-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E6rTznLnHZ8TlayMicQO7pW0HJrKmdYGPtkJMBhEAxejnt3rR5EA7tDj00bfaxKH 9lAwbjFWowyG4VuwOTzOvA== 0000950137-03-006141.txt : 20031125 0000950137-03-006141.hdr.sgml : 20031125 20031125135855 ACCESSION NUMBER: 0000950137-03-006141 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINDSAY MANUFACTURING CO CENTRAL INDEX KEY: 0000836157 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 470554096 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13419 FILM NUMBER: 031022723 BUSINESS ADDRESS: STREET 1: 2707 NORTH 108TH STREET STE 102 CITY: OMAHA STATE: NE ZIP: 68644 BUSINESS PHONE: 4024282131 MAIL ADDRESS: STREET 1: 2707 NORTH 108TH STREET STE 102 CITY: OMAHA STATE: NE ZIP: 68644 10-K 1 c81184e10vk.txt ANNUAL REPORT 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, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____ to Commission File Number 1-13419 Lindsay Manufacturing Co. ------------------------- (Exact name of registrant as specified in its charter) DELAWARE 47-0554096 --------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2707 NORTH 108TH STREET, SUITE 102, OMAHA, NEBRASKA 68164 - --------------------------------------------------- ------- (Address of principal executive offices) (Zip Code) 402-428-2131 - ------------- Registrant's telephone number, including area code 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ] The aggregate market value of Common Stock of the registrant, all of which is voting, held by non-affiliates based on the closing sales price on the New York Stock Exchange, Inc. on February 28, 2003 was $211,530,992. As of November 17, 2003, 11,747,512 shares of the registrant's common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement pertaining to the January 21, 2004, annual shareholders' meeting are incorporated herein by reference into Part III. Exhibit index is located on page 36-37. 1 TABLE OF CONTENTS
Page(s) Part I Item 1. Business 3-7 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 10-17 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 17 Item 8. Financial Statements and Supplementary Data 18-36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Item 9A. Controls and Procedures 37 Part III Item 10. Directors and Executive Officers of the Registrant 38 Item 11. Executive Compensation 38 Item 12. Security Ownership of Certain Beneficial Owners and Management 38 Item 13. Certain Relationships and Related Transactions 38 Item 14. Principal Accountant Fees and Services 38 Part IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39-41 SIGNATURES 42
2 PART I ITEM 1 - BUSINESS INTRODUCTION Lindsay Manufacturing Co. ("Lindsay" or the "Company") is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy, and labor. The Company has been in continuous operation since 1955, making it one of the pioneers in the automated irrigation industry. The Company markets its standard size center pivot and lateral move irrigation systems domestically and internationally under its Zimmatic brand. The Company also manufactures and markets a separate line of "mini" center pivot and lateral move irrigation equipment for use on smaller fields under its Greenfield brand, and hose reel travelers under the Perrot brand (Greenfield in the United States). The Company also produces irrigation controls and chemical injection systems which it sells under its GrowSmart brand. In addition to whole systems, the Company manufactures and markets repair and replacement parts for its irrigation systems and controls. Lindsay also produces and sells large diameter steel tubing products and manufactures and assembles diversified agricultural and construction products on a contract manufacturing basis for certain industrial companies, including Caterpillar Inc., Deere & Company, New Holland North America, Inc. and others. Industry segment information about Lindsay is included in Note Q to the consolidated financial statements. Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska, USA. The Company's principal manufacturing facilities are located in Lindsay, Nebraska, USA. The Company also has foreign sales and production facilities in France, Brazil and South Africa which provide it with important bases of operations in key international markets. Lindsay Europe SA, located in France, was acquired in March 2001 and manufactures and markets irrigation equipment for the European market. Lindsay America do Sul Ltda., located in Brazil, was acquired in April 2002 and manufactures and markets irrigation equipment for the South American market. Lindsay Manufacturing Africa, located in South Africa, was organized in September 2002 and manufactures and markets irrigation equipment in markets in southern Africa. Lindsay has marketed its products in over 90 countries. Lindsay has three additional operating subsidiaries including Irrigation Specialists, Inc., which is a retail irrigation dealership based in Washington State that operates at three locations ("Irrigation Specialists"). Irrigation Specialists was acquired by the Company in March 2002 and provides a strategic distribution channel in a key regional irrigation market. Other operating subsidiaries are Lindsay Transportation, Inc. and Lindsay International Sales Corporation. See "Subsidiaries" below. PRODUCTS BY MARKET IRRIGATION PRODUCTS The Company's irrigation systems are primarily of the standard sized center pivot type, with a small portion of its products consisting of the lateral move type. Both are automatic, continuous move systems consisting of sprinklers mounted on a water carrying pipeline which is supported approximately 11 feet off the ground by a truss system suspended between moving towers. 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 250,000 total market standard center pivot irrigation systems in operation worldwide, resulting in an active repair and replacement parts business. The Company also manufactures and distributes mini-pivots and hose reel travelers. These systems are considered to be relatively easy to operate and have good mobility. They are typically deployed in smaller or irregular growing fields. Mini-pivots and hose reel travelers require, on average, a lower investment than a typical standard center pivot. 3 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 "low flow" irrigation, perforated plastic pipe or tape is installed on the ground or buried underground at the root level. Several other types of mechanical devices, such as hose reel travelers, irrigate the remaining irrigated acres. Center pivot, lateral move and hose reel traveler irrigation offers significant advantages when compared with other types of irrigation. It requires less labor and monitoring; 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. Markets - General. Water is an essential and critical requirement for crop production, and the extent, regularity and frequency of water application can be a critical factor in crop quality and yield. The fundamental factors which govern the demand for center pivot and lateral move systems are essentially the same in both the domestic and international markets. Demand for center pivot and lateral move systems is determined by whether the value of the increased crop production attributable to center pivot or lateral move irrigation exceeds any increased costs associated with purchasing, installing and operating the equipment. Thus, the decision to purchase a center pivot or lateral move system, in part, reflects the profitability of agricultural production, which is determined primarily by the prices of agricultural commodities and the costs of other farming inputs. The current demand for center pivot systems has three sources: conversion to center pivot systems from less water efficient, more labor intensive types of irrigation; replacement of older center pivot systems, which are beyond their useful lives or technologically outmoded; and conversion of dry land farming to irrigated farming. In addition, demand for center pivots and lateral move irrigation equipment depends upon the need for the particular operational characteristics and advantages of such systems in relation to alternative types of irrigation, primarily flood. 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:
FISCAL YEARS ENDED AUGUST 31, ----------------------------- ($ IN THOUSANDS) - ---------------- ---------------------------------------------------------------------- 2003 2003 2002 2002 2001 2001 ---- ---- ---- ---- ---- ---- % of Total % of Total % of Total Revenues Revenues Revenues Revenues Revenues Revenues -------- ---------- --------- ---------- -------- ---------- United States.................. $ 125.0 76 $ 113.8 78 $ 102.0 80 Europe, Africa & Middle East... 23.3 14 17.2 12 14.7 12 Mexico & Latin America......... 10.7 7 6.0 4 3.2 3 Other International............ 4.4 3 8.9 6 6.8 5 -------- --- --------- --- -------- --- Total Revenues................. $ 163.4 100 $ 145.9 100 $ 126.7 100
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. 4 International Market. Over the years, the Company has sold center pivot and lateral move irrigation systems in over 90 countries. The Company has production and sales operations in France, Brazil and South Africa serving the key European, South American and Southern African markets, respectively. The Company exports its equipment from the U.S. to other international markets. The majority of the Company's U.S. export sales is denominated in U.S. dollars and is shipped against prepayments or U.S. bank confirmed irrevocable letters of credit or other secured means. The Company's international markets differ significantly with respect to the need for irrigation, the ability to pay, demand, customer type, government support of agriculture, marketing and sales methods, equipment requirements and the difficulty of on-site erection. The Company's industry position is such that it believes that it will likely be approached as a potential supplier for most major international agricultural development projects utilizing center pivot or lateral move irrigation systems. Competition. The U.S. center pivot irrigation systems industry has seen significant consolidation of manufacturers over the years; four primary manufacturers remain today. The international market includes participation and competition by the leading U.S. manufacturers as well as certain regional manufacturers. The Company competes in certain product lines with several manufacturers, some of whom may have greater financial resources than the Company. The Company competes by continuously improving its products through ongoing research and development activities. The Company's engineering and research expenses totaled $2.6 million, $2.4 million, and $2.3 million for fiscal years 2003, 2002, and 2001, respectively. There is a high level of price competition and utilization of seasonal promotional programs. Competition also occurs in areas of product quality and durability, product characteristics, retention and reputation of local dealers, customer service, and, at certain times of the year, the availability of systems and their delivery time. The Company believes it generally competes favorably with respect to these factors. DIVERSIFIED PRODUCTS Seeking to expand the throughput of its manufacturing facility and operation, the Company began in 1987 to more fully utilize its capacity by providing outsource manufacturing services and selling large-diameter steel tubing. The Company's customer base includes certain 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, 2003, the Company had an order backlog of $21.9 million, an increase of 16% from $18.9 million at August 31, 2002. At fiscal year end 2003, the Company had a $19.3 million order backlog for irrigation equipment, compared to $14.4 million at fiscal year end 2002. At fiscal year end 2003, order backlog for diversified products totaled $2.6 million, compared to $4.5 million at fiscal year end 2002. The diversified products backlog reflects a reduction in orders from a single customer. The Company expects that the existing backlog of orders can be filled in fiscal 2004. Generally, the Company manufactures or purchases the components for its irrigation equipment from a sales forecast and prepares the equipment for shipment upon the receipt of a U.S. or international dealer's firm order. Orders from U.S. dealers are accompanied with a $1,000 (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. 5 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 2003, 2002 and 2001, were $1.9 million, $2.2 million and $2.9 million, respectively. Fiscal 2003 capital expenditures were used primarily for updating manufacturing plant and equipment and to further automate the Company's facilities. Capital expenditures for fiscal 2004 are expected to be approximately $4.0 to $5.0 million and will be used to improve the Company's existing facilities, expand its manufacturing capabilities and increase productivity. PATENTS, TRADEMARKS, LICENSES Lindsay's Zimmatic, Greenfield, GrowSmart and other trademarks are registered or applied for in the major markets in which the Company sells its products. Lindsay follows a policy of applying for patents on all significant patentable inventions. Although the Company believes it is important to follow a patent protection policy, Lindsay's business is not dependent, to any material extent, on any single patent or group of patents. EMPLOYEES The number of persons employed by the Company and its wholly owned subsidiaries at fiscal year end 2003, 2002 and 2001 were 620, 575 and 507, respectively. None of the Company's U.S. employees are represented by a union. Certain of the Company's foreign employees are unionized due to local governmental regulations. ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS Like other manufacturing concerns, the Company is subject to numerous laws and regulations that govern environmental and occupational health and safety matters. The Company believes that its operations are substantially in compliance with all such applicable laws and regulations. The Company, in 1992, entered into a consent decree with the Environmental Protection Agency of the U.S. federal government concerning its Lindsay, Nebraska facility which is included in the agency's superfund sites as discussed in Note M to the consolidated financial statements. Permits are or may be required for some of the operations at its facilities. Although management believes that all currently required permits have been obtained by the Company, as with all such permits, they are subject to revocation, modification and renewal. Even where regulations or standards have been adopted, they are subject to varying and conflicting interpretations and implementation. In some cases, compliance with applicable environmental regulations or standards may require additional capital and operational expenditures. However, management does not believe any material additional capital and operational expenditures for such issues in an amount greater than the $250,000 reserved at August 31, 2003 are currently required. SUBSIDIARIES The Company has six wholly owned operating subsidiaries: Lindsay International Sales Corporation, Lindsay Transportation, Inc., Lindsay Europe SA, Irrigation Specialists, Inc., Lindsay America do Sul Ltda. and Lindsay Manufacturing Africa. 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 its tractors and arrangements with independent drivers, supplies the ground transportation in the United States and Canada for the Company's products and the bulk of incoming raw materials, and hauls other products on backhauls. Lindsay Europe SA, located in France, was acquired in March 2001, and is a manufacturer and marketer of irrigation equipment for the European market. Irrigation Specialists, Inc., an irrigation dealership in Washington State, was acquired in March 2002. Lindsay America do Sul Ltda., located in Brazil, was acquired in April 2002 and is a manufacturer and marketer of irrigation equipment for the South American market. Lindsay Manufacturing Africa, located in South Africa, was organized in September 2002 and is a manufacturer and marketer of irrigation equipment for the Southern African market. The Company also has three non-operational subsidiaries. 6 FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS The Company's primary production facility is located in the United States, but it also has smaller production facilities in France, Brazil and South Africa. Most financial transactions are in U.S. dollars, although sales from the Company's foreign subsidiaries, which were less than 12% of total consolidated Company sales in fiscal 2003, 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 Q to the Consolidated Financial Statements entitled "Industry Segment Information" included in Item 8 of Part II of this report. INFORMATION AVAILABLE ON LINDSAY WEBSITE The Company's internet address is http://www.lindsaymanufacturing.com. We make available free of charge on our website, through a link to the SEC website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. ITEM 2 - PROPERTIES The Company owns and occupies 43 acres in Lindsay, Nebraska. The Lindsay, Nebraska facility has eight separate buildings. In addition, the Company owns 79 acres adjacent to its primary property. This land is used for research, development and testing purposes. The French facility was acquired to provide a European location for the manufacture of its irrigation products. The French facility consists of three separate buildings situated on approximately 3.5 acres. The Irrigation Specialists Inc. dealership occupies several leased buildings at three separate retail locations based in the eastern Washington state region. These leases expire over a remaining term of ten years. The Company's Brazilian facility is operated under a lease cancelable by the Company, which expires in 2007. The Brazilian facility consists of a single main building. The Company's South African facility is operated under a lease cancelable by the Company, which expires in 2007. The South African facility consists of a single main building. The Company leases office space in Omaha, Nebraska where it maintains its executive and its domestic and international sales and marketing offices. During October 2003, the Company expanded its use of space and extended the lease term at this location. The lease expires in 2008. The Company leases office space in Omaha, Nebraska where it maintains certain engineering laboratory space. The Omaha engineering laboratory space lease expires 2006. The Company believes its current facilities are adequate to support normal and planned operations. ITEM 3 - LEGAL PROCEEDINGS In the ordinary course of its business operations, the Company is involved, from time to time, in commercial litigation, employment disputes, administrative proceedings and other legal proceedings. The Company, in 1992, entered into a consent decree with the Environmental Protection Agency of the U.S. federal government concerning its Lindsay, Nebraska facility which is included in the agency's superfund sites as discussed in Note M to the consolidated financial statements. While the ultimate results of any known legal matter are unknown at this time, management does not believe that these matters, individually or in the aggregate, are likely to have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the vote of security holders during the fourth quarter of fiscal 2003. 7 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, their ages, positions and past five years experience are set forth below. Mr. Parod's employment agreement extends through April 2005. All other 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, 2004. There are no family relationships between any director, executive officer or person nominated to become a director or executive officer. There are no arrangements or understandings between any executive officer and any other person to which he was selected as an officer.
