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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended August 31, 2004 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission File Number 1-13419
Lindsay Manufacturing Co.
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(Exact name of registrant as specified in its charter)
DELAWARE 47-0554096
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(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
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------- ------------------------------------------
Common Stock, $1.00 par value New York Stock Exchange, Inc. (Symbol LNN)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [X] No[ ]
The aggregate market value of Common Stock of the registrant, all of which is
voting, held by non-affiliates based on the closing sales price on the New York
Stock Exchange, Inc. on February 27, 2004 was $303,351,498.
As of November 10, 2004, 11,773,716 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement pertaining to the February 9, 2005, annual
shareholders' meeting are incorporated herein by reference into Part III.
Exhibit index is located on page 47-48.
1
TABLE OF CONTENTS
Page(s)
Part I
Item 1. Business 3-7
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 10-11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation 13-21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 21
Item 8. Financial Statements and Supplementary Data 22-43
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 44
Item 9A. Controls and Procedures 44
Item 9B. Other Information 44
Part III
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 45
Item 14. Principal Accounting Fees and Services 45
Part IV
Item 15. Exhibits, Financial Statement Schedules 47-48
SIGNATURES 49
2
PART I
ITEM 1 - BUSINESS
INTRODUCTION
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 Q 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 SA, located in
France, was acquired in March 2001 and 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 three 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. See "Subsidiaries" below.
PRODUCTS BY MARKET
IRRIGATION PRODUCTS
The Company's irrigation systems are primarily of the standard sized center
pivot type, with a small portion of its products consisting of the lateral move
type. Both are automatic, continuous move systems consisting of sprinklers
mounted on a water carrying pipeline which is supported approximately 11 feet
off the ground by a truss system suspended between moving towers.
A typical standard center pivot for the U.S. market is approximately 1,250
feet long and is designed to circle within a quarter-section of land, which
comprises 160 acres, wherein it irrigates approximately 130 to 135 acres. A
typical standard center pivot for the international market is somewhat shorter
than that in the U.S. market. Standard center pivot or lateral move systems can
also be custom designed and can irrigate from 25 to 500 acres. A mini-pivot is a
small version of the standard pivot and is used for smaller fields and/or
shorter crops, than that for which standard pivots are used.
A center pivot system represents a significant investment to a farmer. A
typical standard center pivot system, fully installed, requires an investment of
up to approximately $65,000 to $75,000. Approximately one-half of such
expenditure is for the pivot itself and the remainder is attributable to
installation of additional equipment such as wells, pumps, underground water
pipe, electrical supply and a concrete pad upon which the pivot is anchored.
The Company also manufactures and distributes mini-pivots and hose reel
travelers. These systems are considered to be relatively easy to operate and
have good mobility. They are typically deployed in smaller or irregular growing
fields. Mini-pivots and hose reel travelers require, on average, a lower
investment than a typical standard center pivot.
Other Types of Irrigation. Center pivot and lateral move irrigation
systems compete with three other types of irrigation: flood, drip, and other
mechanical devices such as hose reel travelers. The bulk of the worldwide
irrigation is
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accomplished by the traditional method of flood irrigation. Flood irrigation is
accomplished by either flooding an entire field, or by providing a water source
(ditches or a pipe) along the side of a field, which is planed and slopes
slightly away from the water source. The water is released to the crop rows
through gates in the ditch or pipe, or through siphon tubes arching over the
ditch wall into some of the crop rows. It runs down through the crop row until
it reaches the far end of the row, at which time the water source is moved and
another set of rows are flooded. Note that a significant disadvantage or
limitation of flood irrigation is that it cannot be used to irrigate uneven,
hilly, or rolling terrain or fields. In "drip" or "low flow" irrigation,
perforated plastic pipe or tape is installed on the ground or buried underground
at the root level. Several other types of mechanical devices, such as hose reel
travelers, irrigate the remaining irrigated acres.
Center pivot, lateral move, and hose reel traveler irrigation offers
significant advantages when compared with other types of irrigation. It requires
less labor and monitoring; can be used on sandy ground which, due to poor water
retention ability, must have water applied frequently; can be used on uneven
ground, thereby allowing previously unsuitable land to be brought into
production; can also be used for the application of fertilizers, insecticides,
herbicides, or other chemicals (termed "chemigation"); and conserves water and
chemicals through precise control of the amount and timing of the application.
Markets - General. Water is an essential and critical requirement for crop
production, and the extent, regularity, and frequency of water application can
be a critical factor in crop quality and yield.
The fundamental factors which govern the demand for center pivot and
lateral move systems are essentially the same in both the domestic and
international markets. Demand for center pivot and lateral move systems is
determined by whether the value of the increased crop production attributable to
center pivot or lateral move irrigation exceeds any increased costs associated
with purchasing, installing, and operating the equipment. Thus, the decision to
purchase a center pivot or lateral move system, in part, reflects the
profitability of agricultural production, which is determined primarily by the
prices of agricultural commodities and the costs of other farming inputs.
The current demand for center pivot systems has three sources: conversion
to center pivot systems from less water efficient, more labor intensive types of
irrigation; replacement of older center pivot systems, which are beyond their
useful lives or technologically outmoded; and conversion of dry land farming to
irrigated farming. In addition, demand for center pivots and lateral move
irrigation equipment depends upon the need for the particular operational
characteristics and advantages of such systems in relation to alternative types
of irrigation, primarily flood. More efficient use of the basic natural
resources of land, water, and energy helps drive demand for center pivot and
lateral move irrigation equipment. Increasing global population not only
increases demand for agricultural output, but also places additional and
competing demands on land, water, and energy. The Company expects demand for
center pivots and lateral moves to continue to increase relative to other
irrigation methods because center pivot and lateral move systems are required
where the soil is sandy, the terrain is not flat, there is a shortage of
reliable labor, water supply is restricted and conservation is critical, and/or
chemigation will be utilized.
The following table describes the Company's total irrigation and diversified
products revenues for the past three years. United States export revenue is
included in the region of destination.
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------------------
($ IN MILLIONS) 2004 2004 2003 2003 2002 2002
-------- ---------- -------- ---------- -------- ----------
% of Total % of Total % of Total
Revenues Revenues Revenues Revenues Revenues Revenues
-------- ---------- -------- ---------- -------- ---------
United States.................................. $ 145.7 74 $ 125.0 76 $ 113.8 78
Europe, Africa, Australia, & Middle East..... 30.3 15 23.3 14 17.2 12
Mexico & Latin America......................... 16.5 9 10.7 7 6.0 4
Other International........................... 4.2 2 4.4 3 8.9 6
-------- --- ------- --- -------- ---
Total Revenues................................. $ 196.7 100 $ 163.4 100 $ 145.9 100
United States Market. In the United States, the Company sells its branded
irrigation systems, including Zimmatic, to approximately 190 independent dealer
locations, who resell to their customer, the farmer. Dealers assess their
customer's requirements, assemble and erect the system in the field from the
parts delivered from the Company, and provide additional system components,
primarily relating to water supply (wells, pumps, pipes) and electrical supply
(on-site generation or hook-up to power lines). Lindsay dealers generally are
established local agri-businesses, many of which also deal in related
4
products, such as well drilling and water pump equipment, farm implements, grain
handling and storage systems, or farm structures.
International Market. Over the years, the Company has sold center pivot
and lateral move irrigation systems throughout the world. The Company has
production and sales operations in France, Brazil, and South Africa serving the
key European, South American, and Southern African markets, respectively. The
Company exports its equipment from the U.S. to other international markets. The
majority of the Company's U.S. export sales is denominated in U.S. dollars and
is shipped against prepayments or U.S. bank confirmed irrevocable letters of
credit or other secured means.
The Company's international markets differ significantly with respect to
the need for irrigation, the ability to pay, demand, customer type, government
support of agriculture, marketing and sales methods, equipment requirements, and
the difficulty of on-site erection. The Company's industry position is such that
it believes that it will likely be approached as a potential supplier for most
major international agricultural development projects utilizing center pivot or
lateral move irrigation systems.
Competition. The U.S. center pivot irrigation systems industry has seen
significant consolidation of manufacturers over the years; four primary
manufacturers remain today. The international market includes participation and
competition by the leading U.S. manufacturers as well as certain regional
manufacturers. The Company competes in certain product lines with several
manufacturers, some of whom may have greater financial resources than the
Company. The Company competes by continuously improving its products through
ongoing research and development activities. The Company's engineering and
research expenses totaled $2.9 million, $2.6 million, and $2.4 million for
fiscal years 2004, 2003, and 2002, respectively. There is a high level of price
competition and utilization of seasonal promotional programs. Competition also
occurs in areas of product quality and durability, product characteristics,
retention and reputation of local dealers, customer service, and, at certain
times of the year, the availability of systems and their delivery time. The
Company believes it generally competes favorably with respect to these factors.
DIVERSIFIED PRODUCTS
Seeking to expand the throughput of its manufacturing facility and operation,
the Company began in 1987 to more fully utilize its capacity by providing
outsource manufacturing services and selling large-diameter steel tubing. The
Company's customer base includes certain large industrial companies. Each
benefits from the Company's design and engineering capabilities as well as the
Company's ability to provide a wide spectrum of manufacturing services,
including welding, machining, painting, punching, forming, galvanizing and
hydraulic, electrical, and mechanical assembly.
SEASONALITY
Irrigation equipment sales are seasonal by nature. Farmers generally order
systems to be delivered and installed before the growing season. Shipments to U.
S. customers usually peak during the Company's second and third quarters for the
spring planting period.
CUSTOMERS
Management believes that overall, the Company is not dependent on a single
customer. The diversified products segment, however, is largely dependent on a
few customers. While the loss of any substantial customer could have a
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.
ORDER BACKLOG
As of August 31, 2004, the Company had an order backlog of $16.5 million, a
decrease of 24.7% from $21.9 million at August 31, 2003. Fiscal year ended
August 31, 2004 order backlog decrease of $5.4 million was primarily
attributable to changes in pricing policy. The Company now requires orders
booked to be shipped within 30 days or they are subject to re-pricing. At fiscal
year end 2004, the Company had a $12.3 million order backlog for irrigation
equipment, compared to $19.3 million at fiscal year end 2003. At fiscal year end
2004, order backlog for diversified products totaled $4.2 million, compared to
$2.6 million at fiscal year end 2003. The Company expects that the existing
backlog of orders can be filled in fiscal 2005.
Generally, the Company manufactures or purchases the components for its
irrigation equipment from a sales forecast and prepares the equipment for
shipment upon the receipt of a U.S. or international dealer's firm order. Orders
from U.S. dealers are accompanied with a $1,000 down payment unless they are
purchasing through a Company program and the down payment is 10% of purchase
price. Orders being delivered to international markets from the U.S. are
5
generally shipped against prepayments or receipt of an irrevocable letter of
credit confirmed by a U.S. bank or other secured means, which call for delivery
within time periods negotiated with the customer. Orders delivered from the
Company's international manufacturing operations are generally shipped according
to payment and/or credit terms customary to that country or region.
RAW MATERIALS AND COMPONENTS
Raw materials used by the Company include coil steel, angle steel, plate steel,
zinc, tires, gearboxes, fasteners, and electrical components (motors, switches,
cable, and stators). The Company has, on occasion, faced shortages of certain
such materials. The Company believes it currently has ready access to adequate
supplies of raw materials and components.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 2004, 2003, and 2002 were $5.0 million, $1.9
million and $2.2 million, respectively. Fiscal 2004 capital expenditures were
used primarily for updating manufacturing plant and equipment, expanded
manufacturing capacity, and to further automate the Company's facilities.
Capital expenditures for fiscal 2005 are expected to be approximately $4.0 to
$5.0 million and will be used to improve the Company's existing facilities,
expand its manufacturing capabilities, and increase productivity.
PATENTS, TRADEMARKS, LICENSES
Lindsay's Zimmatic, Greenfield, GrowSmart, and other trademarks are registered
or applied for in the major markets in which the Company sells its products.
Lindsay follows a policy of applying for patents on all significant patentable
inventions. Although the Company believes it is important to follow a patent
protection policy, Lindsay's business is not dependent, to any material extent,
on any single patent or group of patents.
EMPLOYEES
The number of persons employed by the Company and its wholly owned subsidiaries
at fiscal year end 2004, 2003, and 2002 were 639, 620, and 575, respectively.
None of the Company's U.S. employees are represented by a union. Certain of the
Company's foreign employees are unionized due to local governmental regulations.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
Like other manufacturing concerns, the Company is subject to numerous laws and
regulations that govern environmental and occupational health and safety
matters. The Company believes that its operations are substantially in
compliance with all such applicable laws and regulations. The Company, in 1992,
entered into a consent decree with the Environmental Protection Agency of the
U.S. federal government concerning its Lindsay, Nebraska facility which is
included in the agency's superfund sites as discussed in Note M to the
consolidated financial statements. Permits are or may be required for some of
the operations at its facilities. Although management believes that all
currently required permits have been obtained by the Company, as with all such
permits, they are subject to revocation, modification, and renewal. Even where
regulations or standards have been adopted, they are subject to varying and
conflicting interpretations and implementation. In some cases, compliance with
applicable environmental regulations or standards may require additional capital
and operational expenditures. Management does not believe any future material
capital and operational expenditures for such issues are required.
SUBSIDIARIES
The Company has five wholly owned operating subsidiaries: Lindsay
Transportation, Inc., Lindsay Europe SA, Irrigation Specialists, Inc., Lindsay
America do Sul Ltda., and Lindsay Manufacturing Africa (PTY) Ltd.
Lindsay Transportation, Inc. was formed in 1975. It owns approximately 110
trailers and, through lease of tractors and arrangements with independent
drivers, supplies the ground transportation in the United States and Canada for
the Company's products and the bulk of incoming raw materials, and hauls other
products on backhauls.
