<PAGE> 1
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, 1998 OR
- ---------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _________
Commission File Number 0-17116
Lindsay Manufacturing Co.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 47-0554096
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 156, East Highway 91, Lindsay, Nebraska 68644
- ------------------------------------------- ----------
(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.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
As of November 17, 1998, 13,146,657 shares of the registrant's Common Stock were
outstanding and the aggregate market value of all Common Stock held by
non-affiliates (12,032,619 shares) was $188,761,711 based upon the final sales
price on the New York Stock Exchange, Inc. on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders are incorporated herein by
reference into Parts I, II and IV.
Portions of the Proxy Statement pertaining to the January 26, 1999, annual
stockholders' meeting are incorporated herein by reference into Part III.
Exhibit index is located on page 10-12.
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ITEM 1 - BUSINESS
(a) Lindsay Manufacturing Co. ("Lindsay" or the "Company") is a leading
designer, manufacturer and international and domestic marketer, under its
"Zimmatic" trademark, of electrically powered automatic continuous move systems
for the irrigation of agricultural crops and related products and services.
Lindsay also produces and sells large diameter tubing; manufactures and
assembles products for other manufacturers (such as corn planters and
sub-assemblies for construction equipment).
Lindsay was founded in 1955 and incorporated under Nebraska law in 1969.
DEKALB Energy Company, ("DEKALB", formerly DEKALB Corporation) acquired Lindsay
in 1974 through its merger into Lindsay Manufacturing Co., a wholly-owned
Delaware subsidiary of DEKALB. The company was a wholly-owned subsidiary of
DEKALB until October 1988.
(b) Industry segment information is included in Part II, Item 8, Footnote L. The
information required by this item is incorporated by reference from the 1998
Annual Report to Shareholders on page 23.
(c) PRODUCT. Lindsay's irrigation systems are primarily of the 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 percent of
Lindsay's irrigation system sales.
A typical center pivot for the U.S. market is approximately 1,300 feet
long and is designed to circle within a standard quarter-section of land, which
comprises 160 acres, wherein it irrigates approximately 135 acres. A typical
center pivot for the international market is also approximately 1,300 feet long.
Center pivot or lateral move systems can also be custom designed and can
irrigate from 25 to 500 acres.
A center pivot system represents a significant investment to a farmer. A
typical 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. Lindsay estimates
that there are approximately 160,000 to 170,000 center pivot irrigation systems
in operation worldwide, resulting in a significant replacement parts business.
TYPES OF IRRIGATION - COMPETITIVE PRODUCTS. Center pivot and lateral move
irrigation systems compete with three other types of irrigation: flood, drip and
other mechanical devices. 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
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source is moved and another set of rows are flooded. In "drip" or "trickle"
irrigation, perforated pipe is installed on the ground or buried underground at
the root level. Several other types of mechanical devices irrigate the remaining
irrigated acres. These other types of mechanical devices are not generally being
replaced and no longer generate significant sales.
Center pivot 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 is a
critical determinant in crop performance 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 increased value of crop production attributable to
center pivot or lateral move irrigation exceeds any increased costs associated
with installing and operating the equipment. Thus, the decision to install a
center pivot or lateral move system reflects the profitability of agricultural
production, which is determined primarily by the prices of agricultural
commodities and the costs of other farming inputs.
In addition, demand for center pivots and lateral moves 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 competitive 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, Lindsay expects demand for center pivots and
lateral moves to increase relative to other irrigation methods.
UNITED STATES MARKET. The information required by this item is
incorporated by reference from the 1998 Annual Report to Shareholders under the
heading "Operations Review" on pages 7 through 11.
INTERNATIONAL MARKET. The information required by this item is
incorporated by reference from the 1998 Annual Report to Shareholders under the
heading "Operations Review" on pages 7 through 11 and Notes to Consolidated
Financial Statements A(7) on page 20.
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COMPETITION. During the 1970's there were over 30 domestic manufacturers
of center pivot irrigation systems, while six manufacturers remain today.
Lindsay believes that Lindsay controls approximately 35 percent of the U.S.
market and 50% of the export market for center pivot and lateral move irrigation
equipment.
There is a high level of price competition and utilization of seasonal
promotional programs. Competition also occurs in areas of product quality and
durability, advanced product technology, product characteristics, retention and
reputation of local dealers, post-sale service, and, at certain times of the
year, the availability of systems and their delivery time. Lindsay believes it
generally competes favorably with respect to these factors.
DIVERSIFIED PRODUCTS AND SERVICES
The information required by this item is incorporated by reference from
the 1998 Annual Report to Shareholders under the heading "Operations Review" on
pages 7 through 11.
SEASONALITY/CYCLICALITY
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 Lindsay's second and third quarters for the
spring planting period. Lindsay's expansion into diversified manufacturing
complements its irrigation operations by using available capacity and reducing
seasonality.
ORDER BACKLOG
As of August 31, 1998 and 1997, Lindsay had an order backlog of $14.1
million and $27.3 million, respectively. At fiscal year end 1998, Lindsay had a
$6.9 million order backlog for irrigation equipment. This was a decrease of 49%
from fiscal year end 1997's irrigation equipment order backlog of $17.1 million.
Lindsay believes that lower crop and commodity prices raised farmer concern
about farm income and demand slowed resulting in a decreased order backlog. At
year end fiscal 1998, order backlog for diversifed products totaled $7.2
million, down 29% from $10.2 million at fiscal year end 1997.
Lindsay manufactures a center pivot or lateral move system only upon a
firm order. International orders are generally shipped against prepayments or
receipt of an irrevocable letter of credit confirmed by a United States bank or
other secured means, which call for delivery within time periods negotiated with
the customer. Orders for the U.S. market are manufactured to dealer order,
accompanied by a down payment.
RAW MATERIALS AND COMPONENTS
Raw materials used by Lindsay include coil steel, angle steel, plate
steel, zinc, tires, gearboxes, fasteners and electrical components (motors,
switches, cable and stators). Lindsay has, on occasion, faced shortages of
certain such materials. Lindsay believes it currently has ready access to
adequate supplies of raw materials and components.
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CAPITAL EXPENDITURES
Capital expenditures for fiscal 1998, 1997 and 1996, were approximately
$5.1 million, $3.8 million and $4.0 million, respectively. Fiscal 1998 capital
expenditures were used primarily for upgrading plant and computer equipment.
Capital expenditures for fiscal 1999 are expected to be approximately $4.0 to
$5.0 million and will be used to complete the conversion of a major fabrication
process started in fiscal year 1998 to further automate Lindsay's facility, a
new employee breakroom and office renovation and expansion, and other planned
improvements. The Company expects annual capital expenditures for plant
expansion over the next several years to approximate the $3.0 to $4.0 million
level per year.
PATENTS, TRADEMARKS, LICENSES
The "Zimmatic" and other trademarks are registered in most markets in
which Lindsay sells its product. Lindsay follows a policy of applying for
patents on all significant patentable inventions. Although Lindsay 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 Lindsay at fiscal year end 1998, 1997
and 1996 were 551, 553 and 542, respectively. Lindsay currently employs
approximately 500 persons. None of Lindsay's employees are represented by a
union.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
Like other manufacturing concerns, Lindsay is subject to numerous laws and
regulations which govern occupational health and safety and the discharge and
disposal of materials into the environment. Lindsay 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 the Lindsay,
Nebraska facility. Although all currently required permits have been obtained by
Lindsay, 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 environmental regulations or standards can be achieved
only through additional capital and operational expenditures. See Item 3 Legal
Proceedings.
SUBSIDIARIES
Since 1996, international sales personnel have been located at the
corporate office in Lindsay, Nebraska as part of Lindsay International Sales
Corporation, a subsidiary which conducts foreign sales operations for Lindsay.
Lindsay Transportation, Inc., a wholly-owned subsidiary, was formed in 1975. It
owns approximately 115 trailers and, through lease of tractors, supplies the
ground transportation in the United States and Canada for Lindsay's products and
the bulk of incoming raw materials, and hauls other products on backhauls.
Lindsay also has three non-operational subsidiaries.
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ITEM 2 - PROPERTIES
Lindsay owns and occupies 43 acres in Lindsay, Nebraska. Its manufacturing
operation has eight separate buildings, with approximately one-half million
square feet of manufacturing area under roof. With the Company's current
manufacturing capacity, the Company can increase sales without a major
investment in facilities and capital equipment.
ITEM 3 - LEGAL PROCEEDINGS
Lindsay is a party to a number of lawsuits arising from environmental and
other issues in the ordinary course of its business. Management does not believe
that these lawsuits, either individually or in the aggregate, are likely to have
a material adverse effect on Lindsay's financial condition, results of
operations or cash flows.
Environmental contamination at Lindsay's manufacturing facility occurred
in 1982 when a drill, operated by a sub-contractor installing groundwater
monitoring wells, punctured a silt and sand lens and an underlying clay layer
beneath a clay-lined lagoon. The 1982 puncture of the clay layer caused acid and
solvent leachate to enter the sand and gravel aquifer.
Since 1983, Lindsay has worked actively with the Nebraska Department of
Environmental Control ("NDEC") to remediate this contamination by purging and
treating the aquifer. In October 1989, the Environmental Protection Agency
("EPA") added Lindsay to the list of priority Superfund sites. In 1988, a
sampling which was performed in connection with an investigation of the extent
of aquifer groundwater contamination revealed solvent contamination (volatile
organic compounds) in the soil and shallow groundwater in three locations at and
in the vicinity of the plant. Under a 1988 agreement with the EPA and NDEC,
Lindsay conducted a Remedial Investigation/Feasibility Study ("RI/FS"). This
study was completed in June 1990. Lindsay does not believe that there is any
other soil or groundwater contamination at the manufacturing facility.
In September 1990, the EPA issued its Record of Decision ("ROD") selecting
a plan for completing the remediation of both contaminations. The selected plan
implementation was delayed until finalization of the Consent Decree in April
1992. The final remediation plans were approved in 1993 and 1994 and the
remediation plans were fully implemented during fiscal 1995.
The balance sheet reserve for this remediation was $0.1 million and $0.3
million at August 31, 1998 and 1997, respectively.
Lindsay believes that the current reserve is sufficient to cover the
estimated cost for complete remediation of both the aquifer and soil and shallow
groundwater contaminations under the final plans. If the EPA or the NDEC require
remediation which is in addition to or different from the current plan this
reserve could increase or decrease depending on the nature of the change in
events.
Lindsay believed that its insurer should cover costs associated with the
contamination of the aquifer that was caused by the puncture of the clay layer
in 1982. In May 1998 the Company reached an agreement to settle this claim with
the insurer for $4.0 million which is included in other income.
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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 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, positions and past five
years experience are set forth below. All officers are elected for one year
terms, which can be annually renewed at a Board of Directors meeting. This
meeting is scheduled for January 26, 1999.
Age Position with the Company
--- -------------------------
Gary D. Parker 53 Chairman, President and Chief Executive Officer
Eduardo R. Enriquez 58 Vice President - International
Bruce C. Karsk 46 Vice President - Finance, Treasurer and
Secretary
Clifford P. Loseke 60 Vice President - Manufacturing
Charles H. Meis 52 Vice President - Engineering
Robert S. Snoozy 52 Vice President - Domestic Sales
Mr. Gary D. Parker is Chairman, President and Chief Executive Officer of
Lindsay, and has held such positions since December 1989. Prior to that time,
and since 1984, he was President and Chief Executive Officer of Lindsay. He
served as Executive Vice President from 1978 to 1984. Mr. Parker has also been a
Director since 1978.
Mr. Eduardo R. Enriquez is President of Lindsay International Sales
Corporation and has served in that capacity and as Vice President -
International of Lindsay since May of 1986. Prior to that time, and since 1981,
he was Vice President - Sales of Lindsay International Sales Corporation.
Mr. Bruce C. Karsk is Vice President - Finance, Treasurer and Secretary of
Lindsay and has held such positions since 1984. Prior to that time, and since
1981, Mr. Karsk had been the Controller.
Mr. Clifford P. Loseke is Vice President - Manufacturing of Lindsay, a
position he has held since 1975.
Mr. Charles H. Meis is Vice President - Engineering of Lindsay and has
held such position since 1975.
Mr. Robert S. Snoozy became Vice President - Domestic Sales of Lindsay in
November 1997. From 1986 through November 1997 Mr. Snoozy was Vice President of
Sales and Marketing. Prior to that time, and since 1978, he had been Vice
President of Marketing.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Lindsay Common Stock began public trading on October 12, 1988. Since
October 21, 1997, Lindsay's common stock is trading on the New York Stock
Exchange, Inc. (NYSE) under the ticker symbol "LNN". Prior to trading on the
NYSE, Lindsay common stock traded on the Nasdaq National Market. As of November
17, 1998 there were approximately 250 shareholders of record and an estimated
4,800 shareholders for whom securities firms acted as nominees.
The following table sets forth for the periods indicated the range of the
high and low sales price and dividends paid:
<TABLE>
<CAPTION>
FISCAL YEAR 1998 FISCAL YEAR 1997
---------------- ----------------
STOCK PRICE STOCK PRICE
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $33.50 $25.33 $0.024 $20.67 $16.54 $0.022
Second Quarter 29.00 25.42 0.033 24.33 17.79 0.023
Third Quarter 32.58 26.21 0.033 24.50 18.67 0.023
Fourth Quarter 30.92 20.00 0.035 26.00 19.33 0.023
------ ------ ------ ------ ------ ------
Year $33.50 $20.00 $0.125 $26.00 $16.54 $0.091
</TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from the
1998 Annual Report to Shareholders under the heading "Selected Financial Data"
on page 12.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this item is incorporated by reference from the
1998 Annual Report to Shareholders under the heading "Management's Discussion
and Analysis" on pages 13 through 16.
CONCERNING FORWARD-LOOKING STATEMENTS - This Report on Form 10K, including
the Management's Discussion and Analysis, Year 2000 and other sections, contains
forward-looking statements that are subject to risks and uncertainties and which
reflect management's current beliefs and estimates of future economic
circumstances, industry conditions, Company performance and financial results.
Forward-looking statements include the information concerning possible or
assumed future results of operations of the Company and those statements
preceded by, followed by or include the words "future", "position",
"anticipate(s)", "expect", "believe(s)", "see", "plan", "further improve",
"outlook", "should", or similar expressions. 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. Readers of
this Report should understand that the following important
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factors, in addition to those discussed elsewhere in this document, could affect
the future results of the Company and could cause those results to differ
materially from those expressed in these forward-looking statements:
availability of and price of raw materials, product pricing, competitive
environment and related domestic and international market conditions, operating
efficiencies and actions of domestic and foreign governments. Any changes in
such factors could result in significantly different results.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not subject to material market risks with respect to its
marketable securities.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and accompanying notes, together with the report
of independent accountants are incorporated by reference from the 1998 Annual
Report to Shareholders on pages 16 through 23.
The information required by Item 302 of Regulation S-K is incorporated by
reference from the 1998 Annual Report to Shareholders under the heading
"Quarterly Data" on page 12.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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, 1998. 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 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 that it complied with all section 16 filing requirements
during the fiscal year ended August 31, 1998 except for two late filings of Form
4 Statement of Changes to Beneficial Ownership; (1) Gary D. Parker relating to
an exercise of options on December 8, 1997, due January 10, 1998, filed January
23, 1998, resulting from a clerical error, (2) Charles H. Meis relating to an
exercise of options February 5, 1998, due March 10, 1998, filed October 9, 1998,
inadvertently overlooked.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from
the Proxy Statement.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from
the Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of Lindsay Manufacturing Co. are
incorporated by reference under Item 8. The 1998 Annual Report to Shareholders
is attached as Exhibit 13.