AGE POSITION --- -------- Richard W. Parod 50 President and Chief Executive Officer Matthew T. Cahill 41 Vice President - Manufacturing Thomas Costanza 37 Corporate Controller Bruce C. Karsk 51 Executive Vice President, Chief Financial Officer, Treasurer and Secretary Dirk A. Lenie 49 Vice President - Marketing Charles H. Meis 57 Vice President - Engineering Robert S. Snoozy 57 Vice President - Domestic Sales Douglas J. Twyford 48 Vice President - International Sales
Mr. Richard W. Parod is President and Chief Executive Officer of the Company, and has held such positions since April 2000. Prior to that time and since 1997, Mr. Parod was Vice President and General Manager of the Irrigation Division of The Toro Company. Mr. Parod was employed by James Hardie Irrigation from 1993 through 1997 becoming President in 1994. Mr. Parod has been a Director since April 2000 when he began his employment with the Company. Mr. Matthew T. Cahill is Vice President - Manufacturing of the Company, and has held such position since October 2000 when he joined the Company. Prior to that time and since 1997, Mr. Cahill held several positions with Ingersoll-Rand; most recently as the Fabrication and Machining Operations Manager - Road Machinery Division. From 1997 through early 2000 Mr. Cahill was a Process Engineering Consultant - Corporate Technology Staff. 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 and later included experience as Corporate Audit Manager with Barnett Banks, Inc. 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. Mr. Douglas J. Twyford is Vice President - International Sales of the Company, and has held such position since June 2003 when he joined the Company. Prior to that time, and since March 1996, Mr. Twyford held various positions within United Technologies Corporation affiliated companies, most recently as Vice President - Global Sales & Marketing for Sundyne Corporation. 8 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 17, 2003 there were approximately 170 shareholders of record and an estimated 2,200 beneficial shareholders. The following table sets forth for the periods indicated the range of the high and low sales price and dividends paid:
Fiscal 2003 Stock Price Fiscal 2002 Stock Price --------------------------- --------------------------- HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS ------ ------ --------- ------ ------ --------- First Quarter $25.70 $20.95 $0.035 $18.86 $16.50 $0.035 Second Quarter 25.24 18.45 0.035 21.60 18.30 0.035 Third Quarter 23.00 17.75 0.035 25.85 20.10 0.035 Fourth Quarter 24.45 20.00 0.050 24.10 20.00 0.035 Year $25.70 $17.75 $0.155 $25.85 $16.50 $0.140
ITEM 6 - SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED AUGUST 31, - --------------------------------------- ------------------------------ 2003 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- Operating revenues $ 163.4 $ 145.9 $ 126.7 $ 129.8 $ 116.7 $ 155.7 Gross profit 39.7 32.9 27.9 31.6 30.6 42.8 Selling, general and administrative, and engineering and research expenses (3) 23.4 19.8 17.2 15.0 15.4 15.5 Restructuring charges - - 0.9 - - - Operating Income (3) 16.4 13.1 9.8 16.6 15.2 27.3 Earnings before cumulative effect of accounting change (1) (3) (4) 12.9 10.7 8.2 13.4 12.9 23.7 Net earnings (3) (4) 12.9 10.7 8.2 13.4 12.9 23.7 Earnings before cumulative effect of accounting change per share (1) (2) (3) (4) 1.08 0.90 0.69 1.07 0.97 1.63 Net earnings per share (2) (3) (4) 1.08 0.90 0.69 1.07 0.97 1.63 Cash dividends per share 0.155 0.14 0.14 0.14 0.14 0.125 Property, plant and equipment, net 13.9 14.5 14.9 15.9 15.4 14.1 Total assets (3) 130.7 114.7 101.9 97.2 101.6 109.9 Long-term obligation - - - - - 0.01 Return on sales 7.9% 7.4% 6.5% 10.3% 11.1% 15.2% Return on beginning assets (5) 11.2% 10.7% 8.4% 13.2% 11.7% 21.8% Diluted weighted average shares 11.896 11.858 11.900 12.503 13.285 14.556 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED AUGUST 31, - --------------------------------------- ------------------------------ 1997 1996 1995 1994 ---- ---- ---- ---- Operating revenues $ 158.3 $ 136.2 $ 111.8 $ 112.7 Gross profit 40.9 32.7 25.9 25.7 Selling, general and administrative, and engineering and research expenses (3) 14.2 13.2 11.7 11.4 Restructuring charges - - - - Operating Income (3) 26.7 19.5 14.2 14.3 Earnings before cumulative effect of accounting change (1) (3) 20.3 16.7 11.9 11.4 Net earnings (3) (4) 20.3 16.7 11.9 12.1 Earnings before cumulative effect of accounting change per share (1) (2) (3) 1.36 1.10 0.74 0.69 Net earnings per share (2) (3) (4) 1.36 1.10 0.74 0.74 Cash dividends per share 0.091 0.067 - - Property, plant and equipment, net 11.1 9.7 7.2 5.6 Total assets (3) 108.7 97.3 86.5 88.6 Long-term obligation 0.3 - - - Return on sales 12.8% 12.3% 10.6% 10.7% Return on beginning assets (5) 20.9% 19.3% 13.4% 14.9% Diluted weighted average shares 14.980 15.226 15.993 16.418
(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. (3) The amounts shown above for fiscal years 1994-2002 have been restated to reflect the impact of cumulative cash surrender value of life insurance policies. (4) Fiscal 1998 includes non-operating income of $4.0 million ($2.7 after taxes) or $0.18 per share from the settlement of a litigation. (5) Defined as net earnings divided by beginning of period total assets. 9 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION CONCERNING FORWARD-LOOKING STATEMENTS - This Annual Report on Form 10-K contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not historical are forward-looking and reflect expectations for future company performance. In addition, forward-looking statements may be made orally or in press releases, conferences, reports, on the Company's worldwide web site, or otherwise, in the future by or on behalf of the Company. When used by or on behalf of the company, the words "expect", "anticipate", "estimate", "believe", "intend", and similar expressions generally identify forward-looking statements. The entire section entitled Market Conditions and Fiscal 2004 Outlook should be considered forward-looking statements. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the "Risk Factors" section below. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. The risks and uncertainties described herein are not exclusive and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, may emerge from time to time. Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. RESTATEMENT Prior to 2003, the Company had not recorded the cumulative cash surrender value of certain life insurance policies the Company maintains on current and former executive officers that had accumulated since 1994. These policies were obtained in 1993 to insure the potential liability under the supplemental retirement plan for these executives. The Company is the sole named beneficiary and owner of these policies, which are held in trust. The annual premium payments for these policies were made from calendar years 1993 through 2000. The Company had previously expensed the premiums when paid and had not recorded the increases in the cash surrender values of the policies. After reviewing this accounting treatment further, the Company has restated its financial statements for 2002 and 2001 to record the cumulative cash surrender value as a correction of error in prior periods. The result of the restatement was an increase of $1.7 million in other assets and retained earnings as of August 31, 2002. The effect of the restatement on previously reported operating results is summarized in Note B to the consolidated financial statements. The effect of the restatement on previously reported annual financial statements was not material. There is no effect of the restatement on previously reported cash flows. The Company now records the change in the cash surrender value of these life insurance policies on a current basis. CRITICAL ACCOUNTING POLICIES In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), management must make a variety of decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, management applies judgment based on its understanding and analysis of the relevant circumstances. Certain of the Company's accounting policies are critical, as these policies are most important to the presentation of the Company's consolidated results of operations and financial condition. They require the greatest use of judgments and estimates by management based on the Company's historical experience and management's knowledge and understanding of current facts and circumstances. Management periodically re-evaluates and adjusts the estimates that are used as circumstances change. There were no significant changes in critical accounting policies during fiscal 2003. Following are the accounting policies management considers critical to the Company's consolidated results of operations and financial condition: 10 REVENUE RECOGNITION Revenues from the sale of the Company's irrigation products to its independent dealers are recognized upon delivery of the product to the dealer. The Company has no post delivery obligations to its independent dealers other than standard warranties. Revenues for sales of irrigation products by Irrigation Specialists are recognized when the product or service is delivered to the end-user customers. Revenues from the sale of the Company's diversified products are recognized when the product is delivered to the customer. Revenues and gross profits on intercompany sales are eliminated in consolidation. The costs related to revenues are recognized in the same period in which the specific revenues are recorded. Shipping and handling revenue is reported as a component of operating revenues. Shipping and handling costs are reported as a component of cost of operating revenues. Shipping and handling revenues and costs are not significant to total operating revenues or cost of operating revenues. Customer rebates, cash discounts and other sales incentives are recorded as a reduction of revenues at the time of the original sale. Other sales incentives such as guarantees issued by the Company to support end-user customer financing are recognized as cost of sales. Estimates used in the recognition of operating revenues and cost of operating revenues include, but are not limited to, estimates for rebates payable and cash discounts expected. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for the Lindsay, Nebraska operation's inventories. Cost is determined by the weighted average method for inventories at the Company's other operating locations. At all locations, the Company reserves for obsolete, slow moving and excess inventory by estimating the net realizable value based on the potential future use of such inventory. Note A to the consolidated financial statements provides a summary of the significant accounting policies followed in the preparation of the financial statements. Other footnotes describe various elements of the financial statements and the assumptions on which specific amounts were determined. While actual results could differ from those estimated at the time of preparation of the consolidated financial statements, management is committed to preparing financial statements which incorporate accounting policies, assumptions, and estimates that promote the representational faithfulness, verifiability, neutrality, and transparency of the accounting information included in the consolidated financial statements. 11 RESULTS OF OPERATIONS The following "Fiscal 2003 Compared to 2002" and the "Fiscal 2002 Compared to 2001" sections present an analysis of the Company's consolidated operating results displayed in the Consolidated Statements of Earnings and should be read together with the industry segment information in Note Q to the financial statements. FISCAL 2003 COMPARED TO 2002 The following table provides highlights for fiscal 2003 compared with fiscal 2002:
FOR THE YEARS ENDED % INCREASE AUGUST 31, (DECREASE) ---------- ---------- ($ IN THOUSANDS) 2003 2002 ---------------- ---- ---- Consolidated Operating revenues...................... $163,374 $145,890 12.0% Cost of operating revenues.............. $123,628 $112,963 9.4 Gross profit.......................... $ 39,746 $ 32,927 20.7 Gross margin............................ 24.3% 22.6% Selling, engineering and research, and general and administrative expenses... $ 23,380 $ 19,811 18.0 Operating income........................ $ 16,366 $ 13,116 24.8 Operating margin...................... 10.0% 9.0% Interest income, net.................... $ 1,577 $ 1,647 (4.3) Other income, net....................... $ 844 $ 617 36.8 Income tax provision.................... $ 5,900 $ 4,650 26.9 Effective income tax rate............... 31.4% 30.2% Net earnings............................ $ 12,887 $ 10,730 20.1 Irrigation Equipment Segment (See Note Q) Operating revenues...................... $151,320 $132,718 14.0 Operating income........................ $ 27,992 $ 22,216 26.0 Operating margin........................ 18.5% 16.7% Diversified Products Segment (See Note Q) Operating revenues...................... $ 12,054 $ 13,172 (8.5) Operating income........................ $ 1,237 $ 1,907 (35.1)% Operating margin........................ 10.3% 14.5%
REVENUES Operating revenues for fiscal 2003 increased by $17.5 million or 12% over fiscal 2002. This increase was attributable to irrigation equipment revenues which included full year revenues from Irrigation Specialists which was acquired in March 2002, the new operations in Brazil, which was acquired in April 2002, and the South African operation which commenced in September 2002. These operations contributed operating revenue growth of $18.7 million. Domestic irrigation equipment revenues increased by $12.9 million or 13% over fiscal 2002. The increase was largely due to new revenues of $9.1 million from Irrigation Specialists, which was acquired in March 2002. In addition, domestic revenues remained strong in sections of the Midwest that were adversely affected by drought conditions during 2002. Overall, strong agricultural commodity prices, greater domestic net cash farm income and the federal government sponsored Environmental Quality Incentives Program (EQIP) program increased demand for irrigation equipment purchases by enhancing grower profitability and liquidity. Low interest rates and accelerated federal tax depreciation schedules have also supported domestic irrigation equipment purchases. International irrigation equipment revenues increased by $5.7 million or 17% compared to fiscal 2002 due primarily to an increase in revenues from the Company's foreign operations, which increased $12.2 million over fiscal 2002, partially offset by a decrease in revenues from export sales to the Middle East region due to the political unrest there and lower sales to Canadian markets due to less favorable market conditions there. In total, for fiscal 2003, international revenues were 23.5% of total revenues, up from 22.4% of revenues in the previous year. See Note Q to the consolidated financial statements. Diversified revenues decreased $1.1 million or 9% compared to fiscal 2002. Fiscal 2003's diversified products revenues decreased due to contract manufacturing customers relying less on outsourced manufacturing. During fiscal 2003, the Company added key management and sales resources resulting in improved diversified revenues during the later half of the fiscal year compared to the same prior year period. Deere & Company, New Holland North America, Inc. and Caterpillar each continued to be important customers. 12 GROSS MARGIN Gross margin of 24.3% for fiscal 2003 was improved over the 22.6% for fiscal 2002. Gross margin was positively impacted during the year by cost controls, increased manufacturing throughput which spreads fixed costs over higher volumes of production, an improved pricing environment and a more favorable product mix compared to fiscal 2002. OPERATING EXPENSES Operating expenses during fiscal 2003 increased by $3.6 million or 18% over fiscal 2002. This increase is primarily reflecting increases in selling expenses and general and administrative expenses by $1.7 million or 19% each including advertising costs and professional fees. $2.4 million of the $3.6 million total increase in operating expenses reflects the full year of expenditures of Irrigation Specialists which was acquired in March 2002 and the full year operation of foreign operations in Brazil which was acquired in April 2002 and South Africa which formed in September 2002. The Company generally expects to be able to begin to leverage SG&A expenses during fiscal 2004 through higher volumes, primarily at its foreign operations. INTEREST INCOME, OTHER INCOME AND TAXES Fiscal 2003 interest income was comparable to fiscal 2002, decreasing only $70,000. The decrease in interest income was due to a lower average interest yield on the Company's investments, partially offset by an increase in the amount invested. The Company's interest income is primarily generated from its investments in short-term (0 to 12 months) and intermediate-term (12 to 40 months) investment grade municipal bonds, on which interest earnings are exempt from federal income taxes, and short-term investment grade commercial paper. Fiscal 2003 other income increased by $227,000 over fiscal 2002, primarily from foreign currency transaction gains. The effective tax rate during fiscal 2003 was 31.4% compared to 30.2% for the prior year. The increased effective tax rate reflects a combination of higher statutory tax rates and the lower mix of tax exempt interest income to total earnings before income taxes. The Company benefits from an effective tax rate which is lower than the combined federal and state statutory rates primarily due to the federal tax-exempt status of interest income from its municipal bond investments. NET EARNINGS Net earnings rose 20% to $12.9 million, or $1.08 per diluted share, for fiscal 2003, compared with $10.7 million, or $0.90 per diluted share, for fiscal 2002. 13 FISCAL 2002 COMPARED TO 2001 The following table provides highlights for fiscal 2002 compared with fiscal 2001.
