- --------
Total operating expenses 6,074 5,114 17,676 14,435
-------- -------- -------- --------
Operating income 6,425 6,439 14,096 12,810
Interest income, net 350 376 1,163 1,169
Other income, net 246 34 584 223
-------- -------- -------- --------
Earnings before income taxes 7,021 6,849 15,843 14,202
-------- -------- -------- --------
Income tax provision 2,199 2,118 4,876 4,387
-------- -------- -------- --------
======== ======== ======== ========
Net earnings $ 4,822 $ 4,731 $ 10,967 $ 9,815
======== ======== ======== ========
Basic net earnings per share $ 0.41 $ 0.40 $ 0.94 $ 0.84
======== ======== ======== ========
Diluted net earnings per share $ 0.41 $ 0.40 $ 0.92 $ 0.83
======== ======== ======== ========
Average shares outstanding 11,734 11,704 11,727 11,663
Diluted effect of stock options 144 210 173 180
-------- -------- -------- --------
Average shares outstanding assuming dilution 11,878 11,914 11,900 11,843
======== ======== ======== ========
Cash dividends per share $ 0.035 $ 0.035 $ 0.105 $ 0.105
======== ======== ======== ========
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 NINE MONTHS ENDED MAY 31, 2003 AND 2002
(UNAUDITED)
MAY MAY
($ IN THOUSANDS) 2003 2002
---------------- ---- ----
RESTATED RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,967 $ 9,815
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 2,679 2,738
Amortization of marketable securities premiums, net (154) (156)
Gain on sale of fixed assets (52) (23)
Provision for uncollectible accounts receivable (226) (180)
Equity in net earnings of equity method investments (104) -
Deferred income taxes 204 76
Other, net (103) (51)
Changes in assets and liabilities:
Receivables, net (5,348) (2,079)
Inventories, net (5,389) (3,957)
Other current assets (171) (129)
Accounts payable, trade 2,899 476
Other current liabilities (990) 2,658
Current taxes payable 1,333 1,767
Other noncurrent assets and liabilities 617 (751)
-------- --------
Net cash provided by operating activities 6,162 10,204
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,143) (1,746)
Acquisitions of business - (4,516)
Proceeds from sale of property, plant and equipment 88 209
Purchases of marketable securities (11,495) (11,583)
Proceeds from maturities of marketable securities 9,153 6,200
Equity Investment - (78)
-------- --------
Net cash used in investing activities (4,397) (11,514)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock option plan 23 187
Dividends paid (1,232) (1,221)
-------- --------
Net cash used in financing activities (1,209) (1,034)
-------- --------
Effect of exchange rate changes on cash (11) 1
Net increase (decrease) in cash and cash equivalents 545 (2,343)
Cash and cash equivalents, beginning of period 12,425 17,575
-------- --------
Cash and cash equivalents, end of period $ 12,970 $ 15,232
======== ========
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) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements
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 the fiscal year ended August 31, 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.
Stock Based Compensation
The Company maintains a stock option plan and accounts for this plan
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under this plan had an exercise price equal to the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- --------------------------
MAY MAY MAY MAY
$ IN THOUSANDS 2003 2002 2003 2002
. RESTATED RESTATED RESTATED
Net Earnings, as reported $ 4,822 $ 4,731 $ 10,967 $ 9,815
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects 286 292 769 838
--------- --------- ---------- ---------
Proforma net earnings 4,536 4,439 10,198 8,977
========= ========= ========== =========
Earnings per share:
Basic-as reported $ 0.41 $ 0.40 $ 0.94 $ 0.84
Basic-pro forma 0.39 0.38 0.87 0.77
Diluted-as reported 0.41 0.40 0.92 0.83
Diluted-pro forma $ 0.38 $ 0.37 $ 0.86 $ 0.76
7
(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 NINE-MONTHS ENDED 5/31/03
-------------------------
AS REPORTED RESTATED
Other non-operating income $2,275 $ 584
Earnings before income taxes 17,534 15,843
Net earnings 12,658 10,967
Basic earnings per share $ 1.08 $ 0.94
Diluted earnings per share $ 1.06 $ 0.92
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 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 material effects of the
adjustments on previously reported and restated amounts for this accounting
issue:
In thousands, except per share amounts AS OF 5/31/03
-------------
AS REPORTED RESTATED
Inventories, net $18,178 $20,972
Accounts payable 6,173 8,967
8
(3) CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM MARKETABLE SECURITIES
Cash equivalents are included at cost, which approximates market. At May 31,
2003, primarily one financial institution held the Company's cash equivalents.