Reference Page
--------------
Annual Shareholders
Report
Report of Independent Accountants 16
Consolidated Statements of Operations for the Years
ended August 31, 1998, 1997 and 1996 17
Consolidated Balance Sheets at
August 31, 1998 and 1997 18
Consolidated Statements of Shareholders' Equity
for the years ended August 31, 1998, 1997 and 1996 17
Consolidated Statements of Cash Flows for the Years
ended August 31, 1998, 1997 and 1996 19
Notes to Consolidated Financial Statement 20-23
(a)(2) Financial Statement Schedule
Reference Page
--------------
Form 10-K
Annual Report
Report of Independent Accountants 14
Schedule
VIII. Valuation and Qualifying Accounts -
Years ended August 31, 1998, 1997 and 1996 15
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.
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a(3) EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
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 incorporated by reference to Amended
Exhibit 3(b) of Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-23084), filed
September 23, 1988. -
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) Employment Agreement between the Company and Gary D. Parker,
effective September 1, 1997, incorporated by reference to
Exhibit 10(b) of the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1997. -
10(c) Indemnification Agreement between the Company and its directors and
officers, dated October 10, 1988, incorporated by reference to
Exhibit 10(f) of the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1988. -
10(d) Lindsay Manufacturing Co. Long-Term Incentive Plan,
incorporated by reference to amended Exhibit 10(h) of
Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 33-23084), filed September
23, 1988. -
10(e) Lindsay Manufacturing Co. Profit Sharing Plan, incorporated
by reference to Exhibit 10(i) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23084), filed
July 15, 1988. -
</TABLE>
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a(3) EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10(f) Lindsay Manufacturing Co. 1991 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(h) of the Company's
Annual Report on Form 10-K for the fiscal year ended August
31, 1992. -
10(g) Employment Agreement between the Company and Bruce C. Karsk,
Eduardo R. Enriquez, Clifford P. Loseke, Charles H. Meis, and
Robert S. Snoozy, effective September 1, 1997, incorporated by
reference to Exhibit 10(g) of the Company's Annual Report on
Form 10-K for the fiscal year ended August 31, 1997. -
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. -
13 Lindsay Manufacturing Co. 1998 Annual Report to Shareholders. 16-43
21 Subsidiaries of the Company, incorporated by reference to Exhibit 22
of the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1988. -
23 Consent of PricewaterhouseCoopers LLP 44
24(a) The Power of Attorney authorizing Gary D. Parker and Bruce C. Karsk
and each of them singly to sign the Annual Report on Form 10-K on
behalf of each other and certain directors. 45
27 Financial Data Schedule 46
</TABLE>
(b) Reports on Form 8-K
The Registrant has not filed any reports on Form 8-K during the fourth
quarter of fiscal 1998.
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<PAGE> 13
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 25th day of
November, 1998.
LINDSAY MANUFACTURING CO.
By: Bruce C. Karsk
----------------------------------------------------
Name: Bruce C. Karsk
--------------------------------------------------
Title: Vice President-Finance, Treasurer and Secretary;
------------------------------------------------
Principal Financial and Accounting Officer
------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 25th day of November, 1998.
Gary D. Parker (1) Chairman, President and Chief Executive Officer
- -------------------------------
Gary D. Parker
Bruce C. Karsk Vice President - Finance, Treasurer and
- ------------------------------- Secretary; Principal Financial and Accounting
Bruce C. Karsk Officer
Ralph J. Kroenke Controller
- -------------------------------
Ralph J. Kroenke
Vaughn L. Beals, Jr. (1) Director
- -------------------------------
Vaughn L. Beals, Jr.
Howard G. Buffett (1) Director
- -------------------------------
Howard G. Buffett
John W. Croghan (1) Director
- -------------------------------
John W. Croghan
George W. Plossl (1) Director
- -------------------------------
George W. Plossl
(1) By: Bruce C. Karsk
---------------------------------
Bruce C. Karsk, Attorney-In-Fact.
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<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Lindsay Manufacturing Co.
Our report on the consolidated financial statements of Lindsay Manufacturing Co.
is incorporated by reference to this Form 10-K from page 16 of the Fiscal 1998
Annual Report to Shareholders of Lindsay Manufacturing Co. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the Index to Financial Statement
Schedules on page 10 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PRICEWATERHOUSECOOPERS LLP
Omaha, Nebraska
October 8, 1998
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<PAGE> 15
Lindsay Manufacturing Co.
SCHEDULE VIII - VALUATION and QUALIFYING ACCOUNTS
Years ended August 31, 1998, 1997 and 1996
(Dollars in thousands)
----------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ---------------------------- -------- --------
Additions
----------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1998:
Deducted in the balance sheet from the
assets to which they apply:
- Allowance for doubtful accounts $ 743 $ 0 $ 0 $ 0(a) $ 743
============= ============= ========== ============== ===========
- Allowance for inventory obsolescence $ 669 $ 330 $ 0 $ 64(b) $ 935
============= ============= ========== ============== ===========
Year ended August 31, 1997:
Deducted in the balance sheet from the
assets to which they apply:
- Allowance for doubtful accounts $ 723 $ 60 $ 0 $ 40(a) $ 743
============= ============= ========== ============== ===========
- Allowance for inventory obsolescence $ 690 $ 3 $ 0 $ 24(b) $ 669
============= ============= ========== ============== ===========
Year ended August 31, 1996:
Deducted in the balance sheet from the
assets to which they apply:
- Allowance for doubtful accounts $ 573 $ 260 $ 0 $ 110(a) $ 723
============= ============= ========== ============== ===========
- Allowance for inventory obsolescence $ 672 $ 89 $ 0 $ 71(b) $ 690
============= ============= ========== ============== ===========
</TABLE>
- ----------
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.
-15-
<PAGE> 1
EXHIBIT 13
COVER
FOR 1998 ANNUAL REPORT
SHOWING
CENTER PIVOT IN
WHEAT FIELD
WITH THE TAG LINE
LEADERSHIP AND STRENGTH YOU
CAN DEPEND ON TODAY AND TOMORROW
<PAGE> 2
LINDSAY MANUFACTURING CO.
PASSING THE TEST, MEETING THE CHALLENGE
A leading manufacturer and worldwide marketer of center pivot and lateral move
irrigation systems, Lindsay Manufacturing Co. (NYSE: LNN) is employing its
proven strategy to capitalize on current conditions as well as on strong
long-term prospects. Today, weak agricultural commodity prices are testing the
operations of both farmers and farm equipment manufacturers. Lindsay, however,
is strategically and financially positioned to pass the test, thanks to
management's commitment to superior products, a first-rate dealer network and an
efficient manufacturing operation. That same commitment enabled Lindsay to
become an world leader in center pivot irrigation, having risen from a highly
fragmented playing field of three decades ago.
The success of Lindsay's strategy is evidenced by the company's track
record of results. Over the past five fiscal years, the company has grown net
earnings at a 14.1% compounded annual rate and increased revenues at an 8.8%
compounded annual rate. During the same period, Lindsay raised its gross margin
to 27.5% from 23.3%, while improving its net margin to 13.3% from 10.5%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PERFORMANCE OBJECTIVES 5-year
Goal FY98 FY97 Average
---- ---- ---- -------
<S> <C> <C> <C> <C>
Annual Sales Growth 5-10% (1.7)% 16.2% 8.8%
Gross Margin 24-29% 27.5% 25.8% 24.9%
Operating Margin 12-17% 17.4% 16.7% 15.0%
Return on Beginning Equity (1) 20-25% 23.9% 26.1% 22.6%
(1) Excluding a 1998 $4.0 million gain ($2.7 million after tax)
related to a litigation settlement.
- -------------------------------------------------------------------------------
</TABLE>
Management continuously works to ensure the company's operating results
are reflected in Lindsay's stock performance, as demonstrated by the company's
cash dividend, history of stock splits and share repurchase program. As a
result, they have achieved over a 1,400% return on original investment since the
company's initial public offering in October 1988. Lindsay's performance
significantly outpaced the Standard & Poor's 500 Index, which, including
dividends, returned approximately 358% during that time. In fiscal 1998, the
company declared its fifth three-for-two stock split in eight years and
repurchased 708,743 shares.
Even more compelling than yesterday's results are Lindsay's long term
prospects for success, which arise from the necessary evolution of agriculture.
In response to a growing world population and gradual economic expansion,
farmers around the globe will be challenged to achieve increased productivity
and crop yields. But it won't be business as usual, instead farmers will need to
employ more efficient tools and technologies as they also strive to adapt to a
diminishing per capita water supply and increasing environmental regulation. As
a leading manufacturer and worldwide exporter of one of the only pieces of
capital equipment that can increase yields through higher crop production, while
conserving water and reducing the need for chemical inputs, Lindsay is in prime
position to help farmers meet that challenge.
Projected long-term demand for agricultural commodities also bodes well
for Lindsay's Diversified Products segment, through which the company produces
large-diameter steel tubing and provides outsource manufacturing services for a
customer base that includes several leading farm and construction equipment
manufacturers. In fiscal 1998, this segment contributed 16% of Lindsay's total
revenues. Management is working to increase this segment to 25% of total sales,
primarily by broadening the range of products Lindsay manufactures for its
current customer base.
Lindsay's unleveraged balance sheet and strong cash position provide
the means for management to continue to capitalize on growth opportunities. At
August 31, 1998, the company carried almost no long-term debt and had cash and
marketable securities totaling $65.7 million. At fiscal year-end, shareholders'
equity stood at $90.9 million, or $6.69 per share, up from $87.0 million, or
$6.16 per share a year ago.
-------------------------------------------------------------
TABLE OF CONTENTS
Financial and Operating Highlights .........................1
Letter to Shareholders .....................................2
Operations Review ..........................................7
Selected Financial Data and Analysis ......................12
Financial Statements ......................................17
Notes .....................................................20
Directors and Officers ....................................24
Investor Information .......................Inside Back Cover
-------------------------------------------------------------
<PAGE> 3
LINDSAY MANUFACTURING CO.
FINANCIAL AND OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
($ in thousands, except per share amounts 1998 1997 % Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Data
for the fiscal years ended August 31
Operating revenues................. $ 155,707 $ 158,327 (1.7%)
Gross profit....................... 42,841 40,920 4.7
Operating expenses................. 15,713 14,444 8.8
Operating income................... 27,128 26,476 2.5
Interest and other income, net..... 7,504 3,453 117.3
Pre-tax earnings................... 34,632 29,929 15.7
Net earnings....................... $ 23,480 $ 20,052 17.1
Average shares outstanding
assuming dilution................ 14,555,794 14,979,595 (2.8%)
Balance Sheet Data
at August 31
Current assets..................... $ 50,715 $ 49,827 1.8%
Fixed assets (net of depreciation
and amortization)................ 14,071 11,294 24.6
Total assets....................... 108,914 107,983 0.9
Current liabilities................ 16,801 19,479 (13.7)
Stockholders' equity............... 90,880 86,968 4.5
Capital expenditures............... 5,091 3,335 52.7
Depreciation and amortization...... $ 2,286 $ 2,015 13.4%
Per Share Data
Net earnings....................... $ 1.61 $ 1.34 20.1%
Book value......................... $ 6.69 $ 6.16 8.6%
Performance Ratios
Operating margin................... 17.4% 16.7%
Net margin......................... 15.1% 12.7%
Return on beginning equity......... 27.0% 26.1%
Employee Information
Average number of employees........ 597 601 (0.7%)
Revenue per employee............... $ 261 $ 263 (0.8%)
Number of employees at year end.... 551 553 (0.4%)
- -------------------------------------------------------------------------------
</TABLE>
Share amounts and per share results for all periods are stated on a diluted
basis and have been adjusted to reflect Lindsay's three-for-two stock split
declared on June 15, 1998.
REVENUES BAR CHART [GRAPH]
REVENUES
($ in millions)
Year Revenues
1989 92.6
1990 102.7
1991 98.7
1992 108.9
1993 102.1
1994 112.7
1995 111.8
1996 136.2
1997 158.3
1998 155.7
Since 1989, revenues have increased 68% from $92.6 million to $155.7 million in
1998.
NET MARGIN BAR CHART [GRAPH]
NET MARGIN
(Percentage)
Year Net Margin
1989 8.0
1990 8.2
1991 9.0
1992 10.1
1993 10.5
1994 10.6
1995 10.5
1996 12.1
1997 12.7
1998 15.1
Strong operating efficiencies have allowed the Company to increase net margin
from 8% in 1989 to 15.1% in 1998.
NET EARNINGS PER SHARE BAR CHART [GRAPH]
NET EARNINGS PER SHARE
(Dollars)
Year Per Shares
1989 0.47
1990 0.54
1991 0.57
1992 0.68
1993 0.66
1994 0.72
1995 0.73
1996 1.08
1997 1.34
1998 1.61
Earnings per share have risen 243% from $0.47 in 1989 to $1.61 in 1998.
1
<PAGE> 4
LINDSAY MANUFACTURING CO.
DEAR FELLOW SHAREHOLDERS:
Lindsay's full-year operating performance met expectations. Through expanded
automation, we made further productivity gains and increased both our gross and
operating margins. However, during the fourth quarter, weak agricultural
commodity pricing did begin to negatively affect all three segments of our
business.
Three years of record or near-record U.S. crop production has created an
oversupply of grain; while a strong U.S. dollar, increased foreign competition
and economic woes abroad diminished demand for exports of grain, as well as
other farm commodities. Prices for many of the crops that use center pivot
irrigation are down significantly, with some off by as much as half compared
with the year-ago period. Although 1998 net cash farm income is expected to be
down only moderately--falling in the $54 to $57 billion range versus $60 to $61
billion in the prior two years--there is a significant level of concern about
lower net farm cash income for 1999. I believe this factor will impact Lindsay's
1999 operating performance, particularly during the first half of the year.
Down cycles are nothing new to agriculture, however. They've happened
before and most likely will happen again, testing the operations of farmers and
agricultural equipment manufacturers alike. Historically, Lindsay has not only
weathered the storm but made gains in challenging environments. In fact, it was
during the downturn in the mid-1980s that we embarked on the remaking of our
company. Since then, we have committed ourselves to sustained industry
leadership through superior products, distribution and operations. As a result,
we are in a better position than ever to continue to deliver shareholder value
by capitalizing on current opportunities as well as strong long-term prospects.
- -------------------------------------------------------------------------------
EXPECTATIONS MET, ACTIONS TAKEN
- -------------------------------------------------------------------------------
Revenues for fiscal 1998 decreased slightly to $155.7 million from record
revenues of $158.3 million reported for fiscal 1997. Excluding a $4 million
litigation settlement ($2.7 million after tax) realized in the third quarter,
earnings were $20.8 million, or $1.42 per share, versus $20.1 million, or $1.34
per share, a year ago. Including the one-time gain, fiscal 1998 net earnings
were $23.5 million, or $1.61 per share.
Domestic irrigation equipment revenues increased 4 percent year-over-year
on flat unit sales. Export irrigation equipment sales were down 14 percent from
fiscal 1997, due to lower demand in Latin America and a strong U.S. dollar which
dampened demand in Western Europe and South Africa. Diversified products revenue
was 6 percent lower, with both outsource manufacturing and tubing sales
experiencing declines. Domestic irrigation composed 64 percent of fiscal 1998
revenue, export irrigation contributed 18 percent, diversified products
contributed 16 percent and other revenues 2 percent.
[FY98 BUSINESS SEGMENTS PIE CHART]
Domestic Export Diversified
Irrigation Irrigation Products Other
64% 18% 16% 2%
Each of Lindsay's three business segments offer long-term growth potential.
The effects of lower agricultural commodity prices and a strong U.S.
dollar were evident in our order backlog, which totaled $14.1 million at
year-end. Though significantly under our year-ago backlog of $27.3 million, it
has begun to build modestly as of this writing. I believe that many farmers have
decided to delay capital equipment purchases until after completing the harvest
and fall field work when they will be better able to assess their financial
condition for 1999.
