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, 2002 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 0-17116
Lindsay Manufacturing Co.
-------------------------
(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
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(Address of principal executive offices) (Zip Code)
402-829-6801
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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 [ ]
As of November 25, 2002, 11,728,552 shares of the registrant's Common Stock were
outstanding and the aggregate market value of all Common Stock held by
non-affiliates (11,409,588 shares) was $282,387,303 based upon the final sales
price on the New York Stock Exchange, Inc. on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement pertaining to the January 21, 2003, annual
shareholders' meeting are incorporated herein by reference into Part III.
Exhibit index is located on page 33-34.
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ITEM 1 -- BUSINESS
INTRODUCTION
Lindsay Manufacturing Co. ("Lindsay" or the "Company") is a leading designer,
manufacturer and international and domestic marketer, under its Zimmatic
trademark, of electrically powered center pivot and lateral move irrigation
systems and GrowSmart controls for use to irrigate agricultural crops. The
Company also manufactures and markets a separate line of "mini" center pivot and
lateral move irrigation equipment for use on smaller fields under its Greenfield
tradename and hose reel travelers under the Perrot (Greenfield in the United
States) tradename. The Company manufactures and markets repair and replacement
parts for its Zimmatic, Greenfield, and Perrot branded irrigation systems and
GrowSmart branded controls. Additionally, the Company produces and sells certain
steel tubing and manufactures and assembles diversified agricultural and
construction products for other manufacturers. Industry segment information is
included in Part II, Item 8, Footnote N.
The Company has been in continuous operation since 1955, making it one
of the pioneers in the irrigation industry. Lindsay, a Delaware corporation,
maintains its corporate offices in Omaha, Nebraska. It principal manufacturing
facilities are located in Lindsay, Nebraska, USA. The Company also has foreign
operating facilities in France and Brazil and is starting operations in South
Africa.
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. Due to
lower price and simplicity of operation, center pivots currently account for
over 95% of the Company's Zimmatic system sales.
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 $60,000 to $70,000. 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 estimates that there are approximately 200,000 standard center pivot
irrigation systems in operation worldwide, resulting in an active repair and
replacement parts business. Mini-pivots and hose reel travelers require, on
average, a lower investment than a typical standard center pivot.
The Company also manufactures and distributes 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.
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 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 "trickle" 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; it can be used on sandy ground which, due to poor
water retention ability, must have water applied frequently; it can be used on
uneven ground, thereby allowing previously unsuitable land to be brought into
production; it can also be used for the application of fertilizers,
insecticides, herbicides or other chemicals (termed "chemigation"); and it
conserves water and chemicals through precise control of the amount and timing
of its application.
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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 determinant 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 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. Selection of center pivot or
lateral move systems, over other types of irrigation, is aided by the fact that
agricultural production is continually forced to become more efficient in its
use of the basic natural resources of land, water and energy. Increasing global
population not only increases demand for agricultural output, but also places
additional and competing demands on land, water and energy. As 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 Company
expects demand for center pivots and lateral moves to continue to increase
relative to other irrigation methods.
The following table describes the Company's total irrigation and diversified
products revenues for the past three years:
($ IN THOUSANDS) FISCAL YEARS ENDED AUGUST 31,
- ---------------- ---------------------------------------------------------------------
2002 2002 2001 2001 2000 2000
-------- ---------- -------- ---------- -------- ----------
% of Total % of Total % of Total
Revenues Revenues Revenues Revenues Revenues Revenues
-------- ---------- -------- ---------- -------- ----------
United States ..................... $113.8 78 $102.0 80 $107.8 83
Europe, Africa & Middle East ...... 17.2 12 14.7 12 8.9 7
Mexico & Latin America ............ 6.0 4 3.2 3 5.1 4
Other International ............... 8.9 6 6.8 5 8.0 6
------ ------ ------ ------ ------ ------
Total Revenues .................... $145.9 100 $126.7 100 $129.8 100
United States Market. In the United States, the Company sells its
branded irrigation systems, including Zimmatic, to approximately 200 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 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 in over 90 countries. The majority of the
Company's U.S. export sales are in U.S. dollars and are shipped against
prepayments or U.S. bank confirmed irrevocable letters of credit or other
secured means. The Company has production and sales operations in France and
Brazil serving the key European and South American markets and is starting
operations in South Africa.
The Company's export 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 developments 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; five primary
manufacturers remain today. The international market includes participation and
competition by the leading U.S. manufacturers as well as certain regional
manufacturers. There is a high level of price competition and utilization of
seasonal promotional programs. Competition also occurs in areas of advanced
product technology, product quality and durability, product characteristics,
retention and reputation of local dealers, post-sale 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.
The Company competes in certain product lines with several
manufacturers, some of whom may have greater financial resources than the
Company. Management believes that the Company has a competitive advantage
because it
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manufactures a growing range of irrigation system product lines. Management also
believes that the Company's commitment to customer service, product innovation
through technology, and its distribution system positions it well to compete in
its various markets.
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 some of the country's most
demanding industrial companies, including Caterpillar Inc., Deere & Company and
New Holland North America, Inc. 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 segment, however, is largely dependent on a few
customers. While the loss of any substantial customer could have a material
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, 2002, the Company had an order backlog of $18.9 million, a
decrease of 18% from $23.1 million at August 31, 2001. At fiscal year end 2002,
the Company had a $14.4 million order backlog for irrigation equipment, compared
to $17.1 million at fiscal year end 2001. At fiscal year end 2002, order backlog
for diversified products totaled $4.5 million, compared to $6.0 million at
fiscal year end 2001.
Irrigation equipment backlog declined in the Company's fiscal fourth
quarter as the Company's order flow slowed, in part due to U.S. farmers waiting
for the release of the Farm Bill's Environmental Quality Improvement Program
(EQIP) funds. The diversified products backlog continues to reflect contraction
associated with the current economic cycle.
The Company expects that the existing backlog of orders can be filled in
fiscal 2003.
Generally, the Company manufactures a center pivot or lateral move
system upon a U.S. or international dealer's firm order. Orders from U.S.
dealers are accompanied with a $1,000 (approximately 4% of sales price) down
payment. Orders being delivered to international markets from the U.S. are
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 2002, 2001 and 2000, were $2.2 million, $2.9
million and $3.5 million, respectively. Fiscal 2002 capital expenditures were
used primarily for updating manufacturing plant and equipment and to further
automate the Company's facilities. Capital expenditures for fiscal 2003 and the
next several years are expected to be approximately $3.0 to $4.0 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.
4
EMPLOYEES
The number of persons employed by the Company and its wholly owned subsidiaries
at fiscal year end 2002, 2001 and 2000 were 575, 507 and 531, respectively. The
Company and its wholly owned subsidiaries currently employ approximately 575
persons. None of the Company's U.S. employees are represented by a union.
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. 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. However, management does not
believe any material additional capital and operational expenditures for such
issues are currently required.
SUBSIDIARIES
The Company has five wholly owned operating subsidiaries: Lindsay International
Sales Corporation, Lindsay Transportation, Inc., Lindsay Europe SA, Irrigation
Specialists, Inc. and Lindsay America do Sul Ltda. Since December 2000,
international sales personnel have been located at the Omaha corporate office as
part of Lindsay International Sales Corporation, which conducts foreign sales
operations for the Company. Lindsay Transportation, Inc. was formed in 1975. It
owns approximately 115 trailers and, through lease of owner-operated tractors,
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 systems 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 production and sales
operation. The Company also has four non-operational subsidiaries.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
The Company's production facilities are primarily located in the United States,
but also in France and Brazil. Most financial transactions are in U.S. dollars,
although sales from the Company's foreign subsidiaries, which are less than 10%
of total consolidated Company sales, 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 to foreign currency. 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 N of Notes to the
Consolidated Financial Statements entitled "Industry Segment Information"
included in Item 8 of Part II of this report.
ITEM 2 - PROPERTIES
The Company owns and occupies 43 acres in Lindsay, Nebraska. The Lindsay,
Nebraska facility has eight separate buildings, with approximately one-half
million square feet of manufacturing area under roof. During fiscal 2002, the
Company acquired 79 acres of farmland in Lindsay that is adjacent to its primary
property. This land is used for research, development and testing purposes.
The Company's La Chapelle d'Aligne, France facility was acquired in
March 2001 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 three separate retail locations based in the eastern Washington
state region. These leases expire over a remaining term of ten years.
The Company's Piedade, Brazil facility is operated under a cancelable
lease which expires in 2007. The Brazilian facility consists of a single main
building.
Since December 1, 2000, the Company has leased approximately 7,000
square feet of office space in Omaha, Nebraska, where it maintains its executive
and its domestic and international sales and marketing offices. The Omaha office
space lease expires 2004.
Although the Company believes it can increase sales without significant
new investment in facilities and capital equipment, it continues to explore
specific regional location and product line acquisition opportunities.
5
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. 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 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, positions and past five years
experience are set forth below. All officers are elected for one-year terms at
the Board of Directors meeting following the Company's annual shareholders'
meeting. This meeting is scheduled for January 21, 2003.
AGE POSITION
--- --------
Richard W. Parod 49 President and Chief Executive Officer
Matthew T. Cahill 40 Vice President -- Manufacturing
Thomas Costanza 37 Corporate Controller
Eduardo R. Enriquez 62 Vice President -- International Sales, Emerging Markets
Bruce C. Karsk 50 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Dirk A. Lenie 48 Vice President -- Marketing
Charles H. Meis 56 Vice President -- Engineering
Robert S. Snoozy 56 Vice President -- Domestic 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. Prior to his
employment with Ingersoll-Rand and since 1996 Mr. Cahill was Operations Manager
with ACG Incorporated. Mr. Cahill was the Manager Operations Support Engineering
for Ingersoll-Rand Fluid Products Division in 1995 and part of 1996.
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 in 1990 and later included experience as Corporate Audit
Manager with Barnett Banks, Inc.
Mr. Eduardo R. Enriquez is Vice President -- International Sales,
Emerging Markets of the Company and was appointed to that position in November
2001. From 1986 through November 2001, Mr. Enriquez was Vice-President --
International of the Company. Prior to that time, and since 1981, he was Vice
President -- Sales of Lindsay International Sales Corporation. Mr. Enriquez
began his employment with the Company in 1981.
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Mr. Bruce C. Karsk is Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company, and has held such positions since
January 2001. From 1984 through January 2001 Mr. Karsk was Vice President --
Finance, Treasurer and Secretary. Prior to that time, and since 1981, Mr. Karsk
had been the Controller. Mr. Karsk began his employment with the Company in
1979.