Marketable securities and long-term marketable securities are categorized as
held-to-maturity or available-for-sale. Management of the Company has determined
that it has the intent and ability to hold held-to-maturity securities to
maturity. Held-to-maturity securities are carried at amortized cost.
Available-for-sale securities are carried at fair value with the unrealized
gains or losses, net of tax, shown as a component of other comprehensive income
within stockholders' equity. 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 May 31, 2003, were $36.1 million, $699,000, $5,000 and $36.8
million, respectively. Held-to-maturity marketable securities with an amortized
cost of $9.3 million mature within one year and long term marketable securities
with an amortized cost of $26.8 million have maturities ranging from 12 to 38
months. Available-for-sale marketable securities amounted to $5.1 million at May
31, 2003, and are included in long-term marketable securities on the balance
sheet. Maturities for available-for-sale marketable securities range from 32 to
39 months. The total amortized cost, unrealized holding gains, and aggregate
fair value as of May 31, 2003, were $5.1 million, $31,000 and $5.1 million,
respectively.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at May 31, 2002, were $35.7 million, $436,000, $44,000 and $36.1
million, respectively. Marketable securities with an amortized cost of $8.9
million had maturities within one year and long term marketable securities with
an amortized cost of $26.8 million had maturities ranging from 12 to 41 months.
The Company held no available-for-sale securities at May 31, 2002.
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.
(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.
MAY MAY AUGUST
$ IN THOUSANDS 2003 2002 2002
--------------- ---- ---- ----
RESTATED
----------------------------------------------
First-in, first-out (FIFO) inventory $ 16,275 $ 14,379 $ 13,274
LIFO reserves ...................... (3,153) (2,551) (3,154)
Weighted average inventory ......... 8,386 5,687 5,942
Obsolescence reserve ............... (536) (695) (479)
-------- -------- --------
Total inventories .................. $ 20,972 $ 16,820 $ 15,583
======== ======== ========
The estimated percentage distribution between major classes of inventory before
reserves is as follows:
MAY MAY AUGUST
2003 2002 2002
---- ---- ----
Raw materials ................................ 23% 10% 11%
Work in process .............................. 4% 8% 4%
Finished goods and purchased parts............ 73% 82% 85%
9
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment and capitalized lease assets are stated at cost, net
of depreciation.
MAY MAY AUGUST
$ IN THOUSANDS 2003 2002 2002
-------------- ---- ---- ----
Property, plant and equipment:
Land .......................................... $ 336 $ 70 $ 336
Buildings ..................................... 9,338 8,809 9,072
Equipment ..................................... 36,263 34,850 35,242
Other.......................................... 2,631 3,371 2,897
--------- ------- --------
Total property, plant and equipment................. 48,568 47,100 47,547
Accumulated depreciation............................ (34,612) (32,217) (33,035)
---------- ------ ------
Property, plant and equipment, net ................ $ 13,956 $14,883 $ 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 May 31, 2003 and 2002, the Company had 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 May 31, 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.
(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 May 31, 2003, options to purchase 378,125 shares of common stock at
a weighted average price of $23.75 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 April 24, 2013.
At May 31, 2002, options to purchase 203,562 shares of common stock at
a weighted average price of $25.97 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.
(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.
10
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
MAY MAY MAY MAY
$ IN THOUSANDS 2003 2002 2003 2002
-------------- ---- ---- ---- ----
RESTATED RESTATED RESTATED
Operating revenues:
Irrigation .......................... $ 45,827 $ 41,501 $121,830 $103,369
Diversified products ................ 3,006 2,632 8,592 9,977
-------- -------- -------- --------
Total operating revenues ............... 48,833 44,133 130,422 113,346
======== ======== ======== ========
Operating income:
Irrigation .......................... 9,836 8,876 23,287
19,383
Diversified products ................ 1 417 724 1,443
-------- -------- -------- --------
Segment operating income ............... 9,837 9,293 24,011 20,826
Unallocated general & administrative and
engineering & research expenses ..... 3,412 2,854 9,915 8,016
Interest and other income, net ......... 596 410 1,747 1,392
-------- -------- -------- --------
Earnings before income taxes ........... $ 7,021 $ 6,849 $ 15,843 $ 14,202
======== ======== ======== ========
(9) OTHER NONCURRENT ASSETS
MAY MAY AUGUST
$ IN THOUSANDS 2003 2002 2002
--------------- ---- ---- ----
RESTATED RESTATED
Cash surrender value of life insurance policies $1,782 $1,674 $1,691
Equity method investments ..................... 1,415 1,205 1,311
Goodwill, net ................................. 1,212 830 1,082
Split dollar life insurance ................... 894 878 878
Intangible pension assets ..................... 511 580 511
Other intangibles, net ........................ 621 495 687
Other ......................................... 754 1,113 246
------ ------ ------
Total noncurrent assets ....................... $7,190 $6,775 $6,406
====== ====== ======
Effective September 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 (SFAS 142) Goodwill and Other Intangible Assets.