In response to lower end-user demand, we took early action in September of
1998, including reducing our work force and shortening work weeks in almost all
departments, to bring Lindsay's cost structure more in line with expected lower
revenues. We are closely monitoring changes in demand and will make further
adjustments and cut both manufacturing overhead and sales, general and
administrative costs where appropriate.
At year-end, shareholders' equity stood at $90.9 million, or $6.69 per
share, up from $87.0 million, or $6.16 per share, a year
2
<PAGE> 5
"GOOD PERFORMANCE UNDER FAVORABLE CONDITIONS IS EXPECTED OF ALL COMPANIES.
HOWEVER, AN ORGANIZATION'S ABILITY TO WEATHER A MORE CHALLENGING
ENVIRONMENT IS A TRUER TEST OF OPERATIONS."
ago. Excluding the litigation settlement, Lindsay returned 23.9 percent on
beginning shareholders equity, which was well within our goal of 20 to 25
percent, though under a particularly strong return of 26.1 percent achieved a
year ago.
In fiscal 1998, we also enhanced shareholder value through continued
payment of Lindsay's quarterly cash dividend, by undertaking our fifth
three-for-two stock split in eight years and through further share repurchases.
Over the past year, we used $19.4 million of Lindsay's balance sheet cash to
repurchase 708,743 shares. We are continuing to invest in share repurchases,
having bought back 484,900 shares in the first 75 days of fiscal 1999. This
activity left us with remaining authorization to repurchase an additional
545,000 shares. Since implementing the program four years ago, Lindsay has
bought back 3.5 million shares at a total cost of about $56.9 million.
- -------------------------------------------------------------------------------
THREE DECADES OF IMPROVEMENT
- -------------------------------------------------------------------------------
1999 marks Lindsay's 30th year of center pivot sales. In that time, we have
grown to a position of market leadership, with a worldwide distribution network
of more than 350 independent dealer outlets. We have installed Zimmatic systems
in almost 90 countries, irrigating over 11 million acres. When we shipped our
first Zimmatic system in 1969, however, we were starting at ground zero and
facing a shifting field of play. Seizing the opportunities inherent in change,
we sought to differentiate Lindsay from the pack. For Lindsay, leadership was a
decision, the result of a long-term strategy of continued investment and
commitment to superior quality in our products, our dealer network and our
manufacturing operations. In fiscal 1998, we continued to make strides in each
of these areas.
---------------------------------
"FOR LINDSAY, LEADERSHIP WAS A
DECISION, THE RESULT OF A
LONG-TERM STRATEGY OF CONTINUED
INVESTMENT AND COMMITMENT TO
SUPERIOR QUALITY IN OUR PRODUCTS,
OUR DEALER NETWORK AND
OUR OPERATIONS."
---------------------------------
THE PRODUCT FARMERS NEED
For almost 30 years, Lindsay's Zimmatic systems have set the standard for
efficiency, reliability and state-of-the-art irrigation technology. In fiscal
1998, we continued to demonstrate leadership by working to upgrade our Zimmatic
AIMS Basic and AIMS Advance computer control panels. The redesign will provide a
more user-friendly interface to give farmers quicker access to Zimmatics'
feature-rich functions. The new versions will also be modular to allow for
convenient future upgrading. Additionally in 1998, we continued work on adapting
our systems to the needs of our export markets by programming our AIMS products
and R-MAC features in the Metric System, as well as in Spanish, French and
German.
Increasingly, the world's farmers are looking for answers as they work to
grow more food on the same amount of farmland using less water and fewer
chemical inputs. IN AREAS WHERE IRRIGATION IMPROVES OR STABILIZES CROP
PRODUCTION, CENTER PIVOT AND LATERAL MOVE IRRIGATION SYSTEMS ARE THE ONLY PIECES
OF CAPITAL EQUIPMENT THAT INCREASE YIELDS, WHILE ALSO CONSERVING WATER, ENERGY
AND LABOR AND REDUCING THE NEED FOR CHEMICAL INPUTS. By staying ahead of the
product technology curve, Lindsay will continue to be a leading supplier of that
solution.
THE SERVICE THEY REQUIRE
As a manufacturer of specialized equipment, we work hard to fully train our
dealers. We are committed to providing the best, most professional dealer
organization in the industry to our ultimate customers--the farmers. To
accomplish that objective, we provide our dealers with a full range of sales and
service training. Additionally, we strive to continually upgrade and expand the
capabilities of our network through innovative dealer-support and incentive
programs.
In fiscal 1997, we introduced mobile simulation and training units, called
Mobile Zimmatic Technical Training Vans, to our dealer-support arsenal. In
fiscal 1998, we leveraged these unique tools by conducting seminars for farmers
at 78 dealer locations. As a result, approximately 1,800 growers got hands-on
training in safety, preventative maintenance, chemical application and the
optimal use of
3
<PAGE> 6
LINDSAY MANUFACTURING CO.
Zimmatics' advanced technology features. By providing this unique and
value-added service to farmers, the seminars helped strengthen our dealers'
working relationship with their customers and differentiate Lindsay's dealers
from others in the market.
To maintain a quality distribution network, we are very selective when
recruiting new dealers. Frequently, we target proven performers already in the
agricultural equipment or irrigation industry. Zimmatics' superior brand
recognition, Lindsay's technology leadership and our comprehensive
dealer-support system provide an irresistible draw for many top candidates. In
fiscal 1998, 20 to 25 percent of our sales volume was attributable to dealers we
recruited within the past five years.
THE OPERATIONS TO BE PROUD OF
In fiscal 1998, we invested $5.1 million in capital improvements. We expanded
the use of welding robotics and further streamlined several manufacturing
processes connected with center pivot production. We also began the conversion
of a major fabrication process to further automate our facility. Completion of
this project is targeted for mid-fiscal 1999. We expect to see benefits arising
from reductions in direct labor and materials handling by the end of the fiscal
year. We anticipate that this project, a new employee break room and office
renovation and expansion, and other planned improvements, will require a total
of $4 to $5 million in fiscal 1999 capital expenditures.
Also in fiscal 1998, we realized targeted full-year results from Lindsay's
two-year investment in pipeline automation, again demonstrating our ability to
successfully identify and execute significant process improvements. As
originally envisioned, we achieved a 20 plus-percent gain in overall,
peak-season manufacturing capacity and, at the same time, enhanced product
quality and reliability.
In addition, automation and process improvements allowed us to shave
another three man-hours off the time required to produce an average center
pivot. That brings the current total to 137 man-hours--a stark contrast to the
500 man-hours it took in 1979. Through continued incremental improvement, we
believe that we can attain an additional 10 to 15 percent reduction in required
man-hours per unit over the next three years. Productivity gains also helped
boost Lindsay's gross margin to 27.5 percent for the year, compared with 25.8
percent in fiscal 1997. Our operating margin also benefited, growing to 17.4
percent from 16.7 percent last year.
Lindsay has been able to achieve such dramatic gains in productivity
through a powerful combination of management commitment and overwhelming
employee involvement--both informally and formally through Lindsay's Employee
Involvement Teams. At Lindsay, every employee is encouraged to identify and
communicate ways to increase productivity, enhance product quality, raise safety
awareness, reduce costs and further strengthen customer and dealer support. Once
an Employee Involvement Project is conceived, an Employee Involvement Team
prepares and presents written proposals detailing the cost and benefits of
implementation. Since the program's inception in 1990, over 600 projects have
been implemented--and, the momentum continues to build. In fiscal 1998, over 40
percent of Lindsay's hourly employees participated in one of our 26 teams,
winning approval for 82 projects.
While participation in an Employee Involvement Team is voluntary and
recognition and pride the reward, every hourly employee participates in
Lindsay's Gainsharing program. Through it, each worker is provided financial
incentives, not just to produce product more efficiently, but also to improve
product quality and worker safety. Four manufacturing and customer service
criteria are evaluated each quarter. Performance is rated based on customer
feedback as well as the ratio of loss time to total hours worked (plant safety),
the percent of warranty work required, scrap generated and other measures of
efficiency. To earn 100 percent of their customer quality satisfaction rating
bonus, hourly employees have to achieve an average rating of at least 90
percent. In fiscal 1998, nearly half of the quarterly Gainsharing categories
resulted in full bonuses.
[CUSTOMER QUALITY SATISFACTION RATING GRAPH]
<TABLE>
<CAPTION>
FAB COMPONENT OVERALL
COMPONENTS FINISH QUALITY
<S> <C> <C> <C>
1Q98 91.9% 84.3% 91%
2Q98 92.8 89.2 91.4
3Q98 90.2 85.2 89
4Q98 92.4% 88.3% 89.5%
</TABLE>
4
<PAGE> 7
--------------------------
"WE SEE OPPORTUNITY
IN THE CURRENT CLIMATE
AND OUR
VANTAGE POINT IS THAT
OF STRENGTH - BOTH
FINANCIAL AND STRATEGIC"
--------------------------
Finally, on the topic of operations, I am pleased to report that we
successfully attained both U.S. and Canadian ISO 9001 Quality Certification,
having completed the process in half the expected time. We anticipate several
important benefits arising from this designation, including enhanced product
quality, better access to certain international markets and further leverage
with which to expand our diversified products business. Additionally, the
required rigorous documentation helped us capture on paper the detailed know-how
that is second nature to Lindsay's many long-term employees.
- -------------------------------------------------------------------------------
POSITIONED TO PASS THE TEST
- -------------------------------------------------------------------------------
As of this writing, we expect low agricultural commodity prices to continue to
pressure results in each of our businesses in fiscal 1999. Consolidated
first-half revenues will likely be about 40 percent lower, and first-half
earnings could fall by 60 to 65 percent. In the second half of fiscal 1999, we
believe revenues will still be below 1998, but at levels more similar to those
posted in the second half of fiscal 1998. We should be able to keep gross
margins within our 24 to 29 percent objective, albeit at the low end of that
range.
Under current conditions, U.S. farmers are naturally being more
conservative with their capital expenditures. I believe, however, that once the
harvest and fall field work are complete and farmers have had a chance to review
their financial status, they will find themselves in a better-than-expected cash
position. Many will choose to invest in making their farms more stable and
efficient operations. As they assess their options, center pivot and lateral
move irrigation equipment will continue to be a very attractive choice because
of its unique productivity and conservation benefits.
I expect export sales of Lindsay's irrigation equipment to continue to be
soft in fiscal 1999. Although we've begun to see some easing of exchange rates,
a strong U.S. dollar in some markets will continue to make Lindsay's equipment
relatively expensive. To stimulate sales, we are working with our international
dealers on marketing programs and incentives as appropriate in each of our key
export markets.
Weak agricultural commodity prices, in addition to economic turmoil
overseas, particularly in Asia, are also negatively affecting our largest
Diversified Products customers. Lower sales to Deere & Company and New Holland
North America, Inc. should be offset somewhat, however, by our business with
Caterpillar, Inc., which consists mostly of outsource manufacturing services for
their construction equipment segment.
We see opportunity in the current climate and our vantage point is that of
strength--both financial and strategic. Lindsay's superior product reliability
and leading-edge technology features make Zimmatic the irrigation equipment of
choice for a growing number of farmers. Lindsay's highly knowledgeable and
professional worldwide dealer network helps us expand our market share as well
as grow through add-on sales. And, Lindsay's efficient manufacturing operations
and expanded capacity allow us to deliver equipment faster. Finally, current
lower market valuations may make some acquisition candidates more attractive
than in the past. In reviewing candidates, we will continue to apply strict
criteria, including that the business be accretive within 24 months of
acquisition and provide a proprietary product utilizing Lindsay's manufacturing
expertise. In addition to acquisitions, we continue to explore various strategic
arrangements that would give Lindsay exclusive access to certain technologies
for use in irrigation. With a strong balance sheet that includes almost no
long-term debt and cash and marketable receivables totaling $65.7 million as of
August 31, Lindsay possesses the means to capitalize on a full range of
strategic opportunities.
Good performance under favorable conditions is expected of all companies.
However, an organization's ability to weather a more challenging environment is
a truer test of operations. Lindsay's past strategy laid the foundation for our
current success, and it is the bedrock of our future--regardless of conditions.
But a strategy is only as good as its execution is effective. We owe our
effective execution to Lindsay's talented and dedicated employees, knowledgeable
and motivated dealers, loyal customers and confident shareholders. Thank you all
for sharing our vision. We look forward to reporting our progress over the
months that lay ahead.
Sincerely,
/s/ Gary D. Parker
-----------------------------------------------
Gary D. Parker
Chairman, President and Chief Executive Officer
5
<PAGE> 8
PHOTO of Winter 1998 Irrigation Advances in house publication cover page with
an insert briefly describing feature articles including photos related to the
articles.
[PHOTO]
LINDSAY'S SEMI-ANNUAL PUBLICATION, IRRIGATION ADVANCES, IS JUST ONE OF
THE MANY TOOLS THE COMPANY LEVERAGES TO PROVIDE FARMERS WITH THE
INDUSTRY'S BEST INFORMATION ON CENTER PIVOT IRRIGATION PRACTICES.
6
<PAGE> 9
LINDSAY MANUFACTURING CO.
OPERATIONS REVIEW:
MEETING THE CHALLENGE
A recently published article entitled Windows on the Future: Global Scenarios
and Sustainability describes six possible resolutions to the contradiction
between global growth and the Earth's finite natural resources. The scenarios
vary widely, with one variation suggesting the collapse of the "economic and
moral underpinnings of civilization." While some theories on how we'll manage
our diminishing per capita natural resources may be based on a significant level
of speculation, the conditions spurring that speculation are serious and
compelling.
[GRAPH]
World Population/
Land in Ag Production
<TABLE>
<CAPTION>
Year World population Square miles
in billions in Ag Production
in millions
<S> <C> <C>
1960 3.0 billion 5.8 million
1997 5.9 billion 5.8 million
2040 Projected 10.0 billion 5.8 million
</TABLE>
"If we stopped the population today, we still have to roughly double the
world's farm output over the next 20 to 30 years as we brought all of the
consumers in China, India, Indonesia, Brazil, and Nigeria up to twenty-first
century living standards."
Hudson Institute
Global Food Quarterly
THE POPULATION GROWS...
It is expected that in 40 years we will have almost twice as many people to
feed--nearly five billion more than we have today--but we are expected to have
less water available to use for irrigation and we aren't expected to have any
more farmland. In fact, some studies project a reduction in the amount of
farmland as acreage is lost to industrial and residential use. Not only will the
world's population be larger, it likely will be more prosperous thanks to
gradual economic expansion, which will further stretch agricultural resources as
farmers strive to meet the demand for better, more diverse diets.
[GRAPH]
Worldwide Fresh Water Use Pie Chart
<TABLE>
<CAPTION>
Basic Human
Agriculture Industry Health/Sanitation Other
<S> <C> <C> <C>
63% 20% 8% 9%
</TABLE>
Worldwide: 15% ag land is irrigated, producing 40% of our food supply. At 63%,
agriculture is by far the largest user of the earth's fresh water, but pressure
to conserve is mounting.
PER CAPITA WATER DIMINISHES...
At odds with farmers' need to increase productivity and crop yields by 50% to
100% is their need to conserve natural resources and protect the environment.
Water is an obvious area of concern. At 63%, agriculture is by far the largest
user of the earth's fresh water, but pressure to conserve is mounting as a
growing population and rising standards of living stretch the per capita water
supply ever thinner.
Historically, irrigation has been one of the primary tools for improving
agricultural productivity, but the predominant methods are water-inefficient. A
report by the World Bank noted that half the growth in food supply in the past
30 years has come from the expansion of irrigated agriculture. Moreover, an
estimated two-thirds of future incremental food production is projected to come
from irrigated land. Generally, water has been provided to farmers without
volume restrictions. As a result, many farmers who irrigate have not yet fully
adopted water-efficient methods. Policy and public opinion have begun to shift,
however, toward more conservation-based water use. This trend is highlighted by
recent controversies in California, Texas and in other areas around the world
where industrialization and urban development are competing with agriculture for
both land and water.