Lindsay Europe SA, located in France, was acquired in March 2001, and is a
manufacturer and marketer of irrigation equipment for the European market.
Irrigation Specialists, Inc., an irrigation dealership in Washington
State, was acquired in March 2002.
Lindsay America do Sul Ltda., located in Brazil, was acquired in April
2002 and is a manufacturer and marketer of irrigation equipment for the South
American market.
Lindsay Manufacturing Africa (PTY) Ltd, located in South Africa, was
organized in September 2002 and is a manufacturer and marketer of irrigation
equipment for the southern African market.
The Company also has three non-operational subsidiaries.
6
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
The Company's primary production facility is located in the United States, but
it also has smaller production facilities in France, Brazil, and South Africa.
Most financial transactions are in U.S. dollars, although sales from the
Company's foreign subsidiaries, which were less than 16% of total consolidated
Company sales in fiscal 2004, are conducted in local currencies.
A portion of the Company's cash flow is derived from sales and purchases
denominated in foreign currencies. To reduce the uncertainty of foreign currency
exchange rate movements on these sales and purchase commitments, the Company
monitors its risk of foreign currency fluctuations. To date, the Company has not
entered into any foreign currency exchange contracts to hedge any risk to
foreign currency. For information on international revenues, see Note Q to the
Consolidated Financial Statements entitled "Industry Segment Information"
included in Item 8 of Part II of this report.
INFORMATION AVAILABLE ON LINDSAY WEBSITE
We make available free of charge on our website, through a link to the SEC
website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as
amended, as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. The Company's internet address is
http://www.lindsaymanufacturing.com. The following documents are also posted on
the Company's website:
Audit Committee Charter
Compensation Committee Charter
Corporate Governance and Nominating Committee Charter
Corporate Governance Principles
Code of Ethical Conduct
Code of Business Conduct and Ethics
These documents are also available in print to any shareholders who requests, by
sending a letter addressed to the Secretary of the Company.
NEW YORK STOCK EXCHANGE CERTIFICATION
On March 19, 2003, the Company's Chief Executive Officer certified to the New
York Stock Exchange that he was not aware of any violation by the Company of
the New York Stock Exchange corporate governance listing standards as of that
date.
ITEM 2 - PROPERTIES
The Company owns and occupies 43 acres in Lindsay, Nebraska. The Lindsay,
Nebraska facility has eight separate buildings. In addition, the Company owns 79
acres adjacent to its primary property. This land is used for research,
development, and testing purposes.
The French facility was acquired to provide a European location for the
manufacture of its irrigation products. The French facility consists of three
separate buildings situated on approximately 3.5 acres.
The Irrigation Specialists Inc. dealership occupies several leased
buildings at four separate retail locations based in the eastern Washington
state region. These leases expire over a remaining term of ten years.
The Company's Brazilian facility is operated under a lease cancelable by
the Company, which expires in 2008. The Brazilian facility consists of two main
buildings.
The Company's South African subsidiary has two separate facilities. One
facility is operated under a lease cancelable by the Company, which expires in
2007. This facility consists of a single main building. The other South African
facility is operated under a lease which expires February 2005 and then becomes
a month-to-month option.
The Company leases office space in Omaha, Nebraska where it maintains its
executive and its domestic and international sales and marketing offices. During
October 2003, the Company expanded its use of space and extended the lease term
at this location. The lease expires in 2008.
The Company leases office space in Omaha, Nebraska where it maintains
certain engineering laboratory space. The Omaha engineering laboratory space
lease expires 2006.
The Company believes its current facilities are adequate to support normal
and planned operations.
7
ITEM 3 - 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. The Company, in 1992, entered into a
consent decree with the Environmental Protection Agency of the U.S. federal
government concerning its Lindsay, Nebraska facility which is included in the
agency's superfund sites as discussed in Note M to the consolidated financial
statements. While the ultimate results of any known legal matter are unknown at
this time, management does not believe that these matters, individually or in
the aggregate, are likely to have a material adverse effect on the Company's
consolidated financial condition, results of operations, or cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders during the fourth
quarter of fiscal 2004.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, positions and past five years
experience are set forth below. Mr. Parod is the only executive officer of the
Company with an employment agreement. This agreement extends through April 2005.
All other executive officers of the Company are appointed by the Board of
Directors annually. There are no family relationships between any director,
executive officer, or person nominated to become a director or executive
officer. There are no arrangements or understandings between any executive
officer and any other person to which he was selected as an officer.
AGE POSITION
--- --------
Richard W. Parod 51 President and Chief Executive Officer
Matthew T. Cahill 42 Vice President - Manufacturing
Thomas Costanza 38 Corporate Controller
David B. Downing 49 Vice President and Chief Financial Officer
Gary E. Kaplan 43 Vice President-Market Services
Bruce C. Karsk 52 Executive Vice President, Treasurer and Secretary
Dirk A. Lenie 50 Vice President - Marketing
Charles H. Meis 58 Vice President - Engineering
Robert S. Snoozy 58 Vice President - Domestic Sales
Douglas J. Twyford 49 Vice President - International Sales
Mr. Richard W. Parod is President and Chief Executive Officer of the
Company, and has held such positions since April 2000. Prior to that time and
since 1997, Mr. Parod was Vice President and General Manager of the Irrigation
Division of The Toro Company. Mr. Parod was employed by James Hardie Irrigation
from 1993 through 1997 becoming President in 1994. Mr. Parod has been a Director
since April 2000 when he began his employment with the Company.
Mr. Matthew T. Cahill is Vice President - Manufacturing of the Company,
and has held such position since October 2000 when he joined the Company. Prior
to that time and since 1997, Mr. Cahill held several positions with
Ingersoll-Rand; most recently as the Fabrication and Machining Operations
Manager - Road Machinery Division. From 1997 through early 2000 Mr. Cahill was a
Process Engineering Consultant - Corporate Technology Staff.
Mr. Thomas Costanza is Corporate Controller of the Company, and has held
such position since May 2002 when he joined the Company. Prior to that time and
since 1999, Mr. Costanza was Controller of Bombardier, Inc.'s financial services
division. Prior to his employment with Bombardier and since 1998, Mr. Costanza
was Vice President and Chief Financial Officer with National Auto Finance
Company which was subsequently acquired by a subsidiary of General Motors
Acceptance Corp. Mr. Costanza's professional career began as a financial auditor
with Ernst & Young LLP and later included experience as Corporate Audit Manager
with Barnett Banks, Inc.
Mr. David B. Downing is Vice President and Chief Financial Officer, and
has held such position since August 2004 when he joined the Company. Prior to
August 2004, Mr. Downing was President of FPM L.L.C., a heat-treating company in
Elk Grove Village, Illinois, after joining the company in January 2001 as Vice
President and Chief Financial Officer. From July 1998 to December 2000, Mr.
Downing was Vice President and Controller for Thermo-King, a unit of
Ingersoll-Rand Company Limited, which manufactures transport refrigeration
equipment.
Mr. Gary E. Kaplan is Vice President - Market Services of the Company,
and has held such position since September 2004. Prior to that time and since
1997, Mr. Kaplan was Director of Customer Care at The Toro Company, a
manufacturer of various irrigation systems in Riverside, California.
Mr. Bruce C. Karsk is Executive Vice President, Treasurer and Secretary of
the Company, and has held such positions since January 2001. Prior to August
2004, Mr. Karsk was Chief Financial Officer. From 1984 through January 2001 Mr.
Karsk was Vice President - Finance, Treasurer and Secretary. Mr. Karsk began his
employment with the Company in 1979.
9
Mr. Dirk A. Lenie is Vice President - Marketing of the Company, and has
held such position since November 2000 when he joined the Company. Prior to that
time, and since 1997, Mr. Lenie was Director of Sales and Marketing of
Residential/Commercial Irrigation Division of The Toro Company.
Mr. Charles H. Meis is Vice President - Engineering of the Company, and
has held such position since 1975. Mr. Meis began his employment with the
Company in 1971.
Mr. Robert S. Snoozy is Vice President - Domestic Sales of the Company,
and has held such position since 1997. From 1986 through 1997 Mr. Snoozy was
Vice President of Sales and Marketing. Mr. Snoozy began his employment with the
Company in 1973.
Mr. Douglas J. Twyford is Vice President - International Sales of the
Company, and has held such position since June 2003 when he joined the Company.
Prior to that time, and since March 1996, Mr. Twyford held various positions
within United Technologies Corporation affiliated companies, most recently as
Vice President - Global Sales & Marketing for Sundyne Corporation.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Lindsay Common Stock trades on the New York Stock Exchange, Inc. (NYSE) under
the ticker symbol "LNN". As of November 1, 2004 there were approximately 160
shareholders of record and an estimated 2,200 beneficial shareholders.
The following table sets forth for the periods indicated the range of the high
and low sales price and dividends paid:
Fiscal 2004 Stock Price Fiscal 2003 Stock Price
---------------------------- ---------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------ ------ ---------
First Quarter $24.53 $20.05 $0.050 $25.70 $20.95 $0.035
Second Quarter 26.87 23.90 0.050 25.24 18.45 0.035
Third Quarter 26.15 22.90 0.050 23.00 17.75 0.035
Fourth Quarter 24.96 22.70 0.055 24.45 20.00 0.050
Year $26.87 $20.05 $0.205 $25.70 $17.75 $0.155
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Equity Compensation Plan Information- The following equity compensation plan
information summarizes plans and securities approved and not approved by
security holders as of August 31, 2004:
(a) (b) (c)
NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES REMAINING
TO BE ISSUED UPON EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCE
EXERCISE OF OUTSTANDING UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, OPTIONS, WARRANTS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS, AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (a)) (1)
------------- --------------------- ------------------ ------------------------------
Equity compensation plans
approved by security holders (2) 879,133 $21.11 302,996
Equity compensation plans not
approved by security holders (3) 350,000 $14.00 --
--------- -------
Total............................ 1,229,133 $19.06 302,996
========= =======
(1) The Company's 2001 Amended and Restated Long-Term Incentive Plan (the "2001
Plan") allows for the issuance of up to 180,000 shares of restricted common
stock (not subject to the exercise of an option, warrant or right). As of
November 15, 2003, 180,000 shares of restricted common stock were available for
issuance under the 2001 Plan.
(2) Plans approved by shareholders include the Company's Amended and Restated
1991 Long-Term Incentive Plan and the 2001 Plan.
(3) Consists of options issued to Richard W. Parod pursuant to his employment
agreement, which was not approved by stockholders.
Purchases of equity securities by the issuer and affiliated purchases- The
Company made no repurchases of its common stock under the Company's stock
repurchase plan during the fiscal year ended August 31, 2004; therefore, tabular
disclosure is not presented. From time to time, the Company's Board of Directors
has authorized management to repurchase shares of the Company's common stock.
During August 2000, the Company announced a 1.0 million share increase in the
number of shares authorized for repurchase. Under this share repurchase plan,
management has existing authorization to purchase, without further announcement,
up to 1.2 million shares of the Company's common stock in the open market or
otherwise.
11
ITEM 6 - SELECTED FINANCIAL DATA
FOR THE YEARS ENDED AUGUST 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
- --------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating revenues $196.7 $163.4 $145.9 $126.7 $129.8 $116.7 $155.7 $158.3 $136.2 $111.8
Gross profit 39.5 39.7 32.9 27.9 31.6 30.6 42.8 40.9 32.7 25.9
Selling, general and
administrative, and
engineering and research
expenses 27.5 23.4 19.8 17.2 15.0 15.4 15.5 14.2 13.2 11.7
Restructuring charges - - - 0.9 - - - - - -
Operating income 12.0 16.4 13.1 9.8 16.6 15.2 27.3 26.7 19.5 14.2
Net earnings (2) 9.3 12.9 10.7 8.2 13.4 12.9 23.7 20.3 16.7 11.9
Net earnings per share
(1) (2) 0.78 1.08 0.90 0.69 1.07 0.97 1.63 1.36 1.10 0.74
Cash dividends per share 0.205 0.155 0.14 0.14 0.14 0.14 0.125 0.091 0.067 -
Property, plant and
equipment, net 16.4 13.9 14.5 14.9 15.9 15.4 14.1 11.1 9.7 7.2
Total assets 139.0 131.2 114.7 101.9 97.2 101.6 109.9 108.7 97.3 86.5
Long-term obligation - - - - - - 0.1 0.3 - -
Return on sales 4.7% 7.9% 7.4% 6.5% 10.3% 11.1% 15.2% 12.8% 12.3% 10.6%
Return on beginning
assets (3) 7.1% 11.2% 10.7% 8.4% 13.2% 11.7% 21.8% 20.9% 19.3% 13.4%
Diluted weighted average
shares 11.947 11.896 11.858 11.900 12.503 13.285 14.556 14.980 15.226 15.993
(1) Per share amounts are calculated using diluted average shares outstanding.
(2) Fiscal 1998 includes non-operating income of $4.0 million ($2.7 after
taxes) or $0.18 per share from the settlement of litigation.
(3) Defined as net earnings divided by beginning of period total assets.
12
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
CONCERNING FORWARD-LOOKING STATEMENTS - This Annual Report on Form 10-K 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. 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
below. Readers should not place undue reliance on any forward-looking statement
and should 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 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.
OVERVIEW- The Company manufactures and markets Zimmatic, Greenfield, Stettyn,
and Perrot center pivot, lateral move, and hose reel irrigation systems. The
Company also produces irrigation controls and chemical injection systems which
it sells under its GrowSmart brand. These products are used by farmers to
increase or stabilize crop production while conserving water, energy, and labor.