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. Prior to Toro,
Mr. Lenie was employed by Pacific Enterprises (the holding company of Southern
California Gas) as Director of Seismic Safety Products in 1996/1997 and as
Director of Product Development in 1995/1996. From 1981 through 1995 Mr. Lenie
held several sales and marketing positions with Rain Bird Corporation.
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. Prior to that time, and since 1978, he
had been Vice President of Marketing. Mr. Snoozy began his employment with the
Company in 1973.
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.
7
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Lindsay Common Stock trades on the New York Stock Exchange, Inc. (NYSE) under
the ticker symbol "LNN". As of November 25, 2002 there were approximately 200
shareholders of record and an estimated 2,700 beneficial shareholders.
The following table sets forth for the periods indicated the range of the high
and low sales price and dividends paid:
Fiscal 2002 Stock Price Fiscal 2001 Stock Price
-------------------------------- --------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------ ------ ---------
First Quarter $18.86 $16.50 $0.035 $22.19 $18.00 $0.035
Second Quarter 21.60 18.30 0.035 26.00 19.69 0.035
Third Quarter 25.85 20.10 0.035 20.00 17.00 0.035
Fourth Quarter 24.10 20.00 0.035 19.15 17.40 0.035
Year $25.85 $16.50 $0.140 $26.00 $17.00 $0.140
ITEM 6 - SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS) FOR THE YEARS ENDED AUGUST 31,
- ------------------------ ------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating revenues ........... $145.9 $126.7 $129.8 $116.7 $155.7 $158.3 $136.2 $111.8 $112.7 $102.1
Gross profit ................. 32.9 27.9 31.6 30.6 42.8 40.9 32.7 25.9 25.7 23.8
Selling, general and
administrative, and
engineering and research
expenses ................... 19.8 17.4 15.2 15.6 15.7 14.4 13.4 11.9 11.6 10.7
Restructuring charges ........ -- 0.9 -- -- -- -- -- -- -- --
Operating Income ............. 13.1 9.6 16.4 15.0 27.1 26.5 19.3 14.0 14.1 13.1
Earnings before cumulative
effect of accounting
change(1) .................. 10.7 8.0 13.2 12.7 23.5 20.1 16.5 11.7 11.2 10.7
Net earnings ................. 10.7 8.0 13.2 12.7 23.5 20.1 16.5 11.7 11.9 10.7
Earnings before cumulative
effect of accounting
change per share(1)(2) ..... .90 .67 1.06 0.96 1.61 1.34 1.08 0.73 0.68 0.66
Net earnings per share(2) .... .90 .67 1.06 0.96 1.61 1.34 1.08 0.73 0.72 0.66
Cash dividends per share ..... 0.14 0.14 0.14 0.14 0.125 0.091 0.067 -- -- --
Property, plant and
equipment, net ............. 14.5 14.9 15.9 15.4 14.1 11.3 9.7 7.2 5.6 5.6
Total assets ................. 112.2 100.3 95.8 100.4 108.9 108.0 96.8 86.1 88.4 79.9
Long-term obligation ......... $ -- $ -- $ -- $ -- $ 0.1 $ 0.3 $ -- $ -- $ -- $ --
Return on sales .............. 7.3% 6.3% 10.2% 10.9% 15.1% 12.7% 12.1% 10.5% 10.6% 10.5%
Return on beginning assets ... 10.7% 8.3% 13.2% 11.7% 21.7% 20.7% 19.2% 13.2% 14.9% 15.0%
Diluted weighted average
shares ..................... 11.858 11.900 12.503 13.285 14.556 14.980 15.226 15.993 16.418 16.358
(1) In 1994 the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes".
(2) Per share amounts are calculated using diluted average shares outstanding.
8
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
make a variety of decisions which impact the reported amounts and the related
disclosures. 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 2002. Following are 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 products to its dealers or
customers are generally recognized upon the delivery of the product to the
Company's dealers or customers. The Company recognizes revenue of certain low
volume products only upon the earlier of when product is delivered by the dealer
to an end-user customer or the dealer makes payment on the sale to the Company.
The costs related to revenues, including the allowance for doubtful accounts,
are recognized in the same period in which the specific revenues are recognized.
Estimates used in the Company's revenue recognition and cost recognition process
include, but are not limited to, estimates for rebates payable, cash discounts
expected to be allowed, and the allowance for doubtful or uncollectible
accounts. The Company does not record any revenue that is contingent or that is
dependent upon future performance.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most inventories. Cost is
determined by the weighted average method for inventories at the Company's
foreign subsidiary in France and at the Company's dealership subsidiary
Irrigation Specialists. The Company reserves for obsolete, slow moving and
excess inventory by estimating the net realizable value based on the potential
future use of such inventory.
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.
OVERVIEW
Fiscal 2002's revenues and earnings improved due to higher customer demand,
expanded product offerings and improved gross margins. Operating revenues of
$145.9 million were 15% more than the prior year's operating revenues of $126.7
million. Net earnings of $10.7 million were 34% greater than the prior year's
net earnings of $8.0 million. The Company's balance sheet continues to feature
strong financial ratios and no long term debt.
Operating revenues during fiscal 2002 were also positively affected by
the acquisition of several new business operations during fiscal 2001 and 2002.
During March 2002, the Company acquired the business, including certain assets
and liabilities, of Irrigation Specialists, Incorporated. This irrigation
dealership based in Pasco, Washington has been established for more than 30
years and provides the Company a strategic distribution channel in a key
regional market. During April 2002, the Company formed a wholly owned
subsidiary, Lindsay America do Sul Ltda. (LSA), which acquired certain assets of
Hidro Power Industria E Comercio De Equipamentos based in Brazil. This
irrigation equipment production and sales operation provides the Company an
important base in a key international market. (See Note B). During November
2001, the Company acquired certain assets of Injection Systems, Inc. This
product line is marketed as injection systems under the GrowSmart brand.
9
RESULTS OF OPERATIONS
The following "Fiscal 2002 Compared to 2001" and the "Fiscal 2001 Compared to
2000" sections present an analysis of the Company's consolidated operating
results displayed in the Consolidated Statements of Earnings and should be read
together with the industry segment information in Note N to the financial
statements.
FISCAL 2002 COMPARED TO 2001
The following table provides highlights for fiscal 2002 compared with fiscal
2001:
FOR THE YEARS ENDED
AUGUST 31,
---------------------- % INCREASE
($ IN THOUSANDS) 2002 2001 (DECREASE)
- ---------------- -------- -------- -----------
Consolidated
Operating Revenues .......................... $145,890 $126,669 15.2%
Cost of Operating Revenues .................. $112,963 $ 98,739 14.4
Gross Profit ................................ $ 32,927 $ 27,930 17.9
Gross Margin ................................ 22.6% 22.0%
Selling, Engineering and Research, and
General and Administrative Expenses ...... $ 19,811 $ 17,386 13.9
Restructuring Charges ....................... $ -- $ 899 --
Operating Income ............................ $ 13,116 $ 9,645 36.0
Operating Margin ............................ 9.0% 7.6%
Interest Income, net ........................ $ 1,647 $ 1,754 (6.1)
Other Income, net ........................... $ 551 $ 2 N/A
Income Tax Provision ........................ $ 4,650 $ 3,440 35.2
Effective Income Tax Rate ................... 30.4% 30.2%
Net Earnings ................................ $ 10,664 $ 7,961 34.0
Irrigation Equipment Segment (See Note N)
Operating Revenues .......................... $132,718 $106,892 24.2
Operating Income ............................ $ 22,216 $ 16,579 34.0
Operating Margin ............................ 16.7% 15.5%
Diversified Products Segment (See Note N)
Operating Revenues .......................... $ 13,172 $ 19,777 (33.4)
Operating Income ............................ $ 1,907 $ 3,252 (41.4)%
Operating Margin ............................ 14.5% 16.4%
REVENUES
Fiscal 2002 operating revenues of $145.9 million were 15% greater than fiscal
2001's operating revenues of $126.7 million. Of this increase, $6.4 million was
attributable to acquisitions which were completed during the third quarter of
fiscal 2002. Excluding revenues from these acquisitions, fiscal 2002 operating
revenues increased $12.8 million or 10%.
Fiscal 2002 irrigation equipment revenues totaled $132.7 million, 24%
greater than the prior year's irrigation equipment revenues of $106.9 million.
Fiscal 2002 irrigation equipment revenues reflected incremental revenues from
new operations, an expanded product offering and increased demand due to drier
weather conditions in several key irrigation markets and improving commodity
prices during the later part of fiscal 2002. Other revenues, primarily related
to irrigation equipment transportation, are included in irrigation equipment
revenues and totaled $2.7 million each in fiscal 2002 and 2001.
Fiscal 2002 diversified products revenues totaled $13.2 million, a 33%
decrease from the prior year's diversified product revenues of $19.8 million.
Fiscal 2002's diversified products revenues decreased due to contract
manufacturing customers relying less on outsourced manufacturing during the
current economic cycle. Caterpillar Inc, Deere & Company, and New Holland North
America, Inc each continued to be important customers.
Demand in the Company's domestic irrigation market improved due to dry
growing conditions and higher agricultural commodity prices. Fiscal 2002 began
slowly, coming off of a year clouded with uncertainty over the pending farm
bill, and sluggish commodity prices. September 11 contributed further to that
uncertainty, but as the Company moved into the second fiscal quarter,
uncertainty over the farm bill diminished and revenues began to recover.
10
During the spring, the U.S. Farm Bill was passed, which included the
Environmental Quality Incentives Program (or EQIP) funds, to be used, in part,
to aid farmers in improving water use efficiencies and in reducing soil erosion.
Throughout the spring and summer, dry weather conditions further increased the
immediate demand for irrigation equipment, and commodity prices began to be
pushed higher. During the Company's traditionally slower fourth quarter,
domestic demand slowed somewhat more than expected, as farmers waited for the
government to process a high volume of applications for EQIP funds. During
fiscal 2002, the Company also added new products to its irrigation equipment
offering through acquisition, strategic alliances, and internal development.
While the new products added to revenues in 2002, each addition strategically
expanded the Company's offering, building an integrated solution for growers.