This standard established new accounting and reporting requirements for goodwill
and other intangible assets. Under SFAS 142, all amortization of goodwill and
intangible assets with indefinite lives ceased effective August 31, 2002. In
addition, recorded goodwill was tested for impairment at September 1, 2002, by
comparing the fair value to its carrying value. Based on the initial impairment
test, the Company concluded no impairment existed. The Company has completed
Step 1 of the transitional impairment testing and will complete Step 2 by the
end of fiscal 2003. The estimates of fair value depend on a number of
assumptions, including forecasted sales growth and improved operating expense
ratios. To the extent that the reporting unit is unable to achieve these
assumptions, impairment losses may emerge.
The Company's annual impairment testing on its reporting units will be performed
during the fourth quarter of fiscal 2003. All of the Company's carrying value of
goodwill, as shown above, relate to its irrigation segment. The change in
carrying value of goodwill balances from August 31, 2002 through May 31, 2003,
shown above relates to foreign currency translation.
The following table summarizes the Company's net carrying value for other
intangible assets as shown above. The other intangible assets are being
amortized over an average term of approximately 7 years. Related amortization
expense was $66,000 and $28,000 for the nine-months and three-months ended May
31, 2003, respectively.
MAY AUGUST
$ IN THOUSANDS 2003 2002
--------------- ---- -----
Non-compete agreements.............................. $ 302 $ 353
Tradenames.......................................... 138 142
Patent ......................................... 90 95
Plans and specifications ........................... 69 72
Other............................................... 22 25
------ ------
Total other intangible assets....................... $ 621 $ 687
====== ======
11
(10) COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
MAY MAY MAY MAY
$ IN THOUSANDS 2003 2002 2003 2002
-------------- ---- ---- ---- ----
. RESTATED RESTATED RESTATED
Comprehensive Income:
Net earnings......................... $ 4,822 $ 4,731 $ 10,967 $ 9,815
Other comprehensive income:
Unrealized gains on securities....... 31 - 31 -
Foreign currency translation......... 1,116 - 1,386 14
-------- -------- -------- -------
Total comprehensive income.............. $ 5,969 $ 4,731 $ 12,384 $ 9,829
======== ======== ======== =======
The difference between the Company's reported net earnings and its comprehensive
income for each period presented is primarily the unrealized gains on securities
and the change in the foreign currency translation adjustment. The accumulated
other comprehensive gain or loss shown in the Company's consolidated balance
sheets includes the unrealized gains on securities and 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 a nonconsolidated equity investee 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 is
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:
MAY
$ IN THOUSANDS 2003
-------------- ----
Guarantees on third party debt of equity investment........... $ 712
Customer equipment financing recourse......................... 3,438
Product warranties............................................ N/A
--------
Total guarantees.............................................. $ 4,150
========
GUARANTEES ON THIRD PARTY DEBT OF EQUITY INVESTMENT
The Company has guaranteed three bank loans and a standby letter of credit of a
business in which the Company owns a minority equity investment. The guarantees
continue until the loans, including accrued interest and fees, have been paid in
full. The bank loans mature in September 2003, December 2006 and February 2007.
The standby letter of credit expires in December 2003. As of May 31, 2003, the
maximum amount associated with the guarantees and letter of credit was
approximately $712,000. The majority owner of the business provides a separate
personal guarantee of the bank notes.
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. Related
to these exposures, the Company has accrued $354,000 within other current
liabilities as of May 31, 2003. The amount accrued is based, in large part, on
the Company's experience with this agreement and related transactions.
The Company maintains an agreement with a single financial institution
that guarantees the financial institution's pool of accounts limited to $1.4
million as of May 31, 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
representative of 2.75% of the original loan amount financed or the total
equipment cost related to a lease.