ENVIRONMENTAL REGULATION INCREASES...
For decades U.S. farmers have been committed to conservation of the natural
resources available to them. In particular, they have been vigilant stewards of
their soils and water. However, farmers are increasingly having to deal with
issues of water quality, as policy makers at all levels of government react to
data on damage caused by the deep percolation and runoff of fertilizer,
pesticides and other agricultural chemicals. At the Federal level, many farmers
must comply with sections of the Federal Water Pollution Control Act, Clean
Water Act, Food Quality Protection Act and other regulation. State and local
governments are also beginning to impose restrictions. Yet, chemical inputs have
and will continue to play an essential role in raising agricultural
productivity.
SOLVING FARMERS' DILEMMA
Will we eventually have to choose between food on the table and adequate
supplies of clean water? Not if agriculture continues to adopt modern farming
techniques as well as develop better ways of growing and harvesting crops. To
improve crop yields and minimize the need for pesticides, farmers can use seeds
genetically engineered to resist insects and disease. To further boost yields
while helping protect the environment, they may also apply the safest, most
effective fertilizers
7
<PAGE> 10
LINDSAY MANUFACTURING CO.
and herbicides. And, to enhance productivity by optimizing harvests, farmers can
employ equipment with the latest precision farming features. But, if a farmer is
in an area where irrigation makes a difference and he wants to increase yields
through higher crop production while, at the same time, reducing chemical inputs
and conserving water, energy and labor, there is only one type of capital
equipment he can use, and Lindsay Manufacturing Co. is a leading producer of it
- -- center pivot and lateral move irrigation systems.
First introduced over 40 years ago, center pivot systems are comprised of
sprinklers on spans of four- to ten-inch diameter pipe that draw water from a
central supply. One pivot irrigates, on average, 130 to 135 acres in a circular
pattern. Today's pivots can adjust the application of water, as well as chemical
inputs, to varying requirements within pie-shaped sections of their circular
pattern. This precise application creates several advantages over the oldest and
most common method--traditional "surface" or "flood" irrigation. Center pivot
and lateral move systems can cut water usage by 40 to 60 percent, use 90 percent
less labor and reduce the amount of fertilizers and chemicals needed, thereby
significantly decreasing the risk of environmental contamination resulting from
fertilizer and chemical deep percolation and runoff.
Moreover, in areas where irrigation can make a difference, center pivot
and lateral move systems can double the yields realized through dry-land
farming. Yields are increased through uniform and timely water and chemical
application. Unlike flood or surface irrigation alternatives, center pivots can
operate in a variety of terrain, including hilly or rolling farmland. This
versatility opens up millions of previously non-irrigated acres. By achieving
better yields or incurring lower operating costs, farmers can generally recoup
their investment in an average center pivot system in just four to six years.
Mounting conservation pressures and environmental regulation is gradually
motivating more farmers to adopt center pivot irrigation. In the U.S., only 15%
of the approximately 400 million cultivated acres of farmland are irrigated and
just 4% are irrigated by center pivots. Converting an additional 20% of the 60
million irrigated acres to center pivot technology would require approximately
100,000 more systems. These acres represents a potential, long-term U.S. market
of $2.5 billion.
Today's average farmer is larger and better capitalized. Since the early
1960s, the number of farms has dropped by over 40 percent, while the total acres
cultivated has remained relatively constant. Because today's average farmer is
larger, they are more attracted to labor-saving methods and economies of scale.
The better the economies of scale, the more affordable those methods become. In
areas where irrigation is important for stable, reliable crop production,
further incentive is provided by lenders, who view farmers with center pivot or
lateral move irrigation systems as better credit risks. Food processors and seed
companies frequently go a step further by requiring the farmers with whom they
contract crop production to use center pivots to help assure reliable
production.
[DOMESTIC MARKET POTENTIAL PIE CHART]
400 Million Total 60 Million Total 15 Million Center
Cultivated Acres Irrigated Acres Pivot Irrigated Acres
Conversion of an additional 20% of the 60 million irrigated acres to center
pivot irrigation represents approximately $2.5 billion in domestic sales
potential.
[SOURCE OF CENTER PIVOT SALES PIE CHART]
Conversion of Conversion of Replacement
Irrigated Land 50% Dry Land 25% Market 25%
Replacement sales provide further momentum as half of the over 120,000 existing
center pivot and lateral move irrigation systems have been in service for more
than a decade.
8
<PAGE> 11
- -------------------------------------------------------------------------------
LINDSAY YESTERDAY, TODAY AND TOMORROW
- -------------------------------------------------------------------------------
When Lindsay shipped its first "Zimmatic" center pivot irrigation system almost
30 years ago, domestic agriculture was entering a boom period marked by
"fence-row-to-fence-row" production. As a result, close to 35 companies were
vying for a share in the center pivot and lateral move irrigation market. Today,
however, there are only six players, with Lindsay controlling approximately 35
percent of the U.S. market and 50 percent of the export market for center pivot
and lateral move irrigation equipment. Lindsay's ability to rise to a position
of dominance from such a fragmented playing field was no accident. Lindsay has
achieved, and will sustain, leadership through a proven strategy of continued
investment in its products, its manufacturing facility and its dealer network.
CHALLENGING ALL ASSUMPTIONS
Lindsay began applying its strategy in earnest in the mid-1980s. At that time,
U.S. agriculture was in significant decline as commodity prices had fallen in
response to overproduction and many farmers were over-leveraged. Seeing the
glass as half full, Lindsay seized on the downturn as an opportunity to capture
market share. The company recognized that its customers were becoming more
sophisticated due to farm consolidation, conservation pressures and the
government's changing role in agriculture. Farmers needed irrigation equipment
that was more reliable and offered greater labor-saving features. A more
advanced product required a more value-added sales and service organization.
And, greater product complexity demanded more flexible and efficient
manufacturing. To make Lindsay the company they knew it needed to be, management
scrutinized every area of operations and challenged all assumptions.
FROM MANUAL ADJUSTMENT TO PRECISION FARMING TOOL
To the uninitiated, the Zimmatics of today may not look dramatically different
from Lindsay's earlier models. But, in fact, they are significantly more
efficient, more reliable and higher tech. The Zimmatics' evolution began with
Lindsay's commitment to becoming the industry's technology leader. As a result,
in 1983, Lindsay became the first irrigation equipment manufacturer to offer a
modular design. It's interchangeable parts provided Zimmatics with several
competitive advantages, including lower freight and installation costs, reduced
dealer inventory requirements and improved operating efficiency.
Most impressive is the range of Zimmatics' leading-edge technology
options. Lindsay was the first irrigation equipment manufacturer to provide
farmers with a remote monitoring and control feature, having introduced its
Remote Monitor Alarm and Control (R-MAC) in 1986. In 1992, Lindsay began
offering its Automated Irrigation Management System (AIMS) Advance control
panel. The AIMS Advance computer control allows farmers the convenience of
pre-programming pivot functions rather than having to manually adjust the
operating settings each time a change is desired.
Today's state-of-the-art Zimmatic system also features Lindsay's AIMS
Telemetry Network. Using it in conjunction with the AIMS Advance, farmers can
program, monitor and control multiple center pivot systems through their
personal computer. The Windows(R)-based program is also capable of collecting,
storing and manipulating valuable planting, irrigation and environmental data,
- --------------------------------------- --------------------------------------
PHOTO OF PHOTO OF
FLOOD IRRIGATION PIVOT IRRIGATION
- --------------------------------------- --------------------------------------
CENTER PIVOT IRRIGATION OFFERS SEVERAL SIGNIFICANT ADVANTAGES OVER THE OLDEST
AND THE MOST COMMON METHOD - TRADITIONAL "SURFACE" OR "FLOOD IRRIGATION
INCLUDING: - USERS 40%-60% LESS WATER AND 90% LESS LABOR - CAN RESULT IN LESS
CHEMICAL USE THEREBY REDUCING THE RISK OF ENVIRONMENTAL CONTAMINATION - IS NOT
RESTRICTED TO USE ON LEVEL FARMLAND AND CAN BE USED ON ROLLING OR HILLY
FARMLAND.
9
<PAGE> 12
making center pivots a powerful tool for overall farm management. Lindsay
believes this data collection and reporting capability will become increasingly
sought after as more farmers have to comply with environmental regulations
requiring them to document how much water and chemical inputs are used and where
in the field each was applied. Additionally, the Telemetry Network lays the
foundation for the next generation of Zimmatics, which will more fully support
site-specific farming, for instance, by being integrated with Global Positioning
Systems.
FROM NONE TO NUMBER ONE
Lindsay's introduction of Zimmatics' modular design corresponded with growth in
the export market. Lower export freight costs and easier shipping allowed the
company to penetrate markets abroad with impressive results--for over a decade,
Lindsay has been the number-one U.S. exporter of center pivot and lateral move
irrigation equipment.
The international marketplace is more fragmented than the U.S. market
with no one country currently offering the level of stable demand management
believes is necessary to cost justify building an offshore manufacturing
facility. Instead, Lindsay successfully relies on its cost-efficient U.S.
manufacturing facility and its extensive network of high-quality, international
dealers. Dealers are carefully selected for their ability to give the company
broad access to the local market. To gain a foothold in new international
markets, Lindsay frequently works through government agencies and private groups
to identify agricultural initiatives by foreign governments seeking to modernize
their farm economies. Lindsay sells on letters of credit or other secured terms
and in U.S. dollars to limit financial exposure.
---------------------------------------
IN 30 YEARS, LINDSAY HAS RISEN TO
A POSITION OF WORLD LEADERSHIP
IN CENTER PIVOT AND LATERAL
MOVE IRRIGATION. THE COMPANY
HAS GROWN ITS DISTRIBUTION NETWORK
TO OVER 350 INDEPENDENT
DEALER OUTLETS SPANNING ALMOST
90 COUNTRIES AND SUPPORTING SYSTEMS
IRRIGATING OVER 11 MILLION ACRES.
---------------------------------------
FROM SALESPEOPLE TO IRRIGATION SPECIALISTS
In the early years, the scope of dealer responsibilities was limited to
straight-forward sales and service. As Lindsay's product has become more
sophisticated, however, dealer quality and expertise has become a critical
focus. Today, Lindsay's dealers are irrigation specialists who consult farmers
on a full range of irrigation issues, including system configuration,
installation and the use of advanced irrigation technology features. Dealers are
taught to assist farmers in attaining maximum productivity and an optimal return
on their irrigation equipment investment.
- -------------------------------------------------------------------------------
[PHOTO]
Dealer consulting with Farmer at an AIMS Control
Panel of a center pivot installed in a Field
- -------------------------------------------------------------------------------
LINDSAY'S DEALERS ARE IRRIGATION SPECIALISTS WHO CONSULT FARMERS ON A FULL RANGE
OF IRRIGATION ISSUES.
Lindsay achieved this transformation by insisting on the highest
professional standards in recruiting dealers to its network. Standards are then
maintained through a comprehensive, individualized training regimen. Every year,
Lindsay's regional managers sit down with each dealer in their district to set
annual performance goals. They also assess what type of training or other
support the company can provide to help them meet those goals. Progress is then
evaluated each quarter and goals are revised where necessary, helping to assure
continuous improvement. Training is hands-on and focuses on enabling dealers to
design the most efficient, cost-effective systems as well as how to install and
service them. Recently, the curriculum was expanded to include integrating
Zimmatics into overall farm operations and helping farmers become better routine
troubleshooters. When necessary, Lindsay's personnel also assist dealers in the
field, thereby reinforcing, through practical application, knowledge gained in
the classroom.
Without question, farming and irrigation technology will grow more
sophisticated. Water conservation pressures will continue to mount. Environment
regulations will increase. And, farmers will be
10
<PAGE> 13
further challenged to improve the operating and financial success of their
farms. As agriculture continues its evolution, more farmers will adopt advanced
farming techniques, and they will need expert advice on optimal integration and
operation. Continued improvement helps ensure that it will be Lindsay's dealers
to whom farmers will look for irrigation equipment and advice.
FROM ASSEMBLY TO AUTOMATION
Perhaps the most dramatic example of the success of Lindsay's strategy is the
manufacturing productivity gains the company has achieved through sweeping
automation and process improvements. In 1979, it took 500 man-hours to produce
an average center pivot; in 1998 it took 137. Due to automation and greater
efficiency, peak-period capacity has risen 20 to 30% during the past two years.
To achieve such impressive gains, management challenged all assumptions and
invited every employee to do the same. The company's operations were redesigned
and appropriate leading-edge manufacturing techniques employed, including
robotics, just-in-time inventory management, statistical process control,
cellular manufacturing and employee involvement programs.
[BAR CHART]
INCREASING PRODUCTIVITY
(Man Hours Per Unit Processed)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR 1979 1989 1993 1995 1997 1998
MAN HOURS 500 186 169 159 140 136
</TABLE>
Perhaps the most dramatic example of the success of Lindsay's strategy is the
productivity gains the company has achieved through sweeping automation and
process improvements.
One of Lindsay's greatest operational challenges is the highly seasonal
nature of irrigation equipment demand, as end-user demand in its domestic market
peaks January through May. Increasing peak-season manufacturing capacity through
automation has helped maintain margins by reducing reliance on Lindsay's Floor
Plan Marketing Program, which uses price incentives to encourage dealers to take
delivery of equipment prior to the company's peak selling season. Automation has
also helped Lindsay increase market share. Dealers no longer lose sales due to
non-competitive peak-season delivery constraints.
While the most dramatic productivity gains have been realized, there is
still room for improvement. In fiscal 1998, Lindsay reduced the time required to
manufacture an average center pivot by an additional three man-hours. The
company hopes to attain an additional 10 to 15% reduction in required man-hours
over the next three years. To keep pace with its evolving product technology,
Lindsay will continue to invest in state-of-the-art manufacturing processes.
FROM IRRIGATION EQUIPMENT TO DIVERSIFIED PRODUCTS
Seeking a better return on investment in its manufacturing operations, the
company began in 1987 to more fully utilize off-season capacity by providing
outsource manufacturing services and selling large-diameter steel tubing. Today,
Lindsay's Diversified Products segment has grown to a $25 million business,
composing 16 percent of fiscal 1998 revenues. Lindsay's customer base includes
some of the country's most demanding industrial companies, including Caterpillar
Inc., Deere & Company and New Holland North America, Inc. Each benefits from
Lindsay's sophisticated design and engineering capabilities as well as the
company's ability to provide a wide spectrum of manufacturing services,
including welding, machining, painting, punching, forming, galvanizing and
hydraulic, electrical and mechanical assembly. Management's goal is to grow this
segment to 25% of total sales, primarily by broadening the range of services
Lindsay provides for its existing customer base. As irrigation equipment
manufacturing becomes even more sophisticated, so too will Lindsay's outsource
manufacturing capabilities.
As stated in Windows on the Future: Global Scenarios and Sustainability, "the
contradiction between the modern world's imperative toward growth and the
Earth's finite resources will ultimately be resolved in some way. The only
question is how that will come about--whether through enlightened management,
economic and environmental catastrophe, or some other means." Through the
broader adoption of advanced farming techniques--including center pivot and
lateral move irrigation--farmers can be enlightened managers of the world's
land, water and energy. At the same time, they can be more profitable by being
more productive. Lindsay Manufacturing Co. is committed to being the irrigation
equipment provider of choice. By continuing to capitalize on change through its
proven strategy, the company believes it will deliver further value to its
customers, its dealers and its shareholders.