Demand in the Company's international market for agricultural
irrigation equipment improved, in total, during fiscal 2002. The revenue growth
improved due to agricultural development projects and stronger global commodity
prices. (See Note N) The European, African and Middle Eastern regions had
revenue growth of 17% during the year, in part due to the Company's
establishment of Lindsay Europe, SA in France in 2001. The South African market
for irrigation equipment is a key growing market; however it has been
challenging to export competitively to that market given the value of the South
African Rand versus the U.S. Dollar and high freight costs. During the fourth
quarter of 2002, the Company began activities to establish a sales, marketing,
and limited-manufacturing base in the region.
The Mexican and Latin American regions had revenue growth of 88% during
the year, in part due to the Company's establishment of a local operation,
Lindsay America do Sul Ltda., in April 2002. The Company anticipates continued
revenue growth in the Mexican and Latin American markets in part due to its
local operations and the strength of agricultural commodity exports from the
region.
Other international revenues increased 31% due to stronger commodity
prices.
GROSS MARGIN
Gross margin of 22.6% for fiscal 2002 was improved over the prior year's 22.0%.
Gross margin was positively impacted during the year by tighter cost controls,
increased manufacturing throughput and a more favorable product pricing mix.
Average selling prices for irrigation equipment increased slightly during the
year, but these price increases were partially offset by raw material cost
increases, primarily steel costs.
OPERATING EXPENSES
Fiscal 2002's selling, engineering and research, general and administrative
(SG&A) expenses were $19.8 million, 8% higher than fiscal 2001's operating
expenses of $18.3 million. The Company incurred incremental start-up and
operating expenses, primarily personnel costs, as a result of its two third
quarter acquisitions. Additionally, general and administrative expenses include
increases of group and general liability insurance costs. During its second
quarter of fiscal 2001, the Company recorded a $899,000 non-recurring
restructuring charge for writing down, to net realizable value, the value of
manufacturing equipment and processes that were discontinued.
INTEREST INCOME, OTHER INCOME AND TAXES
The Company's interest income is primarily generated from its investments in
short-term (0 to 12 months) and intermediate-term (12 to 42 month) investment
grade municipal bonds, on which interest earnings are exempt from federal income
taxes, and short-term investment grade commercial paper. Fiscal 2002 interest
income was $1.6 million compared to the prior year's interest income of $1.8
million. The decrease in interest income was due to a lower average interest
rate on these investments, partially offset by an increase in the amount
invested.
Fiscal 2002 other income increased to $551,000, as the result of
increased earnings from minority equity investments, foreign currency gains and
the gains on sales of fixed assets.
The effective tax rate during the year ended August 31, 2002 was 30.4%
compared to 30.2% for the prior year. The Company benefits from an effective tax
rate which is lower than the combined federal and state statutory rates
primarily due to the federal tax-exempt status of interest income from its
municipal bond investments.
11
FISCAL 2001 COMPARED TO 2000
The following table provides highlights for fiscal 2001 compared with fiscal
2000.
FOR THE YEARS ENDED
AUGUST 31,
----------------------- % INCREASE
($ IN THOUSANDS) 2001 2000 (DECREASE)
- ---------------- -------- -------- ----------
Consolidated
Operating Revenues .......................... $126,669 $129,785 (2.4)%
Cost of Operating Revenues .................. $ 98,739 $ 98,189 0.6
Gross Profit ................................ $ 27,930 $ 31,596 (11.6)
Gross Margin ................................ 22.0% 24.3%
Selling, Engineering and Research, and
General and Administrative Expenses ...... $ 17,386 $ 15,170 14.6
Restructuring Charges ....................... $ 899 $ -- N/A
Operating Income ............................ $ 9,645 $ 16,426 (41.3)
Operating Margin ............................ 7.6% 12.7%
Interest Income, net ........................ $ 1,754 $ 2,599 (32.5)
Other Income, net ........................... $ 2 $ 118 (98.3)
Income Tax Provision ........................ $ 3,440 $ 5,935 (42.0)
Effective Income Tax Rate ................... 30.2% 31.0%
Net Earnings ................................ $ 7,961 $ 13,208 (39.7)
Irrigation Equipment Segment (See Note N)
Operating Revenues .......................... $106,892 $115,618 (7.5)
Operating Income ............................ $ 16,579 $ 23,266 (28.7)
Operating Margin ............................ 15.5% 20.1%
Diversified Products Segment (See Note N)
Operating Revenues .......................... $ 19,777 $ 14,167 39.6
Operating Income ............................ $ 3,252 $ 2,670 21.8%
Operating Margin ............................ 16.4% 18.8%
REVENUES
Fiscal 2001 operating revenues of $126.7 million were 2.4 % less than fiscal
2000's operating revenues of $129.8 million.
Fiscal 2001 irrigation equipment revenues totaled $106.9 million, 7.5%
less than the prior year's irrigation equipment revenues of $115.6 million. The
reduction in irrigation equipment revenues was due to the soft agricultural
economy that began in December 2000. Incremental irrigation equipment revenues
from the Company's Greenfield mini-pivot product, acquired in August of 2000,
and Perrot's irrigation equipment products manufactured in France, acquired in
March 2001, helped dampen the negative impact of the soft economy. Other
revenues are included in irrigation equipment revenues and totaled $2.7 million
in fiscal 2001 and $3.3 million in fiscal 2000.
Fiscal 2001 diversified products revenues totaled $19.8 million, a 39.6%
increase from the prior year's diversified product revenues of $14.2 million.
Fiscal 2001's revenue from sales of the Company's large diameter thin walled
steel tubing products were less than the prior year, while revenues from
outsource manufacturing services sales were significantly greater than those of
the prior year. Caterpillar Inc, Deere & Company, and New Holland North America,
Inc. each continued to be important customers.
Demand in the domestic market for almost all agricultural related
capital equipment began to slow during the Company's second fiscal quarter
(December through February) of 2001 due to lower agricultural commodity prices,
the expectation of increased agricultural input costs including energy and
fertilizer, and the resulting prospect of lower farm income. The Company's
fiscal 2001 domestic irrigation revenues were negatively affected by this soft
agricultural economy.
Demand in the Company's international market for agricultural irrigation
equipment improved, in total, during fiscal 2001. The European and Middle
Eastern regions had revenue growth during the year, in part due to the Company's
acquisition during the year of Perrot located in France. The revenue growth in
these regions more than offset a reduction in revenues in the Company's other
international markets, the result of the same low agricultural commodity prices
that were present in the United States and by the strong U.S. dollar relative to
certain other currencies.
12
GROSS MARGIN
Gross Margin of 22.0% for fiscal 2001 was lower than the prior year's 24.3%.
Fiscal 2001's gross margin was negatively affected by a sales mix that was less
favorable than that of the prior year, factory throughput that was lower than
the prior year, and an unfavorable year-end inventory adjustment. Average
selling prices for irrigation equipment increased slightly during the year while
raw material cost reductions were offset by increased production labor and
overhead costs.
OPERATING EXPENSES
Fiscal 2001's selling, engineering and research, general and administrative
(SG&A) expenses of $17.4 million were 15% higher than fiscal 2000's SG&A
expenses of $15.2 million. The Company opened retail outlets in southwestern
Kansas during the first quarter of fiscal 2001 when it lost its independent
dealer representation in the region. The costs associated with the Southwest
Kansas outlets and the SG&A costs from its French operations, commencing during
the Company's third quarter, account for the majority of the fiscal 2001
increase in SG&A expense. Additionally, during its second quarter of fiscal
2001, the Company recorded a $0.9 million non-recurring restructuring charge for
writing down, to net realizable value, the value of manufacturing equipment and
processes that were discontinued.
INTEREST INCOME, OTHER INCOME AND TAXES
Fiscal 2001 interest income was $1.8 million, 33% less than the prior year's
interest income of $2.6 million due to a lower amount invested in municipal
bonds and a lower interest rate earned on these investments.
The effective tax rates during the year ended August 31, 2001 was 30.2%
compared to 31.0% for the prior year. The Company benefited from an effective
tax rate which was 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.
LIQUIDITY AND CAPITAL RESOURCES
The discussion of liquidity and capital resources refers to the balance sheet
and statement of cash flows. The Company requires cash for financing its
receivables, inventories, capital expenditures, stock repurchases and dividends.
Historically, the Company has financed its growth through funds provided by
operations.
Cash flows provided by operations totaled $11.6 million in fiscal 2002
compared to $10.0 million in fiscal 2001. The cash flows provided by operating
activities in fiscal 2002 were primarily due to net earnings adjusted for
depreciation and amortization, offset by changes in assets and liabilities
including decreased receivables and accounts payable along with increased
inventories and other current liabilities. Other current liabilities (before
acquisitions) increased $1.7 million as of August 31, 2002 over prior year due
primarily to higher payroll and vacation accruals. Inventories (before
acquisitions) increased $2.7 million as of August 31, 2002 over prior year due
to an expanded product line. Accounts payable (before acquisitions) decreased
$2.2 million as of August 31, 2002 over prior year.
Cash flows used in investing activities of $15.3 million for fiscal 2002
compared to cash flows provided by investing activities of $8.0 million for
fiscal 2001. The cash flows used in investing activities in fiscal 2002 were
primarily attributable to purchases of marketable securities, acquisitions and
capital expenditures, partially offset by proceeds from the maturity of
marketable securities. The cash flows provided by investing activities in fiscal
2001 were primarily attributable to maturities of marketable securities,
partially offset by purchases of marketable securities and capital expenditures.
The Company's cash and short-term marketable securities totaled $25.7
million at August 31, 2002 compared to $24.4 million at August 31, 2001. At
August 31, 2002, the Company had $25.4 million invested in long-term marketable
securities, compared to $23.3 million at August 31, 2001. The Company's
long-term marketable securities consist primarily of municipal debt with
remaining maturities of 12 to 42 months.
Cash flows used in financing activities of $1.4 million for fiscal 2002
were primarily attributable to dividends paid. Cash flows used in financing
activities decreased from $3.6 million in fiscal 2001. During fiscal 2001, the
Company paid both dividends and purchased treasury stock. The Company did not
repurchase any of its common stock during fiscal 2002. The Company expended $1.9
million in fiscal 2001 to repurchase 108,800 shares of its common stock.
Capital expenditures of $2.2 million during fiscal 2002 decreased from
$2.9 million in fiscal 2001. Fiscal 2002 capital expenditures were used
primarily for updating manufacturing plant and equipment and to further automate
the Company's facilities. Capital expenditures for fiscal 2003 are expected to
be approximately $3.0 to $4.0 million and will be used to improve the Company's
facilities, expand its manufacturing capabilities and increase productivity.
Depreciation and amortization totaled $3.4 million in both fiscal 2002
and 2001 and is expected to increase to approximately $3.6 million in fiscal
2003 due primarily to the acquisitions during fiscal 2002.