12
Separately, the Company maintains limited, specific customer financing
recourse arrangements 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
specific guarantees is approximately $2.0 million at May 31, 2003. The Company's
recourse guarantee is collateralized by the value of the equipment.
PRODUCT WARRANTIES
The Company generally warrants its products against certain manufacturing and
other defects. These product warranties are provided for specific periods and/or
usage of the product. The Company had accrued liabilities of $1.1 million and
$1.4 million as of May 31, 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
$281,000 and $352,000 for the three-month period ended May 31, 2003 and 2002,
respectively, and $890,000 and $904,000 for the nine month period ended May 31,
2003 and 2002, respectively. The following table provides the changes in the
Company's product warranties:
FOR THE NINE MONTHS ENDED
-------------------------
MAY MAY
$ IN THOUSANDS 2003 2002
-------------- ---- ----
Product warranty accrual balance, September 1................. $ 1,266 $ 1,396
Liabilities accrued for warranties during the period.......... 180 240
Warranty claims paid during the period........................ (312) (213)
-------- --------
Product warranty accrual balance, May 31 ..................... $ 1,134 $ 1,423
======== ========
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
======= ======= =======
13
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 2003.
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 Company's accounting policies relating to revenue recognition
and inventories are considered by management to be 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 nine-months ended May 31, 2003.
RESULTS OF OPERATIONS
The following table provides highlights of the Company's consolidated results of
operations for the three-month and nine-month periods ended May 31, 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 NINE MONTHS ENDED
-------------------------- -------------------------
PERCENT PERCENT
MAY MAY INCREASE MAY MAY INCREASE
($ IN THOUSANDS) 2003 2002 (DECREASE) 2003 2002 (DECREASE)
---------------- ---- ---- ---------- ---- ---- ---------
RESTATED RESTATED RESTATED
Consolidated
Operating revenues ..................... $ 48,833 $ 44,133 10.6% $130,422 $113,346 15.1%
Cost of operating revenues ............. $ 36,334 $ 32,580 11.5 $ 98,650 $ 86,101 14.6
Gross profit ........................... $ 12,499 $ 11,553 8.2 $ 31,772 $ 27,245 16.6
Gross margin ........................... 25.6% 26.2% 24.4% 24.0%
Operating Expenses ..................... $ 6,074 $ 5,114 18.8 $ 17,676 $ 14,435 22.5
Operating income ....................... $ 6,425 $ 6,439 (0.2) $ 14,096 $ 12,810 10.0
Operating margin ....................... 13.2% 14.6% 10.8% 11.3%
Interest income, net ................... $ 350 $ 376 (6.9) $ 1,163 $ 1,169 (0.5)
Other income, net ..................... $ 246 $ 34 623.5 $ 584 $ 223 161.9
Income tax provision ................... $ 2,199 $ 2,118 3.8 $ 4,876 $ 4,387 11.1
Effective income tax rate .............. 31.3% 30.9% 30.8% 30.9%
Net earnings ........................... $ 4,822 $ 4,731 1.9 $ 10,967 $ 9,815 11.7
Irrigation Equipment Segment (See Note (8))
Operating revenues ..................... $ 45,827 $ 41,501 10.4 $121,830 $103,369 17.9
Operating income ....................... $ 9,836 $ 8,876 10.8 $ 23,287 $ 19,383 20.1
Operating margin ....................... 21.5% 21.4% 19.1% 18.8%
Diversified Products Segment (See Note (8))
Operating revenues ..................... $ 3,006 $ 2,632 14.2 $ 8,592 $ 9,977 (13.9)
Operating income ....................... $ 1 $ 417 N/A $ 724 $ 1,443 (49.8%)
Operating margin ....................... N/A 15.8% 8.4% 14.5%
14
COMPARISON OF THE THREE-MONTHS ENDED MAY 31, 2003 AND 2002
Operating revenues for the three-months ended May 31, 2003, increased by $4.7
million or 11% over the same prior year period. The increase was the primary
result of an increase in irrigation equipment revenues of $4.3 million or 10%
over the same prior year period, which was due to higher irrigation equipment
demand driven by improved prices for several key agricultural commodities.
Diversified products revenues were $3.0 million during the three-months ended
May 31, 2003, higher than the same period prior year revenues of $2.6 million.
The increase in diversified product revenues was due to the Company adding sales
staff and other resources during fiscal 2003. Although the diversified segment
does not contribute significant operating income on its own, it does contribute
to overall operating income through the absorption of fixed overhead expenses.
