Lindsay Corp (LNN) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Lindsay Manufacturing fourth quarter and year-end results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded Thursday, October 10, 2002. I would now like to turn the conference over to Ms. Dianne Hetwer (ph) with the Financial Relations Board. Please go ahead ma'am.

Dianne Hetwer (ph): Good morning. I'd like to thank everyone for joining us today. Earlier in the day, we sent a press release outlining the results for the fourth quarter and year ended August 31st, 2002. If anyone has not received the release, please call the Financial Relations Board at area code 312-266-2786 and my assistant Ellie Fishler will send you another copy.

Joining us today from the management team of Lindsay Manufacturing, we have Rick Parod, President and Chief Executive Officer and Bruce Karsk, Executive Vice President of Finance and Chief Financial Officer. Management will provide an overview of the quarter and year and then will open the call to your questions. Before we begin, we would like to remind all participants that this conference call may contain certain forward-looking statements that are subject to the Safe Harbor disclaimer in today's press release. At this point then I'd like to turn the call over to Rick. Rick.

Thank you. Good morning. Before I comment on the full fiscal 2002-year results, I'd like to comment briefly on the fourth quarter. Revenue for the fourth quarter of 2002 was 32.5 million, up 28 percent from the same period last year reflecting improved irrigation equipment demand and the additional revenue from two acquisitions made during the third fiscal quarter of 2002. Excluding the two acquisitions, fourth quarter revenue has increased 3.8 million, or 15 percent.

Our irrigation equipment revenues increased 41 percent over the fourth quarter of fiscal 2001. Diversified products revenues declined 29 percent reflecting the contraction we experienced throughout the year. Our diluted earnings per share was eight cents for the quarter, compared with six cents for the fourth quarter of fiscal 2001. For the full fiscal year of 2002, revenues were 145.9 million, up 15 percent from fiscal 2001. Fiscal 2002 net earnings were 10.7 million, or 90 cents per diluted share compared with eight million, or 67 cents per share for fiscal 2001.

Domestically, irrigation revenues rose by 23 percent in fiscal 2002. Excluding the dealership acquired early in the third quarter, domestic irrigation revenues increased 16 percent over the prior year. Fiscal 2002 began slowly, coming off the year clouded with uncertainty over the pending farm bill, energy prices, and sluggish commodity prices. Early in the year, the picture became even less clear after the events of September 11. As we moved into the second fiscal quarter, uncertainty over the farm bill diminished and revenues began to recover.

During the spring, the farm bill was passed, which included the attractive environmental quality incentives program, or equipped fund, to be used in part to aide farmers in improving water use efficiencies and in reducing soil erosion. Throughout the spring and summer, dry weather conditions further increased immediate demand for irrigation equipment and we began to see some key commodity prices pushed higher.

During our traditionally slower fourth quarter, domestic demands slowed somewhat more than expected as farmers awaited responses to the voluminous applications for equipped fund. Today domestic corns, soybeans, wheat, and cotton prices are now greater than 20 percent above the prices at this time last year. The rise in agricultural commodity prices, the dry weather conditions and the opportunity for equipped funds for irrigation equipment purchases reported a strong finish to fiscal 2002 and sets the stage for additional growth in 2003.

During fiscal 2002, we also added product store offerings through acquisition, strategic alliances and internal development. While the new products added modestly to revenues in 2002, each addition strategically expanded our offering, building an integrated solution for growers.

In the international markets, revenues for fiscal 2002 were up 30 percent from fiscal 2001 including the operation started in Brazil during the third quarter.

Revenues increased more than 30 percent in Europe, now reflecting a full year of revenue from the acquisition made in 2001. Export shipments to the Middle East, Australia and Mexico were each up in excess of 10 percent for the year aided by agricultural development projects and stronger global commodity prices. Shipments to South Africa while four percent of our international revenues in fiscal 2001, declined to two percent of our international revenues in fiscal 2002.