FOR THE YEARS ENDED % INCREASE AUGUST 31, (DECREASE) ---------- ---------- ($ IN THOUSANDS) 2002 2001 ---------------- ---- ---- 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 $ 17,223 15.0 Restructuring charges................................. $ - $ 899 N/A Operating income...................................... $ 13,116 $ 9,808 33.7 Operating margin...................................... 9.0% 7.7% Interest income, net.................................. $ 1,647 $ 1,754 (6.1) Other income, net..................................... $ 617 $ 58 963.8 Income tax provision.................................. $ 4,650 $ 3,440 35.2 Effective income tax rate............................. 30.2% 29.6% Net earnings.......................................... $ 10,730 $ 8,180 31.2 Irrigation Equipment Segment (See Note Q) 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 Q) 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 were 15% greater than fiscal 2001. Of this increase, $6.4 million was attributable to acquisitions of Irrigation Specialists Inc. and Lindsay America do Sul Ltda., 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 were 24% greater than fiscal 2001. 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. Fiscal 2002 began slowly, coming off of a year clouded with uncertainty over a pending farm bill and sluggish commodity prices. During the year, demand in the Company's domestic irrigation market improved due to dry growing conditions and higher agricultural commodity prices. The U.S. Farm Bill was passed in the spring, which included the EQIP funds, to be used, in part, to aid farmers in improving water use efficiencies and in reducing soil erosion. The Company also added new products to its irrigation equipment offering through acquisition, strategic alliances, and internal development which added to revenues in 2002. Demand in the Company's international market for agricultural irrigation equipment improved, in total, during fiscal 2002. The international revenue growth improved due to agricultural development projects and stronger global commodity prices. The European, African and Middle Eastern regions had revenue growth part due to growth at the Company's Lindsay Europe, SA operation. The Mexican and Latin American regions had revenue growth in part due to the Company's establishment of a local operation, Lindsay America do Sul Ltda., in April 2002. See Note Q to the consolidated financial statements. Fiscal 2002 diversified products revenues reflected a 33% decrease from the prior year. Fiscal 2002 diversified products revenues decreased due to contract manufacturing customers relying less on outsourced manufacturing. 14 GROSS MARGIN Gross margin of 22.6% for fiscal 2002 was an improvement over the prior year's 22.0%. Gross margin was positively impacted during the year by better cost controls and increased manufacturing throughput which spreads fixed costs over higher volumes of production, and a 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 total operating expenses were increased by $1.5 million or 8% over fiscal 2001. Fiscal 2001 total operating expenses included an $899,000 restructuring charge for writing down, to net realizable value, the value of manufacturing equipment and processes that were discontinued. Excluding the impact of the fiscal 2001 restructuring charge, fiscal 2002 total operating expenses were increased by $2.4 million or 14% over fiscal 2001. Fiscal 2002 selling expense increased by $1.6 million over fiscal 2001. Fiscal 2002 general and administrative expense increased by $745,000 over fiscal 2001. During fiscal 2002, the Company incurred incremental start-up and operating expenses totaling $740,000, 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. INTEREST INCOME, OTHER INCOME AND TAXES The 6% decrease in interest income was due to a lower average interest rate on the Company's investments, partially offset by an increase in the amount invested. The Company's interest income is primarily generated from its investments in short-term (0 to 12 months) and intermediate-term (12 to 42 month) investment grade municipal bonds, on which interest earnings are exempt from federal income taxes, and short-term investment grade commercial paper interest income. Fiscal 2002 other income increased 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 30.2% compared to 29.6% for the prior year. NET EARNINGS Net earnings rose 31% to $10.7 million, or $0.90 per diluted share, for fiscal 2002, compared with $8.2 million, or $0.69 per diluted share, for fiscal 2001. 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 $15.3 million in fiscal 2003 compared to $11.2 million in fiscal 2002. The cash flows provided by operating activities in fiscal 2003 were primarily due to net earnings adjusted for depreciation and amortization, changes in assets and liabilities including decreased receivables offset with increased inventories and other non-current assets and liabilities. Depreciation and amortization totaled $3.5 million in fiscal 2003 compared to $3.4 million in fiscal 2002 and is expected to modestly increase in fiscal 2004. Inventories increased $2.6 million as of August 31, 2003 over prior year due to growth at the Company's subsidiary operations and due to an increase in finished goods inventory that had previously been accounted for as consignment. Accounts receivable decreased $2.5 million as of August 31, 2003 over prior year. Cash flows used in investing activities of $10.5 million for fiscal 2003 compared to $15.3 million for fiscal 2002. The cash flows used in investing activities in fiscal 2003 were primarily attributable to purchases of available-for-sale and held-to-maturity marketable securities and capital expenditures partially offset by proceeds from the maturity of held-to-maturity marketable securities. Capital expenditures were $1.9 million during fiscal 2003 compared to $2.2 million in fiscal 2002. Fiscal 2003 capital expenditures were used primarily for updating manufacturing plant and equipment and to further automate the Company's facilities. Capital expenditures for fiscal 2004 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. Cash flows used in financing activities of $1.8 million for fiscal 2003 compared to $1.1 million for fiscal 2002, were primarily attributable to dividends paid. Proceeds from exercise of options were approximately $500,000 less during fiscal 2003 as compared to fiscal 2002. The Company did not repurchase any of its common stock during fiscal 2003 or fiscal 2002. The Company's cash and total marketable securities totaled $62.8 million at August 31, 2003 compared to $51.1 million at August 31, 2002. The Company's marketable securities consist primarily of tax exempt municipal debt with remaining maturities of up to 41 months. The Company has an agreement with a commercial bank for a $10.0 million unsecured revolving line of credit through December 28, 2003. 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 15 National Base Rate (4.00% at August 31, 2003). The Base Rate will not be less than 4.00%. The Company expects to renew this line of credit on substantially similar terms. 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 2003, the Company realized stabilized pricing for purchases of certain commodities, and in particular steel products, used in the production of its products. While the cost outlook for commodities used in the Company's production of its products is not certain, management believes it can manage these inflationary pressures by actively pursuing internal cost reduction efforts and by introducing appropriate sale price adjustments. OFF-BALANCE SHEET ARRANGEMENTS Although the Company has certain off balance sheet arrangements as described in Note P to the consolidated financial statements, these arrangements have not had, nor does the Company believe these arrangements are reasonably likely to have a material effect on the Company's financial condition. MARKET CONDITIONS AND FISCAL 2004 OUTLOOK Excluding any new acquisitions, the Company expects increased earnings on revenue growth of about 8% to 10% for fiscal 2004. The majority of fiscal 2004's increase in revenues and earnings is expected to occur during the Company's second (ending February 28th) and third (ending May 31st) quarters. The Company anticipates further expansion in its U.S. operations. In the international markets, the Company expects to continue to grow sales through its new operations and stronger export sales. The Company continues to view the international markets as its biggest opportunity to improve sales and margins for the next fiscal year. While its international operations are relatively new, the Company remains pleased with their progress in gaining market share and improving operational efficiency. The Company will continue to seek high-margin export business in other regions such as the Middle East, Mexico and Australia. The Company's Diversified Manufacturing business continues to show signs of improvement and potential growth opportunities for diversified have emerged. RISK FACTORS THE COMPANY'S DOMESTIC AND INTERNATIONAL IRRIGATION EQUIPMENT SALES ARE HIGHLY DEPENDENT ON THE AGRICULTURAL INDUSTRY. The Company's domestic and international irrigation equipment sales are highly dependent upon the need for irrigated agricultural crop production which, in turn, depends upon many factors including total worldwide crop production, the profitability of agricultural crop production, agricultural commodity prices, aggregate net cash farm income, governmental policies regarding the agricultural sector, water and energy conservation policies, the regularity of rainfall, and foreign currency exchange rate. As farm income decreases, farmers may postpone capital expenditures or seek cheaper alternatives in the used irrigation equipment market. THE COMPANY'S PROFITABILITY MAY BE NEGATIVELY AFFECTED BY INCREASES IN THE COST OF RAW MATERIALS, LABOR AND ENERGY. There is a high level of price competition in the market for irrigation equipment. Therefore, the Company may not be able to recover all operating cost increases through price increases which would result in reduced profitability. Whether increased operating costs can be passed through to the customer depends on a number of factors, including farm income, the regularity of rainfall and the price of competing products. The cost of raw materials can be volatile and is dependent on a number of factors, including availability, demand and freight costs. THE COMPANY'S INTERNATIONAL IRRIGATION EQUIPMENT SALES ARE HIGHLY DEPENDENT ON FOREIGN MARKET CONDITIONS. Approximately 20% of the Company's revenues are generated from international sales. Specifically, international revenues are generated in Australia, Canada, Central and Western Europe, Mexico, the Middle East, South Africa and South America. In addition to general economic and political stability, the Company's international sales are affected by international trade barriers, including governmental policies on tariffs, taxes and foreign currency exchange rates. International sales are also more susceptible to disruption from political instability, armed hostilities and similar incidents. While our international sales are in U.S. dollars, fluctuations in foreign currency exchange rates affect the effective price of our products in foreign countries which in turn can negatively affect international sales. 16 THE COMPANY'S DIVERSIFIED PRODUCT REVENUES ARE DEPENDENT ON SALES TO A FEW LARGE CUSTOMERS, THE LOSS OF WHICH COULD HAVE AN ADVERSE EFFECT ON OUR PROFITABILITY. Approximately 7.5% of the Company's revenues are generated from sales of our diversified products (outsource manufacturing services and the sale of large diameter steel tubing). While we anticipate that Caterpillar Inc., Deere & Company and New Holland North America, Inc. will each continue to be significant outsource manufacturing customers, the loss of one or more of these customers could have an adverse effect on the revenues we earn from outsource manufacturing and our overall profitability. COMPLIANCE WITH APPLICABLE ENVIRONMENTAL REGULATIONS OR STANDARDS MAY REQUIRE ADDITIONAL CAPITAL AND OPERATIONAL EXPENDITURES. Like other manufacturing concerns, the Company is subject to numerous laws and regulations which govern environmental and occupational health and safety matters. The Company believes that its operations are substantially in compliance with all such applicable laws and regulations. Permits are or may be required for some of the operations at its facilities. Although management believes that all currently required permits have been obtained by the Company, as with all such permits, they are subject to revocation, modification and renewal. Even where regulations or standards have been adopted, they are subject to varying and conflicting interpretations and implementation. The Company, in 1992, entered into a consent decree with the Environmental Protection Agency of the U.S. federal government concerning its Lindsay, Nebraska facility which is included in the agency's superfund sites as discussed in Note M to the consolidated financial statements. Compliance with applicable environmental regulations or standards may require additional capital and operational expenditures. However, management does not believe any material additional capital and operational expenditures in an amount greater than the $250,000 reserved at August 31, 2003 for such issues are currently required. 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 40 months) and the Company has the ability to hold the investments in these marketable securities to maturity. The Company attempts to manage its transactional foreign exchange exposure by monitoring foreign currency cash flow forecasts and commitments arising from the settlement of receivables and payables, and from future purchases and sales. The Company sells products in over 90 countries and, as a result, is subject to foreign currency exchange rate. This risk is substantially mitigated because essentially all export sales from the Company's U.S. manufacturing facility are denominated in U.S. dollars. However, sales from the Company's manufacturing facilities in France, Brazil and South Africa are denominated in local currencies. As a result, the Company's most significant transactional foreign currency exposures relate to fluctuations in the values of the Euro, the Brazilian Rand and the South African Real in relation to the US dollar. These fluctuations can negatively affect the Company's revenues as the value of foreign currencies decline in relation to the U.S. dollar. The Company also purchases components for its irrigation systems from foreign suppliers. The cost of these goods will increase if the U.S. dollar devalues against the foreign currency. The Company's translation exposure resulting from translating the financial statements of foreign subsidiaries into U.S. dollars is not hedged. The most significant translation exposures are the Euro, Brazilian Real and South African Rand in relation to the U.S. Dollar. 17 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 Executive Officer Chief 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. and subsidiaries (the Company) as of August 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended August 31, 2003. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lindsay Manufacturing Co. and subsidiaries as of August 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended August 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP ------------ KPMG LLP Omaha, Nebraska October 10, 2003 18 LINDSAY MANUFACTURING CO. CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, ---------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2001 ---------------------------------------- ---- ---- ---- Operating revenues............................................ $163,374 $145,890 $126,669 Cost of operating revenues.................................... 123,628 112,963 98,739 -------- -------- -------- Gross profit.................................................. 39,746 32,927 27,930 -------- ------- -------- Operating expenses: Selling expense............................................ 10,517 8,804 7,200 General and administrative expense......................... 10,285 8,630 7,722 Engineering and research expense........................... 2,578 2,377 2,301 Restructuring charges...................................... - - 899 -------- ------- -------- Total operating expenses...................................... 23,380 19,811 18,122 -------- ------- -------- Operating income.............................................. 16,366 13,116 9,808 Interest income, net.......................................... 1,577 1,647 1,754 Other income, net............................................. 844 617 58 -------- ------- -------- Earnings before income taxes.................................. 18,787 15,380 11,620 Income tax provision.......................................... 5,900 4,650 3,440 -------- ------- -------- Net earnings.................................................. $ 12,887 $10,730 $ 8,180 ======== ======= ======== Basic net earnings per share.................................. $ 1.10 $ 0.92 $ 0.70 ======== ======= ======== Diluted net earnings per share................................ $ 1.08 $ 0.90 $ 0.69 ======== ======= ======== Weighted average shares outstanding - basic................... 11,729 11,674 11,684 ======== ======= ======== Weighted average shares outstanding - diluted................. 11,896 11,858 11,900 ======== ======= ========
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
SHARES OF CAPITAL IN ----------------------- EXCESS COMMON TREASURY COMMON OF STATED RETAINED TREASURY ($ IN THOUSANDS) STOCK STOCK STOCK VALUE EARNINGS STOCK ---------------- ----- ----- ----- ----- -------- ----- Balance at August 31, 2000....................... 17,310,197 5,615,269 $ 17,310 $ 2,211 $ 147,622 $ (88,002) Comprehensive income: Net earnings.................................. - - - - 8,180 - Other comprehensive income: Currency translation...................... - - - - - - Minimum pension liability................. - - - - - - Total comprehensive income....................... Cash dividends ($0.140 per share)................ - - - - (1,636) - Net issued under stock option plan............... 57,832 - 7 (423) - - Proceeds from stock option exercise.............. - - 51 345 - - Stock option tax expense......................... - - - (54) - - Acquisitions of common stock..................... - 108,800 - - - (1,896) ---------- ---------- ---------- ---------- ---------- ---------- Balance at August 31, 2001....................... 17,368,029 5,724,069 17,368 2,079 154,166 (89,898) ---------- ---------- ---------- ---------- ---------- ---------- Comprehensive income: Net earnings.................................. - - - - 10,730 - Other comprehensive income: Currency translation...................... - - - - - - Minimum pension liability, net of tax..... - - - - - - Total comprehensive income....................... Cash dividends ($0.140 per share)................ - - - - (1,631) - Net issued under stock option plan............... 62,319 - 22 (349) - - Proceeds from stock option exercise.............. - - 40 473 - - Stock option tax benefits........................ - - - 269 - - ---------- ---------- ---------- ---------- ---------- ---------- Balance at August 31, 2002....................... 17,430,348 5,724,069 17,430 2,472 163,265 (89,898) ---------- ---------- ---------- ---------- ---------- ---------- Comprehensive income: Net earnings.................................. - - - - 12,887 - Other comprehensive income: Unrealized loss on available for sale securities...................... - - - - - - Currency translation....................., - - - - - - Minimum pension liability, net of tax..... - - - - - - Total comprehensive income....................... - Cash dividends ($0.155 per share)................ - - - - (1,819) - Net issued under stock option plan............... 29,213 - 27 (56) - - Proceeds from stock option exercise.............. - - 3 36 - - Stock option tax benefits........................ - - - 32 - - ---------- ---------- ---------- ---------- ---------- ---------- Balance at August 31, 2003....................... 17,459,561 5,724,069 $ 17,460 $ 2,484 $ 174,333 $ (89,898) ========== ========== ========== ========== ========== ========== ACCUMULATED OTHER TOTAL COMPREHENSIVE SHAREHOLDERS' ($ IN THOUSANDS) LOSS EQUITY ---------------- ---- ------ Balance at August 31, 2000.......................... $ (303) $ 78,838 Comprehensive income: Net earnings..................................... - 8,180 Other comprehensive income: Currency translation......................... (4) (4) Minimum pension liability.................... (367) (367) ---------- Total comprehensive income.......................... 7,809 Cash dividends ($0.140 per share)................... - (1,636) Net issued under stock option plan.................. - (416) Proceeds from stock option exercise................. - 396 Stock option tax expense............................ - (54) Acquisitions of common stock........................ - (1,896) ---------- ---------- Balance at August 31, 2001.......................... (674) 83,041 ---------- ---------- Comprehensive income: Net earnings..................................... - 10,730 Other comprehensive income: Currency translation......................... (191) (191) Minimum pension liability, net of tax........ - (49) (49) ---------- Total comprehensive income.......................... 10,490 Cash dividends ($0.140 per share)................... - (1,631) Net issued under stock option plan.................. - (327) Proceeds from stock option exercise................. - 513 Stock option tax benefits........................... 269 ---------- ---------- Balance at August 31, 2002.......................... (914) 92,355 ---------- ---------- Comprehensive income: Net earnings..................................... - 12,887 Other comprehensive income: Unrealized loss on available for sale securities......................... (87) (87) Currency translation........................, 1,357 1,357 Minimum pension liability, net of tax........ (444) (444) ---------- Total comprehensive income.......................... 13,713 Cash dividends ($0.155 per share)................... - (1,819) Net issued under stock option plan.................. - (29) Proceeds from stock option exercise................. - 39 Stock option tax benefits........................... - 32 ---------- ---------- Balance at August 31, 2003.......................... $ (88) $ 104,291 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 19 LINDSAY MANUFACTURING CO. CONSOLIDATED BALANCE SHEETS
