-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BgiRLlhzZtenIVtAqmsJicYvfPBynpJr+nKpfFf0lTUvda2CBPqnJyWDgWJl5Zr/ O5hCsiiFH28EHZDBX3ZFKQ== 0000950137-05-004293.txt : 20050411 0000950137-05-004293.hdr.sgml : 20050411 20050411160826 ACCESSION NUMBER: 0000950137-05-004293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050228 FILED AS OF DATE: 20050411 DATE AS OF CHANGE: 20050411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINDSAY MANUFACTURING CO CENTRAL INDEX KEY: 0000836157 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 470554096 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13419 FILM NUMBER: 05744141 BUSINESS ADDRESS: STREET 1: 2707 NORTH 108TH STREET STE 102 CITY: OMAHA STATE: NE ZIP: 68644 BUSINESS PHONE: 4024282131 MAIL ADDRESS: STREET 1: 2707 NORTH 108TH STREET STE 102 CITY: OMAHA STATE: NE ZIP: 68644 10-Q 1 c94131e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 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). Yes [X] No [ ] As of April 5, 2005, 11,598,603 shares of the registrant's common stock were outstanding. LINDSAY MANUFACTURING CO. AND SUBSIDIARIES INDEX FORM 10-Q
Page No. -------- PART I - FINANCIAL INFORMATION ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets, February 28, 2005, February 29, 2004 and August 31, 2004 3 Consolidated Statements of Operations for the three-months and six-months ended February 28, 2005 and February 29, 2004 4 Consolidated Statements of Cash Flows for the six-months ended February 28, 2005 and February 29, 2004 5 Notes to Consolidated Financial Statements 6-14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 15-21 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21 ITEM 4 - CONTROLS AND PROCEDURES 21 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS 22 ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 22 ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 22 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22 ITEM 5 - OTHER INFORMATION 23 ITEM 6 - EXHIBITS 23 SIGNATURE 24
2 PART I - FINANCIAL INFORMATION ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS LINDSAY MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 2005, FEBRUARY 29, 2004 AND AUGUST 31, 2004
(UNAUDITED) (UNAUDITED) FEBRUARY FEBRUARY AUGUST ($ IN THOUSANDS, EXCEPT PAR VALUES) 2005 2004 2004 ----------------------------------- ----------- ----------- ------ ASSETS Current assets: Cash and cash equivalents ................................................................. $ 7,571 $ 1,724 $ 8,973 Marketable securities ..................................................................... 11,720 11,733 14,802 Receivables ............................................................................... 35,680 39,761 34,369 Inventories ............................................................................... 29,858 24,829 19,780 Deferred income taxes ..................................................................... 1,288 2,496 1,026 Other current assets ...................................................................... 3,343 1,932 2,422 --------- --------- --------- Total current assets ...................................................................... 89,460 82,475 81,372 Long-term marketable securities ............................................................. 24,517 36,813 32,527 Property, plant and equipment, net .......................................................... 16,724 14,348 16,355 Other noncurrent assets ..................................................................... 9,158 8,296 8,747 --------- --------- --------- Total assets ................................................................................ $ 139,859 $ 141,932 $ 139,001 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .......................................................................... $ 11,010 $ 12,863 $ 9,117 Other current liabilities ................................................................. 13,849 18,251 15,359 --------- --------- --------- Total current liabilities ................................................................. 24,859 31,114 24,476 Pension benefits liability .................................................................. 4,664 2,315 2,169 Other noncurrent liabilities ................................................................ 161 163 172 --------- --------- --------- Total liabilities ........................................................................... 29,684 33,592 26,817 --------- --------- --------- 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, 17,521,272, 17,481,879 and 17,493,841 shares issued in February 2005 and 2004 and August 2004, respectively) ....... 17,521 17,482 17,494 Capital in excess of stated value ......................................................... 3,092 2,620 2,966 Retained earnings ......................................................................... 180,700 177,754 181,209 Less treasury stock (at cost, 5,862,569, 5,724,069 and 5,724,069 shares, respectively) .... (93,073) (89,898) (89,898) Accumulated other comprehensive income .................................................... 1,935 382 413 --------- --------- --------- Total shareholders' equity .................................................................. 110,175 108,340 112,184 --------- --------- --------- Total liabilities and shareholders' equity .................................................. $ 139,859 $ 141,932 $ 139,001 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 LINDSAY MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE-MONTHS AND SIX-MONTHS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004 (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- FEBRUARY FEBRUARY FEBRUARY FEBRUARY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2005 2004 2005 2004 ---------------------------------------- ---- ---- ---- ---- Operating revenues ...................................... $41,487 $51,475 $81,254 $87,988 Cost of operating revenues .............................. 33,721 39,865 66,915 69,024 ------- ------- ------- ------- Gross profit ............................................ 7,766 11,610 14,339 18,964 ------- ------- ------- ------- Operating expenses: Selling expense ....................................... 2,999 2,891 5,746 5,758 General and administrative expense .................... 3,397 3,279 6,994 6,272 Engineering and research expense ...................... 660 676 1,356 1,436 ------- ------- ------- ------- Total operating expenses ................................ 7,056 6,846 14,096 13,466 ------- ------- ------- ------- Operating income ........................................ 710 4,764 243 5,498 Interest income, net .................................... 295 361 556 785 Other income, net ....................................... 68 41 452 490 ------- ------- ------- ------- Earnings before income taxes ............................ 1,073 5,166 1,251 6,773 Income tax provision .................................... 473 1,663 476 2,177 ------- ------- ------- ------- Net earnings ............................................ $ 600 $ 3,503 $ 775 $ 4,596 ======= ======= ======= ======= Basic net earnings per share ............................ $ 0.05 $ 0.30 $ 0.07 $ 0.39 ======= ======= ======= ======= Diluted net earnings per share .......................... $ 0.05 $ 0.29 $ 0.06 $ 0.38 ======= ======= ======= ======= Average shares outstanding .............................. 11,710 11,756 11,741 11,749 Diluted effect of stock options ......................... 168 210 188 217 ------- ------- ------- ------- Average shares outstanding assuming dilution ............ 11,878 11,966 11,929 11,966 ======= ======= ======= ======= Cash dividends per share ................................ $ 0.055 $ 0.050 $ 0.110 $ 0.100 ======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 4 LINDSAY MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTHS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004 (UNAUDITED)
FEBRUARY FEBRUARY ($ IN THOUSANDS) 2005 2004 ---------------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings ............................................................. $ 775 $ 4,596 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization ......................................... 1,783 1,506 Amortization of marketable securities premiums, net ................... 110 81 Loss on sale of property, plant and equipment ......................... - 6 Provision for uncollectible accounts receivable ....................... 53 129 Equity in net (earnings) losses of equity method investments .......... (230) 196 Deferred income taxes ................................................. (332) (150) Other, net ............................................................ (50) (52) Changes in assets and liabilities: Receivables ........................................................... (427) (16,715) Inventories ........................................................... (8,914) (4,869) Other current assets .................................................. (521) (969) Accounts payable ...................................................... 1,425 4,603 Other current liabilities ............................................. (2,616) 685 Current taxes payable ................................................. 351 1,287 Other noncurrent assets and liabilities ............................... 2,528 40 -------- -------- Net cash used in operating activities .................................... (6,065) (9,626) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ............................... (1,769) (2,047) Proceeds from sale of property, plant and equipment ...................... 7 11 Purchases of marketable securities held-to-maturity ...................... - (2,982) Proceeds from maturities or sales of marketable securities held-to-maturity ......................................................... - 4,496 Purchases of marketable securities available-for-sale .................... (1,841) (3,790) Proceeds from maturities or sales of marketable securities available-for-sale ....................................................... 12,360 1,315 -------- -------- Net cash provided by (used in) investing activities ...................... 8,757 (2,997) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock under stock option plan ........... 208 164 Repurchases of common shares ............................................. (3,175) - Dividends paid ........................................................... (1,284) (1,175) -------- -------- Net cash used in financing activities .................................... (4,251) (1,011) -------- -------- Effect of exchange rate changes on cash .................................. 157 (10) -------- -------- Net decrease in cash and cash equivalents ................................ (1,402) (13,644) Cash and cash equivalents, beginning of period ........................... 8,973 15,368 -------- -------- Cash and cash equivalents, end of period ................................. $ 7,571 $ 1,724 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 LINDSAY MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America for financial statements contained in Lindsay Manufacturing Co.'s (the "Company") annual Form 10-K filing. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's most recent Form 10-K for the fiscal year ended August 31, 2004. In the opinion of management, the 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 by the Company for a full year. Notes to the consolidated financial statements describe various elements of the financial statements and the accounting policies, estimates, and assumptions applied by management. While actual results could differ from those estimated by management in the preparation of the consolidated financial statements, management believes that the accounting policies, assumptions, and estimates applied promote the representational faithfulness, verifiability, neutrality, and transparency of the accounting information included in the consolidated financial statements. (2) 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". Net earnings does not reflect stock-based employee compensation cost 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 SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.