In addition to irrigation equipment, the Company also produces and sells large
diameter steel tubing products and manufactures and assembles diversified
agricultural and construction products on a contract basis for certain
industrial companies. The Company sells its products primarily to an independent
dealer network, world-wide, who resell to their customer, the farmer. The
Company's principal manufacturing facilities are located in Lindsay, Nebraska,
USA. The Company also has production facilities in France, South Africa, and
Brazil.
Key factors which impact demand for the Company's products include agricultural
commodity prices, crop yields, weather, environmental regulations, and interest
rates. Demand for the Company's products remained strong during fiscal 2004.
Drought conditions in the western United States continued to drive strong demand
for irrigation equipment. International sales showed strong growth as the
Company continued to penetrate those markets, aided by strong agricultural
commodity prices.
Throughout 2004 the Company's raw material costs were significantly and
adversely affected by the rapid rise in steel costs which essentially doubled
during the year. The Company responded by increasing selling prices, but margins
were eroded as pricing did not fully offset the increased costs. Pricing
policies have been changed, manufacturing lead times shortened, and forecasting
models improved to help the Company better respond to raw material cost changes.
Compliance with Sarbanes Oxley requirements impacted the expenses during 2004
and will be an ongoing focus. The Company, with the assistance of consultants,
is documenting and strengthening internal controls to ensure compliance with the
new regulations.
The Company will continue to focus on opportunities for growth both organically
and through accretive acquisitions. Over the past four years, the Company has
added the operations in Europe, South America, and South Africa. The addition of
those operations has allowed the Company to strengthen its market position in
those regions, yet they remain relatively small in scale. None of the
international operations has achieved the operating leverage of the United
States based operations.
Additional revenue expansion opportunities in other international markets, such
as China and Eastern Europe, are being developed.
13
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP"),
management must make a variety of decisions which impact the reported amounts
and the related disclosures. Such decisions include the selection of the
appropriate accounting principles to be applied and the assumptions on which to
base accounting estimates. In reaching such decisions, management applies
judgment based on its understanding and analysis of the relevant circumstances.
Certain of the Company's accounting policies are critical, as these
policies are most important to the presentation of the Company's consolidated
results of operations and financial condition. They require the greatest use of
judgments and estimates by management based on the Company's historical
experience and management's knowledge and understanding of current facts and
circumstances. Management periodically re-evaluates and adjusts the estimates
that are used as circumstances change. There were no significant changes in
critical accounting policies during fiscal 2004.
Following are the accounting policies management considers critical to the
Company's consolidated results of operations and financial condition:
REVENUE RECOGNITION
Revenues from the sale of the Company's irrigation products to its independent
dealers are recognized upon delivery of the product to the dealer. The Company
has no post delivery obligations to its independent dealers other than standard
warranties. Revenues for sales of irrigation products by Irrigation Specialists
are recognized when the product or service is delivered to the end-user
customers. Revenues from the sale of the Company's diversified products are
recognized when the product is delivered to the customer. Revenues and gross
profits on intercompany sales are eliminated in consolidation.
The costs related to revenues are recognized in the same period in which
the specific revenues are recorded. Shipping and handling revenue is reported as
a component of operating revenues. Shipping and handling costs are reported as a
component of cost of operating revenues. Shipping and handling revenues and
costs are not significant to total operating revenues or cost of operating
revenues. Customer rebates, cash discounts, and other sales incentives are
recorded as a reduction of revenues at the time of the original sale. Other
sales incentives such as guarantees issued by the Company to support end-user
customer financing are recognized as cost of sales. Estimates used in the
recognition of operating revenues and cost of operating revenues include, but
are not limited to, estimates for rebates payable and cash discounts expected.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for the Lindsay, Nebraska operation's
inventories. Cost is determined by the weighted average method for inventories
at the Company's other operating locations. At all locations, 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.
Note A to the consolidated financial statements provides a summary of the
significant accounting policies followed in the preparation of the financial
statements. Other footnotes 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.
14
RESULTS OF OPERATIONS
The following "Fiscal 2004 Compared to 2003" and the "Fiscal 2003 Compared to
2002" sections present an analysis of the Company's consolidated operating
results displayed in the Consolidated Statements of Earnings and should be read
together with the industry segment information in Note Q to the financial
statements.
FISCAL 2004 COMPARED TO 2003
The following table provides highlights for fiscal 2004 compared with fiscal
2003:
FOR THE YEARS ENDED
($ IN THOUSANDS) AUGUST 31, % INCREASE
2004 2003 (DECREASE)
-------- -------- ---------
Consolidated
Operating revenues ................... $196,696 $163,374 20.4%
Cost of operating revenues ........... $157,179 $123,628 27.1
Gross profit ...................... $ 39,517 $ 39,746 (0.6)
Gross margin ............................ 20.1% 24.3%
Selling, engineering and research, and
general and administrative expenses $ 27,477 $ 23,380 17.5
Operating income ........................ $ 12,040 $ 16,366 (26.4)
Operating margin ........................ 6.1% 10.0%
Interest income, net .................... $ 1,456 $ 1,577 (7.7)
Other income, net ....................... $ 270 $ 844 (68.0)
Income tax provision .................... $ 4,480 $ 5,900 (24.1)
Effective income tax rate ............... 32.5% 31.4%
Net earnings ............................ $ 9,286 $ 12,887 (27.9)
Irrigation Equipment Segment (See Note Q)
Operating revenues ...................... $183,844 $151,320 21.5
Operating income (1) .................... $ 27,226 $ 27,992 (2.7)
Operating margin ........................ 14.8% 18.5%
Diversified Products Segment (See Note Q)
Operating revenues ...................... $ 12,852 $ 12,054 6.6
Operating income (1) .................... $ 1,143 $ 1,237 (7.6)
Operating margin ........................ 8.9% 10.3%
(1) Excludes unallocated general & administrative and engineering &
research expenses
REVENUES
Operating revenues for fiscal 2004 increased by $33.3 million or 20% over fiscal
2003. This increase was attributable to improved irrigation equipment revenues.
Due to a favorable domestic market, domestic irrigation equipment revenues
increased by $20.0 million or 18% over fiscal 2003. In the domestic market,
revenue expansion was split approximately equally between sales volume gains and
customer price increases. Conditions were generally favorable in the Company's
domestic markets due to higher prices for many farm commodities earlier in
fiscal 2004 (including corn, soybeans, wheat, and cotton). Other factors, such
as low interest rates, additional first-year depreciation for capital
investments, and higher land values also contributed to increased revenues from
domestic irrigation sales.
International irrigation equipment revenues increased by $12.5 million or
33% compared to fiscal 2003 due primarily to an increase in revenues from the
Company's foreign operations, which increased $10.5 million over fiscal 2003.
Revenues were stronger in the European and South American markets as the
Company's operations in France and Brazil continued to develop. The European
market reflected higher demand after the drought that was experienced there in
fiscal 2003. The South American market reflected the impact in Brazil of strong
demand due to the continued expansion of agricultural production in Brazil.
Additionally, revenues from export sales to the Australian and Mexican regions
were higher due to favorable market conditions. In total, for fiscal 2004,
international revenues were 26% of total revenues, up from 24% of revenues in
the previous year.
15
Diversified revenues increased $798,000 or 7% compared to fiscal 2003.
Revenues in this segment depend to a large degree on orders from a relatively
small number of customers. The diversified products segment uses the same
Lindsay, Nebraska physical plant resources as those used for irrigation
equipment.
GROSS MARGIN
Gross margin was 20.1% for fiscal 2004 compared to 24.3% for fiscal 2003. Fiscal
2004 gross margins reflected significant increases in steel costs, which
essentially doubled during this fiscal year. Although the Company was able to
increase prices during the year, its ability to fully pass on steel cost
increases to its customers was limited because firm sales prices committed to at
the time of order acceptance generally did not fully reflect steel price
increases effective at the time of production and due to competitive factors.
OPERATING EXPENSES
The Company's operating expenses increased $4.1 million or 17.5% over fiscal
2004. This increase in operating expenses reflects a $3.1 million (30%) increase
in general and administrative expenses compared to fiscal 2003, reflecting
higher general insurance costs of approximately $800,000, the $724,000 bad debt
charge related to the insolvency of a Kansas dealership, in which the Company
held a minority equity position, higher legal and other professional services
costs associated with the Sarbanes-Oxley Act compliance of approximately
$700,000, and approximately $700,000 associated with increased administrative
personnel costs. Selling expenses increased by $631,000 (6%) compared to fiscal
2003 of which approximately $200,000 is related to new business additions. In
addition, engineering and research expense increased by $332,000 (13%)
reflecting marginally higher investments by the Company in new product
development.
INTEREST INCOME, OTHER INCOME, AND TAXES
Fiscal 2004 interest income of $1.5 million was comparable to fiscal 2003. The
Company's interest income is primarily generated from its investments in
short-term (0 to 12 months) and intermediate-term (12 to 42 months) investment
grade municipal bonds, on which interest earnings are exempt from federal income
taxes, and short-term investment grade commercial paper.
Fiscal 2004 other income decreased by $574,000 compared to fiscal 2003,
primarily from a charge of $250,000 on its guarantee of certain bank loans
relating to the Kansas irrigation dealership insolvency and equity loss of
equity-method investments.
The effective tax rate during fiscal 2004 was 32.5% compared to 31.4% for
fiscal 2003. The increased effective tax rate reflects primarily a higher mix of
foreign based income and related foreign statutory rates compared to U.S. based
income and related U.S. effective rate. 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 from its
municipal bond investments.
On October 22, 2004, the President signed into law American Jobs Creation
Act of 2004 (the Act). The Company is evaluating the impact of changes to
provisions related to the extra territorial exclusion, repatriation of foreign
earnings, the effect of the manufacturing tax relief on the Company's effective
tax rate in future periods and various other provisions of the Act.
NET EARNINGS
Net earnings were $9.3 million, or $0.78 per diluted share, for fiscal 2004,
compared with $12.9 million, or $1.08 per diluted share, for fiscal 2003.
16
FISCAL 2003 COMPARED TO 2002
The following table provides highlights for fiscal 2003 compared with fiscal
2002.
FOR THE YEARS ENDED
AUGUST 31, % INCREASE
($ IN THOUSANDS) 2003 2002 (DECREASE)
- ---------------- -------- -------- ----------
Consolidated
Operating revenues ................... $163,374 $145,890 12.0%
Cost of operating revenues ........... $123,628 $112,963 9.4
Gross profit ...................... $ 39,746 $ 32,927 20.7
Gross margin ............................ 24.3% 22.6%
Selling, engineering and research, and
general and administrative expenses $ 23,380 $ 19,811 18.0
Operating income ........................ $ 16,366 $ 13,116 24.8
Operating margin ........................ 10.0% 9.0%
Interest income, net .................... $ 1,577 $ 1,647 (4.3)
Other income, net ....................... $ 844 $ 617 36.8
Income tax provision .................... $ 5,900 $ 4,650 26.9
Effective income tax rate ............... 31.4% 30.2%
Net earnings ............................ $ 12,887 $ 10,730 20.1
Irrigation Equipment Segment (See Note Q)
Operating revenues ...................... $151,320 $132,718 14.0
Operating income (1) .................... $ 27,992 $ 22,216 26.0
Operating margin ........................ 18.5% 16.7%
Diversified Products Segment (See Note Q)
Operating revenues ...................... $ 12,054 $ 13,172 (8.5)
Operating income (1) .................... $ 1,237 $ 1,907 (35.1)
Operating margin ........................ 10.3% 14.5%
(1)Excludes unallocated general & administrative and engineering &
research expenses
REVENUES
Operating revenues for fiscal 2003 increased by $17.5 million or 12% over fiscal
2002. This increase was attributable to irrigation equipment revenues which
included full year revenues from Irrigation Specialists which was acquired in
March 2002, the new operation in Brazil which was acquired in April 2002, and
the South African operation which commenced in September 2002. These operations
contributed operating revenue growth of $18.7 million.
Domestic irrigation equipment revenues increased by $12.9 million or 13%
over fiscal 2002. The increase was largely due to new revenues of $9.1 million
from Irrigation Specialists, which was acquired in March 2002. In addition,
domestic revenues remained strong in sections of the Midwest that were adversely
affected by drought conditions during 2002. Overall, strong agricultural
commodity prices, greater domestic net cash farm income, and the federal
government sponsored Environmental Quality Incentives Program (EQIP) program
increased demand for irrigation equipment purchases by enhancing grower
profitability and liquidity. Low interest rates and accelerated federal tax
depreciation schedules have also supported domestic irrigation equipment
purchases.
International irrigation equipment revenues increased by $5.7 million or
17% compared to fiscal 2002 due primarily to an increase in revenues from the
Company's foreign operations, which increased $12.2 million over fiscal 2002,
partially offset by a decrease in revenues from export sales to the Middle East
region due to the political unrest there and lower sales to Canadian markets due
to less favorable market conditions there. In total, for fiscal 2003,
international revenues were 24% of total revenues, up from 22% of revenues in
the previous year. See Note Q to the consolidated financial statements.
Diversified revenues decreased $1.1 million or 9% compared to fiscal 2002.
Fiscal 2003's diversified products revenues decreased due to contract
manufacturing customers relying less on outsourced manufacturing. During fiscal
2003, the Company added key management and sales resources resulting in improved
diversified revenues during the later half of the fiscal year compared to the
same prior year period.
17
GROSS MARGIN
Gross margin of 24.3% for fiscal 2003 was improved over the 22.6% for fiscal
2002. Gross margin was positively impacted during the year by cost controls,
increased manufacturing throughput which spreads fixed costs over higher volumes
of production, an improved pricing environment, and a more favorable product mix
compared to fiscal 2002.