The South African market for irrigation equipment remains very strong; however, it has become challenging, if not impossible, to competitively export to that market given the current value of the South African Rand versus the US dollar and high freight costs. During the fourth quarter of 2002, we began activities to establish a sales, marketing, and limited manufacturing base in the region.

During fiscal 2002, revenues from diversified products declined throughout the year ending at 13.2 million, down 33 percent from the previous year. Due to the sluggish economic conditions in 2001, several of our customers for diversified products began to decrease their reliance on out-source manufacturing, preferring instead to pull production into their own operations.

The contraction continued through the year; however for Lindsay, the decline was offset by rising irrigation equipment demand. We continue to value our diversified products customers and we will support them. We will seek additional business in this category and we do not anticipate material growth or decline in diversified products for 2003 at this time. Total gross margins for fiscal 2002 finished at 22.6 percent increasing from 22 percent in fiscal 2001. The improvement in margin resulted from selling price increases implemented, a more favorable product mix, cost controls and increased manufacturing throughput. Product and manufacturing cost reductions implemented during the past 18 to 24 months helped in offsetting material and labor cost increases including significant steel--rises in steel prices. The emphasis on improving manufacturing efficiencies is expected to continue to yield benefits in all locations during fiscal 2003.

Operating expenses, excluding the 900,000 restructuring charge recorded in fiscal 2001, increased 2.4 million over the previous year with 1.7 million of the increase occurring in the fourth quarter of 2002, primarily resulting from the inclusion of the acquisitions previously announced.

Our total order backlog at August 31, 2002 stood at 18.9 million, which is down from the backlog of 23.1 million at the end of August last year. Both irrigation and diversified products backlogs are lower. The diversified products backlog continues to reflect contraction. The irrigation equipment backlog declined in the fourth quarter, as our order flow slowed. While domestic farmers awaited the release of equipped funds.

The current irrigation equipment order flow is now strengthening. Our balance sheet continues to be in excellent shape. We now have approximately 51.1 million in cash and marketable securities, compared with 47.7 million at the end of last year. Our accounts receivables are 2.1 million higher than last year reflecting higher fourth quarter sales, and inventories increased by 5.5 million, primarily from the inclusion of the acquisition. During the year, we made good progress in enhancing inventory management in our Nebraska operations. And we are implementing similar practices in all locations. We continue to generate cash flow from our business. Cash flow provided by operations during fiscal 2002 was approximately 10 million. While acquisitions and purchases of property, plant, and equipment used approximately 6.5 million. We also paid 1.6 million in dividends during the year. We did not repurchase any company stock during fiscal 2002. We have a remaining repurchase authorization for 1.2 million shares.

In terms of our outlook, we are pleased to see that the strategic initiatives we have implemented over the past two years to expand and differentiate our product offerings are achieving success in the market place. All of our new products, such as the mini-pivots, travelers, soil polymers, injection systems, and sensors added to revenues during the year. The product line additions have greatly expanded our technological offering and capabilities settings us apart from others in the industry. In addition, we are now benefiting from the improvements in the domestic agricultural irrigation equipment market. With our international expansion into Western Europe and South America, we are now achieving penetration in the global marketplace and improving the profitability of our offshore operations. While we still have a great deal of work to do in those markets to expand our brands presence, and the successes have not come as quickly as we desired, we've learned, adapted, and improved our skills. We are now prepared to continue the expansion process into South Africa and other regions as opportunities mature. Looking forward, we believe conditions driving demand for agricultural irrigation equipment is positive in the domestic market for fiscal 2003, fueled by the recent increase in the agricultural commodity prices and the dry weather experienced this fast growing season.