FOR THE THREE-MONTHS ENDED FOR THE SIX-MONTHS ENDED FEBRUARY FEBRUARY FEBRUARY FEBRUARY $ IN THOUSANDS 2005 2004 2005 2004 - ---------------------------------------------------------------- -------- -------- -------- -------- Net earnings, as reported....................................... $ 600 $ 3,503 $ 775 $ 4,596 Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects................................... 361 305 722 628 -------- -------- -------- -------- Proforma net earnings........................................... $ 239 $ 3,198 $ 53 $ 3,968 ======== ======== ======== ======== Earnings per share: Basic-as reported......................................... $ 0.05 $ 0.30 $ 0.07 $ 0.39 Basic-pro forma........................................... $ 0.02 $ 0.27 $ 0.00 $ 0.34 Diluted-as reported....................................... $ 0.05 $ 0.29 $ 0.06 $ 0.38 Diluted-pro forma......................................... $ 0.02 $ 0.27 $ 0.00 $ 0.33
SFAS No. 123R, (revised December 2004), "Share-Based Payment" sets accounting requirements for "share-based" compensation to employees, including employee-stock-purchase-plans (ESPPs) and provides guidance on accounting for awards to non-employees. This Statement will require the Company to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, but expresses no preference for a type of valuation model. For public entities, this Statement is effective for the first interim or annual reporting period beginning after June 15, 2005. The Company has historically provided proforma disclosures pursuant to SFAS No. 123 and SFAS No. 148 as if the fair value method of accounting for stock options had been applied, assuming use of the Black-Scholes option-pricing model and that all option 6 grants were recorded at fair value. Although not currently anticipated, other assumptions may be utilized when SFAS No. 123R is adopted. In addition, the Company will also take into consideration the recently issued Staff Accounting Bulletin No. 107. The Company will adopt SFAS No. 123R "Share Based-Payment" during the first quarter of fiscal year 2006. The Company expects that the adoption of SFAS No 123R will have a negative impact on the Company's consolidated results of operations. (3) CASH EQUIVALENTS, MARKETABLE SECURITIES, AND LONG-TERM MARKETABLE SECURITIES Cash equivalents are included at cost, which approximates market. At February 28, 2005, primarily one financial institution held the Company's cash equivalents. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents, while those having original maturities in excess of three months are classified as marketable securities or as long-term marketable securities when maturities are in excess of one year. Marketable securities and long-term marketable securities consist of investment-grade municipal bonds. At the date of acquisition of an investment security, management designates the security as belonging to a trading portfolio, an available-for-sale portfolio, or a held-to-maturity portfolio. Following management's fiscal year 2004 decision to transfer debt securities from the held-to-maturity portfolio to the available-for-sale portfolio, the Company will not designate purchases to the held-to-maturity portfolio for a period of at least two years. Currently, the Company holds no securities designated as held-to-maturity or trading. All investment securities are classified as available-for-sale and carried at fair value. Unrealized appreciation or depreciation in the fair value of available-for-sale securities is reported in accumulated other comprehensive income, net of related income tax effects. The Company monitors its investment portfolio for any decline in fair value that is other-than-temporary and records any such impairment as an impairment loss. No impairment losses for other-than-temporary declines in fair value have been recorded in the six-months ended February 28, 2005 and February 29, 2004. In the opinion of management, the Company is not subject to material market risks with respect to its portfolio of investment securities because of the investment grade quality of the securities and the relatively short maturities of these securities are making their value less susceptible to interest rate fluctuations. Gross realized gains and losses from sale of available-for-sale securities were $0 for the three-months ended February 28, 2005 and February 29, 2004. Gross realized gains and losses from sale of available-for-sale securities were a $5,000 gain and $51,000 loss, respectively, for the six-months ended February 28, 2005 and $0 for the six-months ended February 29, 2004. Amortized cost and fair value of investments in marketable securities classified as held-to-maturity or available-for-sale according to management's intent are summarized as follows: $ IN THOUSANDS HELD-TO-MATURITY SECURITIES
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE --------- ---------- ----------- ---------- As of February 28, 2005: Due within one year....................................... $ - $ - $ - $ - Due after one year through five years..................... - - - - --------- ---------- ----------- ---------- $ - $ - $ - $ - ========= ========== =========== ========== As of February 29, 2004: Due within one year....................................... $ 11,733 $ 161 $ - $ 11,894 Due after one year through five years..................... 23,850 373 (7) 24,216 --------- ---------- ----------- ---------- $ 35,583 $ 534 $ (7) $ 36,110 ========= ========== =========== ========== As of August 31, 2004: Due within one year....................................... $ - $ - $ - $ - Due after one year through five years..................... - - - - --------- ---------- ----------- ---------- $ - $ - $ - $ - ========= ========== =========== ==========
7 AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE --------- ---------- ----------- ---------- As of February 28, 2005: Due within one year....................................... $ 11,705 $ 26 $ (11) $ 11,720 Due after one year through five years..................... 24,650 21 (154) 24,517 --------- ---------- ---------- ---------- $ 36,355 $ 47 $ (165) $ 36,237 ========= ========== ========== ========== As of February 29, 2004: Due within one year....................................... $ - $ - $ - $ - Due after one year through five years..................... 12,828 144 (9) 12,963 --------- ---------- ---------- ---------- $ 12,828 $ 144 $ (9) $ 12,963 ========= ========== ========== ========== As of August 31, 2004: Due within one year....................................... $ 14,678 $ 124 $ - $ 14,802 Due after one year through five years..................... 32,353 214 (40) 32,527 --------- ---------- ---------- ---------- $ 47,031 $ 338 $ (40) $ 47,329 ========= ========== ========== ==========
(4) INVENTORIES Inventories are stated at the lower of cost or market value. Cost is determined by the last-in, first-out (LIFO) method for the Company's Lindsay, Nebraska inventory. Cost is determined by the weighted average method for inventories at the Company's other operating locations in Washington State, France, Brazil, and South Africa. At all locations, the Company establishes 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 2005 2004 2004 - ---------------------------------------------------------- -------- -------- -------- Inventory: First-in, first-out (FIFO) inventory.................... $ 22,610 $ 18,151 $ 16,043 LIFO reserves........................................... (5,333) (2,644) (5,333) -------- -------- -------- LIFO inventory............................................ 17,277 15,507 10,710 Weighted average inventory.............................. 13,221 9,929 9,597 Obsolescence reserve.................................... (640) (607) (527) -------- -------- -------- Total inventories......................................... $ 29,858 $ 24,829 $ 19,780 ======== ======== ========
The estimated percentage distribution between major classes of inventory before reserves is as follows:
FEBRUARY FEBRUARY AUGUST 2005 2004 2004 -------- -------- -------- Raw materials............................................. 30% 20% 20% Work in process........................................... 5% 10% 10% Finished goods and purchased parts........................ 65% 70% 70%
(5) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, net of accumulated depreciation, as follows: 8
FEBRUARY FEBRUARY AUGUST $ IN THOUSANDS 2005 2004 2004 - ---------------------------------------------------------- -------- -------- -------- Property, plant and equipment: Land.................................................. $ 336 $ 336 $ 336 Buildings ............................................ 10,460 9,626 10,192 Equipment............................................. 39,866 36,769 38,886 Other............................................... 4,661 3,471 3,954 -------- -------- -------- Total property, plant and equipment....................... 55,323 50,202 53,368 Accumulated depreciation and amortization................. (38,599) (35,854) (37,013) -------- -------- -------- Property, plant and equipment, net ...................... $ 16,724 $ 14,348 $ 16,355 ======== ======== ========