OPERATING EXPENSES
Operating expenses during fiscal 2003 increased by $3.6 million or 18% over
fiscal 2002. This increase is primarily reflecting increases in selling expenses
and general and administrative expenses of $1.7 million or 19% each including
advertising costs and professional fees. $2.4 million of the $3.6 million total
increase in operating expenses reflects the full year of expenditures of
Irrigation Specialists which was acquired in March 2002 and the full year
operation of foreign operations in Brazil which was acquired in April 2002 and
South Africa which formed in September 2002.
INTEREST INCOME, OTHER INCOME AND TAXES
Fiscal 2003 interest income was comparable to fiscal 2002, decreasing only
$70,000. The decrease in interest income was due to a lower average interest
yield on the Company's investments, partially offset by an increase in the
amount invested. The Company's interest income is primarily generated from its
investments in short-term (0 to 12 months) and intermediate-term (12 to 42
months) investment grade municipal bonds, on which interest earnings are exempt
from federal income taxes, and short-term investment grade commercial paper.
Fiscal 2003 other income increased by $227,000 over fiscal 2002, primarily
from foreign currency transaction gains.
The effective tax rate during fiscal 2003 was 31.4% compared to 30.2% for
the prior year. The increased effective tax rate reflects a combination of
higher statutory tax rates and the lower mix of tax exempt interest income to
total earnings before income taxes. The Company benefits from an effective tax
rate which is lower than the combined federal and state statutory rates
primarily due to the federal tax-exempt status of interest income from its
municipal bond investments.
NET EARNINGS
Net earnings rose 20% to $12.9 million, or $1.08 per diluted share, for fiscal
2003, compared with $10.7 million, or $0.90 per diluted share, for fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash for financing its receivables and inventories, paying
operating costs and capital expenditures, and for dividends. 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 $56.3 million at
August 31, 2004 compared with $62.8 million at August 31, 2003. The Company's
marketable securities consist primarily of tax-exempt high-grade municipal debt.
Cash flows provided by operations totaled $1.2 million during fiscal 2004
compared to $15.3 million during fiscal 2003. For fiscal 2004, cash flows
provided by operations include an increase of $11.5 million for accounts
receivable compared with a decrease of $2.5 million in fiscal 2003, and net
earnings of $9.3 million. Accounts receivable increased primarily due to higher
revenues occurring during the fourth quarter of fiscal 2004 compared to fiscal
2003, resulting from favorable market conditions and seasonal programs, timing
of revenues within the quarter, and increased international receivables which
have longer terms than domestic accounts. For fiscal 2003, cash flows provided
by operations include increases in inventory of $2.6 million, decreases of $2.5
million for accounts receivable and net earnings of $12.9 million. Inventories
increased as of August 31, 2003 over prior year due to growth at the Company's
subsidiary operations and due to an increase in finished goods inventory that
had previously been accounted for as consignment under a prior agreement.
Cash flows used in investing activities totaled $5.7 million during fiscal
2004 compared to $10.5 million during fiscal 2003. Capital expenditures were
$5.0 million during fiscal 2004 compared to $1.9 million during fiscal 2003.
Capital expenditures were used primarily for updating manufacturing plant and
equipment, expanding manufacturing capacity, and further automating the
Company's facilities. Capital expenditures for fiscal 2005 are expected to be
approximately $4 to $5 million and will be used to improve the Company's
facilities and expand its manufacturing capacity. Net proceeds from maturities
or sales of marketable securities were $333,000 during fiscal 2004 compared to
net purchases of marketable securities of $8.7 million during fiscal 2003. The
Company invested $1.0 million during fiscal 2004 in a business acquisition and
none during fiscal 2003.
18
The Company has an unsecured revolving line of credit, which expires
December 31, 2004, with a commercial bank under which it could borrow up to $10
million for working capital and general corporate purposes, including stock
repurchases. There were no borrowings made under the 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 (3.50% at August
31, 2004). 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. As of August 31,
2004, there was no 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. (4.65%
at August 31, 2004).
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 requirements.
INFLATION
The Company is subject to the effects of changing prices. During fiscal 2004,
the Company realized dramatic and unprecedented increases in pricing for
purchases of certain commodities, in particular steel products, used in the
production of its products. While the cost outlook for commodities used in the
Company's production of its products is not certain, management believes it can
manage these inflationary pressures by introducing appropriate sale price
adjustments and by actively pursuing internal cost reduction efforts.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has certain off balance sheet arrangements as described in Note P to
the consolidated financial statements. The Company does not believe these
arrangements are reasonably likely to have a material effect on the Company's
financial condition. During fiscal 2004, the Company incurred a charge of
$250,000 on its guarantee of certain bank loans relating to the insolvency of a
Kansas dealership in which the Company owned a minority equity interest.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
In the normal course of business, the Company enters into contracts and
commitments which obligate the Company to make payments in the future. The table
below sets forth the Company's significant future obligations by time period.
Where applicable, information included in the Company's consolidated financial
statements and notes is cross-referenced in this table.
($in thousands)
Note Less than 2-3 4-5 More than
Contractual Obligations Reference Total 1 year years years 5 years
----------------------- --------- ------- --------- ------ ------ ----------
Leases.......................... M $ 3,821 $ 768 $1,361 $ 959 $ 733
Supplemental Retirement
Plan............................ N 10,777 313 626 734 9,104
------- ------- ------ ------ ---------
Total........................... $14,598 $ 1,081 $1,987 $1,693 $9,837
======= ======= ====== ====== =========
MARKET CONDITIONS AND FISCAL 2005 OUTLOOK
For fiscal 2005, the Company expects unit volume growth in the international and
domestic markets for irrigation equipment, but the Company remains uncertain as
to the effect of future steel cost changes and the possible impact on the
selling prices and demand for our products. The Company believes that it is
taking appropriate action to shorten the pricing commitment period on orders
received, maintain pricing discipline, prudently manage steel inventories, and
place emphasis on achieving costs reductions.
19
The Company is pleased with the unit growth it achieved in the domestic market
in fiscal 2004 and with the progress of its international business units. Each
of them achieved excellent growth, and improved their market position. The
markets for its international units and for export remain strong. Even though
commodity prices have dropped off from last year's peak levels due to
expectations for exceptional harvests and yields, and certain input costs are
rising, demand drivers remain in place. Drought conditions, which continue to
affect the western states, and growers needs for efficient, water-saving
irrigation systems will continue to drive world-wide demand.
The Company will continue to create shareholder value by pursuing a balance of
accretive acquisitions, organic growth opportunities, share repurchases and
dividend payments.
RISK FACTORS
THE COMPANY'S DOMESTIC AND INTERNATIONAL IRRIGATION EQUIPMENT SALES ARE HIGHLY
DEPENDENT ON THE AGRICULTURAL INDUSTRY. The Company's domestic and international
irrigation equipment sales are highly dependent upon the need for irrigated
agricultural crop production which, in turn, depends upon many factors including
total worldwide crop production, the profitability of agricultural crop
production, agricultural commodity prices, aggregate net cash farm income,
governmental policies regarding the agricultural sector, water and energy
conservation policies, the regularity of rainfall, and foreign currency exchange
rates. As farm income decreases, farmers may postpone capital expenditures or
seek cheaper alternatives in the used irrigation equipment market.
THE COMPANY'S PROFITABILITY MAY BE NEGATIVELY AFFECTED BY INCREASES IN THE COST
OF RAW MATERIALS, LABOR, AND ENERGY. There is a high level of price competition
in the market for irrigation equipment. Therefore, the Company may not be able
to recover all operating cost increases through price increases which would
result in reduced profitability. Whether increased operating costs can be passed
through to the customer depends on a number of factors, including farm income,
the regularity of rainfall, and the price of competing products. The cost of raw
materials can be volatile and is dependent on a number of factors, including
availability, demand, and freight costs.
THE COMPANY'S INTERNATIONAL IRRIGATION EQUIPMENT SALES ARE HIGHLY DEPENDENT ON
FOREIGN MARKET CONDITIONS. Approximately one quarter of the Company's revenues
are generated from international sales. Specifically, international revenues are
generated in Australia, Canada, Central and Western Europe, Mexico, the Middle
East, South Africa, and South America. In addition to general economic and
political stability, the Company's international sales are affected by
international trade barriers, including governmental policies on tariffs, taxes,
and foreign currency exchange rates. International sales are also more
susceptible to disruption from political instability, armed hostilities, and
similar incidents.
THE COMPANY'S DIVERSIFIED PRODUCT REVENUES ARE DEPENDENT ON SALES TO A FEW LARGE
CUSTOMERS, THE LOSS OF WHICH COULD HAVE AN ADVERSE EFFECT ON THE COMPANY'S
PROFITABILITY. Approximately 6.5% of the Company's revenues are generated from
sales of its diversified products (outsource manufacturing services and the sale
of large diameter steel tubing). While we anticipate that these customers will
each continue to be significant outsource manufacturing customers, the loss of
one or more of these customers could have an adverse effect on the revenues the
Company earns from outsource manufacturing and its overall profitability.
COMPLIANCE WITH APPLICABLE ENVIRONMENTAL REGULATIONS OR STANDARDS MAY REQUIRE
ADDITIONAL CAPITAL AND OPERATIONAL EXPENDITURES. Like other manufacturing
concerns, the Company is subject to numerous laws and regulations which govern
environmental and occupational health and safety matters. The Company believes
that its operations are substantially in compliance with all such applicable
laws and regulations. Permits are or may be required for some of the operations
at its facilities. Although management believes that all currently required
permits have been obtained by the Company, as with all such permits, they are
subject to revocation, modification, and renewal. Even where regulations or
standards have been adopted, they are subject to varying and conflicting
interpretations and implementation. The Company, in 1992, entered into a consent
decree with the Environmental Protection Agency of the U.S. federal government
concerning its Lindsay, Nebraska facility which is included in the agency's
superfund sites as discussed in Note M to the consolidated financial statements.
Compliance with applicable environmental regulations or standards may require
20
additional capital and operational expenditures. Management does not believe any
future material capital and operational expenditures for such issues are
required.
NEW DISCLOSURE RULES REGARDING INTERNAL CONTROLS MAY INCREASE AUDIT RISK.
Beginning in fiscal year 2005, Section 404 of the Sarbanes-Oxley Act of 2002
will require the Company's annual report on Form 10-K to include 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. While the Company has not yet
identified any material weaknesses in internal controls over financial
reporting, there are no assurances that the Company will not discover
deficiencies 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 deficiencies 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.
ITEM 7A - 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.
The most significant translation exposures are the Euro, Brazilian real, and the
South African rand in relation to the U.S. dollar.
21
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements and notes to the consolidated financial
statements of Lindsay Manufacturing Co. have been prepared by management, which
has the responsibility for their integrity and objectivity. The statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America to reflect, in all material aspects, the substance of
financial events and transactions occurring during the respective periods.
/s/ Richard W. Parod /s/ David B. Downing
- --------------------------- -----------------------------------
Richard W. Parod David B. Downing
President and Vice President, Chief Financial Officer
Chief Executive Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Lindsay Manufacturing Co.:
We have audited the accompanying consolidated balance sheets of Lindsay
Manufacturing Co. and subsidiaries (the Company) as of August 31, 2004 and 2003,
and the related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended August 31, 2004. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
listed in Item 15(a)(2) of this Form 10-K. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lindsay
Manufacturing Co. and subsidiaries as of August 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended August 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
------------------------
KPMG LLP
Omaha, Nebraska
October 8, 2004
22
LINDSAY MANUFACTURING CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31,
----------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2004 2003 2002
- ------------------------------------------ -------- -------- --------
Operating revenues .......................... $196,696 $163,374 $145,890
Cost of operating revenues .................. 157,179 123,628 112,963
-------- -------- --------
Gross profit ................................ 39,517 39,746 32,927
-------- -------- --------
Operating expenses:
Selling expense ......................... 11,148 10,517 8,804
General and administrative expense ...... 13,419 10,285 8,630
Engineering and research expense ........ 2,910 2,578 2,377
-------- -------- --------
Total operating expenses ................... 27,477 23,380 19,811
-------- -------- --------
Operating income ............................ 12,040 16,366 13,116
Interest income, net ........................ 1,456 1,577 1,647
Other income, net ........................... 270 844 617
-------- -------- --------
Earnings before income taxes ................ 13,766 18,787 15,380
Income tax provision ........................ 4,480 5,900 4,650
-------- -------- --------
Net earnings ................................ $ 9,286 $ 12,887 $ 10,730
======== ======== ========
Basic net earnings per share ................ $ 0.79 $ 1.10 $ 0.92
======== ======== ========
Diluted net earnings per share .............. $ 0.78 $ 1.08 $ 0.90
======== ======== ========
Weighted average shares outstanding - basic 11,756 11,729 11,674
======== ======== ========
Weighted average shares outstanding - diluted 11,947 11,896 11,858
======== ======== ========
23
SHARES OF CAPITAL IN
---------------------- EXCESS
COMMON TREASURY COMMON OF STATED RETAINED
STOCK STROCK STROCK VALUE EARNINGS
---------- ---------- ---------- ---------- ----------
( IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at August 31, 2001 .................... 17,368,029 5,724,069 $ 17,368 $ 2,079 $ 154,166
Comprehensive income:
Net earnings ............................. - - - - 10,730
Other comprehensive income:
Currency translation ................ - - - - -
Minimum pension liability, net of tax - - - - -
Total comprehensive income .................... -
Cash dividends ($0.140 per share) ............. - - - - (1,631)
Net issued under stock option plan ............ 62,319 - 22 (349) -
Proceeds from stock option exercise ........... - - 40 473 -
Stock option tax benefits ..................... - - - 269 -
---------- ---------- ---------- ---------- ----------
Balance at August 31, 2002 .................... 17,430,348 5,724,069 17,430 2,472 163,265
---------- ---------- ---------- ---------- ----------
Comprehensive income:
Net earnings ............................. - - - - 12,887
Other comprehensive income:
Unrealized loss on available
for sale securities ............... - - - - -
Currency translation ................. - - - - -
Minimum pension liability, net of tax - - - - -
Total comprehensive income ....................