AT AUGUST 31, ------------- ($ IN THOUSANDS, EXCEPT PAR VALUES) 2003 2002 ----------------------------------- ---- ---- ASSETS Current assets: Cash and cash equivalents............................................................ $ 15,368 $ 12,425 Marketable securities................................................................ 8,770 13,289 Receivables.......................................................................... 22,970 23,729 Inventories.......................................................................... 20,019 15,583 Deferred income taxes................................................................ 2,301 1,499 Other current assets................................................................. 1,010 782 --------- --------- Total current assets.................................................................... 70,438 67,307 Long-term marketable securities......................................................... 38,674 25,419 Property, plant and equipment, net...................................................... 13,889 14,512 Other noncurrent assets................................................................. 8,219 7,480 --------- --------- Total assets............................................................................ $ 131,220 $ 114,718 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable..................................................................... $ 8,228 $ 6,068 Other current liabilities............................................................ 16,053 13,984 --------- --------- Total current liabilities............................................................... 24,281 20,052 Pension benefits liabilities............................................................ 2,315 1,688 Other noncurrent liabilities............................................................ 333 623 --------- --------- Total liabilities....................................................................... 26,929 22,363 --------- --------- 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, 17,459,561 and 17,430,348 shares issued in 2003 and 2002, respectively)........... 17,460 17,430 Capital in excess of stated value.................................................... 2,484 2,472 Retained earnings.................................................................... 174,333 163,265 Less treasury stock (at cost, 5,724,069 shares)...................................... (89,898) (89,898) Accumulated other comprehensive loss, net............................................ (88) (914) --------- --------- Total shareholders' equity.............................................................. 104,291 92,355 --------- --------- Total liabilities and shareholders' equity.............................................. $ 131,220 $ 114,718 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 20 LINDSAY MANUFACTURING CO. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, ---------------------- ($ IN THOUSANDS) 2003 2002 2001 ---------------- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings........................................................... $ 12,887 $ 10,730 $ 8,180 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................................... 3,525 3,402 3,359 Non-cash restructuring charges relating to write-down............... - - 749 Amortization of marketable securities premiums, net................. (145) (212) (311) (Gain) loss on sale of property, plant and equipment................ (76) (78) 10 Provision for uncollectible accounts receivable..................... (275) 271 87 Deferred income taxes............................................... 1,388 (242) 914 Stock option tax benefits (expense)................................. 32 269 (54) Equity in net earnings of equity-method investments................. (125) (253) (4) Other, net.......................................................... (152) (268) (219) Changes in assets and liabilities: Receivables, net.................................................... 2,514 628 (2,488) Inventories, net.................................................... (2,578) (2,720) 2,898 Other current assets................................................ (563) (308) (245) Accounts payable, trade............................................. (564) (2,177) (584) Other current liabilities........................................... 189 1,347 (1,559) Current taxes payable............................................... 330 397 (426) Other noncurrent assets and liabilities............................. (1,080) 450 (686) -------- -------- -------- Net cash provided by operating activities........................... 15,307 11,236 9,621 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment............................. (1,918) (2,217) (2,929) Acquisitions of businesses............................................. - (4,813) (1,010) Proceeds from sale of property, plant and equipment.................... 63 206 58 Purchases of marketable securities held-to-maturity.................... (12,465) (15,904) (10,049) Proceeds from maturities of marketable securities held-to-maturity..... 14,232 7,555 22,890 Purchases of marketable securities available-for-sale.................. (10,445) - - Equity investment...................................................... - (80) (975) -------- -------- -------- Net cash (used in) provided by investing activities.................... (10,533) (15,253) 7,985 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of options under stock option plan.............. 39 513 396 Dividends paid......................................................... (1,819) (1,631) (1,636) Purchases of treasury stock............................................ - - (1,896) -------- -------- -------- Net cash used in financing activities.................................. (1,780) (1,118) (3,136) -------- -------- -------- Effect of foreign exchange rate changes on cash........................ (51) (15) - Net increase (decrease) in cash and cash equivalents................... 2,943 (5,150) 14,470 Cash and cash equivalents, beginning of period......................... 12,425 17,575 3,105 -------- -------- -------- Cash and cash equivalents, end of period............................... $ 15,368 $ 12,425 $ 17,575 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid...................................................... $ 5,753 $ 4,397 $ 3,587 Interest paid.......................................................... $ 73 $ 140 $ 82
The accompanying notes are an integral part of the consolidated financial statements. 21 LINDSAY MANUFACTURING CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Lindsay Manufacturing Co. (the "Company" or "Lindsay") manufactures automated agricultural irrigation systems and sells these products in both the U.S. and international markets. The Company also manufactures large diameter steel tubing products and manufactures and assembles agricultural and construction equipment on a contract manufacturing basis for other manufacturers. The Company's principal 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 subsidiaries which manufacture irrigation equipment in France, Brazil and South Africa, and owns a retail irrigation dealership with three locations in the State of Washington ("Irrigation Specialists"). Notes to the consolidated financial statements describe various elements of the financial statements and the assumptions on which specific amounts were determined. While actual results could differ from those estimated at the time of preparation of the consolidated financial statements, management is committed to preparing financial statements, which incorporate accounting policies, assumptions, and estimates that promote the representational faithfulness, verifiability, neutrality, and transparency of the accounting information included in the consolidated financial statements. The significant accounting policies of the Company are as follows: (1) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany balances and transactions are eliminated in consolidation. (2) STOCK BASED COMPENSATION The Company maintains a stock option plan and accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and net earnings per share as if the Company had applied the fair value expense recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", to employee stock option grants.
FOR THE TWELVE MONTHS ENDED AUGUST 31, -------------------------------------- $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2003 2002 2001 ---------------------------------------- ---- ---- ---- Net earnings - as reported............................................... $12,887 $ 10,730 $ 8,180 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.... (1,057) (1,191) (994) ------- -------- -------- Pro forma net earnings................................................... $11,830 $ 9,539 $ 7,186 ======= ======== ======== Earnings per share: Basic-as reported..................................................... $ 1.10 $ 0.92 $ 0.70 Basic-pro forma....................................................... $ 1.01 $ 0.82 $ 0.62 Diluted-as reported................................................... $ 1.08 $ 0.90 $ 0.69 Diluted-pro forma..................................................... $ 0.99 $ 0.80 $ 0.60
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 2003, 2002 and 2001: dividend yield of 0.6% to 0.8%, expected volatility of 35.2% to 36.5%, risk-free interest rates ranging from 4.5% to 6.4 %, and expected lives of the options of 7 years. The weighted average fair value of options granted during fiscal 2003, 2002 and 2001 was $8.36, $9.65 and $8.63, respectively. 22 (3) REVENUE RECOGNITION Revenues from the sale of the Company's irrigation products to its independent dealers are recognized upon delivery of the product to the dealer. The Company has no post delivery obligations to its independent dealers other than standard warranties. Revenues for sales of irrigation products by Irrigation Specialists are recognized when the product or service is delivered to the end-user customers. Revenues from the sale of the Company's diversified products are recognized when the product is delivered to the customer. Revenues and gross profits on intercompany sales are eliminated in consolidation. The costs related to revenues are recognized in the same period in which the specific revenues are recorded. Shipping and handling revenue is reported as a component of operating revenues. Shipping and handling costs are reported as a component of cost of operating revenues. Shipping and handling revenues and costs are not significant to total operating revenues or cost of operating revenues. Customer rebates, cash discounts and other sales incentives are recorded as a reduction of revenues at the time of the original sale. Other sales incentives such as guarantees issued by the Company to support end-user customer financing are recognized as cost of sales. Estimates used in the recognition of operating revenues and cost of operating revenues include, but are not limited to, estimates for rebates payable and cash discounts expected. (4) WARRANTY COSTS Provision for the estimated warranty costs is made in the period in which such costs become probable. This provision is periodically adjusted to reflect actual experience. Warranty costs were $1.4 million, $1.3 million and $1.6 million for the fiscal years ended August 2003, 2002 and 2001, respectively. (5) CASH EQUIVALENTS, MARKETABLE SECURITIES AND LONG-TERM MARKETABLE SECURITIES Cash equivalents are included at cost, which approximates market. At August 31, 2003, the Company's cash equivalents were held primarily by one financial institution. Marketable securities and long-term marketable securities are classified as held-to-maturity or available-for-sale according to management of the Company's intent. At the date of acquisition of an investment security, management designates the security as belonging to a trading portfolio, an available-for-sale portfolio, or a held-to-maturity portfolio. The Company holds no securities designated as trading. Investment securities are classified as held-to-maturity when the Company has both the ability and intent to hold such securities to scheduled maturity. All other investment securities are classified as available-for-sale and carried at fair value. Unrealized appreciation or depreciation in the fair value of available-for-sale securities is reported in accumulated other comprehensive income. The Company monitors its investment portfolio for any decline in fair value that is other-than-temporary and would record any such impairment as an impairment loss. No impairment losses for other-than-temporary declines in fair value have been recorded in fiscal years 2003, 2002 or 2001. 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. In the opinion of management, the Company is not subject to material market risks with respect to its marketable securities. (6) INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for the Lindsay, Nebraska operation's inventories. Cost is determined by the weighted average method for inventories at the Company's other operating locations. At all locations, the Company reserves for obsolete, slow moving and excess inventory by estimating the net realizable value based on the potential future use of such inventory. (7) PROPERTY, PLANT AND EQUIPMENT Property, plant, equipment and capitalized lease assets are stated at cost. The Company's policy is to capitalize major expenditures and to charge to operating expenses the cost of current maintenance and repairs. Provisions for depreciation and amortization have been computed principally on the straight-line method for buildings and equipment. Rates used for depreciation are based principally on the following expected lives: buildings -- 20 to 30 years; equipment -- three to 10 years; other -- two to 20 years; and leasehold improvements -- term of lease. All of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected discounted future cash flows is less than the carrying amount of the asset, a loss is recognized based upon the difference between the fair value of the asset and its carrying value. The cost and accumulated depreciation relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of disposition. The resultant gain or loss is included in the consolidated statements of operations. 23 During the second quarter of fiscal 2001, the Company took a pre-tax 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 fair value, of 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. (8) EQUITY INVESTMENTS Other assets includes minority investments held by the Company in two irrigation businesses. These investments are accounted for on the equity method. The Company's investments in these companies are reviewed periodically to determine if its fair value has declined below the cost of the investment on an other-than-temporary basis, in which case an impairment loss would be recognized. (9) GOODWILL Goodwill represents the excess of the purchase price over the fair value of net assets arising from acquisitions. In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and eliminates the use of the pooling-of-interests method. SFAS No. 141 also provides new criteria to determine whether an acquired intangible asset should be recognized separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually at the reporting unit level using a two-step impairment test. The Company has completed its transitional impairment analysis of goodwill as of September 1, 2002, and updated its evaluation of goodwill recoverability at August 31, 2003. No impairment losses were indicated as a result of the transitional or annual impairment testing under SFAS No. 142. The estimates of fair value of its reporting units and related goodwill depend on a number of assumptions, including forecasted sales growth and improved operating expense ratios. To the extent that the reporting unit is unable to achieve these assumptions, impairment losses may emerge. The Company adopted the provisions of SFAS No. 142 during the first quarter of fiscal 2003, as required, and accordingly no longer amortizes any goodwill. Amortization expense of goodwill for fiscal years 2002 and 2001 was immaterial. (10) NET EARNINGS PER SHARE Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding. Diluted net earnings per share includes the incremental dilutive effect of stock options. The following table summarizes options outstanding but, excluded from the computation of diluted net earnings per share because the options' exercise price was greater than the average market price of the common shares:
08/31/03 08/31/02 08/31/01 Weighted Weighted Weighted Average Average Average Shares Price Expire Shares Price Expire Shares Price Expire - ------ ----- ------ ------ ----- ------ ------ ----- ------ November September November 2007- 170,750 $25.98 2007-May 2012 203,562 $25.97 2007-May 2012 232,000 $22.21 April 2011 ======= ====== ======= ====== ======= ======