Depreciation expense was $863,000 and $713,000 for the three-months ended February 28, 2005 and February 29, 2004, respectively, and $1.7 million and $1.5 million for the six-months ended February 28, 2005 and February 29, 2004, respectively. (6) CREDIT ARRANGEMENTS The Company has an agreement with a commercial bank for a $10.0 million unsecured revolving line of credit through December 28, 2005. Proceeds from this line of credit, if any, are to be used for working capital and general corporate purposes including stock repurchases. There have been no borrowings made under such unsecured revolving line of credit. Under the terms of the line of credit, borrowings, if any, bear interest at a rate equal to one percent per annum under the rate in effect from time to time and designated by the commercial bank as its National Base Rate (5.5% at February 28, 2005). The Company expects to renew this line of credit on substantially similar terms. The Company's European subsidiary, Lindsay Europe, has an unsecured revolving line of credit with a commercial bank under which it could borrow up to the Euro equivalent of $2.7 million for working capital purposes. As of February 28, 2005, there was a $2.3 million outstanding balance on this line. Under the terms of the line of credit, borrowings, if any, bear interest at a floating rate in effect from time to time designated by the commercial bank as LIBOR+200 basis points (4.1% at February 28, 2005). (7) NET EARNINGS PER SHARE Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted net earnings per share includes the incremental dilutive effect of stock options, which have an exercise price below the average market price of the Company's common shares during the period. The Company had additional stock options outstanding during the period, but these options were excluded from the calculation of diluted earnings per share because they had an exercise price exceeding the average market price of the Company's common shares during the period, as set forth in the following table:
FEBRUARY 28, 2005 FEBRUARY 29, 2004 - ------------------------------------------- ---------------------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES PRICE EXPIRE SHARES PRICE EXPIRE - ------- ---------------- ---------------- ------ ---------------- -------------- November, 2007- 289,250 $ 25.81 August, 2014 54,000 $ 28.17 November, 2007 ======= ======= ====== =======
(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. The irrigation segment consists of six operating segments that have similar economic characteristics and meet the aggregation criteria of Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures about segments of an Enterprise and Related Information." 9 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 to the consolidated financial statements contained in the Company's 10-K for the fiscal year ended August 31, 2004. 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, and net income taxes, and assets. Operating income for segment purposes does include selling expenses and other overhead charges directly attributable to the segment. There are no inter-segment sales. Because the Company utilizes common operating assets for its irrigation and diversified segments, it is not practical to separately identify assets by reportable segment. Similarly, other segment reporting proscribed by SFAS No. 131 is not shown as this information cannot be reasonably disaggregated by segment and is not utilized by the Company's management. The Company has no single customer representing 10% or more of its total revenues during the three-months or six-months ended February 28, 2005 or February 29, 2004, respectively. Summarized financial information concerning the Company's reportable segments is shown in the following table:
FOR THE THREE-MONTHS FOR THE SIX-MONTHS ENDED ENDED ----------------------- ----------------------- FEBRUARY FEBRUARY FEBRUARY FEBRUARY $ IN THOUSANDS 2005 2004 2005 2004 - -------------------------------------------------------------- ---------- ---------- ---------- ---------- Operating revenues: Irrigation............................................... $ 36,161 $ 48,733 $ 71,563 $ 82,703 Diversified products..................................... 5,326 2,742 9,691 5,285 ---------- ---------- ---------- ---------- Total operating revenues...................................... $ 41,487 $ 51,475 $ 81,254 $ 87,988 ========== ========== ========== ========== Operating income: Irrigation............................................... $ 4,149 $ 8,452 $ 7,660 $ 12,692 Diversified products..................................... 618 267 933 514 ---------- ---------- ---------- ---------- Segment operating income...................................... 4,767 8,719 8,593 13,206 Unallocated general & administrative and engineering & research expenses........................................ 4,057 3,955 8,350 7,708 Interest and other income, net................................ 363 402 1,008 1,275 ---------- ---------- ---------- ---------- Earnings before income taxes.................................. $ 1,073 $ 5,166 $ 1,251 $ 6,773 ========== ========== ========== ==========
(9) OTHER NONCURRENT ASSETS
FEBRUARY FEBRUARY AUGUST $ IN THOUSANDS 2005 2004 2004 - -------------------------------------------------------------- -------- -------- -------- Cash surrender value of life insurance policies............... $ 1,945 $ 1,858 $ 1,903 Deferred income taxes ........................................ 1,910 1,554 1,840 Equity method investments .................................... 1,594 1,241 1,364 Goodwill ..................................................... 1,351 1,242 1,254 Split dollar life insurance................................... 916 913 916 Intangible pension assets..................................... 373 442 373 Other intangibles, net........................................ 740 507 472 Other......................................................... 329 539 625 -------- -------- -------- Total noncurrent assets....................................... $ 9,158 $ 8,296 $ 8,747 ======== ======== ========
Goodwill represents the excess of the allocable purchase price for assets acquired in certain business acquisitions over the fair value of these assets at the time of the acquisitions. Other intangible assets include non-compete agreements, tradenames, patents, and plans and specifications. Goodwill and intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment of their values at least annually in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." The estimated fair value of these assets depends on a number of assumptions including forecasted sales growth and operating expenses of the reporting segment in which the assets are used. To the extent that the relevant reporting unit is unable 10 to achieve these assumptions, impairment losses may be recognized. The Company completed its annual impairment evaluation of these assets at August 31, 2004 and determined that no impairment losses were indicated. Other intangible assets that have finite lives are amortized over their realizable lives. During the first and second quarter of fiscal year 2005, the Company capitalized costs of $314,000 for software rights purchased from a development company, which will be marketed to customers. The amortization method for this software is a 3-year straight-line method. Amortization expense for other intangible assets was $14,000 and $19,000 for the three-months ended February 28, 2005 and February 29, 2004, respectively, and $53,000 and $50,000 for the six-months ended February 28, 2005 and February 29, 2004, respectively. The following table summarizes the Company's other intangible assets:
FEBRUARY FEBRUARY AUGUST $ IN THOUSANDS 2005 2004 2004 -------------- ---- ---- ---- Other intangible assets: Non-compete agreements............... $ 396 $ 343 $ 385 Tradenames........................... 145 145 145 Patent............................... 100 100 100 Plans and specifications............. 75 75 75 Software............................. 314 - - Other ............................... 34 15 31 Accumulated amortization ............... (324) (171) (264) -------- -------- ------ Total other intangibles assets, net....... $ 740 $ 507 $ 472 ======== ======== ======
(10) COMPREHENSIVE INCOME The accumulated other comprehensive income or loss shown in the Company's consolidated balance sheets includes the unrealized gains on securities and accumulated foreign currency translation adjustment. The following table shows the difference between the Company's reported net earnings and its comprehensive income:
FOR THE THREE-MONTHS ENDED FOR THE SIX-MONTHS ENDED -------------------------- ------------------------ FEBRUARY FEBRUARY FEBRUARY FEBRUARY $ IN THOUSANDS 2005 2004 2005 2004 -------------- -------- --------- -------- -------- Comprehensive income: Net earnings.............................................. $ 600 $ 3,503 $ 775 $ 4,596 Other comprehensive (loss) income: Unrealized gains (losses) on securities, net of taxes..... (105) 95 (258) 222 Foreign currency translation.............................. 149 (317) 1,780 248 ----- --------- -------- -------- Total comprehensive income..................................... $ 644 $ 3,281 $ 2,297 $ 5,066 ===== ========= ======== ========
(11) GUARANTEES The Company is currently party to guarantee arrangements relating to dealer/customer financing arrangements, and warranties of the Company's products. The following table provides the amount of estimated maximum potential future payments for each major group of the Company's guarantees:
FEBRUARY FEBRUARY AUGUST $ IN THOUSANDS 2005 2004 2004 -------------- ---------- -------- ------ Guarantees: Guarantees for customer equipment financing................. $ 3,100 $ 3,800 $3,700 Guarantees on third party debt of equity investment......... - 700 700 Product warranties.......................................... N/A N/A N/A --------- -------- ------ Total guarantees................................................. $ 3,100 $ 4,500 $4,400 ========= ======== ======
11 CUSTOMER EQUIPMENT FINANCING In the normal course of its 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 described below. The Company recorded, at estimated fair value, deferred revenue of $64,000 at February 28, 2005, compared to $69,000 at February 29, 2004 and $83,000 at August 31, 2004, classified with other current liabilities, for guarantees. The estimated fair values of these guarantees are based, in large part, on the Company's experience with this agreement and related transactions. The Company recognizes the revenue for the estimated fair value of the guarantees ratably over the term of the guarantee. Separately, related to these exposures, the Company has accrued a liability of $367,000, $319,000, and $290,000 at February 28, 2005, February 29, 2004, and August 31, 2004, respectively, also classified with other current liabilities, for estimated losses on such guarantees. The Company maintains an agreement with a single financial institution that guarantees the financial institution's pool of financing agreements with end users. This guarantee is approximately $1.5 million at February 28, 2005, $1.7 million at February 29, 2004, and $1.5 million at August 31, 2004. 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 of these limited recourse guarantees is equal to 2.75% of the aggregate amounts originally financed. Separately, the Company maintains limited, specific customer financing recourse arrangements with three financial institutions including the institution referred to above. The original amount of these specific guarantees is approximately $1.6 million at February 28, 2005, approximately $2.1 million at February 29, 2004 and approximately $2.2 million at August 31, 2004. Generally, the Company's exposure is limited to unpaid interest and principal where customer payments have not yet been made as scheduled. In some cases, the guarantee may cover all scheduled payments of a loan. All of the Company's customer-equipment recourse guarantees are collateralized by the value of the equipment being financed. GUARANTEES ON THIRD PARTY DEBT RELATED TO EQUITY INVESTMENT The Company had guaranteed three bank loans and a standby letter of credit on behalf of the irrigation dealership based in Kansas in which the Company previously held a minority equity investment position. As of February 28, 2005, the underlying bank loans being guaranteed had been paid in full and the guarantees released. 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 accrued product warranty costs are for a combination of specifically identified items and other incurred, but not identified, items based primarily on historical experience of actual warranty claims. This reserve is classified with other current liabilities. The following table provides the changes in the Company's product warranties:
FOR THE THREE-MONTHS ENDED FEBRUARY FEBRUARY $ IN THOUSANDS 2005 2004 -------------- -------- --------- Warranties: Product warranty accrual balance, December 1................... $ 1,123 $ 1,143 Liabilities accrued for warranties during the period........... 239 245 Warranty claims paid during the period......................... (198) (231) -------- --------- Product warranty accrual balance, end of period.................... $ 1,164 $ 1,157 ======== =========
FOR THE SIX-MONTHS ENDED FEBRUARY FEBRUARY $ IN THOUSANDS 2005 2004 -------------- -------- -------- Warranties: Product warranty accrual balance, September 1.................. $ 1,339 $ 1,152 Liabilities accrued for warranties during the period........... 429 670 Warranty claims paid during the period......................... (604) (665) -------- -------- Product warranty accrual balance, end of period.................... $ 1,164 $ 1,157 ======== ========
12 (12) RETIREMENT PLAN The Company has a supplementary non-qualified, non-funded retirement plan for six current and former executives. Plan benefits are based on the participant's average total compensation during the three highest compensation years of employment. This unfunded supplemental retirement plan is not subject to the minimum funding requirements of ERISA. The Company has purchased life insurance policies on four of the participants named in this supplemental retirement plan to provide partial funding for this liability. Components of net periodic benefit cost for the Company's supplemental retirement plan include:
FOR THE THREE-MONTHS ENDED FOR THE SIX-MONTHS ENDED FEBRUARY FEBRUARY FEBRUARY FEBRUARY $ IN THOUSANDS 2005 2004 2005 2004 -------------- -------- -------- -------- -------- Net periodic benefit cost: Service cost...................... $ 9 $ 10 $ 18 $ 20 Interest cost..................... 67 72 134 145 Net amortization and deferral..... 76 74 152 148 -------- -------- -------- -------- Total net periodic benefit cost....... $ 152 $ 156 $ 304 $ 313 ======== ======== ======== ========
(13) COMMITMENTS AND CONTINGENCIES 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. These include a consent decree that the Company entered in 1992 with the U.S. Environmental Protection Agency concerning groundwater contamination at its Lindsay, Nebraska facility, which is included as an EPA superfund site. 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. The Company holds a minority position in an irrigation dealership based outside of the United States. The Company has an obligation to purchase the remaining shares of this company for an amount of approximately $1.5 million by August 31, 2005. (14) INCOME TAXES It is the Company's policy to report income tax expense for interim periods using an estimated annual effective income tax rate. However, the tax effects of significant or unusual items are not considered in the estimated annual effective tax rate. The tax effect of such events is recognized in the interim period in which the event occurs. The effective tax rate for the income tax provision for the three-month and six-month periods ended February 28, 2005 increased due to a change in estimate in the income tax provisions recorded previously for previous year's Federal and state income tax liabilities. The effective tax rate for the three-months ended February 28, 2005 was 44.1% compared with 32.2% for the same period in fiscal 2004. Overall, the Company benefits from a U.S. effective tax rate which is lower than the combined federal and state statutory rates primarily due to the federal tax-exempt interest income on its investment portfolio. The American Jobs Creation Act of 2004 (the "Jobs Act"). On October 22, 2004, the Jobs Act was enacted, which directly impacts the Company in several areas. The Company currently takes advantage of the extraterritorial income exclusion ("EIE") in calculation of its federal income tax liability. The Jobs Act repealed the EIE, the benefits of which will be phased out over the next three years, with 80% of the prior benefit allowed in 2005, 60% in 2006 and 0% allowed in any year after 2006. The Company reported at year 13 ended August 31, 2004 an EIE of $253,000. The Jobs Act replaced the EIE with the new "manufacturing deduction" that allows a deduction from taxable income of up to 9% of "qualified production activities income" not to exceed taxable income. The deduction is phased in over a six-year period, with the eligible percentage increasing from 3% in 2005 to 9% in 2010. The Jobs Act includes a foreign earnings repatriation provision that provides an 85% dividends received deduction for certain dividends received from controlled foreign corporations. The Company does not intend to repatriate earnings of its foreign subsidiaries and accordingly, under APB Opinion No. 23, "Accounting for Income Taxes-Special Areas" has not recorded deferred tax liabilities for unpatriated foreign earnings. However, the Company will continue to analyze the potential tax impact should it elect to repatriate foreign earnings pursuant to the Jobs Act. 