The Company has an agreement with a commercial bank for a $10.0 million
unsecured revolving line of credit through December 31, 2002. There have been no
borrowings made under the revolving line of credit. Borrowings will bear
interest at a rate equal to one percent per annum under the rate in effect from
time to time and designated by the commercial bank as its National Base Rate
(4.75% at August 31, 2002). The Base Rate will not be less than 4.50%. The
Company expects to renew this line of credit on substantially similar terms.
13
The Company believes its capitalization (including cash and marketable
securities balances), operating cash flow and bank line of credit are sufficient
to cover expected working capital needs, planned capital expenditures, dividends
and any repurchases of common stock.
INFLATION
The Company is subject to the effects of changing prices. During fiscal 2002,
the Company experienced price increases for purchases of certain commodities,
and in particular steel products, used in the production of its products. The
Company manages these inflationary pressures by actively pursuing internal cost
reduction efforts and by introducing appropriate sales price increases.
MARKET CONDITIONS AND FISCAL 2003 OUTLOOK
Excluding any new acquisitions, the Company expects increased earnings on
revenue growth of about 8% for fiscal 2003. The majority of fiscal 2003's
increase in revenues and earnings is expected to occur during the Company's
second (ending February 28th) and third (ending May 31st) quarters.
In the domestic irrigation equipment market, stronger corn, soybean,
wheat and potato commodity prices, in combination with low interest costs and
the 2002 U.S. Farm Bill, should lead to a stronger farmer confidence level
during fiscal 2003 and result in increased revenues for the Company.
Additionally, the Company's dealer strengthening and repair parts initiatives
should result in increased revenues.
In the Company's international markets, the expansion of the Company's
European and South American manufacturing capabilities is expected to improve
its irrigation equipment market penetration during fiscal 2003. New expansion of
the Company's manufacturing capabilities includes the start-up of operations in
South Africa. During the year, the Company also expects to benefit from several
additional international growth initiatives, which should improve the Company's
international market position. Approximately 22%, 20%, and 17% of the Company's
revenues were generated from international sales in fiscal years 2002, 2001, and
2000, respectively. Australia, Canada, Central and Western Europe, Mexico, the
Middle East, South Africa and South America are expected to generate the
majority of the Company's fiscal 2003 international revenues.
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 rate.
The Company's diversified products segment consists of two major
products: large-diameter thin-wall round steel tubing and outsource
manufacturing services. Diversified products customers for both products
primarily consist of agricultural and industrial capital goods manufacturers.
The Company anticipates that Caterpillar Inc., Deere & Company, and New Holland
North America, Inc. will each continue to be significant outsource manufacturing
customers during the year.
The Company will continue to seek opportunities for the deployment of
capital through acquisitions that are congruent with the Company's mission and
that add incremental value for the Company's shareholders.
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. For these statements,
the Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to the Company and the markets it serves.
Particular risks and uncertainties that could affect the Company's overall
financial position include the continuing slowdown in the global and domestic
economy that began in 2000; additional economic uncertainty created by the
threat of continued terrorist acts and war, both of which could further reduce
growth in the U.S. and worldwide economy; the effect of the economic
14
slowdown on the Company's customers' ability to pay amounts owed to the Company;
the continued decline in consumer confidence and related effects of a recession;
inability to achieve earnings growth in fiscal 2003; inability to increase
fiscal 2003 revenue above fiscal 2002; increased insurance costs following the
events of September 11, 2001; the Company's ability to develop and manufacture
new and existing products based on anticipated investments in manufacturing
capacity and engineering; market acceptance of existing and new products
relative to expectations and based on current commitments to fund advertising
and promotions; increased competition in the Company's businesses; financial
viability of some distributors and dealers; the Company's ability to acquire,
develop, and integrate new businesses and manage alliances successfully; impact
of the Internet and e-commerce on the Company's business and distribution
channels; changes in distributor ownership; changes in distributors' or dealers'
purchasing practices; the Company's ability to cost-effectively expand existing,
open new, move production between, and close manufacturing facilities; the
Company's ability to manage costs and capacity constraints at its manufacturing
facilities; the Company's ability to cost-effectively eliminate any
non-performing product lines; the Company's ability to manage inventory levels
and fully realize recorded inventory value; the impact of unexpected trends in
warranty claims or unknown product defects; the ability to retain and hire
quality employees; threatened or pending litigation on matters relating to
patent infringement, employment, and commercial disputes; and the impact of new
accounting standards, including possible impairment charges of intangible assets
related to Statement of Financial Accounting Standard (SFAS) No. 142.
Particular risks and uncertainties facing the Company's international
business at the present include weak economic conditions in global markets;
heightened security for import and export shipments of components or finished
goods; socio-economic conditions in some international markets, internal and
external conflicts in or between foreign countries; currency fluctuations of the
dollar against the Euro, Brazilian real, Australian dollar, Canadian dollar,
South African rand and Mexican peso; competitive implications and price
transparencies related to the Euro conversion; and tax law changes.
In addition, the Company is subject to risks and uncertainties facing
its industry in general, including changes in business, financial, and political
conditions and the economy in general in both foreign and domestic markets; the
uncertainty of the economic effect from terrorists' actions and the war on
terrorism; weather conditions affecting demand, including warm winters and wet
or cold spring and dry summer weather; inability to raise prices of products due
to market conditions; changes in market demographics; actions of competitors;
seasonal factors in the Company's industry; unforeseen litigation; increased
insurance costs following the September 11, 2001; government action, including
budget levels, regulation, and legislation, primarily legislation relating to
the environment, commerce, infrastructure spending, health, and safety;
availability of raw materials and unforeseen price fluctuations for commodity
raw materials; and the Company's ability to maintain good relations with its
employees.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statement and to recognize that the statements are predictions
of future results, which may not occur as anticipated. Actual results could
differ materially from those anticipated in the forward-looking statements and
from historical results, due to the risks and uncertainties described above, as
well as others not now anticipated. The foregoing statements are not exclusive
and further information concerning the Company and its businesses, including
factors that potentially could materially affect the Company's financial
results, may emerge from time to time. The Company assumes no obligation to
update forward-looking statements to reflect actual results or changes in
factors or assumptions affecting such forward-looking statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not subject to material market risks with respect to its
marketable securities because of their relatively short maturity (0 to 42
months) and the Company has the ability and intends to hold the investments in
these marketable securities to maturity.
The Company's U.S. export sales are principally U.S. dollar denominated,
however the Company has manufacturing operations in the United States, France
and Brazil and are starting such operations in South Africa. The Company
purchases a portion of its components from third-party foreign suppliers. The
Company also sell products in over 90 countries throughout the world. The
majority of the Company's revenue generated from operations outside the United
States is denominated in the currency of the customer location. (See "Segment
Reporting" in the Notes to consolidated financial statements for sales
international region). The Company's most significant transactional foreign
currency exposures are the Euro and the Brazilian Real in relation to the U.S.
Dollar. Fluctuations in the value of foreign currencies create exposures, which
can adversely affect our results of operations. The Company attempts to manage
our transactional foreign exchange exposure by monitoring foreign currency cash
flow forecasts and commitments arising from the settlement of receivables and
payables, and from future purchases and sales.
The Company's translation exposure resulting from translating the
financial statements of foreign subsidiaries into U.S. dollars is not hedged.
The most significant translation exposures are the Euro and the Brazilian Real
in relation to the U.S. Dollar.
15
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/ BRUCE C. KARSK
- ----------------------------------- -----------------------------------
Richard W. Parod Bruce C. Karsk
President and Executive Vice President, Chief
Chief Executive Officer Financial Officer, Treasurer and
Secretary
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Lindsay Manufacturing Co.:
We have audited the accompanying consolidated balance sheets of Lindsay
Manufacturing Co. as of August 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity and comprehensive income, and
cash flows for the years then ended. In connection with our audits of the
consolidated financial statements, we have also audited the 2002 and 2001
information in the financial statement schedule listed in Item 14(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 audit. The accompanying consolidated
financial statements and financial statement schedule of Lindsay Manufacturing
Co. for the year ended August 31, 2000, were audited by other auditors whose
report thereon dated September 28, 2000, expressed an unqualified opinion on
those statements and schedule.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 2002 and 2001 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Lindsay Manufacturing Co. as of August 31, 2002 and 2001, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule referred
to above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information for the years ended August 31, 2002 and 2001, set forth therein.
/s/ KPMG LLP
------------
KPMG LLP
Omaha, Nebraska
October 4, 2002
16
LINDSAY MANUFACTURING CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31,
------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
- ---------------------------------------- -------- -------- --------
Operating revenues ................................ $145,890 $126,669 $129,785
Cost of operating revenues ........................ 112,963 98,739 98,189
-------- -------- --------
Gross profit ...................................... 32,927 27,930 31,596
-------- -------- --------
Operating expenses:
Selling expense ................................ 8,804 7,200 5,660
General and administrative expense ............. 8,630 7,885 7,446
Engineering and research expense ............... 2,377 2,301 2,064
Restructuring charges .......................... -- 899 --
-------- -------- --------
Total operating expenses .......................... 19,811 18,285 15,170
-------- -------- --------
Operating income .................................. 13,116 9,645 16,426
Interest income, net .............................. 1,647 1,754 2,599
Other income, net ................................. 551 2 118
-------- -------- --------
Earnings before income taxes ...................... 15,314 11,401 19,143
Income tax provision .............................. 4,650 3,440 5,935
-------- -------- --------
Net earnings ...................................... $ 10,664 $ 7,961 $ 13,208
======== ======== ========
Basic net earnings per share ...................... $ 0.91 $ 0.68 $ 1.08
======== ======== ========
Diluted net earnings per share .................... $ 0.90 $ 0.67 $ 1.06
======== ======== ========
Average shares outstanding ........................ 11,674 11,684 12,199
Diluted effect of stock options ................... 184 216 304
-------- -------- --------
Average shares outstanding assuming dilution ...... 11,858 11,900 12,503
======== ======== ========
Cash dividends per share .......................... $ 0.140 $ 0.140 $ 0.140
======== ======== ========
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
SHARES OF CAPITAL IN
-------------------------- EXCESS
COMMON TREASURY COMMON OF STATED
($ IN THOUSANDS) STOCK STOCK STOCK VALUE
---------- ---------- ---------- ----------
Balance at August 31, 1999 .......................... 17,074,491 4,650,237 $ 17,074 $ 2,118
Comprehensive income:
Net earnings ...................................... -- -- -- --
Other comprehensive income:
Minimum pension liability ....................... -- -- -- --
Total comprehensive income ..........................