In the international market, demands for irrigation equipment also appears positive, overall for 2003, yet mixed by region. In South America, the market for our equipment will be heavily influenced by market conditions in Brazil, which is currently clouded by political and economic uncertainty. Yet today, the Brazilian market remained strong. In addition, the threat of war in the Middle East is likely to affect irrigation equipment demand in that region during the year. While this regional uncertainty exists, the initiatives we have launched to expand our global market penetration leads us to project overall growth in our international sales. In total, we are projecting growth in earnings in fiscal 2003 on revenue growth of approximately 8 percent, excluding new acquisitions. Additionally, we continue to seek appropriate acquisitions that are congruent with our mission and add incremental value to our shareholders.

That concludes the text. I'd like to open it up now for any questions that you have.

Thank you Sir. Ladies and gentlemen at this time, we will begin the question and answer session. If you have a question, please press the star followed by 1on your pushbutton phone. If your question is answered please press star 2 to remove yourself. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order they are received and if you are using speaker equipment, please lift your handset before pressing the numbers. One moment please for the first question. The first comes from Alexander Paris. Please state your company name followed by your question.

Barrington Research. Thank you good morning.

Good morning.

Good morning Alex.

Just on a bookkeeping side, your capital spending for fiscal 2002, it sounds like I think you, the 6.5 million, that included the acquisitions?

That is correct. The 1.9 million for internal PP&E and about 4.5 million for acquisitions.

And your, the depreciation and amortization last year?

2.4 million.

Okay and you were mentioning South Africa, have you done something specific there or you still, I mean, have you made an acquisition or are you building a facility or what?

No Alex, we have not made an acquisition at this time. We hired a sales manager covering the South Africa region and we will add some additional people. We would like to be in a position to be able to build product in South Africa and we expect we will be in that position; some time in, probably in the first half of 2003.

Does Valmont (ph) have a manufacturing facility there?

Yes they do. They do produce in South Africa.

So that's where your, when you talk about being non competitive because of the currency that's with them or are there some smaller local suppliers?

There is at least one other significant local supplier there, that has a, you know, sizeable market position, but while we have a strong brand name there and again to some degree a pretty strong brand identity, we really got pushed out of that market in recent years. So we really want to leverage that identity and get back into the market by supplying locally.

I missed the first comment on your domestic irrigation sales. How much where they up or what where they?

Domestic irrigation revenues were up 23 percent in total; excluding the dealership it was up 16 percent for the year.

Okay now, just a big question looking forward. I presume that we are in the early stages of what you would call a farm cycle? If that's true, do you that define the farm cycle as that period from depressed commodity prices to the point where, you know, supply increases in reactions to that and then you have a supply gets in excess of the demand and prices started coming down. Is that how you would ---- if you do this ---- is this how would measure the farm cycle?

I am not entirely sure, I understood your question. I guess, if you are asking if we think with early stages of the farm cycle, I think, you know, I don't know that I'd go there yet. I would say that we really saw benefit and a change start to take place at the end of 2002, partly due to the dry weather. And with that dry weather commodity prices have moved up. Now we expect that's really going to benefit us in 2003. I don't know that I'd go further than at this time.

Okay. The stocks at the end of the last year, you know, the grains stocks, were they down from the previous year?

Good question, I don't have that in front of me right now, I couldn't answer that at that moment. Bruce, do you have any...

Would you expect it to be down this fall then when all the crops are in?

You know, we have some data that's provided by Ag economists and you know they are showing that the stocks were down or expected to be down at the end of the cycle '02 that just end it for major commodity stocks, and they expect that they are going to be down further next year. That's what the forecast is and that's consistent with the USDA forecast.

I guess what I am trying to get at is, the last cyclical peak you had in earnings was in fiscal '98 and that was preceded by four years of-- over which you doubled your earnings. I presume that it was a favorable, however we define it, farm cycle during that period. And if you were comparing that-- I don't think I remember that far, but comparing that with the period now, are commodity prices more or less depressed, you know, in this period as compared to the beginning of that last cycle? And are there differences in farm income or land values, or what have you were they more depressed back then that you had a doubling of earnings over a four year period? You know what kind of peak earnings you might have if this is an extended period and if things have changed between now and the last time you had a nice 4-year run?