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 conditions or 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. The entire section entitled "Market Conditions and Fiscal 2005 Outlook" should be considered 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 a number of risks and uncertainties, including but not limited to those discussed in the "Risk Factors" section in the Company's annual report on Form 10-K for the year ended August 31, 2004. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results or conditions, which may not occur as anticipated. Actual results or conditions could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. The risks and uncertainties described herein 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. Except as required by law, 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. ACCOUNTING POLICIES In preparing the Company's 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 accounting policies that are most important to the presentation of its results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as its critical accounting policies. Disclosure on these critical accounting policies is incorporated by reference under Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the Company's year ended August 31, 2004. Management periodically re-evaluates and adjusts its critical accounting policies as circumstances change. However, there were no significant changes in the Company's critical accounting policies during the six-months ended February 28, 2005. INTERNAL CONTROLS OVER FINANCIAL REPORTING Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to include in the annual report on Form 10-K a report on management's assessment of the effectiveness of the Company's internal controls over financial reporting and a statement that the Company's independent auditor has issued an attestation report on management's assessment of the Company's internal controls over financial reporting. The Company believes it is progressing on the project plan generally as expected to meet this requirement, however, during the second quarter of fiscal year 2005, the Company did identify a material weakness in internal controls over financial reporting (see further discussion in Item 4). The Company has remediated the material weakness as of February 28, 2005. There are no assurances however, that the Company will not discover additional material weaknesses in its internal controls as it implements new documentation and testing procedures to comply with the new Section 404 reporting requirement. If the Company discovers material weaknesses or is unable to complete the work necessary to properly evaluate its internal controls over financial reporting, there is a risk that management and or the Company's independent auditor may not be able to conclude that the Company's internal controls over financial reporting are effective. 15 OVERVIEW Lindsay Manufacturing Co. ("Lindsay" or the "Company") is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy, and labor. The Company has been in continuous operation since 1955, making it one of the pioneers in the automated irrigation industry. The Company markets its standard size center pivot and lateral move irrigation systems domestically and internationally under its Zimmatic brand. The Company also manufactures and markets separate lines of center pivot and lateral move irrigation equipment for use on smaller fields under its Greenfield and Stettyn brands, and hose reel travelers under the Perrot brand (Greenfield in the United States). The Company also produces irrigation controls and chemical injection systems which it sells under its GrowSmart brand. In addition to whole systems, the Company manufactures and markets repair and replacement parts for its irrigation systems and controls. Lindsay also produces and sells large diameter steel tubing products and manufactures and assembles diversified agricultural and construction products on a contract manufacturing basis for certain large industrial companies. Industry segment information about Lindsay is included in Note 8 to the consolidated financial statements. Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska, USA. The Company's principal manufacturing facilities are located in Lindsay, Nebraska, USA. The Company also has foreign sales and production facilities in France, Brazil, and South Africa which provide it with important bases of operations in key international markets. Lindsay Europe SAS, located in France, manufactures and markets irrigation equipment for the European market. Lindsay America do Sul Ltda., located in Brazil, was acquired in April 2002 and manufactures and markets irrigation equipment for the South American market. Lindsay Manufacturing Africa, (PTY) Ltd, located in South Africa, was organized in September 2002 and manufactures and markets irrigation equipment in markets in southern Africa. Lindsay has two additional operating subsidiaries including Irrigation Specialists, Inc., which is a retail irrigation dealership based in Washington State that operates at four locations ("Irrigation Specialists"). Irrigation Specialists was acquired by the Company in March 2002 and provides a strategic distribution channel in a key regional irrigation market. The other operating subsidiary is Lindsay Transportation, Inc. RESULTS OF OPERATIONS The following section presents an analysis of the Company's consolidated operating results displayed in the consolidated statements of operations for the three-months and six-months ended February 28, 2005 and February 29, 2004. It should be read together with the industry segment information in Note 8 to the consolidated financial statements:
FOR THE THREE-MONTHS ENDED FOR THE SIX-MONTHS ENDED -------------------------------- ------------------------------- PERCENT PERCENT FEBRUARY FEBRUARY INCREASE FEBRUARY FEBRUARY INCREASE ($ IN THOUSANDS) 2005 2004 (DECREASE) 2005 2004 (DECREASE) ---------------- ---- ---- ---------- ---- ---- --------- Consolidated Operating revenues...................... $ 41,487 $ 51,475 (19.4)% $ 81,254 $ 87,988 (7.7)% Cost of operating revenues.............. $ 33,721 $ 39,865 (15.4) $ 66,915 $ 69,024 (3.1) Gross profit............................ $ 7,766 $ 11,610 (33.1) $ 14,339 $ 18,964 (24.4) Gross margin............................ 18.7% 22.6% 17.6% 21.6% Operating expenses...................... $ 7,056 $ 6,846 3.1 $ 14,096 $ 13,466 4.7 Operating income........................ $ 710 $ 4,764 (85.1) $ 243 $ 5,498 (95.6) Operating margin........................ 1.7% 9.3% .3% 6.2% Interest income, net.................... $ 295 $ 361 (18.3) $ 556 $ 785 (29.2) Other income, net....................... $ 68 $ 41 65.9 $ 452 $ 490 (7.8) Income tax provision.................... $ 473 $ 1,663 (71.6) $ 476 $ 2,177 (78.1) Effective income tax rate............... 44.1% 32.2% 38.0% 32.1% Net earnings............................ $ 600 $ 3,503 (82.9) $ 775 $ 4,596 (83.1) Irrigation Equipment Segment (1) Operating revenues...................... $ 36,161 $ 48,733 (25.8) $ 71,563 $ 82,703 (13.5) Operating income........................ $ 4,149 $ 8,452 (50.9) $ 7,660 $ 12,692 (39.6) Operating margin........................ 11.5% 17.3% 10.7% 15.3%
16 Diversified Products Segment (1) Operating revenues...................... $ 5,326 $ 2,742 94.2 $ 9,691 $ 5,285 83.4 Operating income........................ $ 618 $ 267 131.5 $ 933 $514 81.6 Operating margin........................ 11.6% 9.7% 9.6% 9.7%