Cash dividends ($0.140 per share) ................... -- -- -- --
Net shares issued under stock option plan ........... 235,706 -- 236 237
Stock option tax expense ............................ -- -- -- (144)
Acquisitions of common stock ........................ -- 965,032 -- --
---------- ---------- ---------- ----------
Balance at August 31, 2000 .......................... 17,310,197 5,615,269 17,310 2,211
Comprehensive income:
Net earnings .................................... -- -- -- --
Other comprehensive income:
Currency translation .......................... -- -- -- --
Minimum pension liability .................. -- -- -- --
Total comprehensive income ..........................
Cash dividends ($0.140 per share) ................... -- -- -- --
Net shares issued under stock option plan ........... 57,832 -- 58 (78)
Stock option tax expense ............................ -- -- -- (54)
Acquisitions of common stock ........................ -- 108,800 -- --
---------- ---------- ---------- ----------
Balance at August 31, 2001 .......................... 17,368,029 5,724,069 17,368 2,079
Comprehensive income:
Net earnings ...................................... -- -- -- --
Other comprehensive income:
Currency translation ......................... -- -- -- --
Minimum pension liability, net of tax .... -- -- -- --
Total comprehensive income ..........................
Cash dividends ($0.140 per share) ................... -- -- -- --
Net shares issued under stock option plan ........... 62,319 -- 62 124
Stock option tax benefits ........................... -- -- -- 269
---------- ---------- ---------- ----------
Balance at August 31, 2002 .......................... 17,430,348 5,724,069 $ 17,430 $ 2,472
========== ========== ========== ==========
ACCUMULATED
OTHER TOTAL
RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
($ IN THOUSANDS) EARNINGS STOCK LOSS EQUITY
---------- ---------- -------------- -------------
Balance at August 31, 1999 .......................... $ 134,708 $ (71,202) $ -- $ 82,698
Comprehensive income:
Net earnings ...................................... 13,208 -- -- 13,208
Other comprehensive income:
Minimum pension liability ....................... -- -- (303) (303)
----------
Total comprehensive income .......................... 12,905
Cash dividends ($0.140 per share) ................... (1,700) -- -- (1,700)
Net shares issued under stock option plan ........... -- -- -- 473
Stock option tax expense ............................ -- -- -- (144)
Acquisitions of common stock ........................ -- (16,800) (16,800)
---------- ---------- ---------- ----------
Balance at August 31, 2000 .......................... 146,216 (88,002) (303) 77,432
Comprehensive income:
Net earnings .................................... 7,961 -- -- 7,961
Other comprehensive income:
Currency translation .......................... -- -- (4) (4)
Minimum pension liability .................. -- -- (367) (367)
----------
Total comprehensive income .......................... 7,590
Cash dividends ($0.140 per share) ................... (1,636) -- -- (1,636)
Net shares issued under stock option plan ........... -- -- -- (20)
Stock option tax expense ............................ -- -- -- (54)
Acquisitions of common stock ........................ -- (1,896) -- (1,896)
---------- ---------- ---------- ----------
Balance at August 31, 2001 .......................... 152,541 (89,898) (674) 81,416
Comprehensive income:
Net earnings ...................................... 10,664 -- -- 10,664
Other comprehensive income:
Currency translation ......................... -- -- (191) (191)
Minimum pension liability, net of tax .... -- -- (49) (49)
----------
Total comprehensive income .......................... 10,424
Cash dividends ($0.140 per share) ................... (1,631) -- -- (1,631)
Net shares issued under stock option plan ........... -- -- -- 186
Stock option tax benefits ........................... -- -- 269
---------- ---------- ---------- ----------
Balance at August 31, 2002 .......................... $ 161,574 $ (89,898) $ (914) $ 90,664
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
17
LINDSAY MANUFACTURING CO.
CONSOLIDATED BALANCE SHEETS
AT AUGUST 31,
-------------------------
($ IN THOUSANDS, EXCEPT PAR VALUES) 2002 2001
- ----------------------------------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 12,425 $ 17,575
Marketable securities ....................................................... 13,289 6,845
Receivables ................................................................. 23,385 21,316
Inventories ................................................................. 15,583 10,112
Deferred income taxes ....................................................... 2,573 2,331
Other current assets ........................................................ 782 474
--------- ---------
Total current assets ......................................................... 68,037 58,653
Long-term marketable securities .............................................. 25,419 23,299
Property, plant and equipment, net ........................................... 14,512 14,893
Other noncurrent assets ...................................................... 4,715 3,411
--------- ---------
Total assets ................................................................... $ 112,683 $ 100,256
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 6,068 $ 5,590
Other current liabilities ................................................... 13,640 11,234
--------- ---------
Total current liabilities ................................................... 19,708 16,824
Other noncurrent liabilities ................................................ 2,311 2,016
--------- ---------
Total liabilities .............................................................. 22,019 18,840
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, ($1 par value, 2,000,000 shares
authorized, no shares issued and outstanding) ............................. -- --
Common stock, ($1 par value, 25,000,000 shares authorized,
17,430,348 and 17,368,029 shares issued in 2002 and 2001, respectively) ... 17,430 17,368
Capital in excess of stated value ........................................... 2,472 2,079
Retained earnings ........................................................... 161,574 152,541
Less treasury stock (at cost, 5,724,069 shares) ............................. (89,898) (89,898)
Accumulated other comprehensive loss ........................................ (914) (674)
--------- ---------
Total shareholders' equity ................................................... 90,664 81,416
--------- ---------
Total liabilities and shareholders' equity ..................................... $ 112,683 $ 100,256
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
18
LINDSAY MANUFACTURING CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31,
--------------------------------------
($ IN THOUSANDS) 2002 2001 2000
- ---------------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .......................................................... $ 10,664 $ 7,961 $ 13,208
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ....................................... 3,402 3,359 2,960
Non-cash restructuring charges relating to write-down ............... -- 749 --
Amortization of marketable securities premiums, net ................. (212) (311) (29)
(Gain) loss on sale of property, plant and equipment ................ (78) 10 (106)
Provision for uncollectible accounts receivable ..................... 271 87 (276)
Deferred income taxes ............................................... (242) 914 697
Stock option tax benefits (expense) ................................. 269 (54) (144)
Equity in net earnings of equity-method investments ................. (253) (4) --
Other, net .......................................................... (202) -- 12
Changes in assets and liabilities:
Receivables ......................................................... 628 (2,488) (4,394)
Inventories ......................................................... (2,720) 2,898 (3,578)
Other current assets ................................................ (308) (245) (79)
Accounts payable .................................................... (2,177) (584) 475
Other current liabilities ........................................... 1,674 (1,143) (1,434)
Current taxes payable ............................................... 397 (426) 743
Other noncurrent assets and liabilities ............................. 450 (686) 7
-------- -------- --------
Net cash provided by operating activities ........................... 11,563 10,037 8,062
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment ............................ (2,217) (2,929) (3,464)
Acquisitions of businesses ............................................ (4,813) (1,010) (545)
Proceeds from sale of property, plant and equipment ................... 206 58 134
Purchases of marketable securities held-to-maturity ................... (15,904) (10,049) (18,414)
Proceeds from maturities of marketable securities held-to-maturity .... 7,555 22,890 21,222
Equity investment ..................................................... (80) (975) --
-------- -------- --------
Net cash (used in) provided by investing activities ................... (15,253) 7,985 (1,067)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligation ..................... -- -- (95)
Proceeds from issuance of common stock under stock option
plan, net (repurchases and cancellations) ........................... 186 (20) 473
Dividends paid ........................................................ (1,631) (1,636) (1,700)
Purchases of treasury stock ........................................... -- (1,896) (16,800)
-------- -------- --------
Net cash used in financing activities ................................. (1,445) (3,552) (18,122)
-------- -------- --------
Effect of foreign exchange rate changes on cash ....................... (15) -- --
Net (decrease) increase in cash and cash equivalents .................. (5,135) 14,470 (11,127)
Cash and cash equivalents, beginning of period ........................ 17,575 3,105 14,232
-------- -------- --------
Cash and cash equivalents, end of period .............................. $ 12,425 $ 17,575 $ 3,105
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid ..................................................... $ 4,397 $ 3,587 $ 4,517
Interest paid ......................................................... $ 140 $ 82 $ 32
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Defined benefit plan increase:
Deferred tax asset .................................................... $ 458 $ -- $ --
Additional minimum pension liability .................................. $ 49 $ 367 $ 303
The accompanying notes are an integral part of the consolidated financial
statements.
19
LINDSAY MANUFACTURING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lindsay Manufacturing Co. (the "Company" or "Lindsay") manufactures and
distributes irrigation systems and manufactures other special metal products
serving both domestic and international markets. The Company's principal
operating facilities are located in Lindsay, Nebraska, USA. The Company's
corporate office is located in Omaha, Nebraska, USA. The Company also has
foreign operating facilities in France and Brazil.
A. SIGNIFICANT ACCOUNTING POLICIES
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) REVENUE RECOGNITION
Revenues from the sale of the Company's products to its dealers or customers are
generally recognized upon the delivery of the product to the Company's dealers.
The Company recognizes revenue of certain low volume products only upon the
earlier of when the product is delivered by the dealer to an end-user customer
or the dealer makes payment to the Company.
The costs related to revenues, including the allowance for doubtful
accounts, are recognized in the same period in which the specific revenues are
recognized.
Estimates used in the Company's revenue recognition and cost recognition
process include, but are not limited to, estimates for rebates payable, cash
discounts expected to be allowed, and the allowance for doubtful or
uncollectible accounts.
The Company does not record any revenue that is contingent or that is
dependent upon future performance.
(3) WARRANTY COSTS
Cost of operating revenues includes warranty costs of $1,275,000, $1,645,000 and
$1,026,000 for the years ended August 31, 2002, 2001 and 2000, respectively.
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.
(4) CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM MARKETABLE SECURITIES
Cash equivalents are included at cost, which approximates market. At August 31,
2002, the Company's cash equivalents were held primarily by one financial
institution. Marketable securities and long-term marketable securities are
categorized as held-to-maturity as management of the Company has determined that
it has the positive intent and ability to hold these securities to maturity.
Held to maturity securities are carried at amortized cost. 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.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at August 31, 2002, were $38,708,000, $595,000, $56,000 and
$39,247,000, respectively, of which $13,289,000 in marketable securities mature
within one year and $25,419,000 in long term marketable securities have
maturities ranging from 12 to 42 months.