11
<PAGE> 14
Lindsay Manufacturing Co.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
($in millions, except per share amounts) For the years ended August 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues..................... $155.7 $158.3 $136.2 $111.8 $112.7 $102.1 $108.9 $98.7 $102.7 $92.6 $76.1
Gross profit........................... 42.8 40.9 32.7 25.9 25.7 23.8 23.8 21.5 20.0 18.6 11.8
Selling, general and administrative,
and engineering and research
expenses.............................. 15.7 14.4 13.4 11.9 11.6 10.7 10.9 10.5 9.6 8.2 7.0
Earnings before cumulative effect
of accounting change.................. 23.5 20.1 16.5 11.7 11.2 10.7 11.0 8.9 8.4 7.4 3.8
Net earnings........................... 23.5 20.1 16.5 11.7 11.9 10.7 11.0 8.9 8.4 7.4 3.8
Earnings before cumulative effect
of accounting change per share(1)...... 1.61 1.34 1.08 0.73 0.68 0.66 0.68 0.57 0.54 0.47 0.24
Net earnings per share(1).............. 1.61 1.34 1.08 0.73 0.72 0.66 0.68 0.57 0.54 0.47 0.24
Cash dividends per share(1)............ 0.125 0.091 0.067 0 0 0 0 0 0 0
Property, plant and equipment, net..... 14.1 11.3 9.7 7.2 5.6 5.6 6.0 5.4 4.7 4.4 4.6
Total assets........................... 108.9 108.0 96.8 86.1 88.4 79.9 71.4 60.4 46.9 31.7 24.0
Long-term obligation................... $ 0.1 $ 0.3 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Return on sales........................ 15.1% 12.7% 12.1% 10.5% 10.6% 10.5% 10.1% 9.0% 8.2% 8.0% 5.0%
Return on beginning assets............. 21.7% 20.7% 19.2% 13.2% 14.9% 15.0% 18.2% 19.0% 26.4% 30.8% 19.9%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and 1989 per share
amounts are calculated using diluted average shares outstanding, 14,555,794,
14,979,595, 15,226,317, 15,933,315, 16,417,708, 16,358,291, 16,309,546,
15,689,710, 15,631,736 and 15,719,414. For 1988, per share amounts are
calculated based on Lindsay's 15,719,063 outstanding shares as of October 12,
1988, the date of the initial public offering, since at that time all of the
outstanding shares of Lindsay were owned by DEKALB Energy Company. Per share
amounts and number of shares reflect the three-for-two stock split in June
1998.
QUARTERLY DATA
<TABLE>
<CAPTION>
($in thousands, except per share amounts) For the three months ended the last day of
- ----------------------------------------------------------------------------------------------
November February May August
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1998
OPERATING REVENUES........................ $ 37,448 $ 49,708 $ 43,904 $ 24,647
COST OF OPERATING REVENUES................ 27,891 35,853 31,711 17,411
EARNINGS BEFORE INCOME TAXES.............. 6,952 10,611 13,034 4,035
NET EARNINGS.............................. 4,692 7,163 8,797 2,828
NET EARNINGS PER SHARE.................... 0.32 0.49 0.60 0.21
MARKET PRICE (NYSE)(1)
HIGH..................................... $ 33 1/2 $ 29 $32 9/16 $30 15/16
LOW...................................... 25 5/16 25 7/16 26 3/16 20
Fiscal 1997
Operating revenues........................ $ 39,467 $ 45,693 $ 41,663 $ 31,504
Cost of operating revenues................ 30,003 33,942 30,370 23,092
Earnings before income taxes.............. 7,073 8,963 8,902 4,991
Net earnings.............................. 4,809 6,096 6,053 3,094
Net earnings per share.................... 0.32 0.40 0.41 0.21
Market price (Nasdaq National Market)(1)
High..................................... $20 11/16 $24 5/16 $ 24 1/2 $ 26
Low...................................... 16 9/16 17 13/16 18 11/16 19 5/16
- ----------------------------------------------------------------------------------------------
</TABLE>
1998: During the third quarter the Company reached an agreement to settle
litigation for $4.0 million (post tax $2.7 million/$0.18 per share) which is
included in other income. Fourth-quarter adjustments resulting in a net
increase in pre-tax earnings of $1,673,000 were made to inventory accounts (due
to physical inventory), the LIFO inventory reserve and the obsolete inventory
reserve. Additional fourth-quarter accrual adjustments increased pre-tax
earnings $410,000 for compensation costs including bonus earnouts and vacation
pay. 1997: Fourth-quarter adjustments resulting in a net increase in pre-tax
earnings of $1,445,000 were made to inventory accounts (due to physical
inventory), the LIFO inventory reserve and the obsolete inventory reserve.
Additional fourth-quarter accrual adjustments decreased pre-tax earnings
$440,000 for compensation costs including bonus earnouts and vacation pay.
Share amounts and per share results for all periods are stated on a diluted
basis and have been adjusted to reflect Lindsay's three-for-two stock split
declared on June, 15 1998.
(1) Lindsay common stock began trading October 21, 1997, on the New York Stock
Exchange, Inc. (NYSE) under the ticker symbol LNN.
12
<PAGE> 15
Lindsay Manufacturing Co.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Revenue growth from the U.S. market for center pivot and lateral move
irrigation equipment was more than offset by lower revenues from both the
export market for irrigation equipment and the Company's diversified products
business. In total, Lindsay's revenues for fiscal 1998 were 1.7% lower than in
1997. Net earnings, however, grew 17.1% during the year (3.6% before a $4.0
million pretax gain from the settlement of litigation).
Lindsay undertook a three-for-two stock split in June 1998 -- the
Company's fifth three-for-two stock split since 1989 -- and continued its share
repurchase program, repurchasing 708,743 shares for $19.4 million during the
year. The Company continues to have a solid balance sheet with no debt (other
than a capitalized lease for computer hardware) and strong financial ratios.
RESULTS OF OPERATIONS
FISCAL YEAR 1998 COMPARED TO 1997
The following table provides highlights for fiscal 1998 compared with fiscal
1997.
<TABLE>
<CAPTION>
================================================================================
For the Years Ended Percent Increase
August 31, (Decrease)
------------------------------------
($in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated
Operating Revenues..................... $155,707 $158,327 (1.7%)
Cost of Operating Revenues............. $112,866 $117,407 (3.9)
Gross Profit........................... $ 42,841 $ 40,920 4.7
Gross Margin........................... 27.5% 25.8%
Selling, Eng. & Research, and
G&A Expense........................... $ 15,713 $ 14,444 8.8
Operating Income....................... $ 27,128 $ 26,476 2.5
Operating Margin....................... 17.4% 16.7%
Interest Income, net................... $ 3,197 $ 2,998 6.6
Other Income, net...................... $ 4,307 $ 455 N/A
Income Tax Provision................... $ 11,152 $ 9,877 12.9
Effective Income Tax Rate.............. 32.2% 33.0%
Net Earnings........................... $ 23,480 $ 20,052 17.1
Irrigation Equipment Segment (See Note L)
Operating Revenues..................... $130,461 $131,583 (0.9)
Operating Income....................... $ 31,840 $ 29,895 6.5
Operating Margin....................... 24.4% 22.7%
Diversified Products Segment (See Note L)
Operating Revenues..................... $ 25,246 $ 26,744 (5.6)
Operating Income....................... $ 5,216 $ 6,055 (13.9%)
Operating Margin....................... 20.7% 22.6%
</TABLE>
================================================================================
REVENUES
Operating revenues fell 1.7% to $155.7 million in fiscal 1998, compared to
record revenues of $158.3 million in fiscal 1997. Domestic irrigation equipment
revenues increased 4% to $99.6 million from $96.2 million in fiscal 1997.
Fiscal 1998 export irrigation equipment revenues at $27.8 million were down 14%
from $32.3 million in fiscal 1997. Diversified product revenues totaled $25.2
million in fiscal 1998, 6% under fiscal 1997's $26.7 million. Other revenues,
primarily consisting of revenues from freight services, are included with
irrigation equipment in the above table and totaled $3.1 million in each of
fiscal 1998 and 1997.
The U.S. market for center pivot and lateral move irrigation equipment
continued to grow during the first three quarters of fiscal 1998. During the
fourth quarter, however lower crop and other agricultural commodity prices
raised farmer concern about farm income and demand slowed.
Fiscal 1998 export irrigation equipment revenues were negatively impacted
by a strong U.S. dollar throughout most of the year, particularly in our
Western European and South African markets. Additionally, an abnormally wet
spring in our primary Latin American market reduced sales activity.
Fiscal 1998's 6% reduction in diversified products revenues was the result
of lower sales of both Lindsay's large diameter steel tubing and outsource
manufacturing components. Major outsource manufacturing customers continue to
be Caterpillar Inc., Deere & Company, and New Holland North America,Inc.
At August 31, 1998, Lindsay's order backlog for irrigation equipment was
$6.9 million, down significantly from $17.1 million at August 31, 1997.
Lindsay's August 31, 1998, order backlog for diversified products was $7.2
million as compared to $10.2 million at August 31, 1997.
GROSS MARGIN
Fiscal 1998 gross margin of 27.5% was up from 25.8% in fiscal 1997 and 24.0% in
fiscal 1996. Gross margin for fiscal 1998 was favorably impacted by increased
automation resulting in improved productivity and efficiencies and by continued
strong demand during most of the year in the U.S. market for irrigation
equipment which yielded a continued favorable pricing environment. Raw material
costs, in total, continued to be relatively stable.
OPERATING EXPENSES
Selling, engineering and research, and general and administrative expenses grew
8.8% in fiscal 1998, totaling $15.7 million as compared to $14.4 million in
fiscal 1997. The increase is primarily due to increases in wage, salary and
benefit costs (including group health insurance) and increased advertising and
dealer promotion expenditures partially offset by lower legal fee costs.
INTEREST INCOME, OTHER INCOME AND TAXES
Lindsay's interest income is primarily generated from its investments in
short-term (0 to 12 months) and intermediate-term (12 to 36 months) investment
grade municipal bonds, on which interest earnings are exempt from federal
taxes, and short-term investment grade commercial paper. Fiscal 1998 interest
income of $3.2 million is up slightly from $3.0 million in fiscal 1997. Fiscal
1998 other income of $4.3 million includes income of $4.0 million due to an
agreement the Company reached with an insurer to settle litigation which
Lindsay initiated in 1990.
Lindsay's fiscal 1998 effective tax rate decreased to 32.2% from 33% for
fiscal 1997. The Company currently benefits, and expects
to continue to benefit from the foreign sales corporation federal tax
provisions as they relate to export sales, the federal tax free status of
interest earned from its municipal investments and State of Nebraska economic
development tax credits.
13
<PAGE> 16
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO 1996
The following table provides highlights for fiscal 1997 compared with fiscal
1996.
<TABLE>
<CAPTION>
====================================================================================
For the Years Ended Percent Increase
August 31, (Decrease)
---------------------------------------
($in thousands) 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated
Operating Revenues...................... $158,327 $136,233 16.2%
Cost of Operating Revenues.............. $117,407 $103,486 13.5
Gross Profit............................ $ 40,920 $ 32,747 25.0
Gross Margin............................ 25.8% 24.0%
Selling, Eng. & Research, and
G&A Expense............................ $ 14,444 $ 13,363 8.1
Operating Income........................ $ 26,476 $ 19,384 36.6
Operating Margin........................ 16.7% 14.2%
Interest Income, net.................... $ 2,998 $ 2,936 2.1
Other Income, net....................... $ 455 $ 1,620 (71.9)
Income Tax Provision.................... $ 9,877 $ 7,422 33.1
Effective Income Tax Rate............... 33.0% 31.0%
Net Earnings............................ $ 20,052 $ 16,518 21.4
Irrigation Equipment Segment (See Note L)
Operating Revenues...................... $131,583 $115,908 13.5
Operating Income........................ $ 29,895 $ 24,013 24.5
Operating Margin........................ 22.7% 20.7%
Diversified Products Segment (See Note L)
Operating Revenues...................... $ 26,744 $ 20,325 31.6
Operating Income........................ $ 6,055 $ 4,181 44.8%
Operating Margin........................ 22.6% 20.6%
====================================================================================
</TABLE>
REVENUES
Operating revenues grew 16.2% to $158.3 million in fiscal 1997, compared to
$136.2 million in fiscal 1996. Fiscal 1997 U.S. irrigation equipment revenues
totaled $96.2 million, a 7% increase from $90.0 million in fiscal 1996. Fiscal
1997 export irrigation equipment revenues grew 40% to $32.3 million as compared
to $23.1 million in fiscal 1996. Diversified products revenues also grew during
the year, increasing 32% to $26.7 million compared to $20.3 million in fiscal
1996. Other revenues, primarily consisting of revenues from freight services,
are included with irrigation equipment in the above table and totaled $3.1
million in fiscal 1997.
The market for center pivot and lateral move irrigation equipment in the
U.S. continued to grow in fiscal 1997, but at a rate somewhat lower than in
fiscal 1996 when Lindsay recorded a 25% increase in U.S. irrigation equipment
revenues. Through expanded automation and process improvements, Lindsay was
able to increase its manufacturing productivity and capacity. These factors
along with the Company's use of creative sales and marketing programs enabled
Lindsay to continue to grow the revenues and profitability of its domestic
irrigation equipment business.
Fiscal 1997 export irrigation equipment revenues grew by 40% over fiscal
1996. The Mexican and Latin American, Canadian, African and Australian markets
each continued their growth during the year.
Diversified products revenues resumed their growth during fiscal 1997. The
Company recorded increased revenues from both the large diameter steel tubing
and the outsource manufacturing components of its diversified products segment.
Caterpillar Inc., Deere & Company, and New Holland North America, Inc. each
contributed to the outsource manufacturing revenue growth.
At August 31, 1997, Lindsay had a $17.1 million order backlog for
irrigation equipment, a slight increase from fiscal 1996's year-end irrigation
equipment order backlog of $16.6 million. At August 31, 1997, Lindsay's order
backlog for diversified products totaled $10.2 million, up 12% from $9.1
million at the end of fiscal 1996.
GROSS MARGIN
Fiscal 1997 gross margin of 25.8% was up from 24.0% in fiscal 1996 and 23.1% in
fiscal 1995. Gross margin for fiscal 1997 was favorably impacted by continued
improvements in manufacturing productivity and efficiencies and by continued
strong demand in both the U.S. and export markets for irrigation equipment.
OPERATING EXPENSES
Selling, engineering and research, and general and administrative expenses grew
8.1% in fiscal 1997, totaling $14.4 million as compared to $13.4 million in
fiscal 1996. The increase is primarily due to increases in professional fees,
travel, advertising and salary and benefit costs partially offset by lower bad
debt expenses.
INTEREST INCOME, OTHER INCOME AND TAXES
Fiscal 1997 interest income of $3.0 million is up slightly from $2.9 million in
fiscal 1996. Fiscal 1997 other income of $0.5 million is down significantly
from $1.6 million in fiscal 1996 which included $1.4 million from the State of
Nebraska for the growth of jobs and investment at the Lindsay facility during
the years 1989 through 1994. Lindsay's fiscal 1997 effective tax rate grew to
33% compared to an effective tax rate of 31% for fiscal 1996.
FINANCIAL POSITION AND LIQUIDITY
The discussion of financial position and liquidity focuses on the balance sheet
and statement of cash flows. Lindsay requires cash for financing its
receivables, inventories, capital expenditures, stock repurchases and
dividends. Over the years, Lindsay has financed its growth through funds
provided by operations. Cash flows provided by operations of $29.0 million for
fiscal 1998 increased from $21.3 million in fiscal 1997. The increase in cash
flows provided by operating activities in fiscal 1998 was primarily due to net
earnings and a reduction in receivables. Fiscal 1997 cash flows provided by
operating activities was principally due to net earnings.
Receivables at August 31, 1998, decreased $4.8 million to $14.1 million
from $18.9 million, which was primarily due to reduced
sales activity during the last month of the fiscal year. Inventories of $10.2
million at August 31, 1998, were comparable to $10.0 million at August 31,
1997.
Current liabilities of $16.8 million at August 31, 1998, are lower than
their $19.5 million balance at August 31, 1997. The decrease from August 31,
1997, is principally due to lower accruals for environmental remediation costs,
insurance and current state and federal income taxes.