(1) Excludes unallocated general & administrative and engineering & research expenses FOR THE THREE-MONTHS ENDED FEBRUARY 28, 2005 REVENUES Operating revenues for the three-months ended February 28, 2005 declined 19% to $41.5 million compared with $51.5 million for the three-months ended February 29, 2004. This decrease was attributable to a 26% decline in irrigation equipment revenues partially offset by a 94% increase in revenues from our diversified manufacturing segment. Domestic irrigation equipment revenues for the three-months ended February 28, 2005 declined $11.3 million or 31%, compared to the same period last year. The decline in irrigation revenue was due to approximately a 40% decline in unit volume compared to the second quarter of fiscal 2004, which was offset by increases of approximately 17% in the average selling price of irrigation equipment. Management believes that a combination of factors have contributed to the lower demand for irrigation equipment during the quarter. These factors include the substantial increase in the prices for our irrigation equipment that occurred during the past twelve months due mostly to higher steel costs. At the same time the prices of our equipment were increasing, the prices of many agricultural commodities were declining significantly from the levels of mid 2004, including prices for major crops such as corn and soybeans that are major markets for mechanical irrigation. These lower commodity prices, combined with higher costs for energy and fertilizer, and other farm inputs contributed to reduced demand for products such as irrigation equipment, which represent substantial capital expenditures. In addition, there has been a reduction in the drought conditions from the same time last year. International irrigation equipment revenues have also been affected by many of the same factors affecting domestic sales of irrigation equipment. As a result, international irrigation equipment revenues decreased $1.2 million or 11% for the three-months ended February 28, 2005 when compared to the same period in fiscal 2004. While the acquisition of the Stettyn irrigation company in South Africa in the fourth quarter of fiscal 2004 contributed additional revenues during the quarter, this increase was more than offset by declines in revenues for the remaining international products. These decreased revenues were attributable to lower unit sales volumes in each of these markets. Notwithstanding the positive effect of a lower U.S. dollar value on export sales, the negative effects of higher equipment prices and depressed agricultural commodity prices reduced demand for irrigation systems. Diversified manufacturing revenues for the three-months ended February 28, 2005 increased 94% to $5.3 million, from $2.7 million during the second quarter of fiscal 2004. The increase was primarily due to expanded revenues generated from outsourced manufacturing work performed for GE Transportation Systems, Global Signaling during the period. The diversified segment continues to achieve success in developing new business opportunities and expects to see continued growth supported by appropriate investment. GROSS MARGIN Gross margin for the quarter declined to 18.7% from the 22.6% gross margin achieved during the second quarter of fiscal 2004. The decline in gross margin is largely attributable to the production of fewer irrigation systems during the quarter compared to the second quarter of fiscal 2004. This resulted in a reduced number of units to which overhead and other fixed production costs were allocated. In addition, higher energy cost has affected cost of production and in-bound and out-bound transportation. Gross margin was also negatively affected by the increase in the percentage of total sales represented by our international operations since margins achieved by these operations are typically lower than those achieved by our domestic operations. Finally, the larger percentage of revenues from diversified manufacturing lowered margins during the quarter since the Company realizes lower margins on these products than it currently does on irrigation equipment products. As the Company gains experience with its expanded diversified manufacturing base, it expects to realize margin improvements, bringing margins closer to those earned on irrigation equipment revenues. 17 OPERATING EXPENSES Operating expenses for the quarter were $0.2 million or 3.1% higher than during the same period of fiscal 2004. The increase was primarily due to higher insurance costs, expenses relating to compliance with management's assessment over internal controls, and incremental operating expenses of the Stettyn irrigation company which was acquired in the fourth quarter of fiscal 2004. INTEREST INCOME, OTHER INCOME, AND TAXES Net interest income during the three-months ended February 28, 2005 of $295,000 declined 18% from the $361,000 earned during the same period of fiscal 2004. This decrease primarily reflects a reduction of interest income from securities and interest bearing bank accounts due to a smaller balance held in these securities and accounts. Other income, net of $68,000 during the three-months ended February 28, 2005 reflects an increase of $27,000 compared to other income, net of $41,000 for the same prior year period. This increase primarily resulted from a $185,000 increase in net earnings from minority equity investments partially offset by lower net foreign currency gains of $155,000 compared to the same prior year period. The effective tax rate for the income tax provision for the three-months ended February 28, 2005 increased due to a change in estimate in the income tax provision recorded previously for the 2004 state income tax liability. The effective tax rate for the three-months ended February 28, 2005 was 44.1% compared with 32.2% for the same period in fiscal 2004. Overall, the Company benefits from a U.S. effective tax rate which is lower than the combined federal and state statutory rates primarily due to the federal tax-exempt interest income on its investment portfolio. The American Jobs Creation Act of 2004 (the "Job's Act") which was signed into law on October 22, 2004 includes provisions which phase out the extraterritorial income deduction over a two year period beginning January 1, 2005. The first year phase out of 20% will impact the Company's tax rates for the eight months of fiscal 2005 occurring after that date. Accordingly, the effect of this phase out has been included in the calculation of the Company's effective tax rate beginning in the quarter ended February 28, 2005. The Job's Act also includes a one-time deduction for qualifying repatriations of foreign earnings during fiscal 2005. However, the Company does not intend to repatriate earnings of its foreign subsidiaries during fiscal 2005. The incentive for U.S. production activities included in the Job's Act, effective for fiscal years beginning after December 31, 2004, will not impact the Company's tax rate in fiscal 2005. FOR THE SIX-MONTHS ENDED FEBRUARY 28, 2005 REVENUES Operating revenues for the six months ended February 28, 2005 declined 8% to $81.3 million compared with $88.0 million for the six months ended February 29, 2004. This decrease was attributable to a 14% decline in irrigation equipment revenues partially offset by an 83% increase in revenues from our diversified manufacturing segment. Domestic irrigation equipment revenues for the six-months ended February 28, 2005 declined $11.7 million or 19%, compared to the same period last year. The decline in irrigation revenue was due to a 34% decline in unit volume compared to the first half of fiscal 2004, which was partially offset by increases in the selling price of irrigation equipment. Management believes that the combination of factors described above in the discussion of the three-months ended February 28, 2005 also contributed to the decline in domestic irrigation revenues for the first six months of fiscal 2005. International irrigation equipment revenues for the six-months ended February 28, 2005 increased $0.5 million or 3% over the first six months of fiscal 2004. The acquisition of the Stettyn irrigation company in South Africa in the fourth quarter of fiscal 2004 contributed additional revenues during the first half of fiscal 2005. This increase was largely offset by a decline in unit volume in other international markets. The decline in unit volume compared to the first half of fiscal 2004 was partially offset by increases in the average selling price of irrigation equipment. Management believes that the combination of factors described above in the discussion of the three-months ended February 28, 2005 also contributed to the decline in unit volume in international irrigation markets for the first six months of fiscal 2005. Diversified manufacturing revenues of $9.7 million for the six-months ended February 28, 2005 represented an increase of $4.4 million or 83% from the same prior year period. The increase was primarily due to expanded revenues generated from outsourced manufacturing work performed for GE Transportation Systems, Global Signaling during the period. 