The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value for held-to-maturity
securities at August 31, 2001, were $30,144,000, $421,000, $28,000 and
$30,537,000, respectively, of which $6,845,000 in marketable securities mature
within one year and $23,299,000 in long term marketable securities have
maturities ranging from 12 to 42 months.
In the opinion of management, the Company is not subject to material
market risks with respect to its marketable securities.
20
(5) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for most inventories. Cost is determined by the
weighted average method for inventories at the Company's foreign subsidiary in
France and at the Company's dealership subsidiary Irrigation Specialists. The
Company reserves for obsolete, slow moving and excess inventory by estimating
the net realizable value based on the potential future use of such inventory.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment and capitalized lease assets are stated at cost. The
Company's policy is to capitalize expenditures for major renewals and
betterments 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 the consolidated statements of operations.
During the second quarter of fiscal 2001, the Company took a pre-tax
non-recurring restructuring charge of $899,000 or $0.05 per share after tax. Of
this total restructuring charge, $749,000 was for a write-down to net realizable
value, the value of fixed assets associated with a manufacturing process under
development since 1998 that was discontinued due to difficulty in ensuring
quality consistency that would satisfy the Company's customers' needs and
$150,000 for other costs related to manufacturing processes for which the
decision and plan to discontinue were made in the second quarter of fiscal 2001.
(7) EQUITY INVESTMENTS
The Company has equity investments accounted for under the equity method. These
investments are included in other assets. All equity investments are
periodically reviewed to determine if declines in fair value below cost basis
are other-than-temporary. A series of historic and projected operating losses by
the investee or other factors are considered as part of the review. If the
decline in fair value has been determined to be other-than-temporary, an
impairment loss would be recorded (See Note H).
(8) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of net
assets arising from acquisitions. Goodwill associated with acquisitions
occurring prior to July 1, 2001 has been amortized on a straight line basis over
20 years. In accordance with the transitional requirements of FAS 141, "Business
Combinations" and FAS 142, "Goodwill and Other Intangible Assets", the Company
does not amortize any goodwill arising from acquisitions occurring on or after
July 1, 2001. Goodwill is classified with other non-current assets (See Note H).
Beginning in fiscal 2003, the Company will not amortize goodwill, but rather
will test goodwill for impairment at least annually according to SFAS 142.
(9) NET EARNINGS PER SHARE
Basic net earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding. Diluted net earnings per share
includes the dilutive effect of stock options.
At August 31, 2002, options to purchase 203,562 shares of common stock
at a weighted average price of $25.97 per share were outstanding, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares. These options
expire between September 3, 2007 and May 3, 2012.
At August 31, 2001, options to purchase 232,000 shares of common stock
at a weighted average price of $22.21 per share were outstanding, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares. These options
expire between September 3, 2007 and April 27, 2011.
At August 31, 2000, options to purchase 99,750 shares of common stock at
a weighted average price of $27.13 per share were outstanding, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares. These options
expire between September 3, 2007 and September 3, 2008.
(10) 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.
21
(11) RECLASSIFICATIONS
Certain reclassifications have been made to prior financial statements amounts
to conform to the current-year presentation.
(12) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", replacing SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". The Company is adopting the provisions of SFAS No. 144 during the first
quarter of fiscal 2003, as required. Management does not expect the adoption of
SFAS No. 144 will have a material impact on the Company's consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, and eliminates the use of the
pooling-of-interests method. SFAS No. 141 also provides new criteria to
determine whether an acquired intangible asset should be recognized separately
from goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized but instead tested for impairment
at least annually at the reporting unit level using a two-step impairment test.
The Company is adopting the provisions of SFAS No. 142 during the first quarter
of fiscal 2003, as required. The adoption of SFAS No. 142 is not expected to
have a material impact on the Company's consolidated financial statements.
B. ACQUISITIONS
The Company purchased the assets of Oasis Enterprises, Inc. based in Nunn,
Colorado in August 2000. This separate line of center pivot and lateral move
irrigation equipment which is used primarily on small fields from 1 to 60 acres
is manufactured and marketed under the Company's Greenfield tradename (trademark
applied for). The purchase was a cash transaction with an annual earnout
provision if certain revenue levels are achieved during the first four years.
The goodwill asset resulting from this purchase may increase if and when annual
earnouts are incurred over the four year earnout period. Management expects the
aggregate earnout to be less than $500,000.
In March 2001, the Company acquired 100% of the stock of Perrot SA (now
Lindsay Europe SA), a manufacturer of irrigation systems located in La Chapelle
d' Aligne, France, for approximately $1.0 million in cash. The acquisition was
accounted for under the purchase method of accounting. The purchase resulted in
recording approximately $0.3 million of goodwill, representing the amount of
cash paid in excess of the estimated fair value of the assets acquired less
liabilities assumed, which was being amortized using a useful life of 20 years
through August 31, 2002. The results of operations for Lindsay Europe SA have
been included in the Company's consolidated results from the acquisition date.
During November 2001, the Company acquired certain assets of Injection
Systems, Inc. for $255,000 in cash. This product line will be 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; the tradename is being 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 irrigation dealership
based in Pasco, Washington has been established for more than 30 years and
provides the Company a strategic distribution channel in a key regional market.
The purchase price allocated to assets and liabilities consisted of trade
accounts receivable of $2.7 million, inventory of $2.5 million, fixed assets of
$823,000, other assets of $8,000, non-compete agreement of $300,000, customer
lists of $80,000, tradename/trademark of $180,000, trade payables of $2.7
million and other liabilities of $335,000. The intangible assets, relate to
covenants for non-competes, are being amortized over 5 years. The customer list
will be amortized over a period of three years. The tradename/trademark will be
carried at its fair value supported by the incremental value of the business'
operating results considered to be generated. There was no goodwill established
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, including
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 consisted of inventory of $230,000, fixed assets of $265,000,
goodwill of $334,000 and a non-compete covenant of $100,000. The non-compete
agreement will be amortized over three years. The goodwill and trademark will
not be amortized.
22
The following unaudited pro forma data summarizes the combined results of
operations of the Company for the periods indicated as if the acquisition of
Irrigation Specialists, Inc. had been completed on September 1, 2000. The pro
forma data gives effect to the actual operating results prior to the
acquisition, amortization of acquisition related intangibles and income taxes.
The pro forma amounts do not purport to be indicative of the results that would
have actually been obtained if the acquisition had occurred on September 1,
1999, or that may be obtained in the future. Pro forma data is not presented for
other acquisitions, as these amounts are considered immaterial.
(UNAUDITED)
FOR THE YEARS ENDED
AUGUST 31,
------------------------
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2002 2001
- ---------------------------------------- -------- --------
Revenues ....................................... $150,566 $138,830
Net income ..................................... 10,495 7,796
Net income per share -- basic .................. 0.90 0.67
Net income per share -- diluted ................ $ 0.89 $ 0.66
C. OTHER INCOME, NET
FOR THE YEARS ENDED AUGUST 31,
--------------------------------
$ IN THOUSANDS 2002 2001 2000
- -------------- ------ ------ ------
Other income, net:
Litigation settlement ................................... $ (6) $ -- $ (30)
Gain (loss) on sales of fixed assets .................... 78 (10) 106
Foreign currency transaction gains, net ................. 217 -- --
Finance charges ......................................... 26 31 56
Equity in net earnings of equity-method investment ...... 253 4 --
All other, net .......................................... (17) (23) (14)
------ ------ ------
Total other income, net ................................... $ 551 $ 2 $ 118
====== ====== ======
D. INCOME TAXES
For financial reporting purposes earnings before income taxes include the
following components:
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------
$ IN THOUSANDS 2002 2001 2000
- -------------- -------- -------- --------
United States ...................... $ 15,959 $ 11,543 $ 19,143
Foreign ............................ (645) (142) --
-------- -------- --------
$ 15,314 $ 11,401 $ 19,143
======== ======== ========
Significant components of the income tax provision are as follows:
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------
$ IN THOUSANDS 2002 2001 2000
- -------------- ------- ------- -------
Current:
Federal ............................. $ 4,022 $ 2,226 $ 4,907
State ............................... 412 300 331
Foreign ............................. -- -- --
------- ------- -------
Total current ................... 4,434 2,526 5,238
------- ------- -------
Deferred:
Federal ............................. 279 845 625
State ............................... 30 92 72
Foreign ............................. (93) (23) --
------- ------- -------
Total deferred .................. 216 914 697
------- ------- -------
Total income tax provision ...... $ 4,650 $ 3,440 $ 5,935
======= ======= =======
23
Total income tax provision resulted in effective tax rates differing from that
of the statutory federal income tax rates. The reasons for these differences
are:
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------------------------------------
2002 2001 2000
------------------ ------------------ ------------------
$ IN THOUSANDS AMOUNT % AMOUNT % AMOUNT %
- -------------- ------- ---- ------- ---- ------- ----
U.S. statutory rate .................................. $ 5,250 34.3 $ 3,876 34.0 $ 6,622 34.6
State and local taxes, net of federal tax benefit .... 302 2.0 351 3.0 269 1.4
Qualified export activity ............................ (136) (0.9) (165) (1.4) (113) (0.6)
Municipal bond interest income ....................... (471) (3.1) (480) (4.2) (702) (3.7)
Research and development tax credits ................. (141) (0.9) (144) (1.2) (131) (0.7)
Other ................................................ (154) (1.0) 2 -- (10) --
------- ---- ------- ---- ------- ----
Effective rate ....................................... $ 4,650 30.4 $ 3,440 30.2 $ 5,935 31.0
======= ==== ======= ==== ======= ====
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:
FOR THE YEARS ENDED
AUGUST 31,
---------------------
$ IN THOUSANDS 2002 2001
- -------------- ------- -------
Recognition of minimum pension liability ....... 458 --
Foreign items .................................. 260 167
Book depreciation less than tax ................ (185) (137)
Employee benefits .............................. 1,140 1,601
Inventory adjustments .......................... 52 160
Accruals not currently deductible for taxes .... 848 540
------- -------
Net deferred tax assets ........................ $ 2,573 $ 2,331
======= =======
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. At August 31, 2002, the
Company has a foreign subsidiary net operating loss carry forwards for income
tax purposes of $787,000. 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, 2002 and 2001.