We can't answer the question on the commodity prices because the charge that we have on the commodity prices won't take us back that far nor do they carry over stock. So I cannot answer that very well. But I do know that as we looked back at the '97, '98 period as we had increased revenues, that actually came from a nice mix of increases in the international market and increases in the domestic market both, and you know, I don't have the information on the commodity prices due to respond to that during that three to four year period.

Okay thank you.

Thank you. The next question comes from John Brock (ph), please state your company name followed by your question.

Kency Capital, couple of questions. Bruce, could you give us a little breakdown on those non-operating factors, other income factors that hit in the fourth quarter, could you just break that down for us a little bit?

Yes, we can. About in the fourth quarter there was about actually about 250,000 of that approximately that came from foreign exchange seen on current account, that mostly was out of our Lindsay Europe transaction and then the balance of it was, our equity in the earnings of a minority position that we own.

Okay. You made a not about a gain on the sale of the asset?

Well, that was, I think that was not in the fourth quarter, that was in the full year.........

Okay.

...confirmation, that is a smaller piece, in the full year it was 75 or 80,000 something like that.

Okay, alright.

It wasn't a single fixed asset. It was a combination of things involved with selling the South West Kansas dealership........

Well, that's right.

.... really manage that.

That's right. Secondly, when everything is said and done does the --- do you think the equipped program is going to be a plus for the industry? I mean, I got the sense already that it caused a little bit of problems, delays, in farmers acting, waiting for money and, but, you know, I know, we have talked this -- little bit about this, but, if I'm a grower and I don't get included in the equipped program this year, you know, and I need an irrigation system maybe I'll wait next year and how do you think that's all going to work up?

Yeah. That's an excellent question because we have discussed that ourselves because we saw what it is a bit in fourth quarter and I think it has the risk of affecting demand in the way that you are referring to, which is to possibly postpone or somewhat interfere with the decision making process. On the other hand, I would say it's primarily beneficial, there is good funds that are being made available for buying equipment, which makes it very beneficial to the grower. The thing that is helping us at this time and, which I think, works well for us, hand-in-hand with the equipped program at this stage. It has effected commodity prices on moving up, which put the farmers in a little better cash position and makes it more beneficial for them to improve those yields and that efficiency and to invest in the equipment, even if they don't get those equip loans. So, what we are hoping is that with commodity prices moving up and with the opportunity for equipped funding they'll work hand-in-hand in keeping the market moving. But we do understand your question and I think it is a risk. We are just going to have to watch what effect that has on releasing funds this year.

Then, last one is a little bit, sort of Devil's advocate. Last year your domestic irrigation business was up 16 percent ex the acquisitions. This year as we enter the season, we have higher grain prices, we are coming off a draught in many areas or I should say dryness, we have the equipped program, given those three components, you know, why can't you maybe, shouldn't we expect you to do better than that 8 percent number that you threw out. Because it seems like, maybe the stars are more in line this year than last year?

Well, I'd like to think that you are right. I mean that the stars are more in line. I think they are and I think there is still some possibly upside potential. The other caution I would have though is that if you go back to 2001 and look at how much revenue has dropped in the domestic market. We really don't know how much 2002 was really, you know, responding, and kind of recovering from that. But, I think we had a mix of things. You know, we are seeing some recoveries that's coming back to 2001. We saw that in 2002, but I agree that the stars are somewhat aligned line for a much better situation in 2003. But, we wouldn't be ready to forecast that at this point.

Okay. One last question, I think, at times you have, in the first quarter, given your capacity issues, you've built for, I don't want to say inventory, early orders, you have taken early orders and sell systems to the dealers, giving them a little bit of break. Will you be doing that at all in the first quarter?

Yes. In fact, we have a program this year that is comparable to the one that we had last year.

Okay.