(11) RECLASSIFICATIONS Certain reclassifications have been made to prior financial statements to conform to the current-year presentation. (12) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 24 (13) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that does not have equity investors with voting rights, or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns, or both. The Company will adopt FIN 46 in the first quarter of fiscal 2004 and believes the impact of adopting this standard will not have a material impact on the Company's financial statements. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" requires that a liability for a cost associated with an exit or disposal activity is recognized when the liability is incurred. This statement also establishes that fair value is the objective for initial measurement of the liability. The Company is required to apply the provisions of SFAS No. 146 for exit and disposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation elaborates disclosure requirements for obligations by a guarantor under certain guarantees. This interpretation also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of an obligation undertaken in issuing a guarantee. The company has applied the initial recognition and measurement provisions of Interpretation No. 45 to guarantees issued or modified after December 31, 2002, as required. The company has adopted the disclosure requirements in this Interpretation beginning with the first quarter of fiscal 2003, as required. SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" requires certain pro forma disclosures related to stock-based compensation. This statement also amended the transition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company adopted the pro forma disclosures of SFAS No. 148 in the second quarter of fiscal 2003, as required. The Company is considering voluntarily adopting the transition provisions of SFAS No. 148 during fiscal 2004. SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). For public entities, this Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard does not have a material effect on the Company's financial position or net income. In March 2003, the Emerging Issues Task Force ("EITF") reached consensus on EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliveries". This guidance addresses the determination of whether an arrangement involving multiple deliveries contains more than one unit of accounting. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The implementation of EITF 00-21 is not expected to have a material impact on the Company's financial statements. 25 B. RESTATEMENT OF FINANCIAL STATEMENTS Prior to 2003, the Company had not recorded the cumulative cash surrender value of certain life insurance policies the Company maintains on current and former executive officers that had accumulated since 1994. These policies were obtained in 1993 to insure the potential liability under the supplemental retirement plan for these executives. The Company is the sole named beneficiary and owner of these policies, which are held in trust. The annual premium payments for these policies were made from calendar years 1993 through 2000. The Company had previously expensed the premiums when paid and had not recorded the increases in the cash surrender values of the policies. After reviewing this accounting treatment further, the Company has restated its financial statements for 2002 and 2001 to record the cumulative cash surrender value as a correction of error in prior periods. The result of the restatement was an increase of $1.7 million in other assets and retained earnings as of August 31, 2002. The effect of the restatement on previously reported operating results is summarized as follows:
FISCAL YEAR ENDED 8/31/02 FISCAL YEAR ENDED 8/31/01 ---------------------------- ---------------------------- In thousands, except per share amounts AS REPORTED RESTATED AS REPORTED RESTATED - -------------------------------------- ----------- ---------- ----------- ---------- Operating Expenses $ 19,811 $ 19,811 $ 18,285 $ 18,122 ---------- ---------- ---------- ---------- Other non-operating income, net 551 617 2 58 ---------- ---------- ---------- ---------- Earnings before income taxes 15,314 15,380 11,401 11,620 ---------- ---------- ---------- ---------- Net earnings 10,664 10,730 7,961 8,180 ---------- ---------- ---------- ---------- Basic earnings per share $ 0.91 $ 0.92 $ 0.68 $ 0.70 ---------- ---------- ---------- ---------- Diluted earnings per share $ 0.90 $ 0.90 $ 0.67 $ 0.69 ---------- ---------- ---------- ----------
The effect of the restatement on previously reported annual financial statements was not material. There is no effect of the restatement on previously reported cash flows. C. ACQUISITIONS 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 $300,000 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 in 2001 and 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 is marketed as injection systems under the GrowSmart brand. The assets acquired in this acquisition consisted of inventory of $41,000, fixed assets of $17,000, and intangibles including a patent of $100,000, plans/specifications of $75,000 and a tradename of $22,000. The patent is being amortized over its remaining life at the time of acquisition of 16 years; the plans/specifications are being amortized over an estimated realizable period at the time of acquisition of 20 years; the tradename was amortized over a period of 12 months. There was no goodwill associated with this acquisition. During March 2002, the Company acquired the business of Irrigation Specialists, Incorporated for $3.6 million in cash. This 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 $2.8 million, inventory of $2.5 million, fixed assets of $820,000, non-compete agreement of $300,000, tradename/trademark of $120,000, trade payables of $2.7 million and other liabilities of $335,000. The non-compete agreement is being amortized over 5 years. The tradename/trademark 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 associated with this acquisition. During April 2002, the Company acquired a portion of the assets of Hidro Power Industria E Comercio De Equipamentos for $979,000 in cash, 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 will not be amortized. 26 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, 2001. 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, 2000, 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.............................. 10,561 8,015 Net income per share - basic............ 0.90 0.69 Net income per share - diluted.......... $ 0.89 $ 0.67
D. OTHER INCOME, NET
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN THOUSANDS 2003 2002 2001 - -------------- ---- ---- ---- Other income (expense), net: Cash surrender value of life insurance.................. $ 122 $ 66 $ 56 Gain (loss) on sales of fixed assets.................... 76 78 (10) Foreign currency transaction gains, net................. 501 217 - Equity in net earnings of equity-method investment...... 125 253 4 All other, net.......................................... 20 3 8 ------ ------- ------- Total other income, net................................... $ 844 $ 617 $ 58 ====== ======= =======
E. INCOME TAXES For financial reporting purposes earnings before income taxes include the following components:
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN THOUSANDS 2003 2002 2001 - -------------- ---- ---- ---- United States................ $18,049 $16,025 $11,762 Foreign...................... 738 (645) (142) ------- ------- ------- $18,787 $15,380 $11,620 ======= ======= =======
Significant components of the income tax provision are as follows:
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN THOUSANDS 2003 2002 2001 - -------------- ---- ---- ---- Current: Federal............................ $ 5,518 $ 4,022 $ 2,226 State.............................. 630 412 300 Foreign............................ 269 - - ------- ------- ------- Total current................... 6,417 4,434 2,526 ------- ------- ------- Deferred: Federal............................ (470) 279 845 State.............................. (32) 30 92 Foreign............................ (15) (93) (23) ------- ------- ------- Total deferred.................. (517) 216 914 ------- ------- ------- Total income tax provision...... $ 5,900 $ 4,650 $ 3,440 ======= ======= =======
27 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, ------------------------------ 2003 2002 2001 ---- ---- ---- $ IN THOUSANDS AMOUNT % AMOUNT % AMOUNT % - -------------- ------- ---- ------- ---- ------- ---- U.S. statutory rate................................ $ 6,482 34.5 $ 5,250 34.1 $ 3,876 33.4 State and local taxes, net of federal tax benefit.. 413 2.2 302 2.0 351 3.0 Qualified export activity.......................... (165) (0.9) (136) (0.9) (165) (1.4) Municipal bond interest income..................... (481) (2.6) (471) (3.1) (480) (4.2) Research and development tax credits............... (150) (0.8) (141) (0.9) (144) (1.2) Other.............................................. (199) (1.0) (154) (1.0) 2 - ------- ---- ------- ---- ------- ---- Effective rate..................................... $ 5,900 31.4 $ 4,650 30.2 $ 3,440 29.6 ======= ==== ======= ==== ======= ====
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 2003 2002 - --------------- ---- ---- Deferred tax assets: Minimum pension liability...................... $ 710 $ 458 Foreign items.................................. 275 260 Employee benefits liability.................... 1,459 1,140 Inventory...................................... 90 52 Accruals not currently deductible for taxes.... 1,771 1,145 --------- --------- Deferred tax assets......................... $ 4,305 $ 3,055 ========= ========= Deferred tax liabilities: Property, plant and equipment.................. $ (337) $ (185) Other.......................................... (68) (297) --------- --------- Deferred tax liabilities.................... $ (405) $ (482) ========= ========= Net deferred tax assets........................ $ 3,900 $ 2,573 ========= =========
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely that not that some portion or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management does not believe there are significant uncertainties surrounding realization of the deferred tax assets, and, consequently, has not provided a valuation allowance for deferred tax assets at August 31, 2003 and 2002. At August 31, 2003, the Company has a foreign subsidiary with deferred tax assets of $275,000 comprised principally of temporary differences for property and equipment, inventory and other items. 28 F. MARKETABLE SECURITIES The Company's marketable securities consist of investment-grade municipal bonds. Marketable securities may mature earlier than their weighted-average contractual maturities because of principal prepayments. Amortized cost and fair value of investments in marketable securities classified as held-to-maturity or available-for-sale according to management's intent are summarized as follows: HELD-TO-MATURITY SECURITIES
Gross Gross Amortized Unrealized Unrealized $ IN THOUSANDS Cost Gains Losses Fair Value - -------------- ---- ----- ------ ---------- As of August 31, 2003: Due within one year..................... $ 7,453 $ 54 $ (2) $ 7,505 Due after one year through five years... 29,661 422 (95) 29,988 ----------- ----------- ----------- ----------- $ 37,114 $ 476 $ (97) $ 37,493 =========== =========== =========== =========== As of August 31, 2002: Due within one year..................... $ 13,289 $ 159 $ (3) $ 13,445 Due after one year through five years... 25,419 436 (53) 25,802 ----------- ----------- ----------- ----------- $ 38,708 $ 595 $ (56) $ 39,247 =========== =========== =========== ===========
AVAILABLE-FOR SALE SECURITIES
Gross Gross Amortized Unrealized Unrealized $ IN THOUSANDS Cost Gains Losses Fair Value - -------------- ---- ----- ------ ---------- As of August 31, 2003: Due within one year..................... $ 1,325 $ - $ (8) $ 1,317 Due after one year through five years... 9,092 - (79) 9,013 ----------- ----------- ----------- ----------- $ 10,417 $ - $ (87) $ 10,330 =========== =========== =========== =========== As of August 31, 2002: Due within one year..................... $ - $ - $ - $ - Due after one year through five years... - - - - ----------- ----------- ----------- ----------- $ - $ - $ - $ - =========== =========== =========== ===========
G. RECEIVABLES
AUGUST 31, ---------- $ IN THOUSANDS 2003 2002 - -------------- ---- ---- Trade accounts and notes......................... $ 23,637 $ 24,221 Allowance for doubtful accounts.................. (667) (492) -------- -------- Net receivables.................................. $ 22,970 $ 23,729 ======== ========
H. INVENTORIES
AUGUST 31, ---------- $ IN THOUSANDS 2003 2002 - --------------- ---- ---- First-in, first-out (FIFO) inventory............. $ 15,821 $ 13,273 LIFO reserves.................................... (2,494) (3,153) Obsolescence reserve............................. (566) (359) Weighted average inventory....................... 7,258 5,822 -------- -------- Total inventories................................ $ 20,019 $ 15,583 ======== ========
29 The estimated percentage distribution between major classes of inventory before reserves is as follows:
AUGUST 31, ---------- 2003 2002 ---- ---- Raw materials.................................... 18% 11% Work in process.................................. 5% 4% Finished goods and purchased parts............... 77% 85%
I. PROPERTY, PLANT AND EQUIPMENT
AUGUST 31, ---------- $ IN THOUSANDS 2003 2002 - --------------- ---- ---- Land......................................... $ 336 $ 336 Buildings.................................... 9,319 9,072 Equipment.................................... 36,957 35,242 Other........................................ 2,654 2,897 -------- -------- Total property, plant, and equipment............. 49,266 47,547 Accumulated depreciation and amortization........ (35,377) (33,035) -------- -------- Property, plant and equipment, net............... $ 13,889 $ 14,512 ======== ========
J. OTHER NONCURRENT ASSETS AUGUST 31,
AUGUST 31, ---------- $ IN THOUSANDS 2003 2002 - --------------- ---- ---- Cash surrender value of life insurance policies... $ 1,813 $ 1,691 Deferred income taxes............................. 1,599 1,074 Equity method investments......................... 1,437 1,311 Goodwill, net..................................... 1,174 1,082 Split dollar life insurance....................... 913 878 Intangible pension asset.......................... 442 511 Other intangibles, net............................ 574 687 Other............................................. 267 246 -------- -------- Total other noncurrent assets..................... $ 8,219 $ 7,480 ======== ========
The following table summarizes the Company's net carrying value for other intangible assets as shown above. These other intangible assets are being amortized over an average term of approximately 6 years. Related amortization expense was $113,000, $66,000 and $33,000 for the twelve-months ended August 31, 2003, 2002 and 2001, respectively.
AUGUST 31, ---------- $ IN THOUSANDS 2003 2002 - -------------- ------ ------ Non-compete agreements......... $ 358 $ 358 Tradenames..................... 147 147 Patent......................... 100 100 Plans and specifications....... 77 77 Other.......................... 30 30 Accumulated amortization....... (138) (25) ------ ------ Total other intangibles, net... $ 574 $ 687 ====== ======
30 K. OTHER CURRENT LIABILITIES
AUGUST 31, ---------- $ IN THOUSANDS 2003 2002 - -------------- ---- ---- Payroll and vacation......................... $ 3,774 $ 3,499 Retirement plan.............................. 2,240 2,029 Taxes, other than income..................... 740 1,089 Workers compensation and product liability... 1,355 1,711 Dealer related liabilities................... 1,158 1,865 Warranty..................................... 1,152 1,266 Income tax payable........................... 1,428 78 Other........................................ 3,648 2,447 -------- -------- Total other current liabilities.............. $ 15,495 $ 13,984 ======== ========
L. 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 28, 2003. 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 (4.00% at August 31, 2003). The Base Rate will not be less than 4.00%. The Company expects to renew this line of credit on substantially similar terms. M. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are defendants in various legal actions arising in the course of their business activities. In the opinion of management, an unfavorable outcome with respect to any existing legal action will not result in a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. In 1992, the Company entered into a consent decree with the Environmental Protection Agency of the United States Government ("the EPA") in which it committed to remediate environmental contamination of the groundwater that was discovered in 1982 through 1990 at and adjacent to its Lindsay, Nebraska facility, ("the site"). The site was added to the EPA's list of priority superfund sites in 1989. Between 1993 and 1995, remediation plans for the site were approved by the EPA and fully implemented by the Company. Since 1998, the primary remaining contamination at the site has been the presence of volatile organic chemicals in the groundwater. During the last half of fiscal 2003, a second Five Year Review of the status of the remediation of the contamination of the site was conducted by the Company and the EPA. During the fourth quarter of fiscal 2003, the EPA issued a letter placing the Company on notice that additional remediation actions were required. Additionally, during the quarter, the Company and its environmental consultants completed and submitted a supplemental remedial action work plan that, when implemented, will allow the Company and the EPA to better identify the boundaries of the contaminated groundwater and will allow the Company and the EPA to more effectively assure that the contaminated groundwater is being contained by current and planned additional wells that pump and aerate it. The Company has been able to reasonably estimate the cost of completing the remediation actions defined in the supplemental remedial action work plan and, at August 31, 2003, accrued $250,000 in other current liabilities for the estimated expenditures for the actions specified in the plan, substantially all of which it expects to complete in fiscal 2004. The Company leases land, buildings, machinery, equipment and furniture under various noncancelable operating lease agreements. At August 31, 2003, future minimum lease payments under noncancelable operating leases were as follows:
$ IN THOUSANDS FISCAL YEARS - --------------- ------------ 2004................................................. $ 450 2005................................................. 339 2006................................................. 311 2007................................................. 225 2008................................................. 213 Thereafter........................................... 946 -------- Total future minimum lease payments.................. $ 2,484 ========
Lease expense was $379,000, $348,000 and $116,000 for fiscal years ended 2003, 2002 and 2001, respectively. 31 N. RETIREMENT PLANS The Company has a defined contribution profit-sharing plan covering substantially all of its full-time U.S. employees. Participants may voluntarily contribute a percentage of compensation, but not in excess of the maximum allowed under the Internal Revenue Code. The plan provides for a required matching contribution by the Company. The Company's total contributions charged to expense under this plan were $449,000 for the year ended August 31, 2003, $314,000 the year ended August 31, 2002 and $283,000 for the year ended August 31, 2001. A supplementary non-qualified, non-funded retirement plan for six current and former executives is also maintained. Plan benefits are based on the executive's average total compensation during the three highest compensation years of employment. This unfunded supplemental retirement plan is not subject to the minimum funding requirements of ERISA. The Company has purchased life insurance policies on the executives named in this supplemental retirement plan to provide funding for this liability. Cost and the assumptions for the Company's supplemental retirement plan include the following components:
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN THOUSANDS 2003 2002 2001 - -------------- ---- ---- ---- Change in benefit obligation: Benefit obligation at beginning of year.............. $ 3,944 $ 3,237 $ 2,778 Service cost......................................... 42 15 13 Interest cost........................................ 267 218 187 Actuarial loss....................................... 773 700 395 Benefits paid........................................ (279) (266) (136) ------- -------- ------- Benefit obligation at end of year.................... $ 4,747 $ 3,944 $ 3,237 ------- -------- ------- Funded status........................................ $(4,747) $ (3,944) $(3,237) Unrecognized net actuarial loss...................... 2,507 1,915 1,326 ------- -------- ------- Net amount recognized................................ $(2,240) $ (2,029) $(1,911) ======= ======== =======
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN THOUSANDS 2003 2002 2001 - -------------- ---- ---- ---- Amounts recognized in the statement of financial position consist of: Accrued benefit cost................................................... $ 2,240 $ 2,029 $ 1,911 Intangible pension asset............................................... (442) (511) (580) Additional minimum pension liability................................... 2,315 1,688 1,250 Other comprehensive loss............................................... (1,873) (1,177) (670) ------- -------- ------- Net amount recognized.................................................. $ 2,240 $ 2,029 $ 1,911 ======= ======== ======= Weighted-average assumptions as of year ends: Discount rate.......................................................... 6.25% 7.00% 7.00% Assumed rates of compensation increases................................ 3.50% 3.50% 3.50%
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN THOUSANDS 2003 2002 2001 - -------------- ---- ---- ---- Components of net periodic benefit cost: Service cost........................................ $ 42 $ 15 $ 13 Interest cost....................................... 267 218 187 Net amortization and deferral....................... 181 111 78 ------- -------- ------- Total............................................... $ 490 $ 344 $ 278 ======= ======== =======
32 O. STOCK OPTIONS On January 30, 2001, the shareholders approved the Lindsay Manufacturing Co. 2001 Long-Term Incentive Plan (the "2001 Plan"). The 2001 Plan supercedes the 1988 Plan and 1991 Plan and no further options or other awards will be granted under the 1988 Plan and 1991 Plan (the "Prior Plans"). The Company has outstanding stock options under its 1991 Plan and 2001 Plan. No options are outstanding under the previous 1988 Plan. The 2001 Plan is similar in most material respects to the 1991 Plan and provides for awards of stock options, restricted stock or stock appreciation rights ("SARs") to employees of the Company and for annual awards of stock options to non-employee directors. A total of 900,000 shares of the Company's common stock may be issued under the 2001 Plan, subject to adjustments to reflect stock splits and similar events. If options or restricted stock awarded under the 2001 Plan (or options issued under the Prior Plans or outside of the Prior Plans) terminate without being fully vested or exercised, those shares will be available again for grant under the 2001 Plan. No more than 180,000 shares of common stock may be issued to employees other than through options having an exercise price of not less than the fair market value of the underlying shares. The 2001 Plan also limits the total awards that may be made to any individual. The 1991 and 2001 Plans permit participants to surrender mature common shares, in lieu of cash, for the value of the exercise price. Mature shares are defined as shares held more than six months. A summary of the status of the Company's stock plans is presented below:
AVERAGE OPTION SHARES NUMBER OF SHARES EXERCISE PRICE - ------------- ---------------- -------------- Officers, Directors and Key Employees: 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 ========= Outstanding at August 31, 2001..................... 982,168 15.30 Granted......................................... 164,563 22.95 Exercised....................................... (117,947) 10.53 Cancelled....................................... (25,241) 20.04 --------- Outstanding at August 31, 2002.................. 1,003,543 17.00 ========= Exercisable at August 31, 2002..................... 410,331 15.54 ========= Outstanding at August 31, 2002..................... 1,003,543 17.00 Granted......................................... 197,060 21.48 Exercised....................................... (52,530) 10.39 Cancelled....................................... (35,500) 24.77 --------- Outstanding at August 31, 2003..................... 1,112,573 17.02 ========= Exercisable at August 31, 2003..................... 514,020 $ 16.71 =========
The numbers of stock awards available for grant under the stock option plans are 466,918, 628,428 and 768,750 shares as of August 31, 2003, 2002 and 2001, respectively. The following table summarizes information about stock options outstanding at August 31, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ------------------- WEIGHTED AVERAGE RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED EXERCISE OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE PRICES AT 8/31/03 LIFE PRICE AT 8/31/03 PRICE ------ ---------- ---- ----- ---------- ----- $ 8.31-10.22 77,963 1.5 years $ 8.97 77,963 $ 8.97 14.00-20.00 661,738 6.6 years 15.72 336,532 15.47 $ 21.20-28.17 372,872 8.0 years $ 23.61 99,525 $ 26.97 --------- -------- 1,112,573 514,020 ========= ========
33 P. GUARANTEES The Company is currently party to various guarantee arrangements. These agreements arose in transactions related to dealer/customer financing, the guarantee of debt for a non-consolidated equity investee and product warranties. The Company has adopted FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other (the "Interpretation"). The Interpretation requires the guarantor to recognize a liability for the non-contingent component of the guarantee which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payment will be required under the guarantee or if the guarantee was issued with premium payments or as part of a transaction with multiple events. As noted above, the Company has adopted the disclosure requirements of the Interpretation and has applied the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002. The Company has adopted the disclosure requirements of the Interpretation and has applied the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002, when those guarantees are estimable. The following table provides the estimated maximum amount of potential future payments for each major group of guarantees:
AUGUST $ IN THOUSANDS 2003 - -------------- ---- Guarantees on third party debt of equity investment........... $ 700 Customer equipment financing recourse......................... 3,600 Product warranties............................................ N/A --------- Total guarantees.............................................. $ 4,300 =========
GUARANTEES ON THIRD PARTY DEBT RELATED TO EQUITY INVESTMENT The Company has guaranteed three bank loans and a standby letter of credit of an irrigation business in which the Company holds a minority equity investment position. The guarantees continue until the loans, including accrued interest and fees, have been paid in full. The bank loans mature in September 2003, December 2006 and February 2007. The standby letter of credit expires in December 2003. As of August 31, 2003, the maximum amount associated with the guarantees and letter of credit was approximately $700,000. The majority owner of the business provides a separate personal guarantee of the bank notes. CUSTOMER EQUIPMENT FINANCING RECOURSE In the normal course of business, the Company has arranged for unaffiliated financial institutions to make favorable financing terms available to end-user purchasers of the Company's irrigation equipment. In order to facilitate these arrangements, the Company provided the financial institutions with limited recourse guarantees or full guarantees as more fully described below. Related to these exposures, the Company has separately accrued a liability of $326,000, classified with other current liabilities, for estimated losses on such guarantees. The Company recorded, at estimated fair value, deferred revenue of $28,000 also classified with other current liabilities, for guarantees issued after December 31, 2002. The estimated fair values of these guarantees are based, in large part, on the Company's experience with this agreement and related transactions. The Company recognizes the revenue for value of the guarantees ratably over the term of the guarantee. The Company maintains an agreement with a single financial institution that guarantees the financial institution's pool of accounts limited to $1.5 million as of August 31, 2003. Generally, the Company's exposure is limited to unpaid interest and principal where the first and/or second annual customer payments have not yet been made as scheduled. The estimated maximum exposure is representative of 2.75% of the original loan amount financed or the total equipment cost related to a lease. Separately, the Company maintains limited, specific customer financing recourse arrangements with three financial institutions including the one referred to above. Generally, the Company's exposure is limited to unpaid interest and principal where the first and/or second annual customer payments have not yet been made as scheduled. In some specific cases, the guarantee may cover up to all scheduled payments of a loan. The original amount of existing specific guarantees is approximately $2.1 million at August 31, 2003. The Company's recourse guarantee is collateralized by the value of the equipment. 34 PRODUCT WARRANTIES The Company generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods and/or usage of the product. The accrued product warranty costs are for a combination of specifically identified items and other unidentified items based primarily on historical experience of actual warranty claims. The following table provides the changes in the Company's product warranties:
FOR THE FISCAL YEAR ENDED ------------------------- AUGUST AUGUST AUGUST $ IN THOUSANDS 2003 2002 2001 - -------------- --------- -------- -------- Product warranty accrual balance, beginning of fiscal year.... $ 1,266 $ 1,396 $ 757 Liabilities accrued for warranties during the period.......... 1,370 1,275 1644 Warranty claims paid during the period........................ (1,484) (1,405) (1,005) -------- -------- -------- Product warranty accrual balance, end of fiscal year.......... $ 1,152 $ 1,266 $ 1,396 ======== ======== ========
Q. INDUSTRY SEGMENT INFORMATION The Company manages its business activities in two reportable segments: Irrigation: This segment includes the manufacture and marketing of center pivot, lateral move and hose reel irrigation systems. 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 inter-segment sales. Because the Company utilizes common operating assets for its irrigation and diversified segments, it is not practical to separately identify assets by reportable segment. Similarly, other segment reporting proscribed by FAS 131 is not shown as this information can not be reasonably disaggregated by segment and is utilized by the Company's management. The Company has no single major customer representing 10% or more of its total revenues during fiscal 2003, 2002 or 2001. Summarized financial information concerning the Company's reportable segments is shown in the following table:
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ in millions 2003 2002 2001 ---- ---- ---- Operating revenues: Irrigation......................................................... $ 151.3 $ 132.7 $ 106.9 Diversified products............................................... 12.1 13.2 19.8 ------- -------- ------- Total operating revenues.............................................. $ 163.4 $ 145.9 $ 126.7 ======= ======== ======= Operating income: Irrigation......................................................... $ 28.0 $ 22.2 $ 16.6 Diversified products............................................... 1.2 1.9 3.2 ------- -------- ------- Segment operating income.............................................. 29.2 24.1 19.8 Unallocated general & administrative and engineering & research expenses.................................... (12.8) (11.0) (10.0) Interest and other income, net........................................ 2.4 2.3 1.8 ------- -------- ------- Earnings before income taxes.......................................... $ 18.8 $ 15.4 $ 11.6 ======= ======== =======
FOR THE YEARS ENDED AUGUST 31, ------------------------------ $ IN MILLIONS 2003 2002 2001 - ------------- ---- ---- ---- Geographic area revenues: United States...................................................... $125.0 $ 113.8 $ 102.0 Europe, Africa & Middle East....................................... 23.3 17.2 14.7 Mexico & Latin America............................................. 10.7 6.0 3.2 Other International................................................ 4.4 8.9 6.8 ------ -------- ------- Total revenues..................................................... $163.4 $ 145.9 $ 126.7 ====== ======== =======
35 R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The follow is a tabulation of the unaudited quarterly results of operations for the years ended August 31, 2003 and 2002:
FOR THE THREE MONTHS ENDED THE LAST DAY OF ------------------------------------------ $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS NOVEMBER FEBRUARY MAY AUGUST - ---------------------------------------- -------- -------- --- ------ Fiscal 2003 Operating revenues...................... $ 33,462 $ 48,127 $ 48,833 $ 32,952 Cost of operating revenues.............. 26,451 35,865 36,334 24,978 Earnings before income taxes............ 1,714 7,108 7,021 2,944 Net earnings............................ 1,193 4,952 4,822 1,920 Diluted net earnings per share.......... $ 0.10 $ 0.42 $ 0.41 $ 0.16 Market price (NYSE) High.................................. $ 25.70 $ 25.24 $ 23.00 $ 24.45 Low................................... $ 20.95 $ 18.45 $ 17.75 $ 20.00 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............ 1,590 5,763 6,849 1,178 Net earnings............................ 1,112 3,972 4,731 915 Diluted net earnings per share.......... $ 0.09 $ 0.34 $ 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
2003: Significant fourth-quarter adjustments aggregated an increase to pre-tax earnings of $660,000. The adjustments increasing pre-tax earnings included a LIFO inventory reserve adjustment of $660,000 and a reduction of general insurance expense liability of $510,000. The adjustments decreasing pre-tax earnings included an accrual of $250,000 for the environmental supplemental remediation plan and a $260,000 reduction in revenue for Irrigation Specialists based on a reconciliation of receivables. 2002: The Company had no significant fourth-quarter adjustments. 36 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE ITEM 9A - CONTROLS AND PROCEDURES Based upon their evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act rules 13a-15 (e) and 15d-15 (e), management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of August 31, 2003. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to August 31, 2003 through the date of this Annual Report on Form 10-K, including any corrective actions with regard to significant deficiencies and material weaknesses. 37 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, 2003. Information about the Directors required by item 401 of Regulation S-K is incorporated by reference from the Proxy Statement. Information about Executive Officers is shown on page 6 and 7 of this filing. Section 16(a) Beneficial Ownership Reporting Compliance - Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Securities Exchange Act. The Company believes it has complied with all section 16 filing requirements during the fiscal year ended August 31, 2003 except for late Form 4 Statement of Changes in Beneficial Ownership due September 5, 2002, filed September 25, 2002 for the following independent directors: Howard Buffett, Michael Christodolou, Larry Cunningham, Dave McIntosh and William Welsh; and Form 4 Statement of Changes in Beneficial Ownership due April 26, 2003, filed May 8, 2003 for the Company's Chief Executive Officer Richard Parod. ITEM 11 - EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the Proxy Statement. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the Proxy Statement. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the Proxy Statement. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is incorporated by reference to the Proxy Statement. 38 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........................................................... 18 Consolidated Statements of Operations for the Years ended August 31, 2003, 2002 and 2001.................................................. 19 Consolidated Balance Sheets at August 31, 2003 and 2002.............................................................. 20 Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended August 31, 2003, 2002 and 2001.................................... 19 Consolidated Statements of Cash Flows for the Years ended August 31, 2003, 2002 and 2001.................................................. 21 Notes to Consolidated Financial Statement................................................... 22-36 Valuation and Qualifying Accounts - Years ended August 31, 2003, 2002 and 2001............................................ 43
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. 39 a(3) EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3(a) Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3(a) to the Company's Report on Form 10-Q for the fiscal quarter ended February 28, 1997. 3(b) By-Laws of the Company amended and restated by the Board of Directors on April 28, 2000, incorporated by reference to Exhibit 3(b) of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000. 3(c) Certificate of Amendment of the Restated Certificate of Incorporation of Lindsay Manufacturing Co. dated February 7, 1997, incorporated by reference to Exhibit 3(b) to the Company's Report on Form 10-Q for the fiscal quarter ended February 28, 1997. 4(a) Specimen Form of Common Stock Certificate incorporated by reference to Exhibit 4 to the Company's report on Form 10-Q for the fiscal quarter ended November 30, 1997. 10(a) Lindsay Manufacturing Co. Executive Compensation Plan incorporated by reference to Exhibit 10(a) to the Company's report on Form 10-Q for the fiscal quarter ended February 28, 1998. 10(b) Agreement between the Company and Gary D. Parker, effective December 1, 1999 incorporated by reference to Exhibit 10(a) to the Company's Report on Form 10-Q for the fiscal quarter ended November 30, 1999. 10(c)* Indemnification Agreement between the Company and its directors and officers, dated October 24, 2003. 10(d) Lindsay Manufacturing Co. Profit Sharing Plan, incorporated by reference to Exhibit 10(i) of the Company's Registration Statement on Form S-1 (Registration No. 33-23084), filed July 15, 1988. 10(e) Lindsay Manufacturing Co. Amended and Restated 1991 Long-Term Incentive Plan, incorporated by reference to Exhibit 10(f) of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000. 10(f) Employment Agreement between the Company and Richard W. Parod effective March 8, 2000, incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q for the fiscal quarter ended May 31, 2000. 10(g) First Amendment to Employment Agreement, dated May 2, 2003, between the Company and Richard W. Parod, incorporated by reference to Exhibit 10 (a) of Amendment No. 1 to the Company's Report on Form 10-Q for the fiscal quarter ended May 31, 2003. 40 a(3) EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 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) 2004 Plan Year 14* Code of Ethical Conduct for Principal Executive Officer and Senior Financial Officers 21* Subsidiaries of the Company 23* Consent of KPMG LLP 24(a)* The Power of Attorney authorizing Richard W. Parod to sign the Annual Report on Form 10-K for fiscal 2003 on behalf of certain directors. 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. - --------------- * Filed herein. (b) Reports on Form 8-K. The registrant filed a Form 8-K under Item 7 to furnish a press release, issued, June 23, 2003, announcing the Company's results of operations for the quarter and nine months ended May 31, 2003. The registrant filed a Form 8-K under Item 5 to provide a press release issued on July 29, 2003 announcing an increase in the Company's quarterly cash dividend. 41 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 21st day of November, 2003. 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 21st day of November, 2003. /s/ RICHARD W. PAROD Director, President and Chief Executive - --------------------------------- Officer Richard W. Parod /s/ BRUCE C. KARSK Executive Vice President, Chief Financial - --------------------------------- Officer, Bruce C. Karsk Treasurer and Secretary /s/ THOMAS COSTANZA Corporate Controller - --------------------------------- Thomas Costanza /s/ MICHAEL N. CHRISTODOLOU (1) Chairman of the Board of Directors - --------------------------------- Michael N. Christodolou /s/ HOWARD G. BUFFET (1) Director - --------------------------------- Howard G. Buffet /s/ LARRY H. CUNNINGHAM (1) Director - --------------------------------- Larry H. Cunningham /s/ J.DAVID MCINTOSH (1) Director - --------------------------------- J. David McIntosh /s/ MICHAEL C. NAHL (1) Director - --------------------------------- Michael C. Nahl /s/ WILLIAM F. WELSH II (1) Director - --------------------------------- William F. Welsh II (1) By: /s/ RICHARD W. PAROD ------------------------- Richard W. Parod, Attorney-In-Fact 42 LINDSAY MANUFACTURING CO. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED AUGUST 31, 2003, 2002 AND 2001 (DOLLARS IN THOUSANDS)