Cash dividends ($0.155 per share) ............. - - - - (1,819)
Net issued under stock option plan ............ 29,213 - 27 (56) -
Proceeds from stock option exercise ........... - - 3 36 -
Stock option tax benefits ..................... - - - 32 -
---------- ---------- ---------- ---------- ----------
Balance at August 31, 2003 .................... 17,459,561 5,724,069 17,460 2,484 174,333
---------- ---------- ---------- ---------- ----------
Comprehensive income:
Net earnings ............................. - - - - 9,286
Other comprehensive income:
Unrealized net gain on available
for sale securities, net of tax ... - - - - -
Currency translation ................. - - - - -
Minimum pension liability, net of tax - - - - -
Total comprehensive income ....................
Cash dividends ($0.205 per share) ............. - - - - (2,410)
Net issued under stock option plan ............ 34,280 - (6) (127) -
Proceeds from stock option exercise ........... - - 40 452 -
Stock option tax benefits ..................... - - - 157 -
---------- ---------- ---------- ---------- ----------
Balance at August 31, 2004 .................... 17,493,841 5,724,069 $ 17,494 $ 2,966 $ 181,209
========== ========== ========== ========== ==========
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
STOCK INCOME (LOSS) EQUITY
---------- ------------- -------------
Balance at August 31, 2001 .................... $ (89,898) $ (674) $ 83,041
Comprehensive income:
Net earnings ............................. - - 10,730
Other comprehensive income:
Currency translation ................ - (191) (191)
Minimum pension liability, net of tax - (49) (49)
----------
Total comprehensive income .................... 10,490
Cash dividends ($0.140 per share) ............. - - (1,631)
Net issued under stock option plan ............ - - (327)
Proceeds from stock option exercise ........... - - 513
Stock option tax benefits ..................... - 269
---------- ---------- ----------
Balance at August 31, 2002 .................... (89,898) (914) 92,355
---------- ---------- ----------
Comprehensive income:
Net earnings ............................. - - 12,887
Other comprehensive income:
Unrealized loss on available
for sale securities ............... - (87) (87)
Currency translation ................. - 1,357 1,357
Minimum pension liability, net of tax - (444) (444)
----------
Total comprehensive income .................... 13,713
Cash dividends ($0.155 per share) ............. - - (1,819)
Net issued under stock option plan ............ - - (29)
Proceeds from stock option exercise ........... - - 39
Stock option tax benefits ..................... - - 32
---------- ---------- ----------
Balance at August 31, 2003 .................... (89,898) (88) 104,291
---------- ---------- ---------
Comprehensive income:
Net earnings ............................. - - 9,286
Other comprehensive income:
Unrealized net gain on available
for sale securities, net of tax ... - 272 272
Currency translation ................. - 201 201
Minimum pension liability, net of tax - 28 28
----------
Total comprehensive income .................... 9.787
Cash dividends ($0.205 per share) ............. - - (2,410)
Net issued under stock option plan ............ - - (133)
Proceeds from stock option exercise ........... - - 492
Stock option tax benefits ..................... - - 157
---------- ---------- ----------
Balance at August 31, 2004 .................... $ (89,898) $ 413 $ 112,184
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
24
LINDSAY MANUFACTURING CO.
CONSOLIDATED BALANCE SHEETS
AT AUGUST 31,
($ IN THOUSANDS, EXCEPT PAR VALUES) 2004 2003
- ----------------------------------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 8,973 $ 15,368
Marketable securities .................................................... 14,802 8,770
Receivables, net ......................................................... 34,369 22,970
Inventories, net ......................................................... 19,780 20,019
Deferred income taxes .................................................... 1,026 2,301
Other current assets ..................................................... 2,422 1,010
--------- ---------
Total current assets ........................................................ 81,372 70,438
Long-term marketable securities ............................................. 32,527 38,674
Property, plant and equipment, net .......................................... 16,355 13,889
Other noncurrent assets ..................................................... 8,747 8,219
--------- ---------
Total assets ................................................................ $139,001 $ 131,220
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 9,117 $ 8,228
Other current liabilities ................................................ 15,359 16,053
--------- ---------
Total current liabilities ................................................... 24,476 24,281
Pension benefits liabilities ................................................ 2,169 2,315
Other noncurrent liabilities ................................................ 172 333
--------- ---------
Total liabilities ........................................................... 26,817 26,929
--------- ---------
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,
17,493,841 and 17,459,561 shares issued in 2004 and 2003, respectively) 17,494 17,460
Capital in excess of stated value ........................................ 2,966 2,484
Retained earnings ........................................................ 181,209 174,333
Less treasury stock (at cost, 5,724,069 shares) .......................... (89,898) (89,898)
Accumulated other comprehensive income (loss), net ....................... 413 (88)
--------- ---------
Total shareholders' equity .................................................. 112,184 104,291
--------- ---------
Total liabilities and shareholders' equity .................................. $ 139,001 $ 131,220
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
25
LINDSAY MANUFACTURING CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31,
------------------------------
($ IN THOUSANDS) 2004 2003 2002
- ---------------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................................ $ 9,286 $ 12,887 $ 10,730
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ............................................ 2,969 3,525 3,402
Amortization of marketable securities premiums, net ...................... 149 (145) (212)
Gain on sale of property, plant and equipment ............................ (29) (76) (78)
Provision for uncollectible accounts receivable .......................... 760 (275) 271
Deferred income taxes .................................................... 1,034 272 (242)
Stock option tax benefits ................................................ 157 32 269
Equity in net loss (earnings) of equity-method investments ............... 73 (125) (253)
Other, net ............................................................... (204) (152) (268)
Changes in assets and liabilities:
Receivables, net ......................................................... (11,507) 2,514 (628)
Inventories, net ......................................................... 920 (2,578) (2,720)
Other current assets ..................................................... (1,428) (119) (308)
Accounts payable, trade .................................................. 749 (564) (2,177)
Other current liabilities ................................................ 436 189 1,347
Current taxes payable .................................................... (1,443) 1,446 397
Other noncurrent assets and liabilities .................................. (717) (1,524) 450
-------- -------- --------
Net cash provided by operating activities ................................ 1,205 15,307 11,236
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment .................................. (5,037) (1,918) (2,217)
Acquisitions of businesses .................................................. (1,025) - (4,813)
Proceeds from sale of property, plant and equipment ......................... 43 63 206
Purchases of marketable securities held-to-maturity ......................... (2,982) (12,465) (15,904)
Proceeds from maturities of marketable securities held-to-maturity .......... 6,676 14,232 7,555
Purchases of marketable securities available-for-sale ....................... (11,817) (10,445) -
Proceeds from maturities or sales of marketable securities available-for-sale 8,456 - -
Equity investment ........................................................... - - (80)
-------- -------- --------
Net cash used in investing activities ....................................... (5,686) (10,533) (15,253)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options under stock option plan ................... 492 39 513
Dividends paid .............................................................. (2,410) (1,819) (1,631)
-------- -------- --------
Net cash used in financing activities .................................... (1,918) (1,780) (1,118)
-------- -------- --------
Effect of foreign exchange rate changes on cash ............................. 4 (51) (15)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ (6,395) 2,943 (5,150)
Cash and cash equivalents, beginning of period .............................. 15,368 12,425 17,575
-------- -------- --------
Cash and cash equivalents, end of period .................................... $ 8,973 $ 15,368 $ 12,425
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid ........................................................... $ 6,246 $ 5,753 $ 4,397
Interest paid ............................................................... $ 119 $ 73 $ 140
The accompanying notes are an integral part of the consolidated financial
statements.
26
LINDSAY MANUFACTURING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Lindsay Manufacturing Co. (the "Company" or "Lindsay") manufactures automated
agricultural irrigation systems and sells these products in both the U.S. and
international markets. The Company also manufactures large diameter steel tubing
products and manufactures and assembles agricultural and construction equipment
on a contract manufacturing basis for other manufacturers. The Company's
principal manufacturing facilities are located in Lindsay, Nebraska, USA. The
Company's corporate office is located in Omaha, Nebraska, USA. The Company also
has foreign operating subsidiaries which manufacture irrigation equipment in
France, Brazil, and South Africa, and owns a retail irrigation dealership with
four locations in the State of Washington ("Irrigation Specialists").
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 at the time of 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.
The significant accounting policies of the Company are as follows:
(1) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany balances and transactions are
eliminated in consolidation.
(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 YEARS ENDED AUGUST 31,
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2004 2003 2002
- ---------------------------------------- --------- ---------- ---------
Net earnings, as reported ................................. $ 9,286 $ 12,887 $ 10,730
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects ............................ (1,244) (1,057) (1,191)
--------- ---------- ----------
Proforma net earnings ..................................... $ 8,042 $ 11,830 $ 9,539
========= ========== ==========
Earnings per share:
Basic-as reported ..................................... $ 0.79 $ 1.10 $ 0.92
Basic-pro forma ....................................... $ 0.68 $ 1.01 $ 0.82
Diluted-as reported ................................... $ 0.78 $ 1.08 $ 0.90
Diluted-pro forma ..................................... $ 0.67 $ 0.99 $ 0.80
27
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for all grants in fiscal 2004, 2003, and 2002: dividend yield
of 0.6% to 0.7%, expected volatility of 35.3% to 36.5%, risk-free interest rates
ranging from 4.0% to 4.8 %, and expected lives of the options of 7 years. The
weighted average fair value of options granted during fiscal 2004, 2003, and
2002 was $11.27, $8.36, and $9.65, respectively.
(3) REVENUE RECOGNITION
Revenues from the sale of the Company's irrigation products to its independent
dealers are recognized upon delivery of the product to the dealer. The Company
has no post delivery obligations to its independent dealers other than standard
warranties. Revenues for sales of irrigation products by Irrigation Specialists
are recognized when the product or service is delivered to the end-user
customers. Revenues from the sale of the Company's diversified products are
recognized when the product is delivered to the customer. Revenues and gross
profits on intercompany sales are eliminated in consolidation.
The costs related to revenues are recognized in the same period in which
the specific revenues are recorded. Shipping and handling revenue is reported as
a component of operating revenues. Shipping and handling costs are reported as a
component of cost of operating revenues. Shipping and handling revenues and
costs are not significant to total operating revenues or cost of operating
revenues. Customer rebates, cash discounts, and other sales incentives are
recorded as a reduction of revenues at the time of the original sale. Other
sales incentives such as guarantees issued by the Company to support end-user
customer financing are recognized as cost of sales. Estimates used in the
recognition of operating revenues and cost of operating revenues include, but
are not limited to, estimates for rebates payable and cash discounts expected.
(4) WARRANTY COSTS
Provision for the estimated warranty costs is made in the period in which such
costs become probable. This provision is periodically adjusted to reflect actual
experience.
Warranty costs were $1.5 million, $1.4 million, and $1.3 million for the
fiscal years ended August 2004, 2003, and 2002, respectively.
(5) CASH EQUIVALENTS, MARKETABLE SECURITIES, AND LONG-TERM MARKETABLE SECURITIES
Cash equivalents are included at cost, which approximates market. At August 31,
2004, the Company's cash equivalents were held primarily by one financial
institution. 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.
During 2004, the Company transferred all of its securities classified as
part of the Company's held-to-maturity portfolio to an available-for-sale
securities portfolio. The net carrying amount (amortized cost) of the securities
at the date transferred was $30.3 million and resulted in the recognition of a
net unrealized gain of $208,000 in accumulated other comprehensive income (net
of related income taxes of $79,000). The transfer of securities resulted from
management's revision of its investment policy in light of the changes in the
Company's overall business strategy, which considered the possibility that the
securities may be liquidated prior to the maturity of the debt securities. As a
result of the transfer of securities from the held-to-maturity portfolio, the
Company does not expect to classify new acquisitions of securities as
held-to-maturity for a period of at least two years.
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 decision to transfer
debt securities from the held-to-maturity 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 fiscal years 2004, 2003, or 2002. In the opinion of management, the
Company is not subject to material market risks with respect to its portfolio of
investment securities because the investment grade quality of the securities and
the maturities of these securities is relatively short, making their value less
susceptible to interest rate fluctuations.
28
(6) INVENTORIES
Inventories are stated at the lower of cost or market. 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 reserves for obsolete, slow moving,
and excess inventory by estimating the net realizable value based on the
potential future use of such inventory.
(7) PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment, and capitalized lease assets are stated at cost. The
Company's policy is to capitalize major expenditures and to charge to operating
expenses the cost of current maintenance and repairs. Provisions for
depreciation and amortization have been computed principally on the
straight-line method for buildings and equipment. Rates used for depreciation
are based principally on the following expected lives: buildings -- 20 to 30
years; equipment -- three to 10 years; other -- two to 20 years; and leasehold
improvements -- term of lease. All of the Company's long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of the expected
discounted future cash flows is less than the carrying amount of the asset, a
loss is recognized based upon the difference between the fair value of the asset
and its carrying value. The cost and accumulated depreciation relating to assets
retired or otherwise disposed of are eliminated from the respective accounts at
the time of disposition. The resultant gain or loss is included in operating
income in the consolidated statements of operations.
(8) EQUITY INVESTMENTS
Other assets include a 39% minority investment held by the Company in an
irrigation dealership based outside of the United States. This investment is
accounted for on the equity method. The Company's investment in this company is
reviewed periodically to determine if its fair value has declined below the cost
of the investment on an other-than-temporary basis, in which case an impairment
loss would be recognized.