Cash flows used in investing activities of $9.1 million for fiscal 1998
were comparable to $9.2 million in fiscal 1997 and for both periods was
primarily attributable to purchases of marketable securities and capital
expenditures, partially offset by proceeds from marketable securities.
Lindsay's cash and short-term marketable securities totaled $22.5 million
at August 31, 1998 as compared to $16.3 million at August 31, 1998. At August
31, 1998, Lindsay had $43.2 million invested in long-term marketable securities
which represent intermediate-term (one to three year maturities) municipal
debt, as compared to $45.8 million at August 31, 1997.
Cash flows used in financing activities of $20.3 million for fiscal 1998
increased from $10.2 million in fiscal 1997 and for both periods was primarily
attributable to dividends paid and to purchases of treasury stock partially
offset by proceeds from the issuance of common stock under the Company's stock
option Plan.
14
<PAGE> 17
Capital expenditures of $5.1 million during fiscal 1998 increased from
$3.3 million in fiscal 1997 and were used primarily for upgrading manufacturing
plant and computer equipment. Lindsay expects its fiscal 1999 capital
expenditures to be approximately $4.0 to $5.0 million which will be used to
complete the conversion of a major fabrication process started in fiscal year
1998 to further automate Lindsay's facility, a new employee break-room and
office renovation and expansion, and other planned improvements.
Depreciation totaled $2.3 million in fiscal 1998 and is expected to
increase to approximately $2.7 million in fiscal year 1999.
Lindsay expended $19.4 million in fiscal 1998 to repurchase 708,743 shares
of its common stock. In fiscal 1997, Lindsay repurchased 312,300 shares of its
common stock using $9.9 million.
Lindsay believes its capitalization (including cash and marketable
securities balances) and operating cash flow are sufficient to cover expected
working capital needs, planned capital expenditures, dividends and repurchases
of common stock.
FISCAL 1999 OUTLOOK
IRRIGATION EQUIPMENT
The market for center pivot and lateral move irrigation equipment in the U.S.
softened during Lindsay's fourth quarter of fiscal 1998. Lower crop and other
agricultural commodity prices caused by an expectation of a near-record sized
U.S. crop harvest (an increase in supply) occurring at the same time that
economic turmoil in Asia and other developing countries reduced worldwide
demand for these same crops and commodities. We expect these low agricultural
commodity prices to continue to result in reduced demand for center pivot and
lateral move irrigation equipment throughout fiscal 1999. However, we believe
that the first half of fiscal 1999 will be impacted to a greater degree than
the second half of the year, with first half revenue falling about 40 percent
and earnings possibly falling 60 to 65 percent. For the second half of the
year, we believe revenues, although still lower, will be in a range more
similar to those posted during the second half of fiscal 1998. Net cash farm
income for calender 1998 is currently projected at $56 billion as compared to
$60 to $61 billion in both 1997 and 1996, which were record highs. Farmers
continue to be in a strong financial condition with an average debt to equity
ratio estimated at 17.5% in 1997 as compared to 29.8% in 1985. Additionally,
current interest rates are relatively low and are stable. These factors
mitigate, to a certain extent, the lower commodity prices and the prospects for
lower net cash farm income in 1999.
Longer-term, Lindsay believes that the desire of U.S. farmers to reduce
variable input costs, increase or stabilize crop yields, reduce labor input and
conserve water and energy will continue to drive demand for center pivot and
lateral move irrigation equipment. The Company believes that these demand
drivers will result in long-term growth in demand for its irrigation equipment
to average in the 6% to 8% per annum range.
Export sales of center pivot and lateral move irrigation equipment in
fiscal 1999 are expected to be roughly flat with fiscal 1998's $27.8 million.
Lindsay expects the majority of its 1999 export sales to come from Canada,
Mexico and Latin America, Australia, Western Europe and South and Central
Africa.
Lindsay's domestic and international irrigation equipment
sales are highly dependent upon the need for irrigated agricultural production
which, in turn, depends upon many factors including total worldwide crop
production, the profitability of agricultural production, commodity prices,
aggregate net cash farm income, governmental policies regarding the
agricultural sector, water and energy conservation policies and the regularity
of rainfall.
Approximately 18%, 20% and 17% of Lindsay's revenues were generated from
export sales in fiscal 1998, 1997 and 1996, respectively. Lindsay does not
believe it has significant exposure to foreign currency translation risks
because its export sales are all in U.S. dollars and are generally all shipped
against prepayments or irrevocable letters of credit which are confirmed by a
U.S. bank or other secured means.
DIVERSIFIED PRODUCTS
Lindsay's diversified products segment consists of two major products:
large-diameter thin-wall round steel tubing and outsource manufacturing
services. Diversified products customers for both products primarily consist of
agricultural and industrial capital goods manufacturers. Because of the
ag-related component, Lindsay believes that its diversified product revenues
will most likely decline slightly in fiscal 1999 compared to fiscal 1998.
Lindsay's long-term goal has been, and continues to be, to build its
diversified products segment to total 25% of total annual revenues.
SEASONALITY
Irrigation equipment sales are seasonal by nature. Farmers generally order
systems to be delivered and installed before the growing season. Shipments to
North American customers usually peak during Lindsay's second and third
quarters for the spring planting period. Lindsay's expansion into diversified
products complements its irrigation operations by using available capacity and
reducing seasonality.
OTHER FACTORS
Environmental contamination at Lindsay's manufacturing facility occurred in
1982 when a drill, operated by a sub-contractor installing groundwater
monitoring wells, punctured a silt and sand lens and an underlying clay layer
beneath a clay-lined waste lagoon. The 1982 puncture of the clay layer caused
acid and solvent leachate to enter the sand and gravel aquifer.
Since 1983, Lindsay has worked actively with the Nebraska Department of
Environmental Control (NDEC) to remediate this contamination by purging and
treating the aquifer. In October 1989, the Environmental Protection Agency (EPA)
added Lindsay to the list of priority Superfund sites. In 1988, a sampling which
was performed in connection with an investigation of the extent of aquifer
groundwater contamination, revealed solvent contamination (volatile organic
compounds) in the soil and shallow groundwater in three locations at and in the
vicinity of the plant. Under a 1988 agreement with the EPA and NDEC, Lindsay
conducted a Remedial Investigation/Feasibility Study (RI/FS). This study was
completed in June 1990. Lindsay does not believe that there is any other soil or
groundwater contamination at the manufacturing facility.
In September 1990, the EPA issued its Record of Decision (ROD) selecting a
plan for completing the remediation of both contaminations. The selected plan
implementation was delayed until finalization of the Consent Decree in April
1992. The final remediation plans were approved in 1993 and 1994 and the
remediation plans were fully implemented during fiscal 1995.
The balance sheet reserve for this remediation was $0.1 million
15
<PAGE> 18
and $0.3 million at August 31, 1998 and 1997 respectively. Lindsay believes
that this is sufficient to cover the estimated cost for complete remediation of
both the aquifer and soil and shallow groundwater contaminations under the
final plans. If the EPA or NDEC require remediation which is in addition to or
different from the current plan, this reserve could increase or decrease,
depending on the nature of the change in events.
Lindsay believed that its insurer should cover costs associated with the
contamination of the aquifer that was caused by the puncture of the clay layer
in 1982. In May, 1998, the Company reached an agreement to settle this claim
with the insurer for $4.0 million which is included in other income.
YEAR 2000 ISSUES
The Company, in late fiscal 1996, began to informally address Year 2000 issues
with its Information Technology ("IT") systems with a decision to replace its
in-house-developed manufacturing and financial software with Year 2000
compliant standardized Enterprise Resource Planning ("ERP") software.
Management selected Software Systems Associates, Inc.'s ("BPCS") ERP software
in early 1997. Hardware procurement and BPCS ERP software implementation
progressed during fiscal 1997 and fiscal 1998. Implementation of this BPCS ERP
software is expected to be 70 to 80% complete as of November 30, 1998.
Additionally, the Company, in March 1998, commenced a more comprehensive
review of its Year 2000 issues with the formation of a Year 2000 Task Force,
This task force has inventoried and assessed both its IT and non-IT systems
(embedded technology such as microcontrollers or programmable logic controllers
in manufacturing equipment or in the products Lindsay sells). The task force is
in the process of inventorying, assessing and confirming the Year 2000
compliance status of the Company's critical suppliers and third-party
providers.
The Company believes that 75 to 85% of the remediation work to become Year
2000 compliant has been completed, however little final testing has been
performed. Lindsay believes that it will be fully Year 2000 compliant in the
June 1999, through October 1999, timeframe.
Lindsay believes that it's costs for becoming Year 2000 compliant are
expected to total approximately $2.5 million of which 75% has been incurred to
date (approximately $0.9 million in both fiscal 1997 and 1998). These costs
include hardware costs, software costs and outside consulting costs but do not
include the costs for time that its employees have or are expected to spend on
Year 2000 issues.
The Company believes that its most reasonable likely worst case Year 2000
scenario includes a short-term interruption in its ability to manufacture and
ship product because: (1) one or more of the company's suppliers or third-party
providers are unable to provide the material or services expected, and (2) one
or more parts of the Company's IT system software or non-IT systems operate
incorrectly.
Because of the progress which has been made toward achieving Year 2000
compliance, the Company has not made specific formal contingency plans.
However, informal contingency plans have been made. If knowledge of outside
providers' noncompliance becomes evident or events occur that are adverse to
the Company's plan for compliance, the Company will develop and implement
specific formal contingency plans as required. Despite the Company's efforts to
address its Year 2000 issues, there can be no assurances that Year 2000 related
failures of the Company's IT systems software or non-IT systems, or that Year
2000 related IT systems software or non-IT systems, or that Year 2000 related
failures by suppliers or third parties with which the Company interacts, will
not have a material adverse effect on the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting standards ("SFAS") No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." These statements, which are effective for fiscal years beginning
after December 15, 1997, expand or modify disclosures and will have no impact
on the Company's consolidated financial position, results of operations or cash
flows.
Lindsay adopted SFAS No. 128, "Earnings per Share," in 1998. In accordance
with SFAS No. 128, the Company has presented both basic net earnings per share
and diluted net earnings per share in its financial statements.
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 generally accepted accounting principles to
reflect, in all material aspects, the substance of financial events and
transactions occurring during the respective periods.
/s/ Gary D. Parker /s/ Bruce C. Karsk
Gary D. Parker Bruce C. Karsk
Chairman, President and Vice President-Finance,
Chief Executive Officer Treasurer and Secretary
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Lindsay Manufacturing Co.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and shareholders equity and cash flows
present fairly, in all material respects, the financial position of Lindsay
Manufacturing Co. and its subsidiaries at August 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Omaha, Nebraska PricewaterhouseCoopers LLP
October 8, 1998
16
<PAGE> 19
Lindsay Manufacturing Co.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended August 31,
==================================================================================================================
(in thousands, except per share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues ........................................................... $155,707 $158,327 $136,233
Cost of operating revenues ................................................... 112,866 117,407 103,486
-------- -------- --------
Gross profit ................................................................. 42,841 40,920 32,747
-------- -------- --------
Operating expenses:
Selling expense ............................................................. 5,785 4,970 4,553
General and administrative expense .......................................... 8,102 7,898 7,380
Engineering and research expense ............................................ 1,826 1,576 1,430
-------- -------- --------
Total operating expenses ..................................................... 15,713 14,444 13,363
-------- -------- --------
Operating income ............................................................. 27,128 26,476 19,384
Interest income, net ......................................................... 3,197 2,998 2,936
Other income, net ............................................................ 4,307 455 1,620
-------- -------- --------
Earnings before income taxes ................................................. 34,632 29,929 23,940
Income tax provision ......................................................... 11,152 9,877 7,422
-------- -------- --------
Net earnings ................................................................. $ 23,480 $ 20,052 $ 16,518
======== ======== ========
Basic net earnings per share ................................................. $ 1.68 $ 1.41 $ 1.14
======== ======== ========
Diluted net earnings per share ............................................... $ 1.61 $ 1.34 $ 1.08
======== ======== ========
Average shares outstanding ................................................... 13,936 14,244 14,497
Diluted effect of stock options .............................................. 620 736 729
-------- -------- --------
Average shares outstanding assuming dilution ................................. 14,556 14,980 15,226
======== ======== ========
Cash dividends per share ..................................................... $ 0.125 $ 0.091 $ 0.067
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
===============================================================================================================================
Shares of Capital
in excess Total
Common Treasury Common of stated Retained Treasury shareholders'
($in thousands) stock stock stock value earnings stock equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1995 4,842,805 474,880 $ 4,843 $ 4,412 $ 72,447 $(12,959) $ 68,743
Net earnings -- -- -- -- 16,518 -- 16,518
Cash dividends ($0.067 per share) -- -- -- -- (963) -- (963)
Net shares issued under stock option plan 58,170 -- 58 934 -- -- 992
Stock option tax benefits -- -- -- 35 -- -- 35
Acquisitions of common stock -- 230,200 -- -- -- (8,489) (8,489)
Three-for-two stock split 2,427,038 282,740 2,427 (2,427) -- -- --
Fractional shares paid from stock split (52) -- -- (2) -- -- (2)
---------- --------- ------- ------- -------- -------- ---------
BALANCE AT AUGUST 31, 1996 7,327,961 987,820 7,328 2,952 88,002 (21,448) 76,834
Net earnings -- -- -- -- 20,052 -- 20,052
Cash dividends ($0.091 per share) -- -- -- -- (1,298) -- (1,298)
Net shares issued under stock option plan 147,790 -- 148 855 -- -- 1,003
Stock option tax benefits -- -- -- 255 -- -- 255
Acquisitions of common stock -- 280,000 -- -- -- (9,876) (9,876)
Three-for-two stock split 3,727,560 526,210 3,727 (3,610) (117) -- --
Fractional shares paid from stock split (55) -- -- (2) -- -- (2)
---------- --------- ------- ------- -------- -------- ---------
BALANCE AT AUGUST 31, 1997 11,203,256 1,794,030 11,203 450 106,639 (31,324) 86,968
NET EARNINGS -- -- -- -- 23,480 -- 23,480
CASH DIVIDENDS ($0.125 PER SHARE) -- -- -- -- (1,734) -- (1,734)
NET SHARES ISSUED UNDER STOCK OPTION PLAN 126,273 -- 126 860 -- -- 986
STOCK OPTION TAX BENEFITS -- -- -- 591 -- -- 591
ACQUISITIONS OF COMMON STOCK -- 607,743 -- -- -- (19,409) (19,409)
THREE-FOR-TWO STOCK SPLIT 5,664,514 998,015 5,665 (1,044) (4,621) -- --
FRACTIONAL SHARES PAID FROM STOCK SPLIT (94) -- -- (2) -- -- (2)
---------- --------- ------- ------- -------- -------- ---------
BALANCE AT AUGUST 31, 1998 16,993,949 3,399,788 $16,994 $ 855 $123,764 $(50,733) $ 90,880
========== ========= ======= ======= ======== ======== =========
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 20
Lindsay Manufacturing Co.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At August 31,
=======================================================================================================================
($in thousands, except par values) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................... $ 3,794 $ 4,231
Marketable securities ................................................................... 18,704 12,077
Receivables ............................................................................. 14,066 18,900
Inventories ............................................................................. 10,198 9,995
Deferred income taxes ................................................................... 3,861 4,547
Other current assets .................................................................... 92 77
-------- --------
Total current assets ................................................................... 50,715 49,827
Long-term marketable securities .......................................................... 43,164 45,802
Property, plant and equipment, net ....................................................... 14,071 11,294
Other noncurrent assets .................................................................. 964 1,060
-------- --------
Total assets ............................................................................. $108,914 $107,983
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ................................................................. $ 4,936 $4,993
Other current liabilities ............................................................... 11,723 14,337
Current portion of capital lease obligation ............................................. 142 149
-------- --------
Total current liabilities .............................................................. 16,801 19,479
Other noncurrent liabilities ............................................................. 1,125 1,274
Obligation under capital lease less current portion ...................................... 108 262
-------- --------
Total liabilities ........................................................................ 18,034 21,015
-------- --------
Contingencies
Shareholders' equity:
Preferred stock, ($1 par value, 2,000,000 shares authorized, no shares issued and
outstanding in 1998 and 1997) .........................................................