So, you shouldn't expect any dramatic swing in sales in any way from that program.

Okay, thank you.

You are welcome.

Thank you, the next question comes from Neil Blighton. Please state your company name followed by your question.

Good morning, Capes (ph) Capital . Question is could you remind us of the time frame with which you expect to see orders for your 2003 cycle? When do we start getting the first inklings of how the magnitude of sales might come down?

Our fiscal year really comes close to matching the natural cycle for Ag irrigation equipment in the US market and that is that August is typically the slowest month and we start our fiscal year in September, really with pre-orders and dealers ordering some inventory and that sort of thing. As we get into the middle part of the second quarter late December, January time frame, we, that's when the order flow activity typically picks up. The farmers are, you know, they finished their harvest, they've worked on their tax return stuff, they've worked with their banker a little bit to know what their financial standing is.

They are making plans for the next cropping season, which for them they are going to plant typically in the April or May time period. So, the order flow part of that, you know, it builds from September 1 on through typically the end of February or so and then we sort of burn it off, it continues a pretty high rate there in February and March, we burn it off. It's right before Christmas or right after Chris-- right at the beginning of the calendar year. And that can shift two to three weeks from year to year depending, I know two years ago we thought it was shifting and it didn't happen because of higher energy costs and some things, but that's probably the best that I can describe it.

Okay, thank you very much.

You're welcome.

Thank you. The next question comes from Steven Lewis. Please state your company name followed by your question.

Lewis Capital Management. I noticed that the total of the net earnings plus the 2.4 million in depreciation, which is about 13 million was less than 10 million cash flow? It looks like inventories went up almost 6 million. Is most of that from acquisition of the dealership?

Yes, some of the inventory went up from the acquisition of the dealership and also the acquisition of the startup of the operation down in Brazil, not just inventory, but receivables that we purchased in the dealership transaction also.

Those two things alone account for the increased working capital needs?

They account for - we had some other adjustments in changes in current accounts payable and current taxes payable, a lot of offsetting items with, you know, the really big pieces are the depreciation and amortization. The inventories going up, receivables going down slightly and then we purchased some inventory and receivables in the irrigation specialist transaction and had a little bit also in the Brazilian transaction.

Thank you, I can't remember, but did you give a statement about margin expectations to go along with the 8 percent, roughly, revenue increase?

We did not, but we would expect the margins to be up slightly during this next year from where we finished off this year.

That's operating margins?

I'm sorry.

Operating margins?

That was selling margins is what I was referring to.

How about the tax rate, as far as you can tell?

Tax rate has been in the 30 to 31 percent range for the last couple of years. We would anticipate it staying in that range it can shift a little bit now because of our international operations, but we still expect it to be in the 30 to 31 percent range.

Thank you.

Thank you. Ladies and gentlemen, if there are any additional questions please press the star followed by the one. As a reminder, if you are using speaker equipment, you will need to lift your handset before pressing the numbers. One moment please for the next question And the next question is a follow-up from Alexander Paris, please go ahead.

Yes, you mentioned in your press release that the drought was hitting your key markets, what are those key markets that you were referring to, is that geographic or by commodity?

You know, really both, but you know if you look at it by commodity it's affected, you know, corn, Soya beans, wheat, cotton really everything the major commodities this year. Probably little less so on potatoes, but when you look at it by region, certainly in Midwest, southwest, those are the two probably, that I think have been the most effected by it in the US. So, it's basically the major commodities plus those geographical regions.

So, if we are looking at the commodity prices to see how you might be doing in tracking the prices, that'd be mostly corn, beans, cotton, and wheat and ...

And I would add potatoes also to watch.

Okay, and you have made a couple of acquisitions, you made the dealer there and you brought those, all those things in and I think your operating expenses where about 13.6 percent of sales in fiscal 2002. Would you expect that to fall that ratio as you get higher volume and continue your cost cutting and kind-of integrate these acquisitions a little bit more?