During fiscal 2004, due to the insolvency and liquidation of a Kansas
irrigation dealership in which the Company held a 25% minority interest, the
Company wrote-off the value of the investment which was deemed to be immaterial.
The Company also incurred a bad debt charge during fiscal 2004 of $724,000 and a
$250,000 charge relating to bank guarantees associated with this dealership.
(9) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of net
assets arising from acquisitions. SFAS No. 141, "Business Combinations",
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, "Goodwill and Other Intangible Assets", 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 updated its
evaluation of goodwill recoverability at August 31, 2004. No impairment losses
were indicated as a result of the annual impairment testing under SFAS No. 142.
The estimates of fair value of its reporting units and related goodwill 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 adopted the
provisions of SFAS No. 142 during the first quarter of fiscal 2003, as required,
and accordingly no longer amortizes any goodwill. Amortization expense of
goodwill for fiscal year 2002 was immaterial.
29
(10) 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 incremental dilutive effect of stock options.
The following table summarizes options outstanding but excluded from the
computation of diluted net earnings per share because the options' exercise
price was greater than the average market price of the common shares:
AUGUST 31, AUGUST AUGUST
2004 31, 2003 31, 2002
---------- -------- ---------
Weighted Weighted Weighted
---------- -------- ---------
Average Average Average
Shares Price Expire Shares Price Expire Shares Price Expire
- ------ ---------- -------------- ------- ---------- -------------- ------- --------- ---------------
November 2007- November 2007- September 2007-
305,813 $25.86 August 2014 170,750 $25.98 May 2012 203,562 $25.97 May 2012
======= ====== ======= ====== ======= ======
(11) RECLASSIFICATIONS
Certain reclassifications have been made to prior financial statements to
conform to the current-year presentation.
(12) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(13) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that does not have equity investors
with voting rights, or has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46 requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns,
or both. In December 2003, the FASB issued Interpretation No. 46R, a revision of
Interpretation No. 46. The Company has adopted FIN 46 and FIN 46R during fiscal
2004. The adoption of this standard did not have a material impact on the
Company's consolidated financial position or net income.
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). For public entities, this Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this standard had no material effect on the Company's
financial position or net income.
In March 2003, the Emerging Issues Task Force ("EITF") reached consensus on EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". This
guidance addresses the determination of whether an arrangement involving
multiple deliverables contains more than one unit of accounting. EITF 00-21 is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The implementation of EITF 00-21 had no material impact on
the Company's consolidated financial statements.
30
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," amendments of
FASB Statements No. 87, 88, and 106. This statement added certain disclosure
requirements for the major categories of plan assets and expected returns, the
accumulated pension benefit obligations, the measurement date used, the benefits
expected to be paid to plan participants during the next ten years, the
employer's contributions expected to be paid to the plans during the next fiscal
year, and interim disclosure of the components of the benefit costs along with
any revisions to the contributions expected to be paid to the plans for the
current fiscal year. The annual disclosures are effective for the company's
fiscal 2004 Form 10-K presented herein. SFAS No. 132 requires additional
disclosure only and has no effect on the amounts reported in the Company's
consolidated financial statements.
B. ACQUISITIONS
During November 2001, the Company acquired certain assets of Injection
Systems, Inc. for $255,000 in cash. This product line is marketed as injection
systems under the GrowSmart brand. The assets acquired in this acquisition
consisted of inventory of $41,000, fixed assets of $17,000, and intangibles
including a patent of $100,000, plans/specifications of $75,000, and a tradename
of $22,000. The patent is being amortized over its remaining life at the time of
acquisition of 16 years; the plans/specifications are being amortized over an
estimated realizable period at the time of acquisition of 20 years; and the
tradename was amortized over a period of 12 months. There was no goodwill
associated with this acquisition.
During March 2002, the Company acquired the business of Irrigation
Specialists, Incorporated for $3.6 million in cash. This 30 year old irrigation
dealership based in Pasco, Washington is a strategic distribution channel in a
key regional market. The purchase price allocated to assets and liabilities
consisted of trade accounts receivable of $2.8 million, inventory of $2.5
million, fixed assets of $820,000, non-compete agreement of $300,000,
tradename/trademark of $120,000, trade payables of $2.7 million and other
liabilities of $335,000. The non-compete agreement is being amortized over 5
years. The tradename/trademark is carried at its fair value supported by the
incremental value of the business' operating results considered to be generated.
There was no goodwill associated with this acquisition.
During April 2002, the Company acquired a portion of the assets of Hidro
Power Industria E Comercio De Equipamentos for $979,000 in cash and direct
acquisition costs of $161,000. This irrigation equipment production and sales
operation (now Lindsay America do Sul Ltda.) provides the Company an important
base in a key international market. The assets acquired in this acquisition
included inventory of $130,000, fixed assets of $190,000, other assets of
$80,000, goodwill of $469,000, and a non-compete covenant of $110,000. The
non-compete agreement is being amortized over three years. The goodwill is not
being amortized.
During June 2004, the Company's subsidiary, Lindsay Manufacturing Africa
(PTY) Ltd acquired the assets of Stettyn, a manufacturer of center pivots in
South Africa, for $1.0 million in cash. Stettyn specializes in standard height,
four-inch pivot systems designed for the growing market segment of farmers who
want an economical irrigation system with smaller parcels of land. The Company's
preliminary allocation of purchase price for this acquisition consisted of
inventory of $560,000, fixed assets of $265,000, receivables of $465,000, and
other current liabilities of $265,000.
Pro forma data is not presented for acquisitions, as these amounts are
considered immaterial.
C. OTHER COMPREHENSIVE INCOME (LOSS), NET
The components of accumulated other comprehensive income (loss) consists of the
following:
FOR THE YEARS ENDED AUGUST 31,
$ IN THOUSANDS 2004 2003
- --------------- ------- --------
Accumulated other comprehensive income (loss), net:
Unrealized gain (loss) on available for sale securities, net of tax... $ 185 $ (87)
Currency translation ................................................. 1,363 1,162
Minimum pension liability, net of tax................................. (1,135) (1,163)
------- --------
Total accumulated other comprehensive income (loss), net ................ $ 413 $ (88)
======= =========
31
The deferred tax components of accumulated other comprehensive income consists
of the following:
AUGUST 31,
$ IN THOUSANDS 2004 2003
- --------------- -------- -------
Unrealized gain on available for sale securities taxes:
Federal deferred liability.................................... $ 104 $ -
State deferred liability...................................... $ 9 $ -
Minimum pension liability taxes:
Federal deferred asset........................................ $ 629 $ 656
State deferred asset.......................................... $ 52 $ 73
D. OTHER INCOME, NET
FOR THE YEARS ENDED AUGUST 31,
-----------------------------
$ IN THOUSANDS 2004 2003 2002
- --------------- ------- ------- ------
Other income (expense), net:
Cash surrender value of life insurance................................ $ 90 $ 122 $ 66
Foreign currency transaction gains, net .............................. 484 501 217
Equity in net (loss) earnings of equity-method investments............ (73) 125 253
Bank guarantee........................................................ (250) - -
All other, net........................................................ 19 96 81
------- ------- -------
Total other income, net ................................................. $ 270 $ 844 $ 617
======= ======= =======
E. INCOME TAXES
For financial reporting purposes earnings before income taxes include the
following components:
FOR THE YEARS ENDED AUGUST 31,
-----------------------------
$ IN THOUSANDS 2004 2003 2002
- --------------- ------- ------- -------
United States ........................................................... $12,386 $18,049 $16,025
Foreign ................................................................. 1,380 738 (645)
------- ------- -------
$13,766 $18,787 $15,380
======= ======= =======
Significant components of the income tax provision are as follows:
FOR THE YEARS ENDED AUGUST 31,
-----------------------------
$ IN THOUSANDS 2004 2003 2002
- --------------- ------- ------- -------
Current:
Federal............................................................... $ 2,931 $ 5,518 $ 4,022
State................................................................. 262 630 412
Foreign............................................................... 414 269 -
------- ------- -------
Total current ..................................................... 3,607 6,417 4 ,434
------- ------ ------
Deferred:
Federal............................................................... 604 (470) 279
State................................................................. 50 (32) 30
Foreign............................................................... 219 (15) (93)
------- ------- -------
Total deferred .................................................... 873 (517) 216
------- ------- -------
Total income tax provision ....................................... $ 4,480 $ 5,900 $ 4,650
======= ======= =======
32
Total income tax provision resulted in effective tax rates differing from that
of the statutory United States Federal income tax rates. The reasons for these
differences are:
FOR THE YEARS ENDED AUGUST 31,
------------------------------
2004 2003 2002
---- ----- ----
$ IN THOUSANDS AMOUNT % AMOUNT % AMOUNT %
- -------------- ------- ----- ------- ----- ------- ------
U.S. statutory rate.............................. $ 4,688 34.1 $ 6,482 34.5 $ 5,250 34.1
State and local taxes, net of federal tax benefit 203 1.5 413 2.2 302 2.0
Qualified export activity........................ (86) (0.6) (165) (0.9) (136) (0.9)
Municipal bond interest income................... (443) (3.2) (481) (2.6) (471) (3.1)
Research and development tax credits............. (83) (0.6) (150) (0.8) (141) (0.9)
Other............................................ 201 1.3 (199) (1.0) (154) (1.0)
------- ----- ------- ----- ------- ------
Effective rate................................... $ 4,480 32.5 $ 5,900 31.4 $ 4,650 30.2
======= ===== ======= ===== ======= ======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
AUGUST 31,
$ IN THOUSANDS 2004 2003
- --------------- ---- ----
Deferred tax assets:
Minimum pension liability................................................ $ 681 $ 710
Foreign items............................................................ 74 275
Employee benefits liability.............................................. 979 1,459
Inventory................................................................ 87 90
Accrued liabilities not currently deductible for taxes................... 1,969 1,771
------ ------
Deferred tax assets ............................................... $3,790 $4,305
====== ======
Deferred tax liabilities:
Property, plant and equipment ........................................... $ (606) $ (337)
Other ................................................................... (318) (68)
------ ------
Deferred tax liabilities .......................................... $ (924) $ (405)
====== ======
Net deferred tax assets ................................................ $2,866 $3,900
====== ======
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely that not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Management does not
believe there are significant uncertainties surrounding realization of the
deferred tax assets, and, consequently, has not provided a valuation allowance
for deferred tax assets at August 31, 2004 and 2003.
At August 31, 2004, the Company's foreign subsidiaries had deferred tax
assets of $74,000, as shown above. This is comprised principally of temporary
differences for property and equipment, inventory, and other items.
On October 22, 2004, the President signed into law the American Jobs
Creation Act of 2004 (the Act). The Company is evaluating the impact of changes
to provisions related to the extra territorial exclusion, repatriation of
foreign earnings, the effect of the manufacturing tax relief on the Company's
effective tax rate in future periods and various other provisions of the Act.
33
F. MARKETABLE SECURITIES
The Company's marketable securities consist of investment-grade municipal bonds.
Marketable securities may mature earlier than their weighted-average contractual
maturities because of principal prepayments.
During 2004, the Company transferred all of its securities classified as part of
the Company's held-to-maturity portfolio to an available-for-sale securities
portfolio. The net carrying amount (amortized cost) of the securities at the
date transferred was $30.3 and resulted in the recognition of a net unrealized
gain of $208,000 in accumulated other comprehensive income (net of related
income taxes of $79,000). The transfer of securities resulted from management's
revision of its investment policy in light of the changes in the Company's
overall business strategy, which considered the possibility that the securities
may be liquidated prior to the maturity of the debt securities. As a result of
the transfer of securities from the held-to-maturity portfolio, the Company does
not expect to classify new acquisitions of securities as held-to-maturity for a
period of at least two years.
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:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
$ IN THOUSANDS, COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
HELD-TO-MATURITY SECURITIES
As of August 31, 2004:
Due within one year....................... $ - $ - $ - $ -
Due after one year through five years..... - - - -
--------- ---------- ---------- ---------
$ - $ - $ - $ -
========= ========== ========== ========
As of August 31, 2003:
Due within one year....................... $ 7,453 $ 54 $ (2) $ 7,505
Due after one year through five years..... 29,661 422 (95) 29,988
--------- ---------- ---------- ---------
$ 37,114 $ 476 $ (97) $ 37,493
========= ========== ========== =========
AVAILIBLE-FOR-SALE SECURITIES
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
========= ========== ========== =========
As of August 31, 2003:
Due within one year....................... $ 1,325 $ - $ (8) $ 1,317
Due after one year through five years..... 9,092 - (79) 9,013
--------- ---------- ---------- ---------
$ 10,417 $ - $ (87) $ 10,330
========= ========== ========== =========
Proceeds and gains and losses from the maturities or sales of available-for-sale
securities are as follows:
FOR THE YEARS ENDED AUGUST 31,
$ IN THOUSANDS 2004 2003 2002
- ---------------- --------- ---------- ----------
Proceeds from maturities or sales............... $ 8,456 $ - $ -
Gross realized gains.................. $ 19 $ - $ -
Gross realized losses........................... $ (1) $ - $ -
34
Marketable securities classified as available-for-sale in a continuous loss
position for less than 12 months and greater than 12 months as of August 31,
2004 are as follows:
$ IN THOUSANDS LESS THAN 12 MONTHS GREATER THAN 12 MONTHS
- --------------- ------------------- ----------------------
Total amount of unrealized losses............................... $ ( 40) $ -
Total fair value of investments with unrealized losses.......... $ 6,341 $ -
G. RECEIVABLES
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- -------------- -------- -------
Receivables:
Trade accounts and notes ....................................... $ 35,755 $23,637
Allowance for doubtful accounts ................................ (1,386) (667)
-------- -------
Net receivables ............................................... $ 34,369 $22,970
======== =======
H. INVENTORIES
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- --------------- -------- --------
Inventory:
First-in, first-out (FIFO) inventory ..................................... $ 16,043 $ 15,821
LIFO reserves ............................................................ (5,333) (2,494)
Obsolescence reserve ..................................................... (527) (566)
Weighted average inventory ............................................... 9,597 7,258
-------- --------
Total inventories ........................................................ $ 19,780 $ 20,019
======== ========
The Company's LIFO reserves as of August 31, 2004 reflect the liquidation of
approximately $930,000 of base LIFO inventory resulting in approximately
$280,000 of income for fiscal 2004.