Common stock, ($1 par value, 25,000,000 shares authorized, 16,993,949 and
11,203,256 shares issued in 1998 and 1997) ............................................ 16,994 11,203
Capital in excess of stated value ....................................................... 855 450
Retained earnings ....................................................................... 123,764 106,639
Less treasury stock, (at cost, 3,399,788 shares in 1998 and
1,794,030 shares in 1997) .............................................................. (50,733) (31,324)
-------- --------
Total shareholders' equity ............................................................... 90,880 86,968
-------- --------
Total liabilities and shareholders' equity ............................................... $108,914 $107,983
======== ========
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 21
Lindsay Manufacturing Co.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended August 31,
==================================================================================================================
($ in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................................ $23,480 $20,052 $16,518
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization.............................................. 2,286 2,015 1,486
Amortization of marketable securities premiums, net........................ 187 213 325
(Gain) loss on sale of fixed assets........................................ (152) 13 (83)
Gain on maturities of marketable securities held-to-maturity............... (1) (14) (14)
Gain on sale of marketable securities available-for-sale................... 0 0 (8)
Provision for uncollectible accounts receivable............................ 0 20 150
Deferred income taxes...................................................... 686 (1,178) (565)
Stock option tax benefits.................................................. 591 255 35
Changes in assets and liabilities:
Receivables................................................................ 4,834 1,208 (9,925)
Inventories................................................................ (203) (2,195) (2,416)
Other current assets....................................................... (15) 193 1,621
Accounts payable........................................................... (57) (922) 1,620
Other current liabilities.................................................. (1,735) 1,891 1,808
Current taxes payable...................................................... (879) (336) (662)
Other noncurrent assets and liabilities.................................... (53) 53 (70)
-------- ------- -------
Net cash provided by operating activities................................... 28,969 21,268 9,820
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................. (5,091) (3,335) (4,038)
Proceeds from sale of property, plant and equipment......................... 180 162 108
Purchases of marketable securities held-to-maturity......................... (17,085) (30,910) (19,880)
Proceeds from maturities of marketable securities held-to-maturity.......... 12,910 24,904 16,775
Proceeds from sale of marketable securities available-for-sale.............. 0 0 3,525
-------- ------- -------
Net cash used in investing activities....................................... (9,086) (9,179) (3,510)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligation........................... (161) (47) 0
Proceeds from issuance of common stock under stock option plan.............. 986 1,003 992
Three-for-two stock split fractional shares paid in cash.................... (2) (2) (2)
Dividends paid.............................................................. (1,734) (1,298) (963)
Purchases of treasury stock................................................. (19,409) (9,876) (8,489)
-------- ------- -------
Net cash used in financing activities....................................... (20,320) (10,220) (8,462)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........................ (437) 1,869 (2,152)
Cash and cash equivalents, prior year....................................... 4,231 2,362 4,514
-------- ------- -------
Cash and cash equivalents, current year..................................... $ 3,794 $ 4,231 $ 2,362
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid........................................................... $11,344 $11,421 $ 8,649
Interest paid............................................................... $ 44 $ 17 $ 91
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 22
Lindsay Manufacturing Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES
Lindsay Manufacturing Co. (the "Company" or "Lindsay") manufactures and
distributes irrigation systems and manufactures other special metal products
serving both domestic and international markets. Principal facilities are
located within the United States. The principal accounting policies of the
Company are as follows:
(1) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany balances and
transactions are eliminated in consolidation.
(2) REVENUE RECOGNITION
Revenues and related cost of revenues for all irrigation and diversified
products are recognized when title passes. Generally this occurs at the time of
shipment of product to dealers or customers.
(3) WARRANTY COSTS
Cost of operating revenues included warranty costs of $774,000, $796,000 and
$1,073,000 for the years ended August 31, 1998, 1997 and 1996, respectively.
Provision for the estimated warranty costs is made in the period in which such
costs become probable and is periodically adjusted to reflect actual
experience.
(4) CASH EQUIVALENTS, MARKETABLE SECURITIES AND
LONG-TERM MARKETABLE SECURITIES
Cash equivalents are included at cost, which approximates market. At August 31,
1998, Lindsay's cash equivalents were held primarily by one financial
institution. Marketable securities and long-term marketable securities are
categorized as held-to-maturity or available-for-sale. Investments in the
held-to-maturity category are carried at amortized cost. Investments in the
available-for-sale category are carried at fair value with unrealized gains and
losses as a separate component of shareholders' equity. The carrying amounts of
the securities used in computing unrealized and realized gains and losses are
determined by specific identification. Lindsay considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents, while those having maturities in excess of three months are
classified as marketable securities or as long-term marketable securities when
maturities are in excess of one year. Marketable securities and long-term
marketable securities consist of investment-grade municipal bonds.
On November 15, 1995, the Financial Accounting Standards Board Staff
issued a special report on statement 115 "Accounting for Certain Investments in
Debt and Equity Securities" that includes special transition provisions for the
one-time reassessment and reclassification of securities from the
held-to-maturity category during the period November 15, 1995 to December 31,
1995. Lindsay transferred securities maturing July 1, 1996 and August 1, 1996
from the held-to-maturity classification to the available-for-sale
classification on December 20, 1995. The total amortized cost, gross unrealized
holding gains, gross unrealized holding losses and the aggregate fair value for
the securities transferred are $3,518,687, $8,233, $0.0 and $3,526,920,
respectively.
There are no investments in the available-for-sale category included in
marketable securities at August 31, 1998.
At August 31, 1998, investments in the held-to-maturity category are
included in marketable securities ($18,704,000) and long-term marketable
securities ($43,164,000). The total amortized cost, gross unrealized holding
gains, gross unrealized holding losses, and aggregate fair value for
held-to-maturity securities are $61,868,000, $527,000, $5,000 and $62,390,000,
respectively. In the held-to-maturity category, $18,704,000 in securities
mature within one year and $43,164,000 have maturities ranging from one to
three years.
The Company is not subject to material market risks with respect to its
marketable securities.
(5) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method for all inventories.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment and capitalized lease assets are stated at cost. The
Company's policy is to capitalize expenditures for major renewals and
betterments and to charge to operating expenses the cost of current maintenance
and repairs. Provisions for depreciation and amortization have been computed
principally on the straight-line method for buildings and equipment. Rates used
for depreciation are based principally on the following expected lives:
buildings -- 20 to 30 years; equipment -- three to 10 years; other -- two to 20
years; and leasehold improvements -- term of lease.
All of the Company's long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future cash flows is less
than the carrying amount of the asset, a loss is recognized.
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.
(7) EXPORT SALES
Revenues included export sales of $27,774,000, $32,275,000, and $23,099,000 for
the years ended August 31, 1998, 1997 and 1996, respectively. Lindsay's export
sales are all in U.S. dollars and are essentially all shipped against
prepayments or backed by irrevocable letters of credit which are confirmed by
U.S. banks or other secured means.
GEOGRAPHIC AREA EXPORT REVENUES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Mexico
Europe & Latin Other Totals
$ in thousands & Africa America
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
August 31, 1998 .......... $7,753 $ 8,235 $11,786 $27,774
August 31, 1997 .......... $9,781 $15,108 $ 7,386 $32,275
August 31, 1996 .......... $9,364 $ 8,168 $ 5,567 $23,099
- -------------------------------------------------------------------------
</TABLE>
(8) EARNINGS PER SHARE
Basic net earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding. Diluted net earnings per share
includes the dilutive effect of stock options.
20
<PAGE> 23
(9) STOCK SPLIT
On May 6, 1998, the Board of Directors declared a three-for-two split of
Lindsay's common stock effective June 15, 1998, to shareholders of record on
June 5, 1998. Accordingly, the average number of shares outstanding, per share
information and stock option data have been adjusted to reflect the stock
split.
(10) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
(11) RECLASSIFICATIONS
Certain reclassifications have been made to prior financial statements amounts
to conform to the current-year presentation.
<TABLE>
<CAPTION>
B. NON-OPERATING ITEMS
============================================================================
For the years ended August 31,
--------------------------------
$ in thousands 1998 1997 1996
============================================================================
<S> <C> <C> <C>
Other income, net:
Litigation settlement .............. $4,000 $ 0 $ 0
(Loss) gain on sales of fixed assets 152 (13) 83
State economic development
tax credits ....................... 165 387 1,433
Finance charges .................... 41 24 77
All other, net ..................... (51) 57 27
- ----------------------------------------------------------------------------
Total other income, net ............. $4,307 $455 $1,620
============================================================================
C. INCOME TAX PROVISION
============================================================================
For the years ended August 31,
--------------------------------
$ in thousands 1998 1997 1996
============================================================================
<S> <C> <C> <C>
Current taxes ........................ $10,466 $11,055 $7,987
Deferred taxes ....................... 686 (1,178) (565)
- ----------------------------------------------------------------------------
Total income tax provision ........... $11,152 $9,877 $7,422
============================================================================
</TABLE>
Total tax provisions resulted in effective tax rates differing from that of the
statutory federal income tax rates. The reasons for these differences are:
<TABLE>
<CAPTION>
============================================================================
For the years ended August 31,
-------------------------------------------
1998 1997 1996
============================================================================
$ in thousands Amount % Amount % Amount %
============================================================================
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory rate ........ $12,121 35.0 $10,475 35.0 $8,379 35.0
State and local taxes ...... 262 0.8 292 1.0 157 0.7
Qualified export activity .. (236) (0.7) (347) (1.2) (195) (0.8)
Municipal bonds ............ (930) (2.7) (806) (2.7) (793) (3.3)
Other ...................... (65) (0.2) 263 0.9 (126) (0.6)
- ----------------------------------------------------------------------------
Total ...................... $11,152 32.2 $9,877 33.0 $7,422 31.0
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
============================================================================
For the years ended August 31,
--------------------------------
$ in thousands 1998 1997
============================================================================
<S> <C> <C>
Book depreciation in excess of tax .............. $ 52 $ 131
Employee benefits ............................... 2,560 2,092
Inventory adjustments ........................... 261 161
Accruals not currently deductible for taxes...... 988 2,163
- ----------------------------------------------------------------------------
Net deferred tax assets ......................... $3,861 $4,547
============================================================================
</TABLE>
Management does not believe there are uncertainties surrounding realization of
the net deferred tax assets.
<TABLE>
<CAPTION>
D. RECEIVABLES
============================================================================
August 31,
-----------------------
$ in thousands 1998 1997
============================================================================
<S> <C> <C>
Trade accounts and notes ........................ $14,809 $19,643
Less allowance for doubtful accounts ............ 743 743
- ----------------------------------------------------------------------------
Net receivables ................................. $14,066 $18,900
============================================================================
</TABLE>
E. INVENTORIES
<TABLE>
<CAPTION>
============================================================================
August 31,
-----------------------
$ in thousands 1998 1997
============================================================================
<S> <C> <C>
First-in, first-out (FIFO) inventory ............ $14,361 $ 14,164
LIFO reserves ................................... (3,228) (3,500)
Obsolescence reserve ............................ (935) (669)
- ----------------------------------------------------------------------------
Total Inventories ............................... $10,198 $ 9,995
============================================================================
</TABLE>
The estimated percentage distribution between major classes of inventory
before reserves is as follows:
<TABLE>
<CAPTION>
============================================================================
August 31,
-----------------------
1998 1997
============================================================================
<S> <C> <C>
Raw materials ................................... 18% 19%
Work in process ................................. 6% 6%
Purchased parts ................................. 35% 30%
Finished goods .................................. 41% 45%
============================================================================
</TABLE>
<TABLE>
<CAPTION>
F. PROPERTY, PLANT & EQUIPMENT
============================================================================
August 31,
-----------------------
$ in thousands 1998 1997
============================================================================
<S> <C> <C>
Plant and equipment:
Land ..................................... $ 70 $ 70
Buildings ................................ 5,043 5,033
Equipment ................................ 25,023 23,769
Other .................................... 5,280 2,135
Capital lease:
Equipment ................................ 458 458
- ----------------------------------------------------------------------------
Total plant, equipment and capital lease .. 35,874 31,465
Accumulated depreciation and amortization:
Plant and equipment ...................... (21,690) (20,145)
Capital lease ............................ (113) (26)
- ----------------------------------------------------------------------------
Property, plant and equipment, net ........ $14,071 $11,294
============================================================================
</TABLE>
21
<PAGE> 24
G. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
====================================================================
August 31,
---------------------
$ in thousands 1998 1997
====================================================================
<S> <C> <C>
Current state and federal income taxes ..... $ (524) $ 342
Payroll and vacation ....................... 3,882 3,858
Retirement plans ........................... 1,846 1,635
Taxes, other than income ................... 225 238
Insurance .................................. 1,595 1,997
Dealer service, commission and related items 2,310 2,660
Export freight ............................. 174 222
Warranty ................................... 607 607
Legal settlements .......................... 572 350
Environmental .............................. 116 322
Other ...................................... 920 2,106
- --------------------------------------------------------------------
Total other current liabilities ............ $11,723 $14,337
====================================================================
</TABLE>
H. LEASE
During the fourth quarter of fiscal 1997, the Company recorded a three-year
capital lease for computer equipment in the amount of $457,850, at interest of
approximately 4% with a one-dollar end-of-lease purchase option.
Future minimum lease payments at August 31, 1998, under this capital lease
together with the present value of the minimum lease payments are as follows:
<TABLE>
<CAPTION>
====================================================================
Twelve months ending August 31 $in thousands
====================================================================
<S> <C>
1999 ......................................... $ 149
2000 ......................................... 109
- --------------------------------------------------------------------
Total minimum payments ....................... 258
Amount representing interest ................. (8)
- --------------------------------------------------------------------
Present value of minimum payments ............ 250
Current portion .............................. (142)
- --------------------------------------------------------------------
Total ........................................ $ 108
====================================================================
</TABLE>
I. 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 Lindsay's
consolidated financial position, results of operations or cash flows. Lindsay
has substantially completed the environmental remediation efforts at its
manufacturing facility. Lindsay believed that its insurer should cover the
costs of certain remediation costs. In May 1998, the Company reached an
agreement to settle this claim with the insurer for $4.0 million which is
included in other income.
J. RETIREMENT PLANS
During 1996, Lindsay adopted an amended and restated defined contribution
profit-sharing plan to include a 401(k) provision covering all employees.
Participants may voluntarily contribute a percentage of compensation, but not
in excess of the maximum allowed under the Internal Revenue Code. The plan
provides for a matching contribution by Lindsay. Additionally, the plan
provides for Lindsay to contribute a discretionary amount when warranted by
results of operations. The contribution is allocated to participants based upon
their respective percentage of wages to total wages of all participants in the
plan. Lindsay's total contributions charged to expense under this plan were
$800,000 for each of the years ended August 1998 and 1997 and $750,000 for the
year ended August 1996.
A supplementary non-qualified, non-funded retirement plan for certain key
executives is also maintained. Plan benefits are based on the executive's
average total compensation during the three highest compensation years of
employment. This unfunded supplemental retirement plan is not subject to the
minimum funding requirements of ERISA.