On the operating expenses, SG&A and R&D expenses, we are actually targeting them to stay in about that same range, you know, we have accomplished that quite a few would like to be able to get some leverage off that, but we have always been very lean operation and as we take on some of these new initiatives, we do have to staff up for them just a little bit and that drives the SG&A expense just a little bit, SG&A and R&D, so in that same range.

So, you are planning to stay the same even in the face of revenues up 8 percent?

That's correct.

It should imply that the margins would improve by..?

One other thing, the other ....

Relating to that?

Yes and I think the other point on that I would make is that, looking at this next year, that percentage will probably stay about the same as we are incorporating a full year of that dealership into the numbers. Where we expect to see the leveraging take place is really beyond that time period.

You also mentioned in your release, you would be doing better volume and productivity. Are there some additional moves that you are planning that would increase your productivity or is that the, from what you did during the year that just ended, in terms of like lean manufacturing or consolidating some plants and so forth?

Yes, that's a good question. I guess the easy answer to that is that we have a real continual improvement process throughout all of our organizations where it's not any one major improvement that I could point to right now and say it's planned for this year, but we have a ongoing, you know, cost reduction, cost evaluation process as well as a continual improvement process that we expect and are working in each one of our locations. So, that we will continue to be an emphasis. And we're really in the early stages of that in the case of Europe and Brazil, but the opportunities are good there.

I hate this. Keep being a historian, but that last peak in your earnings, your gross margin was about 27.5 percent and your operating margin was about 17.4 percent, since then you've made improvements in terms of manufacturing overseas and you are continuing lean improvement or lean manufacturing and other kinds of moves. Given that you continue to rise, are those, can you get back to those margins again or is it that something has changed in between?

Oh yes, that too is an excellent question. I think, as we look at it, there is nothing, you know, given the same kind of conditions, there is nothing that I would be aware of that would prevent us from getting back to that kind of a margin, in those kinds of, that kind of performance. You know, what we have right now is a different composition and when you look at our business versus, you know, what it was composed of at that time because we have more pieces to it, few more locations to it, but certainly if we had a tremendous, you know, boom in the cycle and if things looked really good, there is nothing that I'm aware of that would really prevent us from getting back to that level.

Just one other question. I had just read an article where someone was talking about three sectors that have precious pricing power whereas, you know, that is a complaint a lot of industries don't have it and one of three that they mentioned was the farm supply industry. Is there a possibility that you could see some positive surprises in your diversified manufacturing of things, it started looking a lot better for Deere and companies like that that they would either re-outsource that or the production could be higher than what you are assuming, so you would be better than just level?

Well, it's a, you know, it's always a possibility, I think that, I don't consider that something that I would comment on at this stage, I think what we do plan to do is to go out aggressively, still looking for more business in the diversified products category. I don't anything that would indicate at this point that, that's going to, you know, grow or come back to the levels that it was at, at this stage with our existing customer base.

Okay. Thank you very much.

You are welcome.

Thank you. The next question comes from Jack Granahan. Please state your company name followed by your question.

Hi, Granahan Investment, actually my question was on gross margin, so you basically pretty much answered what I had in mind, but just additionally in terms of what sounds to be, Rick, a pretty conservative look at gross margins in the current fiscal year. Are you assuming that the negatives of labor and materials costs increase are going to be of the same moment, say as they were in the, in fiscal 2002?

Yeah, I think that's a fair assessment Jack, we're expecting that we would see similar increases in labor and in let's say in material in general as we saw in 2002 with the exception of steel pricing, we don't expect to see the same kind increases in the steel prices as we saw in the last part of this, of 2002.

That's what I was wondering whether you get, you know, a positive from a previous negative there.

Well, you know and there is an upside potential in that. If we saw a drop in steel prices that could really benefit us, but at this point we are not projecting a significant change in steel pricing although, we've heard discussion that there could be improvements and price reductions, but haven't really experienced that yet and that's not really in our margin projection per se.