The estimated percentage distribution between major classes of inventory before
reserves is as follows:
AUGUST 31,
2004 2003
---- ----
Raw materials ........................................................... 20% 18%
Work in process ......................................................... 10% 5%
Finished goods and purchased parts....................................... 70% 77%
I. PROPERTY, PLANT AND EQUIPMENT
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- --------------- -------- --------
Property, plant and equipment:
Land ................................ $ 336 $ 253
Buildings ........................... 10,192 8,954
Equipment ........................... 38,886 36,724
Other ............................... 3,954 2,161
-------- --------
Total property, plant, and equipment .... 53,368 48,092
Accumulated depreciation and amortization (37,013) (34,203)
-------- --------
Property, plant and equipment, net ...... $ 16,355 $ 13,889
======== ========
Depreciation expense was $2.9 million, $3.4 million and $3.6 million for the
years ended August 31, 2004, 2003, and 2002, respectively.
35
J. OTHER NONCURRENT ASSETS
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- --------------- ------ ------
Other Noncurrent Assets:
Cash surrender value of life insurance policies $1,903 $1,813
Deferred income taxes ......................... 1,840 1,599
Equity method investments ..................... 1,364 1,437
Goodwill ...................................... 1,254 1,174
Split dollar life insurance ................... 916 913
Intangible pension asset ...................... 373 442
Other intangibles, net ........................ 472 574
Other ......................................... 625 267
------ ------
Total other noncurrent assets ................. $8,747 $8,219
====== ======
August 31, 2004 goodwill increased when compared to prior fiscal year ended 2003
due to increases in currency translation and an earn-out payment.
The following table summarizes the Company's net carrying value for other
intangible assets as shown above. These other intangible assets are being
amortized over an average term of approximately 5 years. Related amortization
expense was $107,000, $113,000, and $66,000 for 2004, 2003, and 2002,
respectively.
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- ----------------- ----- -----
Non-compete agreements ..... $ 385 $ 358
Tradenames ................. 145 147
Patent ..................... 100 100
Plans and specifications ... 75 77
Other ...................... 31 30
Accumulated amortization ... (264) (138)
----- -----
Total other intangibles, net $ 472 $ 574
===== =====
K. OTHER CURRENT LIABILITIES
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- -------------- ------- -------
Other current liabilities:
Payroll and vacation ..................... $ 3,280 $ 3,774
Retirement plan .......................... 2,584 2,240
Taxes, other than income ................. 1,005 740
Workers compensation and product liability 1,251 1,355
Dealer related liabilities ............... 1,279 1,158
Warranty ................................. 1,339 1,152
Income tax payable ....................... - 1,986
Other .................................... 4,621 3,648
------- -------
Total other current liabilities .......... $15,359 $16,053
======= =======
36
L. CREDIT ARRANGEMENTS
The Company has an agreement with a commercial bank for a $10.0 million
unsecured revolving line of credit through December 31, 2004. 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 (3.50% at August 31, 2004). 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
August 31, 2004, there was no 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. (4.65% at August 31, 2004).
M. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are defendants in various legal actions arising
in the course of their business activities. In the opinion of management, an
unfavorable outcome with respect to any existing legal action will not result in
a material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.
In 1992, the Company entered into a consent decree with the Environmental
Protection Agency of the United States Government ("the EPA") in which it
committed to remediate environmental contamination of the groundwater that was
discovered in 1982 through 1990 at and adjacent to its Lindsay, Nebraska
facility ("the site"). The site was added to the EPA's list of priority
superfund sites in 1989. Between 1993 and 1995, remediation plans for the site
were approved by the EPA and fully implemented by the Company. Since 1998, the
primary remaining contamination at the site has been the presence of volatile
organic chemicals in the groundwater. In 2003, a second Five Year Review of the
status of the remediation of the contamination of the site was conducted by the
Company and the EPA. As a result of this review, the EPA issued a letter placing
the Company on notice that additional remediation actions were required. The
Company and its environmental consultants have completed and submitted a
supplemental remedial action work plan that, when implemented, will allow the
Company and the EPA to better identify the boundaries of the contaminated
groundwater and will allow the Company and the EPA to more effectively assure
that the contaminated groundwater is being contained by current and planned
additional wells that pump and aerate it. The Company has been able to
reasonably estimate the cost of completing the remediation actions defined in
the supplemental remedial action work plan. Substantially all remediation
actions were completed in fiscal 2004 and the Company expects to complete the
outstanding actions in fiscal 2005. Related liabilities recognized were $70,000
and $250,000 at August 31, 2004 and 2003, respectively.
The Company has an obligation to purchase the remaining shares of its
minority investment in an irrigation dealership based outside of the United
States for an amount of approximately $1.5 million by August 31, 2005.
The Company leases land, buildings, machinery, equipment, and furniture under
various noncancelable operating lease agreements. At August 31, 2004, future
minimum lease payments under noncancelable operating leases were as follows:
$ IN THOUSANDS
FISCAL YEARS
2005 ................................................ $ 768
2006 ................................................ 741
2007 ................................................ 620
2008 ................................................ 500
2009 ................................................ 459
Thereafter........................................... 733
--------
Total future minimum lease payments.................. $ 3,821
========
Lease expense was $795,000, $379,000, and $348,000 for the years ended August
31, 2004, 2003, and 2002, respectively.
37
N. RETIREMENT PLANS
The Company has a defined contribution profit-sharing plan covering
substantially all of its full-time U.S. employees. Participants may voluntarily
contribute a percentage of compensation, but not in excess of the maximum
allowed under the Internal Revenue Code. The plan provides for a required
matching contribution by the Company. The Company's total contributions charged
to expense under this plan were $497,000, $449,000 and $314,000 for the years
ended August 31, 2004, 2003, and 2002, respectively.
A supplementary non-qualified, non-funded retirement plan for six current
and former executives is also maintained. Plan benefits are based on the
executive'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 certain executives named in this supplemental retirement
plan to provide funding for this liability.
Cost and the assumptions for the Company's supplemental retirement plan include
the following components:
FOR THE YEARS ENDED AUGUST 31,
------------------------------
$ IN THOUSANDS 2004 2003 2002
- -------------- ------- ------- -------
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,747 $ 3,944 $ 3,237
Service cost .......................... 40 42 15
Interest cost ......................... 290 267 218
Actuarial loss ........................ 44 773 700
Benefits paid ......................... (282) (279) (226)
------- ------- -------
Benefit obligation at end of year ..... $ 4,839 $ 4,747 $ 3,944
======= ======= =======
Funded status ......................... $(4,839) $(4,747) $(3,944)
Unrecognized net actuarial loss ....... 2,255 2,507 1,915
------- ------- -------
Net liability recognized .............. $(2,584) $(2,240) $(2,029)
======= ======= =======
The Company's accumulated benefit obligation was $4.8 million, $4.7 million, and
$3.7 million for the years ended August 31, 2004, 2003, and 2002, respectively.
AUGUST 31,
----------
$ IN THOUSANDS 2004 2003
- -------------- ------- ------
Amounts recognized in the statement of financial position consist of:
Accrued benefit cost .................................................. $ 2,584 $ 2,240
Intangible pension asset .............................................. (372) (442)
Additional minimum pension liability .................................. 2,169 2,315
Other comprehensive loss .............................................. (1,797) (1,873)
------- -------
Net amount recognized ................................................. $ 2,584 $ 2,240
======= =======
Weighted-average assumptions for the liability as of year ends:
Discount rate ......................................................... 5.75% 6.25%
Assumed rates of compensation increases ............................... 3.50% 3.50%
Rate of return on underlying 401(k) investments ....................... 7.50% 7.50%
38
FOR THE YEARS ENDED AUGUST 31,
------------------------------
$ IN THOUSANDS 2004 2003 2002
- -------------- ------- -------- -------
Components of net periodic benefit cost:
Service cost......................................... $ 40 $ 42 $ 15
Interest cost........................................ 290 267 218
Net amortization and deferral........................ 296 181 111
------- -------- -------
Total................................................ $ 626 $ 490 $ 344
======= ======== =======
Weighted-average assumptions for expense for the years ended:
Discount rate........................................ 6.25% 7.00% 7.00%
Assumed rates of compensation increases.............. 3.50% 3.50% 3.50%
The Company uses an August 31 measurement date for its supplemental retirement
plan.
The following net benefits payments, which reflect future service, as
appropriate, are expected to be paid:
$ IN THOUSANDS
FISCAL YEARS
2005 ................................................ $ 313
2006 ................................................ 313
2007 ................................................ 313
2008 ................................................ 367
2009 ................................................ 367
2010-2014............................................ 1,836
--------
Future expected benefit payments through 2014........ $ 3,509
========
O. STOCK OPTIONS
On January 30, 2001, the shareholders approved the Lindsay Manufacturing Co.
2001 Long-Term Incentive Plan (the "2001 Plan"). The 2001 Plan supercedes the
1988 Plan and 1991 Plan and no further options or other awards will be granted
under the 1988 Plan and 1991 Plan (the "Prior Plans"). The Company has
outstanding stock options under its 1991 Plan and 2001 Plan. No options are
outstanding under the previous 1988 Plan. The 2001 Plan is similar in most
material respects to the 1991 Plan and provides for awards of stock options,
restricted stock, or stock appreciation rights ("SARs") to employees of the
Company and for annual awards of stock options to non-employee directors. A
total of 900,000 shares of the Company's common stock may be issued under the
2001 Plan, subject to adjustments to reflect stock splits and similar events. If
options or restricted stock awarded under the 2001 Plan (or options issued under
the Prior Plans or outside of the Prior Plans) terminate without being fully
vested or exercised, those shares will be available again for grant under the
2001 Plan. No more than 180,000 shares of common stock may be issued to
employees other than through options having an exercise price of not less than
the fair market value of the underlying shares. The 2001 Plan also limits the
total awards that may be made to any individual. The 1991 and 2001 Plans permit
participants to surrender mature common shares, in lieu of cash, for the value
of the exercise price. Mature shares are defined as shares held more than six
months.
39
A summary of the status of the Company's stock plans is presented below:
OPTION SHARES
AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
Officers, Directors and Key Employees:
Outstanding at August 31, 2001 ....... 982,168 $ 15.30
Granted ........................... 164,563 22.95
Exercised ......................... (117,947) 10.53
Cancelled ......................... (25,241) 20.04
----------
Outstanding at August 31, 2002 .... 1,003,543 17.00
==========
Exercisable at August 31, 2002 ....... 410,331 15.54
==========
Outstanding at August 31, 2002 ....... 1,003,543 17.00
Granted ........................... 197,060 21.48
Exercised ......................... (52,530) 10.39
Cancelled ......................... (35,500) 24.77
----------
Outstanding at August 31, 2003 .. 1,112,573 17.02
==========
Exercisable at August 31, 2003 ....... 514,020 16.71
==========
Outstanding at August 31, 2003 ....... 1,112,573 17.02
Granted ........................... 202,872 25.05
Exercised ......................... (47,312) 14.19
Cancelled ......................... (39,000) 22.84
----------
Outstanding at August 31, 2004 ....... 1,229,133 19.06
==========
Exercisable at August 31, 2004 ....... 664,594 $ 17.22
==========
The numbers of stock awards available for grant under the stock option plans are
302,996, 466,968, and 648,228 shares as of August 31, 2004, 2003, and 2002,
respectively.
The following table summarizes information about stock options outstanding at
August 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED
AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
PRICES AT 8/31/04 LIFE PRICE AT 8/31/04 PRICE
- --------------- ------------ ----------- --------- ----------- --------
$ 8.31 - 10.22 65,813 .5 years $ 9.08 65,813 $ 9.08
14.00 - 20.00 614,325 5.7 years 15.65 439,070 15.63
$ 21.20 - 28.17 548,995 7.5 years $ 24.07 159,711 $24.96
---------- --------
1,229,133 664,594
========== ========
40
P. GUARANTEES
The Company is currently party to guarantee arrangements relating to
dealer/customer financing arrangements, the debt for a business in which the
Company holds a minority equity investment, and warranties of the Company's
products.
The following table provides the estimated maximum amount of potential future
payments for each major group of guarantees:
AUGUST 31,
------ ---
$ IN THOUSANDS 2004 2003
- -------------- ------ ------
Guarantees on third party debt of equity investment $ 700 700
Customer equipment financing recourse ............. 3,700 3,600
Product warranties ................................ N/A N/A
------ ------
Total guarantees .................................. $4,400 $4,300
====== ======
CUSTOMER EQUIPMENT FINANCING
In the normal course of business, the Company has arranged for unaffiliated
financial institutions to make favorable financing terms available to end-user
purchasers of the Company's irrigation equipment. In order to facilitate these
arrangements, the Company provided the financial institutions with limited
recourse guarantees or full guarantees as more fully described below. The
Company recorded, at estimated fair value, deferred revenue of $83,000 at August
31, 2004 compared to $28,000 at August 31, 2003, 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 value of the
guarantees ratably over the term of the guarantee. Separately, related to these
exposures, the Company has accrued a liability of $290,000 and $326,000 at
August 31, 2004 and 2003, 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 was approximately $1.5 million at August 31, 2004 and
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 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 existing specific
guarantees is approximately $2.2 million at August 31, 2004 compared to $2.1
million at August 31, 2003. 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 has 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. The guarantees continue
until the loans, including accrued interest and fees, have been paid in full.