Domestic irrigation equipment revenues increased by $4.1 million or 13%
over the same prior year period. Approximately 30% of the increase was
attributable to the Company's dealership, which was acquired in March 2002. The
remaining increase was largely due to higher demand compared to the same prior
year period, resulting from improved prices for several key agricultural
commodities. International irrigation equipment revenues increased by $210,000
or 2% over the same prior year period. International irrigation equipment
revenues from the Company's foreign operations added $3.3 million over the same
prior year period. The Company's operations in Brazil commenced in April 2002,
while the South African operations commenced in September 2002. The increase in
sales from the Company's foreign operations was largely offset by a decrease in
irrigation equipment export sales, primarily to the Middle East region, due to
the conflict in Iraq.
Gross margin for the three-months ended May 31, 2003, was 25.6% as
compared to 26.2% for the same prior year period. The decrease in gross margin
was primarily the result of the Company's lower margins realized from the
Company's foreign operations, which were partially offset by improvements in
domestic margins. The domestic margin improvement was a result of cost control
measures, efficiencies and modest price increases. The Company anticipates that
its gross margins will improve in the future as the foreign operations improve
efficiencies, reduce costs and realize economies of scale due to sales volume
growth.
Operating expenses during the three-months ended May 31, 2003,
increased by $960,000 or 19% over the same prior year period. Selling expense
increased by $402,000 or 18% and general and administrative expense increased by
$478,000 or 21% over the same prior year period. Approximately 60% of the
increase in operating expenses was attributable to expenses incurred by the
Company's new operations. The remaining increase in these expenses is due
primarily to personnel and other resource costs to support new product and
market initiatives.
Operating income for the three-months ended May 31, 2003, was $6.4
million and was comparable to the same prior year period. The Company's
operating margin for the three-months ended May 31, 2003, was 13.2% compared to
14.6% for the same prior year period.
Other income, net during the three-months ended May 31, 2003, increased
by $212,000 over the same prior year period primarily due to foreign currency
transaction gains of $207,000.
The effective tax rate during the three-months ended May 31, 2003, was
31.3% as compared to 30.9% for the same prior year period. 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 2% to $4.8 million, or $0.41 per diluted share, for
the quarter ended May 31, 2003, compared with $4.7 million, or $0.40 per diluted
share, for the same prior year period.
COMPARISON OF THE NINE-MONTHS ENDED MAY 31, 2003 AND 2002
Operating revenues for the nine-months ended May 31, 2003, increased by $17.1
million or 15% over the same prior year period, nearly all of which was
attributable to increased irrigation equipment revenues. Excluding new revenues
from new operations, revenue growth was $6.4 million or 6% for the nine-months
ended May 31, 2003, compared to the same prior year period. The increase in
operating revenues was the result of an increase in irrigation equipment
revenues of $18.5 million or 18%, partially offset by a decrease in diversified
equipment revenues of $1.4 million or 14% compared to the same prior year
period.
Domestic irrigation equipment revenues increased by $11.3 million or
14% over the same prior year period. The increase was largely due to the
addition of the Company's dealership, which was acquired in March 2002.
International irrigation equipment revenues increased by $7.1 million or 33%
over the same prior year period. International irrigation equipment revenues
from the Company's foreign operations added $10.0 million over the same prior
year period, which was partially offset by a decrease in revenues from export
sales to the Middle East region due to the conflict in Iraq and a reduction in
sales to Canada due to less favorable market conditions.
Gross margin for the nine-months ended May 31, 2003, was 24.4% as
compared to 24.0% for the same prior year period. The increase in gross margin
was primarily the result of improvements in domestic margins, which benefited
from cost
15
control measures, efficiencies, and modest price increases partially offset by
lower margins at the Company's foreign operations.
Operating expenses during the nine-months ended May 31, 2003, increased
by $3.2 million or 22% over the same prior year period. Approximately 60% of the
increase in operating expenses was attributable to expenses incurred by the
Company's new operations with the remaining increase due to personnel and other
resource costs to support new product and market initiatives. Selling expense
increased by $1.3 million or 21% and general and administrative expense
increased by $1.7 million or 26% over the same prior year period.
Other income, net during the nine-months ended May 31, 2003, increased
by $361,000 over the same prior year period. The increase in other income, net
relates primarily to foreign currency transaction gains of $209,000 during the
nine-months ended May 31, 2003.