Okay, how about operating utilization rate, are you still going to be in, say at an ideal rate in terms of, you know, effectiveness or productivity?

You know, I would place us at a good rate in terms of effectiveness and productivity with upside potential as well, we have the capacity to deal with an expanded domestic market, if it exceeds our expectations at this point obviously it depends much if that were to happen. But we also now have capacities in Brazil and in Europe, and may during this next year have some capacities in South Africa. And one of the things that we found that we can do to some degree is we can balance capacities between the locations as necessary. We've had cases of serving, you know, one customer for example from multiple locations. So that gives us a little more flexibility, so while we are not as to, let's say peak, you know, peak capacity in any way, but I think we are in a good position for a good strong cycle.

Okay and the positive of pricing was mentioned as a product mix impact, does that mean you did not have apples-to-apples price increases or is it really including that as well?

No, we did have price increases and we did have price increases that did stick in the market, particularly after the steel price increases affected us. The mixed effect is really more the mix between irrigation equipment and diversified manufacturing.

Oh well. I see. Okay. Alright. Fine. Lastly in terms of getting back to that, you know, those high mid twenties levels of gross margins 26, 27 percent, would it be fair to say that positive ingredients there would from this below 23 percent now would include the greater international mix and the new products having higher mix, having rather higher margins than the corporate average?

I think it would be a combination of maximizing efficiencies in our factories and running at a very high throughput level, which has a big effect, positive effective pricing, in other words seeing pricing move up from levels that it has been at, pricing in terms of our products. Certainly, the new products do benefit in terms of, let's say relatively, slightly higher margins. And all of those things come into play, but I think a strong agricultural equipment market with good pricing will be the primary drivers in high efficiencies.

Okay.

Part of it that constraints the gross margin a little bit is also that the storer that we have now, which is an important part of our business is at a little lower average gross margin than our proprietary product sales are. That's more of a retail operation.

I see, Okay. Okay. Thank you.

You're welcome.

Thank you. The next question comes from Richard Henderson, please state your company name followed by your question.

Yes, Pershing. Good morning. Couple of questions. First a clarification on the projection, Rick, eight percent off of your sales of a 145.9 million this year, with the acquisitions that you made this past year, you picked up in the second and third and fourth quarters, I think, something like five or six million dollars, the base that you are calculating the 8 percent gain, does that include or exclude the, roughly let's say four or five million dollars that you would have from the acquisitions that you made last year? So, is the number that we take the eight percent off 145 or 150?

Yeah, that's a excellent question because what we actually did in coming at the 8 percent number is, we looked at that, as we annualized either with the store completely annually, the acquisition completely in or completely out and it's based off of that rate with the growth that we would have anticipated and had the store either been in for the whole year or out for the whole year.

So, it's a 150 or so....?

Yeah.

Okay fine. Second question. On diversified products, you mentioned it could be up, could be down. Is the reason for the comment a function of how well the farm construction cycle does, you know, this year as you determine whether it's up a little or down a little or is product moving out the door or in the door or what?

Yeah, diversified products, you know, I am not really relating this much to the farm cycle or what's happening in that aspect more to specific customers and specific products and I think what we have seen is volume drop off and with some of our existing customers and some existing products and we haven't really had more diversified product revenue coming in because many of the companies have actually, you know, pulled that back into their own factories. So where the uncertainty comes in is really in what we can do in terms of really refilling or filling that capacity.

Now, you guys have been looking now to displace that capacity for a while and I guess on to be fair, it hasn't been an excellent economic environment to seek business from typically customers that would be trying to reduce inventories and so forth, are you guys discouraged or is there a ray of hope?

I'm never discouraged and yes there is a ray of hope. You know, whenever we're running into a situation like this we are not achieving success in the approach that were taking, we change the approach and that is a bit of what we are doing now. We have got another person who is coming on board who is really going to be heading up that part of the function to go out and get more business and see what we can do to expand with our existing customer base or with new customers. So, and no there is, not at all discouraged.