Cost and the assumptions for the Company's supplemental retirement plan
includes the following components:
<TABLE>
<CAPTION>
==========================================================================
For the years ended August 31,
------------------------------
$ in thousands 1998 1997 1996
==========================================================================
<S> <C> <C> <C>
Service cost .......................... $ 80 $ 74 $ 69
Interest cost ......................... 128 113 101
Net amortization and deferral ......... 69 69 69
- --------------------------------------------------------------------------
Net cost .............................. $277 $256 $239
- --------------------------------------------------------------------------
Discount rate ......................... 7.00% 7.00% 7.00%
Assumed rates of compensation increases 3.50% 3.50% 3.50%
==========================================================================
</TABLE>
The funded status and the amounts recognized in the Company's consolidated
balance sheet are as follows:
<TABLE>
<CAPTION>
===========================================================================================
August 31,
------------------------------------
$ in thousands 1998 1997 1996
===========================================================================================
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation ......................... $1,271 $1,179 $1,021
Non-vested benefit obligation ..................... 153 147 123
Accumulated benefit obligation .................... 1,424 1,326 1,144
Projected benefit obligation ....................... 1,937 1,820 1,612
Fair value of plan assets .......................... 0 0 0
Unrecognized net gain (loss) ....................... 75 (15) 6
Unrecognized prior year service cost ............... 0 0 0
Unrecognized net obligation/(asset) at transition... 787 857 926
Adjustment to recognize minimum liability........... 199 378 452
Liability recognized in the consolidated
balance sheet ..................................... $1,424 $1,326 $1,144
===========================================================================================
</TABLE>
K. STOCK OPTIONS
The Company adopted a Long-Term Incentive Plan in October 1988, (1988 Plan)
which provides for awards of stock options, stock appreciation rights, stock
indemnification rights and restricted stock (collectively stock awards) to
officers and key employees. Options may be granted at, above or below the fair
market value of the stock at the date of the grant and are exercisable within
periods specified by the Company's Compensation Committee.
In February 1992, the shareholders approved the 1991 Long-Term Incentive
Plan (1991 Plan) which is similar in most material respects to the 1988 Plan.
Additionally, the 1991 Plan provides for non-qualified stock options to
directors who are not officers or employees of the Company or its subsidiaries.
Options currently vest ratably over five years and expire ten years from
the grant dates.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option shares. Had compensation cost for the Company's
stock option shares been determined based on the fair value at the grant date
for awards in fiscal 1998, 1997 and 1996 consistent with the provisions of SFAS
No. 123, net earnings and net earnings per share would have been reduced to the
pro forma amounts indicated below:
22
<PAGE> 25
<TABLE>
<CAPTION>
=========================================================================
August 31,
-------------------------
$ in thousands, except per share amounts 1998 1997 1996
=========================================================================
<S> <C> <C> <C>
Net earnings - as reported..................... $23,480 $20,052 $16,518
Net earnings - pro forma....................... $23,321 $19,996 $16,486
Net earnings per share - as reported........... $ 1.61 $ 1.34 $ 1.08
Net earnings per share - pro forma............. $ 1.60 $ 1.33 $ 1.08
=========================================================================
</TABLE>
The pro forma effect on net earnings for fiscal 1998, 1997 and 1996 is not
fully representative of the pro forma effect on net earnings in future years
because it does not take into consideration pro forma compensation expense
related to the vesting of grants made prior to fiscal 1996.
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 1998, 1997 and 1996,
dividend yield of 0.5%, expected volatility of 31.2% to 36.6%, risk-free
interest rates ranging from 5.0% to 6.9%, and expected lives of the options of
7 to 8 years.
A summary of the status of the Company's stock plans is presented below:
<TABLE>
<CAPTION>
=========================================================================
Restricted shares For the years ended August 31,
-------------------------------
$ in thousands, except per share amounts 1998 1997 1996
=========================================================================
<S> <C> <C> <C>
Number of shares issued...................... 66,375 67,275 64,125
Average price................................ $26.97 $18.58 $11.65
Total value of shares issued................. $1,790 $1,250 $ 747
Total compensation cost recognized in the
statements of operations..................... $1,543 $1,749 $1,101
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================
Option shares Number of Shares Average Price
=========================================================================
<S> <C> <C>
Officers, Directors and Key Employees:
Outstanding at August 31, 1995............. 1,302,842 $ 5.45
Granted................................... 45,562 10.22
Exercised................................. (104,846) 5.69
Cancelled................................. (36,280) 8.95
Outstanding at August 31, 1996............. 1,207,278 5.51
Exercisable at August 31, 1996............. 977,103 4.69
Weighted average fair value of options
granted during fiscal 1996................ 11.83
Outstanding at August 31, 1996............. 1,207,278 5.51
Granted................................... 20,250 17.22
Exercised................................. (324,289) 4.07
Cancelled................................. (15,188) 12.05
Outstanding at August 31, 1997............. 888,051 6.19
Exercisable at August 31, 1997............. 730,439 5.44
Weighted average fair value of options
granted during fiscal 1997................ 13.31
Outstanding at August 31, 1997............. 888,051 6.19
Granted................................... 120,000 27.49
Exercised................................. (169,827) 3.01
Cancelled................................. (4,725) 8.72
Outstanding at August 31, 1998............. 833,499 9.89
Exercisable at August 31, 1998 625,412 6.48
Weighted average fair value of options
granted during fiscal 1998................. $ 6.36
=========================================================================
</TABLE>
The number of stock awards available for grant under the 1988
and 1991 plans are 265,562, 498,708 and 599,868 shares as of August 31, 1998,
1997 and 1996, respectively.
The following table summarizes information about the Company's Common
Stock options outstanding at August 31, 1998:
<TABLE>
<CAPTION>
===========================================================================
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------
Weighted
Average
Range of Number Remaining Weighted Number Weighted
Exercise Outstanding Contractual Average Exercisable Average
Prices at 8/31/98 Life Price at 8/31/98 Price
===========================================================================
<S> <C> <C> <C> <C> <C>
$2.91- 6.17 309,138 2.33 years $3.56 309,138 $3.56
8.37-10.52 389,174 5.04 years 9.19 313,236 9.26
17.22-17.22 15,187 8.01 years 17.22 3,038 17.22
26.17-28.17 120,000 9.12 years 27.50 0 27.50
- ---------------------------------------------------------------------------
833,499 625,412
===========================================================================
</TABLE>
L. INDUSTRY SEGMENT INFORMATION
===========================================================================
<TABLE>
<CAPTION>
For the years ended August 31,
------------------------------
$ in millions 1998 1997 1996
===========================================================================
<S> <C> <C> <C>
Operating revenues:
Irrigation ............................ $130.5 $131.6 $115.9
Diversified products .................. 25.2 26.7 20.3
- -----------------------------------------------------------------------
Total operating revenues ............... $155.7 $158.3 $136.2
- -----------------------------------------------------------------------
Operating earnings:
Irrigation ............................ $31.8 $29.9 $24.0
Diversified products .................. 5.2 6.1 4.2
- -----------------------------------------------------------------------
Segment operating earnings ............. 37.0 36.0 28.2
Unallocated general & administrative and
engineering & research expenses ....... (9.9) (9.5) (8.8)
Interest and other income, net ......... 7.5 3.4 4.5
- -----------------------------------------------------------------------
Earnings before income taxes ........... $34.6 $29.9 $23.9
- -----------------------------------------------------------------------
Identifiable assets:
Irrigation ............................ $31.4 $33.1 $32.1
Diversified products .................. 5.6 5.8 4.9
Corporate ............................. 71.9 69.0 59.8
- -----------------------------------------------------------------------
Total identifiable assets .............. $108.9 $107.9 $96.8
===========================================================================
</TABLE>
Segment operating earnings are based on net sales less identifiable
operating expenses. Identifiable operating expenses do not include general and
administrative expenses (which include corporate expenses) or engineering and
research expenses. Corporate assets are principally cash and cash equivalents,
short- and long-term marketable securities, deferred income taxes and certain
property, plant and equipment.
Capital expenditures and depreciation have not been allocated to industry
segments due to the arbitrary and inexact nature of the allocation process for
Lindsay which operates out of a single manufacturing facility. For the same
reasons, general and administrative and engineering and research expenses, and
interest and other income, net have not been allocated.
23
<PAGE> 26
<TABLE>
<S> <C>
DIRECTORS OFFICERS
VAUGHN L. BEALS, JR. EDUARDO R. ENRIQUEZ
Director since 1997 Vice President-International
Chairman - Emeritus Harley-Davidson, Inc. Joined Lindsay in 1981; Vice President-International 1986
HOWARD G. BUFFETT BRUCE C. KARSK
Director since 1995 Vice President-Finance, Treasurer and Secretary
Chairman of the Board, The GSI Group; Joined Lindsay in 1979 as Corporate Accounting Manager;
Director: The GSI Group; Berkshire Hathaway, Inc.; Controller 1981; Vice President-Finance,
Coca-Cola Enterprises, Inc. Treasurer and Secretary 1984
JOHN W. CROGHAN CLIFFORD P. LOSEKE
Director since 1989 Vice President-Manufacturing
President of Lincoln Partners, Joined Lindsay in 1971 as Plant Manager;
A partnership of Lincoln Capital Management Company; Vice President-Manufacturing 1975
Director: St. Paul Bancorp, Inc.; Republic Services, Inc.;
Morgan Stanley public closed end funds (13 funds) CHARLES H. MEIS
Vice President-Engineering
GARY D. PARKER Joined Lindsay in 1971 as a Product Engineer;
Director since 1978 Director of Engineering 1972;
President, Chief Executive Officer and Vice President-Engineering 1975
Chairman of the Board
Joined Lindsay in 1971; Vice President-Marketing 1975; ROBERT S. SNOOZY
Executive Vice President 1978; President & CEO 1984; Vice President-Domestic Sales
Chairman of the Board 1989 Joined Lindsay in 1973 as a Research Engineer;
Vice President-Marketing 1978;
GEORGE W. PLOSSL Vice President-Sales and Marketing 1986;
Director since 1989 Vice President-Domestic Sales 1997
President, G.W. Plossl & Co., Inc.
</TABLE>
24
<PAGE> 27
INVESTOR INFORMATION
ANNUAL MEETING
All shareholders are invited to attend our annual meeting, which will be held
on January 26, 1999, at 1:00 p.m. at The Cornhusker Hotel 333 South 13th
Street, Lincoln, Nebraska. We look forward to
meeting shareholders and answering questions at the meeting. Any shareholder
who will be unable to attend is encouraged to send questions and comments, in
writing, to Gary D. Parker, President, Chief Executive Officer and Chairman of
the Board, at Lindsay's corporate offices.
QUARTERLY CALENDAR
The Company operates on a fiscal year ending August 31. Fiscal 1999 quarter-end
dates are November 30, 1998, February 28, 1999, May 31, 1999 and August 31,
1999. Quarterly earnings are announced approximately three weeks after the end
of each quarter and audited results are announced four to five weeks after
year-end. Quarterly earnings releases are posted on Lindsay's web pages at
www.zimmatic.com.
FORM 10-K
Shareholders who wish to obtain, free of charge, a copy of Lindsay
Manufacturing Co.'s annual report on Form 10-K for the year ended August 31,
1998, as filed with the Securities and Exchange Commission, may do so by
writing Bruce C. Karsk, Vice President-Finance, Treasurer and Secretary, at
Lindsay's corporate offices.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
Shareowner Services
Post Office Box 64854
St. Paul, Minnesota 55164-0854
Phone: (612) 450-4064
FAX: (612) 450-4033
RESEARCH REPORTS ISSUED BY
Barrington Research Associates, Inc.
George K. Baum & Company
Select Equity Group, Inc.
Standard & Poors
Value Line Investment Survey
STOCK MARKET INFORMATION
Lindsay's common stock is traded on the New York Stock Exchange, Inc. (NYSE)
under the ticker symbol LNN. Prior to October 21, 1997, Lindsay common stock
traded on the Nasdaq National Market. Stock price quotations are printed daily
in major newspapers.
As of August 31, 1998, there were 13,594,161 shares of common stock
outstanding, held by approximately 250 shareholders of record and an estimated
4,800 shareholders for whom securities firms acted as nominees.
CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report, including the President's letter, Management's Discussion
and Analysis, Year 2000 and other sections, contains forward-looking statements
that are subject to risks and uncertainties and which reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, Company performance and financial results. Forward-looking
statements include the information concerning possible or assumed future
results of operations of our Company and those statements preceded by, followed
by or include the words "future," "position," "anticipate(s)," "expect,"
"believe(s)," "see," "plan," "further improve," "outlook," "should" or similar
expressions. For these statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. You should understand that the following important factors,
in addition to those discussed elsewhere in this document, could affect the
future results of the Company and could cause those results to differ
materially from those expressed in our forward-looking statements: availability
of and price of raw materials, product pricing, competitive environment and
related domestic and international market conditions, operating efficiencies
and actions of domestic and foreign governments. Any changes in such factors
could result in significantly different results.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Omaha, Nebraska
FOR FURTHER INFORMATION
Shareholders and prospective investors are welcome to call or write Lindsay
Manufacturing Co. with questions or requests for additional information. Please
direct inquiries to:
Bruce C. Karsk
Vice President-Finance, Treasurer and Secretary
Lindsay Manufacturing Co.
East Highway 91
P.O. Box 156
Lindsay, Nebraska 68644
(402) 428-2131
<PAGE> 28
[LINDSAY LOGO]
LINDSAY MANUFACURING CO.
East Highway 91
Lindsay, Nebraska 68644
(402) 428-2131
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Lindsay Manufacturing Co. on Form S-8 (File No. 333-00769) of our report dated
October 8, 1998 on our audits of the consolidated financial statements and
financial statement schedule of Lindsay Manufacturing Co., as of August 31, 1998
and 1997 and for each of the three years in the period ended August 31, 1998,
which report is incorporated by reference in the Company's Annual Report on Form
10-K for the year ended August 31, 1998.
PRICEWATERHOUSECOOPERS LLP
Omaha, Nebraska
November 25, 1998
<PAGE> 1
EXHIBIT 24(a)
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes Gary D.
Parker and Bruce C. Karsk, and each of them singly, such person's true and
lawful attorney-in-fact, with full power to them and each of them to sign for
such person and in such person's name and capacity indicated below any and all
instruments, reports and amendments which said attorney-in-fact or any one of
them may deem necessary or advisable to enable Lindsay Manufacturing Co., (the
"Company") to comply with the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission under the 1934 Act, specifically, the power and authority to
sign for us or any of us in our names and in the capacities on the Company's
Annual Report on Form 10-K, and we do hereby ratify and confirm all that said
attorneys-in-fact, or any of them, shall do or cause to be done by virtue of
this Power of Attorney.
Executed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
Gary D. Parker Chairman of the Board November 20, 1998
- ----------------------- of Directors, President
Gary D. Parker Chief Executive Officer,
(Principal Executive Officer)
Vaughn L. Beals, Jr. Director November 20, 1998
- -----------------------
Vaughn L. Beals, Jr.
Howard G. Buffett Director November 20, 1998
- -----------------------
Howard G. Buffett
John W. Croghan Director November 20, 1998
- -----------------------
John W. Croghan
George W. Plossl Director November 20, 1998
- -----------------------
George W. Plossl
Bruce C. Karsk Vice President of November 20, 1998
- ----------------------- Finance, Secretary and
Bruce C. Karsk Treasurer (Principal
Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 3,794
<SECURITIES> 18,704
<RECEIVABLES> 14,066
<ALLOWANCES> 0
<INVENTORY> 10,198
<CURRENT-ASSETS> 50,715
<PP&E> 35,874
<DEPRECIATION> 21,803
<TOTAL-ASSETS> 108,914
<CURRENT-LIABILITIES> 16,801
<BONDS> 0
0
0
<COMMON> 16,994
<OTHER-SE> 73,886
<TOTAL-LIABILITY-AND-EQUITY> 108,914
<SALES> 155,707
<TOTAL-REVENUES> 155,707
<CGS> 112,866
<TOTAL-COSTS> 112,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,632
<INCOME-TAX> 11,152
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,480
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.61
</TABLE>