The effective tax rate during the nine-months ended May 31, 2003 was
30.8% as compared to 30.9% for the same prior year period. 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 to $11.0 million, or $0.92 per diluted share, for the
nine-months ended May 31, 2003, compared with $9.8 million, or $0.83 per diluted
share, for the same prior year period.
OUTLOOK
Long term, the Company believes that the drivers for agricultural irrigation
equipment demand remain positive. Farmers will continue to invest in conserving
scarce water, energy and labor while at the same time improving and stabilizing
crop yields to increase food production for a growing world population. The
Company's order backlog at May 31, 2003, was $12.2 million compared with $12.6
million at May 31, 2002, and $18.9 million at August 31, 2002. Management
believes the Company will continue to realize growth in total revenues and
earnings during the fourth quarter of fiscal 2003.
The Company anticipates continued growth from the expansion in its
international operations and from the addition of new products. Key agricultural
commodity prices remain higher than the prior year, net farm income is higher,
farmland values continue to strengthen, financing rates remain attractive and
export demand for certain agricultural commodities has shown signs of strength.
Additionally, the Company continues to manage 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.
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 cash provided by
operations. 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. As of May 31, 2003, the
Company held cash and marketable securities of $54.2 million as compared to
$50.9 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 those investments classified as 'held to maturity'
securities until maturity, and does not anticipate that the sale of these
marketable securities will be necessary to meet its reasonably foreseeable cash
requirements. Remaining maturities of these securities range from 4 to 41
months. 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.
During the nine months ended May 31, 2003, the Company's net cash
position increased from $12.4 million to $13.0 million. The increase in the net
cash position primarily resulted from cash provided by operating activities of
$6.2 million, cash used in investing activities of $4.4 million and cash used in
financing activities of $1.2 million during the period.
The Company's increase in cash from operating activities for the
nine-months ended May 31, 2003, resulted primarily from net earnings offset by
an increase in receivables and inventories. Receivables increased $5.6 million
from the level of August 31, 2002, primarily due to new operations and the
seasonality of sales. Inventories at May 31, 2003, increased $2.6 million as
compared to August 31, 2002, primarily due to the Company's new operations and
seasonal production scheduling. The percentage increase of raw materials in the
total mix of inventory resulted from the expansion of production at the
Company's foreign operations.
During the nine-months ended May 31, 2003, the Company used cash in
investing activities in order to purchase $11.5 million of marketable securities
and to make capital expenditures of $2.1 million. The capital expenditures were
used primarily to upgrade and further automate the Company's manufacturing
facilities. These uses of cash were offset by $9.2 million of proceeds from
maturing marketable securities.
Approximately $1.2 million of cash was used in financing activities
during the nine-months ended May 31, 2003. This net use of cash was primarily
for the payment of dividends on the Company's common stock.
16
The Company's equity increased to $103.5 million at May 31, 2003, from
$90.7 million at August 31, 2002, due primarily to its net earnings of $12.7
million, increase in other comprehensive income of $1.4 million less dividends
paid of $1.3 million. The Company's equity at May 31, 2002, was $90.2 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 fiscal
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 relatively few number of 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 the Company's distributors' or dealers' purchasing practices and
financial viability.
A portion of the Company's operating revenues is generated from
international irrigation equipment sales. Additional 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, South
African rand, Australian dollar, Canadian dollar and Mexican peso; heightened
security for import and export shipments of goods; and changes in tariffs,
import duties and other taxes.
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 has applied 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 be tested for
impairment at least annually at the reporting unit level using a two-step
impairment test. The Company has completed Step 1 of the transitional impairment
testing and will complete Step 2 by the end of fiscal 2003. The estimates of
fair value depend on a number of assumptions, including forecasted sales growth
and improved operating expense ratios. To the extent that the reporting unit is
unable to achieve these assumptions, impairment losses may emerge. 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.
17
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 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; 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 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.
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 (5 to 39 months) of the
securities held by the Company and because the Company intends to hold the "held
to maturity" 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 has sold 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, Brazilian real and the South African
rand 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, Brazilian real and the
South African rand 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 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.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.
31.2 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 Financial 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 March 28, 2003,
reporting under Item 12, Results of Operations and Financial Condition.
Reference is made to the press release of Registrant, issued on March
25, 2003, announcing the Company's Second Quarter Fiscal 2003 Results.
A copy of the press release was attached to Form 8-K as Exhibit 99.1.
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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)
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