ADDITIONS --------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ----------- --------- -------- -------- ---------- --------- Year ended August 31, 2003: Deducted in the balance sheet from the assets to which they apply: - Reserve for guarantee losses(c)............ $ 344 $ 77 $ - $ 95 $ 326 ===== ======= ======= ===== ===== - Allowance for doubtful accounts............ $ 492 $ 275 $ - $ 100(a) $ 667 ===== ======= ======= ===== ===== - Allowance for inventory obsolescence....... $ 359 $ 206 $ 8 $ 57(b) $ 516 ===== ======= ======= ===== ===== Year ended August 31, 2002: Deducted in the balance sheet from the assets to which they apply: - Reserve for guarantee losses(c)............ $ - $ - $ 344 - $ 344 ===== ======= ======= ===== ===== - Allowance for doubtful accounts............ $ 577 $ 348 $ (344) $ 89(a) $ 492 ===== ======= ======= ===== ===== - Allowance for inventory obsolescence....... $ 629 $ (204) $ - $ 66(b) $ 359 ===== ======= ======= ===== ===== 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 ===== ======= ======= ===== =====
Notes: (a) Deductions consist of uncollectible items written off, less recoveries of items previously written off. (b) Deductions consist of obsolete items sold or scrapped. (c) Represents estimated losses on financing guarantees. See accompanying independent auditors' report. 43 EX-10.(C) 3 c81184exv10wxcy.txt INDEMNIFICATION AGREEMENT EXHIBIT 10 (C) INDEMNIFICATION AGREEMENT This Indemnification Agreement, dated as of ______________, 2003 is made by Lindsay Manufacturing Co., a Delaware corporation (the "Company") for the benefit of ________________________, an officer and/or director of the Company (the "Indemnitee"). RECITALS The Company and the Indemnitee recognize that the present state of the law is too uncertain to provide the Company's officers, directors, employees and agents with adequate and reliable advance knowledge or guidance with respect to the legal risks and potential liabilities to which they may become personally exposed as a result of performing their duties for the Company. A. The Company and the Indemnitee are aware of the substantial growth in the number of lawsuits filed against corporate officers, directors, employees and agents in connection with their activities in such capacities and by reason of their status as such; B. The Company and the Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals and, accordingly, represents a significant disincentive for qualified persons to serve as directors or officers of the Company; C. The Company believes that it is in the best interest of the Company and its shareholders to attract and retain qualified and committed directors and officers and, after reasonable investigation, believes it is prudent to provide such persons with a combination of (i) reasonable coverage under a directors and officers liability insurance policy and (ii) contractual indemnity from the Company to the fullest extent permitted by law (as in effect on the date hereof, or, to the extent any amendment may expand such permitted indemnification, as hereafter in effect) against personal liability for actions taken in the good faith performance of their duties to the Company; D. The Company's Restated Certificate of Incorporation authorizes the indemnification of corporate agents of the Company to the fullest extent permitted by law; E. The Company desires and has requested the Indemnitee to serve or continue to serve as a director and/or officer of the Company, free from undue concern for the risks and potential liabilities associated with such services to the Company; and F. The Indemnitee is willing to serve, or continue to serve, the Company, provided, and on the express condition, that he or she is furnished with the indemnification provided for herein. AGREEMENT NOW, THEREFORE, the Company and Indemnitee agree as follows: 1. DEFINITIONS. (a) EXPENSES. "Expenses" means, for the purposes of this Agreement, all direct and indirect costs and expenses of any type or nature whatsoever (including, without limitation, any fees, retainers and disbursements of Indemnitee's counsel, accountants, experts, other witnesses, investigation costs, defense costs, mediation costs, arbitration costs, court costs (including appeals), costs of attachment or bonds, transcript costs, travel expenses, duplicating, printing and binding costs, telephone charges, postage, delivery service fees and other out-of-pocket costs and expenses) actually and reasonably incurred by the Indemnitee in connection with the investigation, preparation, defense or appeal of a Proceeding; provided, however, that Expenses shall not include judgments, fines, penalties or amounts paid in settlement of a Proceeding. (b) PROCEEDING. "Proceeding" means, for the purposes of this Agreement, any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, inquiry, administrative, legislative or other hearing, or any other actual, threatened or completed proceeding, whether civil, criminal, administrative or investigative and whether brought by or in the right of the Company or otherwise, in which Indemnitee was, is or may be involved as a party, witness or otherwise, by reason of the fact that Indemnitee is or was a director and/or officer of the Company or any subsidiary or affiliate of the Company, by reason of any action taken by him or her or of any inaction on his or her part while acting as such director and/or officer, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust or other enterprise, whether or not he or she is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. 2. AGREEMENT TO SERVE. In consideration of the protection afforded by this Agreement, if Indemnitee is a director, he or she has agreed to serve to the best of his or her abilities until the earlier of (i) the time when Indemnitee fails to be reelected to the Board of Directors and qualified or (ii) such time as he or she tenders his or her resignation in writing. If Indemnitee is an officer, he or she has agreed to serve to the best of his or her abilities at the will of the Company or under separate contract, if such contract exists, for so long as Indemnitee is duly appointed or until such time as he or she tenders his or her resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment or any requirement of a continuing relationship. 3. INDEMNIFICATION. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent authorized by law, including but not limited to the Delaware General Corporation Law, as the same exists on the date hereof or as may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than the law permitted the Company to provide prior to such amendment). In furtherance of the foregoing indemnification, and without limiting the generality thereof: (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee against Expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with a Proceeding (other than a Proceeding by or in the right of the Company) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. To the fullest extent permitted by law, the Company shall indemnify Indemnitee against Expenses and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with a Proceeding by or in the right of the Company to procure a judgment in its favor if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. Notwithstanding the foregoing, no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged liable to the Company in the performance of Indemnitee's duty to the Company, unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for Expenses and then only to the extent that the court shall determine. (c) INDEMNIFICATION FOR EXPENSES AS A WITNESS. Notwithstanding any other provision of this Agreement, the Company shall indemnify Indemnitee against all expenses actually and reasonably incurred by Indemnitee in connection with any Proceeding in which Indemnitee is a witness, but not a party. (d) SCOPE. Notwithstanding any other provision of this Agreement, the Company shall indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by other provisions of this Agreement, the Company's Restated Certificate of Incorporation, the Company's Bylaws or by statute. (e) EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification under this Agreement with respect to any Proceeding brought by Indemnitee, or the making of any claim therein, unless (i) the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors of the Company, or (ii) such Proceeding is being brought by Indemnitee to assert, interpret or enforce Indemnitee's rights under this Agreement (including rights to D&O Insurance provided in Section 8 hereof). 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Upon receipt of a written claim addressed to the Board of Directors for indemnification pursuant to Section 3, the Company shall indemnify Indemnitee with respect to such written claim to the fullest extent permitted by law. If a claim under Section 3 is not paid in full by the Company within 30 days after such written claim has been received by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim, and, if successful in whole or in part, the Indemnitee shall also be entitled to be paid the expenses of prosecuting such claim. Neither the failure of the Company (including its Board of Directors, independent legal counsel, or its shareholders) to make a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct under applicable law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has not met the applicable standard of conduct. It shall at all times be presumed that Indemnitee has met the applicable standard of conduct to be entitled to indemnification, and the Company or anyone else seeking to overcome this presumption shall have the burden of proof to establish that Indemnitee has not met the applicable standard of conduct. 5. ADVANCEMENT AND REPAYMENT OF EXPENSES. The Expenses incurred by Indemnitee in connection with any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding within 30 days after receiving from Indemnitee copies of invoices presented to Indemnitee or other satisfactory evidence for such Expenses, if Indemnitee shall provide an undertaking to the Company to repay such amount to the extent it is ultimately determined that Indemnitee is not entitled to indemnification. In determining whether or not to make an advance hereunder, the ability of Indemnitee to repay shall not be a factor. Any advancements and undertakings for repayment of Expenses shall be unsecured and interest free. Notwithstanding the foregoing, the Company shall not be required to make the advances called for hereby if the Board of Directors reasonably determines in good faith that it does not appear that Indemnitee has met the standards of conduct which make it permissible under applicable law to indemnify Indemnitee and the advancement of Expenses would not be in the best interests of the Company and its shareholders. 6. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any provision of this Agreement to indemnification or advancement by the Company of some or a portion of any Expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, and amounts paid in settlement) incurred by him or her in the investigation, defense, settlement or appeal of a Proceeding, but is not entitled to indemnification or advancement of the total amount thereof, the Company shall nevertheless indemnify or pay advancements to the Indemnitee for the portion of such Expenses or liabilities to which the Indemnitee is entitled. In addition, if Indemnitee is not wholly successful in any Proceeding, but is successful, on the merits or otherwise (including dismissal, with or without prejudice), as to one or more, but less than all claims, issues or matters involved in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee in connection with each successfully resolved claim, issue or matter involved in such Proceeding. 7. NOTICE TO COMPANY BY INDEMNITEE. Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof; provided that any delay in so notifying the Company shall not constitute a waiver by Indemnitee of his or her rights hereunder. The written notification to the Company shall be addressed to the Board of Directors and shall include a description of the nature of the Proceeding and the facts underlying the Proceeding and be accompanied by copies of any documents filed with the court in which the Proceeding is pending. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 8. MAINTENANCE OF LIABILITY INSURANCE. (a) COVERAGE. The Company hereby agrees that so long as Indemnitee shall continue to serve as a director and/or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible Proceeding, the Company, subject to Section 8(b), shall use its best efforts to obtain at a commercially reasonable cost and maintain in full force and effect directors and officers liability insurance ("D&O Insurance") which provides Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer. (b) LIMITATIONS OF OBLIGATION. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or the Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. (c) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 7 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. 9. DEFENSE OF CLAIM. In the event that the Company shall be obligated under Section 5 hereof to pay the Expenses of any Proceeding against Indemnitee and the Company or any other person entitled to indemnification by the Company is a party to the Proceeding, the Company shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ his or her counsel in any such Proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, or (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. If the Company assumes the defense of any Proceeding, the Company shall be obligated to defend all claims against Indemnitee in such Proceeding in good faith and in a manner consistent with the best interests of Indemnitee, and the Company shall not settle or compromise any claims on any basis or in any manner which would impose any liability, limitation or restriction of any kind on Indemnitee without Indemnitee's express written consent. 10. ATTORNEYS' FEES. In the event that Indemnitee or the Company institutes an action to enforce or interpret any terms of this Agreement, the Company shall reimburse Indemnitee for all of the Indemnitee's reasonable fees and expenses in bringing and pursuing such action or defense if Indemnitee is successful in whole or in part in such action or defense. 11. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the Company contained herein shall continue during the period the Indemnitee is a director and/or officer of the Company, or is or was serving at the request of the Company as a director, officer, fiduciary, employee or agent of a corporation, partnership, joint venture, trust or other enterprise, and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that Indemnitee served in any capacity referred to herein. 12. SUCCESSORS AND ASSIGNS. This Agreement establishes contract rights that shall he binding upon, and shall inure to the benefit of, the successors, assigns, heirs and legal representatives of the parties hereto. 13. NON-EXCLUSIVITY. (a) OTHER RIGHTS. The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed to be exclusive of any other rights that the Indemnitee may have under any provision of law, the Company's Restated Certificate of Incorporation or Bylaws, the vote of the Company's shareholders or disinterested directors, other agreements or otherwise, both as to action in his or her official capacity and action in another capacity while occupying his or her position as a director and/or officer of the Company. (b) CHANGES IN LAW. In the event of any changes, after the date of this Agreement, in any applicable law, statute, or rule which expand the right of a Delaware corporation to indemnify its officers and/or directors, the Indemnitee's rights and the Company's obligations under this Agreement shall be expanded to the full extent permitted by such changes. In the event of any changes in any applicable law, statute or rule, which narrow the right of a Delaware corporation to indemnify a director or officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. 14. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective as of the date set forth on the first page and shall, to the fullest extent permitted by law, apply to acts of omissions of Indemnitee which occurred at any time prior to or after such date if Indemnitee was an officer, director, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred. 15. SUBROGATION. In the event of any payment under this Agreement by the Company to or on behalf of Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 16. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law, rule or regulation. The provisions of this Agreement shall be severable as provided in this Section 16. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 17. GOVERNING LAW. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. To the extent permitted by applicable law, the parties hereby waive any provisions of law which render any provision of this Agreement unenforceable in any respect. 18. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both the Company and Indemnitee. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set forth above. INDEMNITEE LINDSAY MANUFACTURING CO. ________________________ By:_________________________ Bruce C. Karsk Executive Vice President, Secretary and Treasurer EX-10.