E. RECEIVABLES
AUGUST 31,
-----------------------
$ IN THOUSANDS 2002 2001
- -------------- -------- --------
Trade accounts and notes ......................... $ 24,221 $ 21,893
Allowance for doubtful accounts .................. (836) (577)
-------- --------
Net receivables .................................. $ 23,385 $ 21,316
======== ========
F. INVENTORIES
AUGUST 31,
-----------------------
$ IN THOUSANDS 2002 2001
- -------------- -------- --------
First-in, first-out (FIFO) inventory ............. $ 14,461 $ 11,989
LIFO reserves .................................... (3,153) (2,551)
Obsolescence reserve ............................. (359) (629)
Weighted average inventory ....................... 4,634 1,303
-------- --------
Total inventories ................................ $ 15,583 $ 10,112
======== ========
24
The estimated percentage distribution between major classes of inventory before
reserves is as follows:
AUGUST 31,
----------------
2002 2001
---- ----
Raw materials .......................................... 11% 12%
Work in process ........................................ 4% 5%
Finished goods and purchased parts ..................... 85% 83%
G. PROPERTY, PLANT AND EQUIPMENT
AUGUST 31,
---------------------
$ IN THOUSANDS 2002 2001
- --------------- ------- ------
Land .................................................... $ 336 $ 70
Buildings ............................................... 9,072 8,628
Equipment ............................................... 35,242 32,416
Other ................................................... 2,897 2,339
------- --------
Total property, plant, and equipment........................ 47,547 43,453
Accumulated depreciation and amortization................... (33,035) (28,560)
------- ---------
Property, plant and equipment, net ........................ $14,512 $ 14,893
======= =======
H. OTHER NONCURRENT ASSETS
$ IN THOUSANDS 2002 2001
- -------------- ------ ------
Equity method investments ............................................ $1,311 $ 979
Goodwill, net of accumulated amortization of $16 and $20 ............. 1,170 737
Split dollar life insurance .......................................... 878 858
Intangible pension asset ............................................. 511 580
Other intangibles, net of accumulated amortization of $25 and $0 ..... 830 --
Other ................................................................ 15 257
------ ------
Total other noncurrent assets ........................................ $4,715 $3,411
====== ======
I. OTHER CURRENT LIABILITIES
AUGUST 31,
--------------------
$ IN THOUSANDS 2002 2001
- -------------- ------- -------
Payroll and vacation ................................. $ 3,499 $ 2,349
Retirement plan ...................................... 2,029 1,911
Taxes, other than income ............................. 1,089 760
Insurance ............................................ 1,711 1,301
Dealer service, commission and related items ......... 1,865 1,921
Warranty ............................................. 1,266 1,396
Other ................................................ 2,181 1,596
------- -------
Total other current liabilities ...................... $13,640 $11,234
======= =======
J. CREDIT ARRANGEMENTS
The Company has availability under an agreement with a commercial bank for a
$10.0 million unsecured revolving line of credit through December 31, 2002.
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. Borrowings will
bear interest at a rate equal to one percent per annum under the rate in effect
from time to time and designated by the commercial bank as its National Base
Rate (4.75% at August 31, 2002). The Base Rate will not be less than 4.50%. The
Company expects to renew this line of credit on substantially similar terms.
25
K. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is contingently liable under
arrangements with its third-party financing vendors for limited financing
guarantees, and in some instances full guarantees, aggregating up to a maximum
exposure of approximately $1.3 million at August 31, 2002 compared to $1.0
million at August 31, 2001. These limited financing guarantees relate to
financing provided by third-party financing vendors to facilitate the financing
of the Company's irrigation equipment sold through its authorized dealer network
to the dealer's customers. Additionally, the Company has issued a guarantee to
facilitate the issuance of long term debt to a third party totaling
approximately $200,000 at August 31, 2002 compared to $1.1 million at August 31,
2001. The risk of loss to the Company under the above agreements is minimal, in
management's opinion, due to the value of the financed irrigation equipment.
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.
The Company leases land, buildings, machinery, equipment and furniture under
various noncancelable operating lease agreements. At August 31, 2002, future
minimum lease payments under noncancelable operating leases were as follows (in
thousands):
FISCAL YEARS (IN THOUSANDS)
- ------------ --------------
2003 .......................................................... $ 363
2004 .......................................................... 343
2005 .......................................................... 266
2006 .......................................................... 255
2007 .......................................................... 219
Thereafter .................................................... 1,158
------
Total minimum lease payments .................................. $2,604
======
L. RETIREMENT PLANS
During 1996, the Company adopted an amended and restated defined contribution
profit-sharing plan to include a 401(k) provision covering all 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 matching contribution by the Company. The Company's total contributions
charged to expense under this plan were $314,000 for the year ended August 31,
2002, $283,000 the year ended August 31, 2001 and $750,000 for the year ended
August 31, 2000.
A supplementary non-qualified, non-funded retirement plan for certain
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.
Cost and the assumptions for the Company's supplemental retirement plan include
the following components:
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------
$ IN THOUSANDS 2002 2001 2000
- -------------- ------- ------- -------
Change in benefit of obligation:
Benefit obligation at beginning of year ..... $ 3,237 $ 2,778 $ 1,868
Service cost ................................ 15 13 75
Interest cost ............................... 218 187 131
Actuarial loss .............................. 700 395 704
Benefits paid ............................... (226) (136) --
------- ------- -------
Benefit obligation at end of year ........... $ 3,944 $ 3,237 $ 2,778
------- ------- -------
Funded status ............................... $(3,944) $(3,237) $(2,778)
Unrecognized net actuarial loss ............. 1,915 1,326 1,009
------- ------- -------
Net amount recognized ....................... $(2,029) $(1,911) $(1,769)
======= ======= =======
26
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------
$ IN THOUSANDS 2002 2001 2000
- -------------- ------- ------- -------
Amounts recognized in the statement of financial position consist of:
Accrued benefit cost ................................................ $ 2,029 $ 1,911 $ 1,769
Intangible pension asset ............................................ (511) (580) (649)
Additional benefit liability ........................................ 1,688 1,250 952
Other comprehensive loss ............................................ (1,177) (670) (303)
------- ------- -------
Net amount recognized ............................................... $ 2,029 $ 1,911 $ 1,769
======= ======= =======
Weighted-average assumptions as of year ends:
Discount rate ....................................................... 7.00% 7.00% 7.00%
Assumed rates of compensation increases ............................. 3.50% 3.50% 3.50%
Components of net periodic benefit cost:
Service cost ........................................................ $ 15 $ 13 $ 75
Interest cost ....................................................... 218 187 131
Net amortization and deferral ....................................... 111 78 52
------- ------- -------
Total ............................................................... $ 344 $ 278 $ 258
======= ======= =======
M. STOCK OPTIONS
The Company adopted a Long-Term Incentive Plan in October 1988 (1988 Plan),
which provides for awards of stock options, stock appreciation rights, stock
indemnification rights and restricted stock (collectively stock awards) to
officers and key employees. Options may be granted at, above or below the fair
market value of the stock at the date of the grant and are exercisable within
periods specified by the Company's Compensation Committee. Options currently
vest ratably over five years and expire ten years from the grant dates.
In February 1992, the shareholders approved the 1991 Long-Term Incentive
Plan (1991 Original Plan) which is similar in most material respects to the 1988
Plan except that the 1991 Original Plan provides for non-qualified stock options
to directors who are not officers or employees of the Company or its
subsidiaries. The 1991 Original Plan was amended and restated in its entirety as
the Amended and Restated 1991 Long Term Incentive Plan (1991 Plan) in April,
2000 by the Board of Directors. This action was necessary to clarify certain
provisions of the 1991 Original Plan and to eliminate certain provisions no
longer necessary.
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 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 nonemployee directors. A
total of 900,000 shares of the Company's common stock may be issued under the
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.
27
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Grants of stock options in 2002, 2001 and 2000 have
occurred with exercise prices at current quoted market prices for the Company's
stock on the dates of the grants. Accordingly, no compensation cost has been
recognized for the stock option shares in the accompanying consolidated
financial statements. Had compensation cost for the Company's stock option
shares been determined based on the fair value at the grant date for awards in
fiscal 2002, 2001 and 2000 consistent with the provisions of SFAS No. 123, net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:
AUGUST 31,
------------------------------------
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2002 2001 2000
- ---------------------------------------- -------- -------- --------
Net earnings - as reported ................ $ 10,664 $ 7,961 $ 13,208
Net earnings - pro forma .................. $ 9,473 $ 6,967 $ 12,389
Net earnings per share - as reported ...... $ 0.90 $ 0.67 $ 1.06
Net earnings per share - pro forma ........ $ 0.80 $ 0.59 $ 0.99
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 2002, 2001 and 2000, dividend yield of
0.6% to 0.8%, expected volatility of 35.2% to 36.5%, risk-free interest rates
ranging from 5.2% to 6.4 %, and expected lives of the options of 7 years.
A summary of the status of the Company's stock plans is presented below:
FOR THE YEARS ENDED AUGUST 31,
RESTRICTED SHARES ------------------------------------
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2002 2001 2000
- ---------------------------------------- -------- -------- --------
Number of shares issued ........................ -- -- 50,625
Average price .................................. $ -- $ -- 17.06
Total value of shares issued ................... $ -- $ -- $ 864
Total compensation cost recognized in the
statements of operations ................... $ -- $ -- $ (58)
OPTION SHARES NUMBER OF SHARES AVERAGE PRICE
- ------------- ---------------- -------------
Officers, Directors and Key Employees:
Outstanding at August 31, 1999 ......................................... 886,544 $10.96
Granted ............................................................. 390,500 14.33
Exercised ........................................................... (263,344) 3.76
Cancelled ........................................................... (96,757) 16.00
----------
Outstanding at August 31, 2000 ......................................... 916,943 13.93
==========
Exercisable at August 31, 2000 ......................................... 385,106 11.23
==========
Weighted average fair value of options granted during fiscal 2000 ...... 9.91
Outstanding at August 31, 2000 ......................................... 916,943 13.93
Granted ............................................................. 172,750 18.44
Exercised ........................................................... (107,525) 8.59
----------
Outstanding at August 31, 2001 ......................................... 982,168 15.30
==========
Exercisable at August 31, 2001 ......................................... 391,318 13.51
==========
Weighted average fair value of options granted during fiscal 2001 ...... 8.63
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
==========
Weighted average fair value of options granted during fiscal 2002 ...... $ 9.65
The number of stock awards available for grant under the stock option plans are
728,827, 868,149 and 140,899 shares as of August 31, 2002, 2001 and 2000,
respectively.