The bank loans have been declared to be in default by the bank due to the
insolvency of the dealership. As of August 31, 2004, the maximum aggregate
amount associated with the guarantees and letter of credit was approximately
$700,000. The Company has recorded a current liability as of August 31, 2004 for
$250,000 based upon its best estimate of expected aggregate liability associated
with the bank loan guarantees. The majority owner of the business provides a
separate personal guarantee of the bank notes, although it is uncertain as to
the likelihood of recovery from the majority owner guarantee.
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 unidentified items based primarily on
historical experience of actual warranty claims.
41
The following table provides the changes in the Company's product warranties:
FOR THE YEARS ENDED AUGUST 31,
------------------------------
$ IN THOUSANDS 2004 2003 2002
------- ------- -------
Product warranty accrual balance, beginning of fiscal year $ 1,152 $ 1,266 $ 1,396
Liabilities accrued for warranties during the period ..... 1,492 1,370 1,275
Warranty claims paid during the period ................... (1,305) (1,484) (1,405)
------- ------- -------
Product warranty accrual balance, end of fiscal year ..... $ 1,339 $ 1,152 $ 1,266
======= ======= =======
Q. 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 SFAS No. 131.
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. 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 FAS 131 is not shown
as this information can not be reasonably disaggregated by segment and is not
utilized by the Company's management.
The Company has no single major customer representing 10% or more of its
total revenues during fiscal 2004, 2003, or 2002.
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
FOR THE YEARS ENDED AUGUST 31,
------------------------------
($ IN MILLIONS) 2004 2003 2002
------ ------ ------
Operating revenues:
Irrigation .......................... $ 183.8 $ 151.3 $ 132.7
Diversified products ................ 12.9 12.1 13.2
-------- -------- --------
Total operating revenues ............... $ 196.7 $ 163.4 $ 145.9
======== ======== ========
Operating income:
Irrigation .......................... $ 27.2 $ 28.0 $ 22.2
Diversified products ................ 1.1 1.2 1.9
-------- -------- --------
Segment operating income ............... 28.3 29.2 24.1
Unallocated general & administrative and
engineering & research expenses ..... (16.2) (12.8) (11.0)
Interest and other income, net ......... 1.7 2.4 2.3
-------- -------- --------
Earnings before income taxes ........... $ 13.8 $ 18.8 $ 15.4
======== ======== ========
42
FOR THE YEARS ENDED AUGUST 31,
------------------------------
$ IN MILLIONS 2004 2003 2002
- ------------- ------- -------- ------
Geographic area revenues:
United States...................................................... $ 145.7 $ 125.0 $ 113.8
Europe, Africa, Australia, & Middle East........................... 30.3 23.3 17.2
Mexico & Latin America............................................. 16.5 10.7 6.0
Other International................................................ 4.2 4.4 8.9
------- -------- -------
Total revenues..................................................... $ 196.7 $ 163.4 $ 145.9
======= ======== =======
R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The follow is a tabulation of the unaudited quarterly results of operations for
the years ended August 31, 2004 and 2003:
FOR THE THREE MONTHS ENDED THE LAST DAY OF
------------------------------------------
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS NOVEMBER FEBRUARY MAY AUGUST
- ---------------------------------------- -------- -------- --------- --------
Fiscal 2004
Operating revenues...................... $ 36,513 $51,475 $ 62,286 46,422
Cost of operating revenues.............. 29,159 39,865 49,299 38,856
Earnings before income taxes............ 1,607 5,166 6,428 565
Net earnings............................ 1,093 3,503 4,345 345
Diluted net earnings per share.......... $ 0.09 $ 0.29 $ 0.36 $ 0.04
Market price (NYSE)
High.................................. $ 24.53 $ 26.87 $ 26.15 $ 24.96
Low................................... $ 20.05 $ 23.90 $ 22.90 $ 22.70
Fiscal 2003
Operating revenues...................... $ 33,462 $48,127 $ 48,833 $ 32,952
Cost of operating revenues.............. 26,451 35,865 36,334 24,978
Earnings before income taxes............ 1,714 7,108 7,021 2,944
Net earnings............................ 1,193 4,952 4,822 1,920
Diluted net earnings per share.......... $ 0.10 $ 0.42 $ 0.41 $ 0.17
Market price (NYSE)
High.................................. $ 25.70 $ 25.24 $ 23.00 $ 24.45
Low................................... $ 20.95 $ 18.45 $ 17.75 $ 20.00
2004: Significant fourth-quarter adjustments aggregated a decrease to pre-tax
earnings of $2.6 million. The adjustments decreasing pre-tax earnings included
the Kansas irrigation dealership bank guarantee and bad debt adjustments of
$850,000 and LIFO/ Inventory revaluation adjustments and physical inventory
adjustments of $1.7 million.
2003: Significant fourth-quarter adjustments aggregated an increase to pre-tax
earnings of $660,000. The adjustments increasing pre-tax earnings included a
LIFO inventory reserve adjustment of $660,000 and a reduction of general
insurance expense liability of $510,000. The adjustments decreasing pre-tax
earnings included an accrual of $250,000 for the environmental supplemental
remediation plan and a $260,000 reduction in revenue for Irrigation Specialists
based on a reconciliation of receivables.
43
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
ITEM 9A - CONTROLS AND PROCEDURES
Based upon their evaluation of the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act rules 13a-15 (e)
and 15d-15 (e), management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the Company's disclosure controls and
procedures were effective as of August 31, 2004.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
August 31, 2004 through the date of this Annual Report on Form 10-K, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 9B - OTHER INFORMATION
NONE
44
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company will file with the Securities and Exchange Commission a definitive
Proxy Statement not later than 120 days after the close of its fiscal year ended
August 31, 2004. Information about the Directors required by item 401 of
Regulation S-K is incorporated by reference from the Proxy Statement.
Information about Executive Officers is shown on page 6 and 7 of this filing.
Section 16(a) Beneficial Ownership Reporting Compliance - Item 405 of
Regulation S-K calls for disclosure of any known late filing or failure by an
insider to file a report required by Section 16 of the Securities Exchange Act.
The information required by this Section 16(a) is incorporated by reference to
the Proxy Statement.
Code of Ethics- Item 406 of Regulation S-K calls for disclosure of whether
the Company has adopted a code of ethics applicable to the principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company has adopted a
code of ethics applicable to the Company's principal executive officer and
senior financial officers known as the Code of Ethical Conduct (Principal
Executive Officer and Senior Financial Officers). The Code of Ethical Conduct
(Principal Executive Officer and Senior Financial Officers) is available on the
Company's website. In the event that the Company amends or waives any of the
provisions of the Code of Ethical Conduct applicable to the principal executive
officer and senior financial officers, the Company intends to disclose the same
on the Company's website at www.lindsaymanufacturing.com.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the Proxy
Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the Proxy
Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the Proxy
Statement.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference to the Proxy
Statement.
45
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following financial statements of Lindsay Manufacturing Co. are
included in Part II Item 8.
PAGE
----
Report of Independent Registered Public Accounting Firm................................................... 22
Consolidated Statements of Operations for the years
ended August 31, 2004, 2003, and 2002............................................................... 23
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended August 31, 2004, 2003, and 2002................................................. 24
Consolidated Balance Sheets at
August 31, 2004 and 2003............................................................................ 25
Consolidated Statements of Cash Flows for the years
ended August 31, 2004, 2003, and 2002............................................................... 26
Notes to Consolidated Financial Statements................................................................ 27-43
Valuation and Qualifying Accounts -
Years ended August 31, 2004, 2003, and 2002......................................................... 50
Financial statements and schedules other than those listed are omitted
for the reason that they are not required, are not applicable or that equivalent
information has been included in the financial statements or notes thereto.
46
A(3) EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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 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.
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.
10(a) Lindsay Manufacturing Co. Executive Compensation Plan incorporated by
reference to Exhibit 10(a) to the Company's report on Form 10-Q for the
fiscal quarter ended February 28, 1998.
10(b) Agreement between the Company and Gary D. Parker, effective December 1,
1999 incorporated by reference to Exhibit 10(a) to the Company's Report
on Form 10-Q for the fiscal quarter ended November 30, 1999.
10(c) Indemnification Agreement between the Company and its directors and
officers, dated October 24, 2003 on Form 10-K for the fiscal year ended
August 31, 2003.
10(d) Lindsay Manufacturing Co. Profit Sharing Plan, incorporated by
reference to Exhibit 10(i) of the Company's Registration Statement on
Form S-1 (Registration No. 33-23084), filed July 15, 1988.
10(e) Lindsay Manufacturing Co. Amended and Restated 1991 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(f) of the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 2000.
10(f) Employment Agreement between the Company and Richard W. Parod effective
March 8, 2000, incorporated by reference to Exhibit 10(a) of the
Company's Report on Form 10-Q for the fiscal quarter ended May 31,
2000.
47
a(3) EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10(g) First Amendment to Employment Agreement, dated May 2, 2003, between
the Company and Richard W. Parod, incorporated by reference to Exhibit
10 (a) of Amendment No. 1 to the Company's Report on Form 10-Q for the
fiscal quarter ended May 31, 2003.
10(h) Lindsay Manufacturing Co. Supplemental Retirement Plan, incorporated by
reference to Exhibit 10(j) of the Company's Annual Report on Form 10K
for the fiscal year ended August 31, 1994.
10(i) Lindsay Manufacturing Co. 2001 Amended and Restated Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(i) of the Company's
Annual Report on Form 10K for the fiscal year ended August 31, 2001.
10(j)* Lindsay Manufacturing Co. Management Incentive Plan (MIP), 2005 Plan
Year
14 Code of Ethical Conduct for Principal Executive Officer and
Senior Financial Officers incorporated by reference to Exhibit 14
of the Company's Annual Report on Form 10K for the fiscal year ended
August 31, 2003.
21* Subsidiaries of the Company
23* Consent of KPMG LLP
24(a)* The Power of Attorney authorizing Richard W. Parod to sign the Annual
Report on Form 10-K for fiscal 2004 on behalf of certain directors.
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.
* - filed herein
48
SIGNATURES
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 15th day of
November, 2004.
LINDSAY MANUFACTURING CO.
By: /s/ DAVID B. DOWNING
------------------------------------------
Name: David B. Downing
Title: Vice President, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 15th day of November, 2004.
/s/ RICHARD W. PAROD Director, President and Chief Executive Officer
- ---------------------------------
Richard W. Parod
/s/ DAVID B. DOWNING Vice President, Chief Financial Officer
- ---------------------------------
David B. Downing
/s/ BRUCE C. KARSK Executive Vice President,
- ---------------------------------- Treasurer and Secretary
Bruce C. Karsk
/s/ THOMAS COSTANZA Corporate Controller
- ---------------------------------
Thomas Costanza
/s/ MICHAEL N. CHRISTODOLOU (1) Chairman of the Board of Directors
- ---------------------------------
Michael N. Christodolou
/s/ HOWARD G. BUFFETT (1) Director
- ---------------------------------
Howard G. Buffett
/s/ LARRY H. CUNNINGHAM (1) Director
- ---------------------------------
Larry H. Cunningham
/s/ J.DAVID MCINTOSH (1) Director
- ---------------------------------
J. David McIntosh
/s/ MICHAEL C. NAHL (1) Director
- ---------------------------------
Michael C. Nahl
/s/ WILLIAM F. WELSH II (1) Director
- --------------------------------
William F. Welsh II
(1) By: /s/ RICHARD W. PAROD
---------------------------
Richard W. Parod, Attorney-In-Fact
49
LINDSAY MANUFACTURING CO.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 31, 2004, 2003 AND 2002
(DOLLARS IN THOUSANDS)
ADDITIONS
---------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------- ----------
Year ended August 31, 2004:
Deducted in the balance sheet from the
assets to which they apply:
- Reserve for guarantee losses(c).......... $ 354 $ 325 $ - 139 $ 540
===== ======= ======= ======== ==========
- Allowance for doubtful accounts.......... $ 667 $ 760 $ - $ 41(a) $ 1,386
===== ======= ======= ======== ==========
- Allowance for inventory obsolescence..... $ 566 $ 136 $ - $ 175(b) $ 527
===== ======= ======= ======== ==========
Year ended August 31, 2003:
Deducted in the balance sheet from
the assets to which they apply:
- Reserve for guarantee losses(c).......... $ 344 $ 105 $ - $ 95 $ 354
===== ======= ======= ======== ==========
- Allowance for doubtful accounts.......... $ 492 $ 275 $ - $ 100(a) $ 667
===== ======= ======= ======== ==========
- Allowance for inventory obsolescence..... $ 359 $ 256 $ 8 $ 57(b) $ 566
===== ======= ======= ======== ==========
Year ended August 31, 2002:
Deducted in the balance sheet from
the assets to which they apply:
- Reserve for guarantee losses(c).......... $ - $ - $ 344 - $ 344
===== ======= ======= ======== ==========
- Allowance for doubtful accounts.......... $ 577 $ 348 $ (344) $ 89(a) $ 492
===== ======= ======= ======== ==========
- Allowance for inventory obsolescence..... $ 629 $ (204) $ - $ 66(b) $ 359
===== ======= ======= ======== ==========
Notes:
(a) Deductions consist of uncollectible items written off, less recoveries of
items previously written off.
(b) Deductions consist of obsolete items sold or scrapped.
(c) Represents estimated losses on financing guarantees.
See accompanying report by independent registered public accounting firm.
50