(J) 4 c81184exv10wxjy.txt MANAGEMENT INCENTIVE PLAN EXHIBIT 10(j) LINDSAY MANUFACTURING CO. MANAGEMENT INCENTIVE PLAN (MIP) 2004 Plan Year Purpose The purpose of the Management Incentive Plan (the "Plan") is to: - Encourage performance consistent with the Company's business strategy - Focus on near-term performance results as well as progress toward the achievement of long-term objectives - Strengthen the link between performance and pay by delivering awards based on measurable corporate and individual goals. Definitions The terms used in this Plan have the meanings set forth below. A. "Company" shall mean Lindsay Manufacturing Co. B. "Compensation Committee" shall mean the Compensation Committee of the Company's Board of Directors. C. "Financial Performance Component" shall mean the portion of a Participant's Plan award that is based on the Company's and specific Market financial performance as defined in Section 7B. D. "Individual Performance Component" shall mean the portion of a Participant's Plan award that is based on a Participant's performance relative to individual objectives established in accordance with Section 7C. E. "Named Executive Officers" shall mean the executives of the Company listed in the Executive Compensation section of the Company's Proxy Statement. F. "Participant" shall mean a key employee eligible for awards under the terms outlined in Section 4 of this Plan. G. "Plan" shall mean Lindsay Manufacturing Co. Management Incentive Plan. Effective Date The Plan shall be effective as of September 1, 2003 and will be in effect for the 2004 bonus year. The 2004 bonus year is defined as September 1, 2003 through August 31, 2004. Eligibility for Participation A. Participation in the Plan is limited to individuals in positions which have significant responsibility for and impact on the Company's corporate performance. B. Only the Chief Executive Officer and those employees in grades E through G are eligible to be considered for participation in the Plan. C. Participation in the Plan does not guarantee or entitle any employee to participate in any bonus plan enacted in the future. Participation in the Plan at any target bonus level does not guarantee or entitle any employee to be eligible to participate at any similar target bonus level in any bonus plan which may be enacted in the future. Enrollment in the Plan A. Initial Enrollment At the beginning of the Plan year, each Participant must be enrolled in the Plan subject to the approvals and eligibility criteria set forth in Sections 4 and 6. The enrollment process is as follows: i. Plan Participants will participate in the Plan at the standard target percent per grade level as listed in Section 6. ii. The Company's Chief Executive Officer will review the participant list and projected bonus costs of enrolled employees with the Compensation Committee. The Compensation Committee provides final approval on the aggregate potential cost of the Plan. B. Mid-year Enrollment When hiring or promoting employees during the Plan year who may be eligible for participation in the Plan, the following procedures must be followed: i. Prior to the commencement of the recruiting or promotion process, the hiring manager consults with Human Resources to determine the position's eligibility for participation in the Plan and the recommended target bonus amount. ii. Offer letters indicating bonus Plan participation and target bonus award opportunities to new hires and/or promoted employees must be reviewed by the CEO or, in the case of a Named Executive Officer, by the Compensation Committee. Target bonus recommendations must be approved before communication to a prospective Participant. Generally, employees hired or promoted during the fourth quarter 2004 are not eligible to participate in the 2004 Plan. Determination of Target Payout Levels A. Incentive awards will be calculated as a percentage of the Participant's actual base salary received during the Plan year. While award amounts will vary based on the range of award opportunity and an assessment of individual performance results, the target award opportunities for each grade level are shown below:
GRADE TARGET % OF SALARY CEO 60% G 35% F 25% E 15%
i. Actual participation is subject to approval by the CEO, or in the case of a Named Executive Officer, by the Compensation Committee. Actual participation is based on an assessment of the individual's position impact on the organization. ii. Standard target percents per grade level should be followed for all Plan Participants. B. If a Participant's Plan target award opportunity (Target % of Salary as set forth above) changes due to promotion into a grade level with a higher target bonus, the Participant's bonus will be calculated based on his or her actual salary during the Plan year and a weighted average bonus percentage. The weighted average bonus percentage will reflect the portion of the Plan year spent in each grade level (e.g., seven months at 15% and five months at 25%). In evaluating the performance of Participants who change positions during the Plan year, consideration will be given to the length of time and results in each position. Actual award decisions will be made by the CEO or, in the case of a Named Executive Officer, by the Compensation Committee. Generally, fourth quarter promotions will not result in an increase in a Participant's target award opportunity. C. Examples of various award calculations are included with this Plan document as Attachment A. D. The CEO will review and approve award recommendations for all employees other than Named Executive Officers prior to payout. Final approval authority for all payments (except for award payments to the Named Executive Officers) rests with the CEO. Individual award payments for all Participants (except the Named Executive Officers) may be adjusted at any time and for any reason at the discretion of the CEO. E. The Compensation Committee will determine the award payments to the Named Executive Officers. F. Award payments will be calculated on an annual basis and paid in accordance with the Company's normal payroll cycle. Payments will be made during the first quarter following the Plan year. The payment date may be changed at any time and for any reason at the discretion of the CEO, or in the case of a Named Executive Officer, with approval of the Compensation Committee. Basis of Awards A. Measurable performance objectives for each Plan Participant will be established at the beginning of the Plan year (or at mid-year for mid-year hires or newly eligible employees). In 2004, consideration will be given to: i. Financial Performance Component: Company and Market financial performance vs. Plan performance objectives in accordance with Section 7B. ii. Individual Performance Component: Participant's performance relative to individual goals established in accordance with Section 7C. iii. Individual and Financial Performance Components will be added to reach a Participant's total bonus. The relative weighting will vary by grade in accordance with the following schedule:
Financial Individual Grade Performance Performance CEO 80% 20% G 80% 20% F 65% 35% E 50% 50%
B. At the beginning of the Plan year, the objectives for the Financial Performance Component are identified and approved by the Compensation Committee. i. Recommended award amounts may range from 0 - 200% of the Financial Performance Component of the Participant's target award, based on performance. ii. Percentages between the threshold, target, and maximum award will be interpolated. iii. In the event of an acquisition, revenue and operating income resulting from the acquisition will be excluded from award payout calculations, unless (a) the CEO or Compensation Committee suggests a modification to the objectives under the Financial Performance Component that would incorporate revenue and income generated as a result of the acquisition, and (b) The Compensation Committee approves the modification. C. The Individual Performance Component will be based on written objectives set annually for Participants by their supervisors and approved by the CEO or, in the case of a Named Executive Officer, by the Compensation Committee. Objectives will be based on the Participant's position and may be financial, operational or strategic. i. Objectives under the Individual Performance Component may be linked to team-based goals, if appropriate ii. Examples of appropriate objectives under the Individual Performance Component include: - Safety - Customer Service - Market Share - On-time Delivery - Cost Reduction - Product Development iii. Recommended award amounts may range from 0% - 200% of the target amount under the Individual Performance Component. Recommended award amounts will be based on an assessment of the individual's performance relative to objectives established under the Individual Performance Component, in accordance with the following guidelines:
PAYOUT INDIVIDUAL (AS % OF TARGET INDIVIDUAL PERFORMANCE PERFORMANCE COMPONENT) Does not meet objectives 0% Meets some objectives 50% Meets most objectives 75% Meets all objectives 100% Exceeds objectives 150% Significantly exceeds objectives 200%
iv. The "Payout (as % of Target Individual Performance Component)" represents the payout relative to target award for the Individual Performance Component of the Plan. Changes in Employment Status A. Under most circumstances, Participants who cease to be employees of the Company during the Plan year or after the Plan year but prior to the date of actual payment will receive no award. Only active employees on the date that the bonus is paid will be eligible to receive an award. Any exceptions will require the approval of the CEO, or in the case of a Named Executive Officer, the Compensation Committee. B. In the event that a Participant transfers out of an eligible position into an ineligible position within the Company, the employee may be eligible for a prorated bonus award based upon the approval of the CEO, or in the case of a Named Executive Officer, the Compensation Committee. C. In all cases awards will be calculated and paid according to the provisions in Sections 6 and 7 of this Plan document. Administration A. General authority for Plan administration and responsibility for ongoing Plan administration will rest with the Compensation Committee of the Company's Board of Directors. The Compensation Committee has sole authority for decisions regarding interpretation of the terms of this Plan. B. The Company reserves the right to amend or change the Plan in whole or in part at any time during the Plan year. Amendments to the Plan require the approval of the Compensation Committee. C. Participation in the Plan does not constitute a contract of employment nor a contractual agreement of payment. It shall not affect the right of the Company to discharge, transfer, or change the position of a Participant. The Plan shall not be construed to limit or prevent the Company from adopting or changing, from time to time, any rules, standards or procedures affecting the Participant's employment with the Company or any Company affiliate, including those which affect bonus payouts. D. If any provision of this Plan is found to be illegal, invalid or unenforceable under present or future laws, that provision shall be severed from the Plan. If such a provision is severed, this Plan shall be construed and enforced as if the severed provision had never been part of it and the remaining provisions of this Plan shall remain in full force and effect and shall not be affected by the severed provisions or by its severance from this Plan. In place of any severed provision there shall be added automatically as part of this Plan a provision as similar in terms to the severed provision as may be possible and be legal, valid and enforceable. E. This is not an ERISA plan. This is a bonus program. ATTACHMENT A AWARD CALCULATION GUIDELINES The following examples are to be used as guidelines in calculating bonus awards at the end of the 2004 Plan year. Managers should use their discretion in calculating actual bonus awards and may consider exceptions to the calculations below when necessary. Any such exceptions must be fully documented and are subject to review and approval by the Chief Executive Officer, or in the case of a Named Executive Officer, the Compensation Committee.
Target Award ------- Full Year Participation - - September 1 - August 31 15% - - Target award opportunity: $75,000 - - Actual base salary received: $75,000 * 15% = $11,250 - - Plan target award calculation: Partial Year Participation - - February 15 - August 31 - - Target award opportunity: 25% - - Actual base salary received (for partial year employment): $61,250 - - Plan target award calculation: $61,250 * 25% = $15,312 Mid-year Promotion - - March 1 promotion - - Actual base salary received: $94,000 - - Target award opportunity at beginning of year: 15% - - Target award opportunity upon promotion: 25% - - Months from September 1 - March 1: 6 months - - Months from March 1 - August 31: 6 months - - Weighted average target award calculation: ((15% * 6 months) + (25% * 6 months)) / 12 months = 20.0% - - Plan target award calculation: $94,000 * 20.0% $18,800
EX-14 5 c81184exv14.txt CODE OF ETHICAL CONDUCT EXHIBIT 14 LINDSAY MANUFACTURING CO. Code of Ethical Conduct (Principal Executive Officer and Senior Financial Officers) This Code of Ethical Conduct ("Code") sets forth principles which the principal executive officer and senior financial officers are expected to adhere to and advocate. The Code embodies rules regarding individual and peer responsibilities, as well as responsibilities to Lindsay Manufacturing Co. (the "Company"), and its shareholders. In addition to this Code, the principal executive officer and senior financial officers are expected to adhere to the policies and principles contained in the Company's Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees of the Company. IN MY ROLE AS THE PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER OF THE COMPANY, I RECOGNIZE THAT PERSONS IN THESE POSITIONS PLAY A CRITICAL ROLE IN CORPORATE GOVERNANCE, AND I AM COMMITTED TO ENSURING THAT SHAREHOLDERS' AND OTHER STAKEHOLDERS' INTERESTS ARE APPROPRIATELY BALANCED, PROTECTED AND PRESERVED. I certify that I will adhere to and advocate the following principles and responsibilities governing my professional and ethical conduct. I understand and agree that failure to adhere to this Code constitutes grounds for discipline, termination of employment, and any other remedies available under the law. To the best of my knowledge and ability: 1. I will act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships. When conflicts of interest do arise, I will disclose such conflicts to either the Chairman of the Audit Committee or the Chairman of the Board of Directors of the Company. In addition, I will disclose to either the Chairman of the Audit Committee or the Chairman of the Board of Directors any material transactions or relationships that reasonably can be expected to give rise to such a conflict. I understand that a conflict of interest can arise any time a member of my family or I have any interest in any business, property or transaction, or have any right or obligation from or to any person, which might affect the fulfillment of my job responsibilities to the Company. 2. I will provide my constituents with information that is accurate, complete, objective, relevant, timely and understandable. In particular, I will do my best to ensure that reports and documents filed with or submitted to the Securities and Exchange Commission and New York Stock Exchange, or otherwise publicly communicated by the Company, contain full, fair, accurate, timely, and understandable disclosure. If I become aware that any information contained in such reports or publicly communicated by the Company is materially false or misleading or omits material information, I will promptly disclose this fact to either the Chairman of the Audit Committee or the Chairman of the Board of Directors in accordance with the Company's procedures for the receipt, retention and treatment of complaints and concerns regarding accounting, internal control or auditing matters. I understand that reports to the Audit Committee may be made on an anonymous basis. 3. I will comply with all applicable laws, rules, and regulations of the federal, state, foreign, provincial and local governments, and other appropriate private and public regulatory agencies. 4. If I become aware of a violation of the law or of this Code, I will promptly report the violation to either the Chairman of the Audit Committee or the Chairman of the Board of Directors. 5. I understand that I will be held accountable for my adherence to this Code and that failure to observe the terms of this Code may result in disciplinary action, up to and including termination of employment. 6. As the principal executive officer or a senior financial officer of the Company, I acknowledge that any waiver of the provisions of this Code may only be made by the Board of Directors or by a Board Committee and that any such waiver will require immediate public disclosure. Date:________________ Richard W. Parod, President and Chief Executive Officer Date:________________ Bruce C. Karsk, Executive Vice President and Chief Financial Officer Date:________________ Thomas Costanza, Corporate Controller
EX-21 6 c81184exv21.txt SUBSIDIARIES . . . EXHIBIT 21 SUBSIDIARIES OF LINDSAY MANUFACTURING CO.
Ownership Percentage ---------- Lindsay International Sales Corporation - Delaware 100% Lindsay Transportation, Inc. - Nebraska 100% Lindsay Foreign Sales Corporation - Virgin Islands (Inactive) 100% Lindsay - Irrigation Pty., Ltd. - Australia (Inactive) 100% Lindsay Europe SA - France 100% Irrigation Specialists, Inc. - Delaware 100% Lindsay America do Sul Ltda. - Brazil 100% Lindsay Manufacturing Africa - South Africa 100% LMC Professional Supply, Inc. - Delaware (Inactive) 100%
EX-23 7 c81184exv23.txt CONSENT OF KPMG LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT To the Board of Directors of Lindsay Manufacturing Co.: We consent to the incorporation by reference in the registration statement (No. 333-00769) on Form S-8 of Lindsay Manufacturing Co. of our report dated October 10, 2003, with respect to the consolidated balance sheets of Lindsay Manufacturing Co. and subsidiaries as of August 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended August 31, 2003, and all related financial statement schedules, which report appears in the August 31, 2003, annual report on Form 10-K of Lindsay Manufacturing Co. Omaha, Nebraska October 10, 2003 EX-24.(A) 8 c81184exv24wxay.txt POWER OF ATTORNEY EXHIBIT 24(a) POWER OF ATTORNEY The undersigned, being a director of Lindsay Manufacturing Co. (the "Company"), hereby appoints Richard W. Parod as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending August 31, 2003, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the Company. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated.
SIGNATURE CAPACITY DATE --------- -------- ---- /s/ MICHAEL N. CHRISTODOLOU Chairman of the Board - ------------------------------------- of Directors November 7, 2003 Michael N. Christodolou /s/ HOWARD G. BUFFET Director November 11, 2003 - ------------------------------------- Howard G. Buffet /s/ LARRY H. CUNNINGHAM Director November 7, 2003 - ------------------------------------- Larry H. Cunningham /s/ J. DAVID MCINTOSH Director November 7, 2003 - ------------------------------------- J. David McIntosh /s/ MICHAEL C. NAHL Director November 7, 2003 - ------------------------------------- Michael C. Nahl /s/ WILLIAM F. WELSH II Director November 7, 2003 - ------------------------------------- William F. Welsh II
EX-31.1 9 c81184exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Richard W. Parod, certify that: 1. I have reviewed this annual report on Form 10-K of Lindsay Manufacturing Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ RICHARD W. PAROD President and Chief Executive Officer - -------------------- November 21, 2003 Richard W. Parod EX-31.2 10 c81184exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, Bruce C. Karsk, certify that: 1. I have reviewed this annual report on Form 10-K of Lindsay Manufacturing Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ BRUCE C. KARSK Executive Vice President and Chief Financial Officer - ------------------ November 21, 2003 Bruce C. Karsk EX-32.1 11 c81184exv32w1.txt CERTIFICATIONS OF CEO AND CFO EXHIBIT 32.1 CERTIFICATION In connection with the accompanying Annual Report on Form 10-K (the "Report") of Lindsay Manufacturing Co. (the "Company") for the year ended August 31, 2003, I, Richard W. Parod, Chief Executive Officer of the Company and I, Bruce C. Karsk, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ RICHARD W. PAROD --------------------------------------- President and Chief Executive Officer Richard W. Parod /s/ BRUCE C. KARSK ------------------------------------------------------- Executive Vice President and Chief Financial Officer Bruce C. Karsk November 21, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----