28
The following table summarizes information about the Company's Common Stock
options outstanding at August 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- -----------------------
WEIGHTED
AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
PRICES AT 8/31/02 LIFE PRICE AT 8/31/02 PRICE
- ------------- ----------- ---------- -------- ----------- --------
$8.37-10.22 116,993 1.87 years $ 8.82 116,993 $ 8.82
14.00-20.00 682,988 7.61 years 15.73 225,688 15.27
$26.17-28.17 203,562 7.80 years $25.97 67,650 $28.05
--------- ---------
1,003,543 410,331
========= =========
N. 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.
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, 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 intersegment sales.
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
FOR THE YEARS ENDED AUGUST 31,
--------------------------------
$ IN MILLIONS 2002 2001 2000
- ------------- ------ ------ ------
Operating revenues:
Irrigation ................................ $132.7 $106.9 $115.6
Diversified products ...................... 13.2 19.8 14.2
------ ------ ------
Total operating revenues ..................... $145.9 $126.7 $129.8
====== ====== ======
Operating income:
Irrigation ................................ $ 22.2 $ 16.6 $ 23.2
Diversified products ...................... 1.9 3.2 2.7
------ ------ ------
Segment operating income ..................... 24.1 19.8 25.9
Unallocated general & administrative and
engineering & research expenses ........... (11.0) (10.2) (9.5)
Interest and other income, net ............... 2.2 1.8 2.7
------ ------ ------
Earnings before income taxes ................. $ 15.3 $ 11.4 $ 19.1
====== ====== ======
FOR THE YEARS ENDED AUGUST 31,
------------------------------
$ IN MILLIONS 2002 2001 2000
- ------------- ------ ------ ------
Geographic area revenues:
United States .................... $113.8 $102.0 $107.8
Europe, Africa & Middle East ..... 17.2 14.7 8.9
Mexico & Latin America ........... 6.0 3.2 5.1
Other International .............. 8.9 6.8 8.0
------ ------ ------
Total revenues ................... $145.9 $126.7 $129.8
====== ====== ======
29
O. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The follow is a tabulation of the unaudited quarterly results of operations for
the years ended August 31, 2002 and 2001:
FOR THE THREE MONTHS ENDED THE LAST DAY OF
----------------------------------------------
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS NOVEMBER FEBRUARY MAY AUGUST
- ---------------------------------------- -------- -------- ------- -------
Fiscal 2002
Operating revenues ................... $28,545 $40,668 $44,133 $32,544
Cost of operating revenues ........... 22,935 30,586 32,580 26,862
Earnings before income taxes ......... 1,573 5,746 6,832 1,163
Net earnings ......................... 1,095 3,955 4,714 900
Diluted net earnings per share ....... $ 0.09 $ 0.33 $ 0.40 $ 0.08
Market price (NYSE)
High ............................... $ 18.86 $ 21.60 $ 25.85 $ 24.10
Low ................................ $ 16.50 $ 18.30 $ 20.10 $ 20.00
Fiscal 2001
Operating revenues ................... $33,956 $28,275 $39,032 $25,406
Cost of operating revenues ........... 26,228 21,616 29,580 21,315
Earnings before income taxes ......... 3,676 1,114 5,680 931
Net earnings ......................... 2,536 769 3,931 725
Diluted net earnings per share ....... $ 0.21 $ 0.06 $ 0.33 $ 0.06
Market price (NYSE)
High ............................... $ 22.19 $ 26.00 $ 20.00 $ 19.15
Low ................................ $ 18.00 $ 19.69 $ 17.00 $ 17.40
2002: Fourth-quarter adjustments resulting in a net decrease in pre-tax earnings
of $145,000 were made to inventory accounts (due to physical inventory), the
LIFO inventory reserve and the obsolete inventory reserve. Additional
fourth-quarter accrual adjustments, for compensation costs including bonus
earnouts, vacation pay, unemployment taxes and severance payments, decreased
pre-tax earnings $157,000. Offsetting this were $195,000 accrual reductions made
for dealer related items, a $100,000 accrual reduction for insurance, and a
$217,000 foreign currency transaction gain on current accounts.
2001: Fourth-quarter adjustments resulting in a net decrease in pre-tax earnings
of $426,000 were made to inventory accounts (due to physical inventory), the
LIFO inventory reserve and the obsolete inventory reserve. Additional
fourth-quarter accrual adjustments, for insurance and compensation costs
including bonus earnouts and vacation pay, increased pre-tax earnings $804,000
and $152,000 respectively.
Share amounts and per share results for all periods are stated on a diluted
basis.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Reported in Form 8-K as filed by the Company on October 4, 2001.
30
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, 2002. 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 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 Company believes that it complied with all section 16 filing requirements
during the fiscal year ended August 31, 2002 except for late filings of Form 3
Initial Statement of Beneficial Ownership of Securities: (1) Dave McIntosh, due
April 15, 2002, filed April 16, 2002; (2) Thomas Costanza, due June 5, 2002,
filed July 9, 2002, Form 4 Statement of Changes in Beneficial Ownership: Bob S.
Snoozy, due April 10, 2002, filed April 16, 2002 and Form 5 Annual Statement of
Changes in Beneficial Ownership: Eduardo R. Enriquez, due October 15, 2001,
filed October 31, 2001.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 14 -- CONTROLS AND PROCEDURES
A review and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO") and Chief Financial Officer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14 under the
Securities Exchange Act of 1934) as of a date within 90 days prior to the filing
of this annual report. Based on that review and evaluation, the CEO and CFO have
concluded that the company's current disclosure controls and procedures, as
designed and implemented, were effective to ensure that information the Company
is required to disclose in this annual report is recorded, processed, summarized
and reported in the time period required by the rules of the Securities and
Exchange Commission. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation. There were no significant
material weaknesses identified in the course of such review and evaluation and,
therefore, no corrective measures were taken by the Company.
31
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of Lindsay Manufacturing Co. are
included in Part II Item 8.
PAGE
----
Report of Independent Accountants................................................. 16
Consolidated Statements of Operations for the Years
ended August 31, 2002, 2001 and 2000......................................... 17
Consolidated Balance Sheets at
August 31, 2002 and 2001..................................................... 18
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended August 31, 2002, 2001 and 2000........................... 17
Consolidated Statements of Cash Flows for the Years
ended August 31, 2002, 2001 and 2000......................................... 19
Notes to Consolidated Financial Statement......................................... 20-30
(a)(2) Financial Statement Schedule
PAGE
----
Report of Independent Accountants................................................. 16
Schedule
Valuation and Qualifying Accounts -
Years ended August 31, 2002, 2001 and 2000.................................. 38
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.
32
a(3) EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ----------
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 10, 1988, incorporated
by reference to Exhibit 10(f) of the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1988. -
10(d) Lindsay Manufacturing Co. Long-Term Incentive Plan,
incorporated by reference to amended Exhibit 10(h) of
Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 33-23084), filed September
23, 1988. -
33
a(3) EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ----------
10(e) 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(f) 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(g) 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. -
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)
2002 Plan Year 39-43
21 Subsidiaries of the Company 44
23 Consent of KPMG LLP
45
23(a) Consent of PricewaterhouseCoopers LLP 46
24(a) The Power of Attorney authorizing Richard W. Parod
to sign the Annual Report on Form 10-K for fiscal 2002 on
behalf of certain directors. 47
99 Report of Independent Accountants of PricewaterhouseCoopers
LLP 48
(b) Reports on Form 8-K.
The registrant did not file any reports on Form 8-K during the fourth
quarter of fiscal 2002.
34
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 27th day of
November, 2002.
LINDSAY MANUFACTURING CO.
By: /s/ BRUCE C. KARSK
------------------------------------
Name: Bruce C. Karsk
Title: Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
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 27th day of November, 2002.
/s/ RICHARD W. PAROD Director, President and Chief Executive Officer
- -------------------------------------------
Richard W. Parod
/s/ BRUCE C. KARSK Executive Vice President, Chief Financial Officer,
- ------------------------------------------- Treasurer and Secretary
Bruce C. Karsk
/s/ THOMAS COSTANZA Corporate Controller
- -------------------------------------------
Thomas Costanza
/s/ HOWARD G. BUFFETT (1) Chairman of the Board of Directors
- -------------------------------------------
Howard G. Buffett
/s/ MICHAEL N. CHRISTODOLOU (1) Director
- -------------------------------------------
Michael N. Christodolou
/s/ LARRY H. CUNNINGHAM (1) Director
- -------------------------------------------
Larry H. Cunningham
/s/ J.DAVID MCINTOSH (1) Director
- -------------------------------------------
J. David McIntosh
/s/ WILLIAM F. WELSH II (1) Director
- -------------------------------------------
William F. Welsh II
(1) By: /s/ RICHARD W. PAROD
-----------------------------------
Richard W. Parod, Attorney-In-Fact
35
CERTIFICATION
I, Richard W. Parod, certify that:
1. I have reviewed this annual report on Form 10-K of Lindsay
Manufacturing Co.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ RICHARD W. PAROD President and Chief Executive Officer
-------------------------
Richard W. Parod
November 27, 2002
36
CERTIFICATION
I, Bruce C. Karsk, certify that:
1. I have reviewed this annual report on Form 10-K of Lindsay
Manufacturing Co.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ BRUCE C. KARSK Executive Vice President and Chief
------------------------- Financial Officer
Bruce C. Karsk
November 27, 2002
37
LINDSAY MANUFACTURING CO.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ----------- ------------------------ ---------- -----------
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, 2002:
Deducted in the balance sheet from
the assets to which they apply:
- Allowance for doubtful accounts .......... $ 577 $ 348 $ -- 89(a) $ 836
======= ======= ======= ======= =======
- Allowance for inventory obsolescence ..... $ 629 $ (204) $ -- $ 66(b) $ 359
======= ======= ======= ======= =======
Year ended August 31, 2001:
Deducted in the balance sheet from
the assets to which they apply:
- Allowance for doubtful accounts .......... $ 445 $ 180 $ 45 $ 93(a) $ 577
======= ======= ======= ======= =======
- Allowance for inventory obsolescence ..... $ 631 $ 65 $ -- $ 67(b) $ 629
======= ======= ======= ======= =======
Year ended August 31, 2000:
Deducted in the balance sheet from the
assets to which they apply:
- Allowance for doubtful accounts .......... $ 721 $ -- $ -- $ 276(a) $ 445
======= ======= ======= ======= =======
- Allowance for inventory obsolescence ..... $ 935 $ -- $ -- $ 304(b) $ 631
======= ======= ======= ======= =======
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.
See accompanying independent auditors' reports
38