18 GROSS MARGINS The Company's gross margin decreased to 17.6% in the six-months ended February 28, 2005, from 21.6% for the same prior year period. Management believes that the factors described in the discussion of the three-months ended February 28, 2005 also contributed to the decline in gross margins for the first six months of fiscal 2005. OPERATING EXPENSES Operating expenses during the first half of fiscal 2005 rose by $0.6 million or 4.7% from the same prior year period. The increase was primarily due to higher insurance costs, expenses relating to compliance with management's assessment over internal controls, and incremental operating expenses of the Stettyn irrigation company which was acquired in the fourth quarter of fiscal 2004. INTEREST INCOME, OTHER INCOME, AND TAXES Net interest income during the six-months ended February 28, 2005 of $556,000 declined 26% from the $785,000 earned during the same period of fiscal 2004. This decrease primarily reflects a reduction of interest income from securities and interest bearing bank accounts due to a smaller balance held in these securities and accounts. Other income, net of $452,000 during the six-months ended February 28, 2005 reflects a decrease of $38,000 compared to other income, net of $490,000 for the same prior year period. This decrease resulted from lower foreign currency net gains of $420,000 and an increase in other miscellaneous expenses of $44,000 partially offset by higher net earnings from minority equity investments of $426,000. The effective rate for the income tax provision for the six-months ended February 28, 2005 increased due to a change in estimate in the income tax provisions recorded previously for previous year's Federal and state income tax liabilities. The effective tax rate for the six-months ended February 28, 2005 was 38.0% compared with 32.1% for the same period in fiscal 2004. Overall, the Company benefits from a U.S. effective tax rate which is lower than the combined federal and state statutory rates primarily due to the federal tax-exempt interest income on its investment portfolio. LIQUIDITY AND CAPITAL RESOURCES The Company requires cash for financing its receivables and inventories, paying operating costs and capital expenditures, and for dividends. The Company may also use cash to finance business acquisitions and additional stock repurchases from time to time. Historically, the Company has met its liquidity needs and financed all capital expenditures exclusively from its available cash and funds provided by operations. The Company's cash and marketable securities totaled $43.8 million at February 28, 2005, $50.3 million at February 29, 2004, and $56.3 million at August 31, 2004. The Company's marketable securities consist primarily of tax-exempt high-grade municipal debt. Cash flows used in operations totaled $6.1 million during the six-months ended February 28, 2005, compared to $9.6 million used in operations during the same prior year period. The $3.5 million decrease in cash flows used in operations was primarily due to a $16.3 million decrease from the prior year period in accounts receivables offset by higher inventory builds of $4.0 million, a $4.1 million decrease in accounts payable and current taxes payable, and a $3.8 million decrease in net earnings. The inventory change was primarily due to lower unit sales volumes, and higher steel inventory and the accounts receivable change was primarily due to collection of dealer programs. Cash flows provided by investing activities totaled $8.8 million during the six-months ended February 28, 2005 compared to cash flows used in investing activities of $3.0 million during the same prior year period. Cash flows provided by investing activities increased by $11.8 million compared to the same prior year period primarily due to proceeds from maturities and sales of marketable securities partially offset by purchases of marketable securities and property, plant and equipment. Capital expenditures were $1.8 million during the six-months ended February 28, 2005 compared to $2.0 million during the same prior year period. Capital expenditures were used primarily for updating manufacturing plant and equipment, expanding 19 manufacturing capacity, and further automating the Company's facilities. Capital expenditures for fiscal 2005 are expected to be approximately $4.5 to $5 million and will be used to improve the Company's facilities and expand its manufacturing capacity. Cash flows used in financing activities totaled $4.3 million during the six-months ended February 28, 2005 compared to $1.0 million during the same prior year period. The increase in cash used for the six-months ended February 28, 2005 as compared to the same prior year period, is primarily the result of repurchases of common shares of $3.2 million. The Company repurchased 138,500 shares of common stock on the open market under the Company's stock repurchase plan during the three-months ended February 28, 2005. As of February 28, 2005, the Company has existing authorization, without further action by our Board of Directors, to repurchase up to approximately 1.1 million shares of the Company's common stock in the open market or otherwise. The Company has an agreement with a commercial bank for a $10.0 million unsecured revolving line of credit through December 28, 2005. Proceeds from this line of credit, if any, are to be used for working capital and general corporate purposes including stock repurchases. There have been no borrowings made under such unsecured revolving line of credit. Under the terms of the line of credit, borrowings, if any, bear interest at a rate equal to one percent per annum under the rate in effect from time to time and designated by the commercial bank as its National Base Rate (5.5% at February 28, 2005). The Company expects to renew this line of credit on substantially similar terms. The Company's European subsidiary, Lindsay Europe, has an unsecured revolving line of credit with a commercial bank under which it could borrow up to the Euro equivalent of $2.7 million for working capital purposes. As of February 28, 2005, there was a $2.2 million outstanding balance on this line, which is a $1.4 million increase during the quarter. Under the terms of the line of credit, borrowings, if any, bear interest at a floating rate in effect from time to time designated by the commercial bank as LIBOR+200 basis points (4.1% at February 28, 2005). The Company believes its current cash resources (including cash and marketable securities balances), projected operating cash flow, and bank lines of credit are sufficient to cover all of its expected working capital needs, planned capital expenditures, dividends, and other cash needs. OFF-BALANCE SHEET ARRANGEMENTS During the three-months ended February 28, 2005, the Company reduced its off - balance sheet exposure to guarantees as described in Note 11, Guarantees, to the consolidated financial statements. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS There have been no material changes in our contractual obligations and financial commitments as described on page 18 in our Form 10-K for the fiscal year ended August 31, 2004. MARKET CONDITIONS AND FISCAL 2005 OUTLOOK For the remainder of fiscal 2005, the Company expects lower irrigation system unit volumes in the domestic and international markets. The Company remains uncertain as to the long-term effect of higher irrigation system prices and pricing policy changes on the demand for its products. The Company expects diversified manufacturing to remain strong for fiscal 2005 due to the continued expansion and investment in this business segment. Management believes it has taken appropriate actions to tightly control operating expenses for fiscal 2005. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS SFAS No. 123R, (revised December 2004), "Share-Based Payment" sets accounting requirements for "share-based" compensation to employees, including employee-stock-purchase-plans (ESPPs) and provides guidance on accounting for awards to non-employees. This Statement will require the Company to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, but expresses no preference for a type of valuation model. For public entities, this Statement is effective for the first interim or annual reporting period beginning after June 15, 2005. The Company has historically provided proforma disclosures pursuant to SFAS No. 123 and SFAS No. 148 as if the fair value method of accounting for stock options had been applied, assuming use of the Black-Scholes option-pricing model and that all option grants were recorded at fair value. Although not currently anticipated, other assumptions may be utilized when SFAS No. 123R is adopted. In addition, the Company will also take into consideration the recently issued Staff Accounting Bulletin No. 107. The Company will adopt SFAS No. 123R "Share Based Payment" during the first quarter of fiscal year 2006. The Company expects that the adoption of SFAS 123R will have a negative impact on the Company's consolidated results of operations. SFAS No. 151, "Inventory Costs" eliminates the "so abnormal" criterion in ARB 43 Chapter 4 "Inventory Pricing". This Statement no longer permits a company to capitalize inventory costs on their balances sheets when the production defect rate varies 20 significantly from the expected rate. The Statement reduces the differences between U.S. and international accounting standards. This Statement is effective for inventory cost incurred during annual periods beginning after June 15, 2005. The Company will adopt this Statement in the first quarter of fiscal 2006 and is evaluating this pronouncement's effect on the Company's financial position and net income. SFAS No. 153, "Exchanges of Nonmonetary Assets" eliminates the exception to the fair-value principle for exchanges of "similar productive assets," which had been accounted for based on the book value of the asset surrendered with no gain recognition. Nonmonetary exchanges have to be accounted for at fair-value, recognizing any gain or loss, if the transactions meet the commercial-substance criterion and fair-value determinable. The Statement reduces the differences between U.S. and international accounting standards. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company will adopt this Statement in the first quarter of fiscal 2006 and does not expect this pronouncement to have a material impact on the Company's financial position and net income. In December 2004, the Financial Accounting Standard Board (FASB) issued FASB Staff Position No. FAS 109-1 ("FSP FAS 109-1"), "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004." FSP FAS 109-1 clarifies that the deduction will be treated as a "special deduction" as described in SFAS 109, "Accounting for Income Taxes." As such, the special deduction has no effect on deferred tax assets and liabilities existing at the date of enactment. The impact of the deduction will be reported in the period in which the deduction is claimed. The incentive for U.S. qualified production activities included in the Act is effective as of December 21, 2004. See further discussion of the effect on the Company's consolidated financial statements in Note 14, Income Taxes. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market value of the Company's investment securities fluctuates inversely with movements in interest rates because all of these investment securities bear interest at fixed rates. Accordingly, during periods of rising interest rates, the market value of these securities will decline. However, the Company does not consider itself to be subject to material market risks with respect to its portfolio of investment securities because the maturity of these securities is relatively short, making their value less susceptible to interest rate fluctuations. The Company has manufacturing operations in the United States, France, Brazil, and South Africa. The Company has sold products throughout the world and purchases certain 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 local currency. 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. ITEM 4 - CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer (the "Officers") performed an evaluation of the Company's disclosure controls and procedures as of the end of the period covered by this report. The Officers concluded that the disclosure controls and procedures were ineffective for gathering, analyzing and disclosing the information the Company is required to disclose in the Company's reports under the Securities Exchange Act of 1934 due to a material weakness in internal controls over financial reporting. The identified material weakness related to review of manual journal entries according to the Company's policy due to vacancies in two key financial management positions at November 30, 2004. Both of the open positions have been filled by qualified individuals. Other than filling the two vacant positions in its financial management staff, there were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect those controls made during the period covered by this report that have, or are reasonably likely to materially affect the Company's internal control over financial reporting. 21 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. These include a consent decree that the Company entered in 1992 with the U.S. Environmental Protection Agency concerning groundwater contamination at its Lindsay, Nebraska facility, which is included as an EPA superfund site. 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 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES
(c) Total Number of (a) Total Shares Purchased as (d) Maximum Number of Number of (b) Average Part of Publicly Shares that May Yet Shares Price Paid per Announced Plans or Be Purchased Under Period Purchased Share Programs (2) the Plans and Programs - ------ --------- -------------- ------------------- ---------------------- December 1, 2004 to December 31, 2004............ - - - 1,205,518 January 1, 2005 to January 31, 2005............. 138,500(1) $ 22.93 138,500 1,067,018 February 1, 2005 to February 28, 2005............ - - - 1,067,018 ------- ------- ------- --------- Total.................... 138,500 $ 22.93 138,500 1,067,018 ======= ======= ======= =========
(1) All shares were purchased in open market transactions. (2) The Company originally announced a plan to repurchase 250,000 shares on July 26, 1989. Increases in the number of shares that the Company is authorized to repurchase under the plan were announced from time to time since that date, including increases due to three stock splits declared by the Company. As a result, the total number of shares the Company was authorized to purchase under this plan was 1,898,437 on a split-adjusted basis. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual shareholders' meeting was held on February 9, 2005. The shareholders voted to elect two directors and to ratify the appointment of KPMG LLP as independent accountants for the fiscal year ending August 31, 2005. In addition to the election of Mr. Christodolou and Mr. McIntosh as directors, the following were directors at the time of the annual meeting and will continue in office: Mr. Buffett, Mr. Nahl, Mr. Welsh, Mr. Cunningham, and Mr. Parod. There were 11,778,185 shares of common stock entitled to vote at the meeting and 10,941,429 shares (92.9%) were represented at the meeting. The voting results were as follows: 1. Election of Directors: Michael N. Christodolou For - 10,907,888 Withheld - 33,541 J. David McIntosh For - 10,905,154 Withheld - 36,275 2. Auditors: Ratification of the appointment of KPMG LLP as independent auditors for the fiscal year ended August 31, 2005. For - 10,747,556 Against - 185,990 Abstain - 7,884
22 ITEM 5- OTHER INFORMATION None ITEM 6 - 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) By-Laws of the Company amended and restated by the Board of Directors on December 16, 2004, incorporated by reference to Exhibit 3(b) of the Company's Report on Form 8-K filed on December 22, 2004. 3(c) 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. 4(a) 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(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. 31(b) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. 32(a) Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. 23 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 11th day of April 2005. LINDSAY MANUFACTURING CO. By: /s/ DAVID B. DOWNING ------------------------------------------ Name: David B. Downing Title: Vice President, Chief Financial Officer (Principal Financial Officer) 24 EX-31.(A) 2 c94131exv31wxay.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31(a) CERTIFICATION I, Richard W. Parod, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lindsay Manufacturing Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ RICHARD W. PAROD President and Chief Executive Officer -------------------- April 11, 2005 Richard W. Parod 25 EX-31.(B) 3 c94131exv31wxby.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31(b) CERTIFICATION I, David B. Downing, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lindsay Manufacturing Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ DAVID B. DOWNING Vice President and Chief Financial Officer ----------------------- April 11, 2005 David B. Downing 26 EX-32 4 c94131exv32.txt CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 EXHIBIT 32(a) CERTIFICATION In connection with the accompanying Quarterly Report on Form 10-Q (the "Report") of Lindsay Manufacturing Co. (the "Company") for the quarter ended February 28, 2005, I, Richard W. Parod, Chief Executive Officer of the Company and I, David B. Downing, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ RICHARD W. PAROD ------------------------------------------ President and Chief Executive Officer Richard W. Parod /s/ DAVID B. DOWNING ------------------------------------------- Vice President and Chief Financial Officer David B. Downing April 11, 2005 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 27 -----END PRIVACY-ENHANCED MESSAGE-----