Okay, so you are aggressively moving forward. The, on an answer to a previous question, where you were kind-of looking at getting back to the lofty levels of gross margin and the peak of the previous cycle, you didn't mention your focus on increasing your replacement parts and as I recall, it's one of the, you felt that you weren't getting your fair share of replacement parts that have, carried higher margins, can you kind of, you know, put a little color on that?

Yeah excellent question, you're right. I did not hit that point. Yet, our parts business is an important part of our growth. We have focused on it. We've expanded our parts business during this past year in fact we opened up a parts warehouse in Idaho to really take care of our dealer network up there, so it is an important part and those margins are higher and we do see additional growth opportunity in our parts business.

Okay, good.

We had growth in our parts business in this last fiscal year, which exceeded 10 percent.

Okay. Comment on market share. You mentioned integrated product and the acquisitions and so forth, do you think you guys picked up market share?

You know, there is not a good source for that. My answer is yes. I think we've picked up market share. I have primarily anecdotal data and information that we pick up from various places that would say we have gained market share. I think certainly in a global basis we gained market share in Europe and we gained market share in Brazil where we really had been loosing share in the past. In the domestic market, I think we've made some progress as well.

Good. Question on pricing flexibility. You mentioned, the steel increases and you passed them on with price increases. Question number one is, do you think that if steel prices crack, which they seem to be either pretty close to or there is a good chance that they will, that you have to give it back?

You know, I don't think that would be the case, I'm not really going to....

Right, but just your general sense.

Yeah my general sense is no.

So, with demand moving up and so forth the pricing power would improve, it would seem...

I think that would make sense given where pricing has been, it's been, you know fairly stuck over number of years because the market was certainly more depressed than what it had been in a strong Ag cycle. So, I think, given, you know, a stronger agricultural irrigation equipment market, there would be a good opportunity for the, you know those prices, that pricing structure to be retained.

Alright, the last question, on the status of the farmer and, you know, desire or ability to pay, how important is the low interest rate environment in that decision?

Yeah, I think anything that affects, you know one is net cash farm income, which you know interest rates do as well, is beneficial to us and so I'd say, you know, seeing commodity prices moving up, interest rates, you know relative to, right now being fairly low and attractive is not a bad position, now that net cash farm income plays a big role in the short-term perspective and not as important role in a longer term perspective from the standpoint of, it still makes sense for him to make this change but it can affect that timing.

Okay, last question for Bruce. General and admin expenses, you know, have moved up with insurance healthcare costs and so forth for modeling. How should we look at that Bruce?

Well, if you take a look at the fourth quarter, we are at about a 5.4 million run rate for the quarter and we would....

No, forget about selling, just general and administrative...you moved up to 2.29 from 2.26 in the, from the third on lower volume.

Yes, I'm with you. The G&A without the R&D expense then?

Yeah forget the R&D, just G&A.

Okay. We are at a two, three, I guess for the quarter.

Alright.

And we would be probably at, if we look at the full year, probably a 2.5 or so run rate for the full year per quarter.

Okay. Okay thanks a lot guys.

Thank you.

Thank you. The next question is a follow-up from John Brock. Please go ahead.

Bruce, just a clarification you mentioned that D&A was 2.4 million for the year, do you not mean 3.4?

I do mean 3.4.

Okay.

Because this incurred to me after I said that, I couldn't remember if I said 2.4 or 3.4. It is 3.4.

I was looking at the 10-Q and it said 2.7 through the first nine months.

No it's 3.4.

Okay. Alright. Thanks.

Thank you. The next question is a follow up from Neil Blighton. Please go ahead.

Okay thanks. Quick question is, do you have any thoughts or maybe some initial observations on whether or not the most recently passed farm bills had an effect on farmers' attitudes towards spending, or one of the things you read from the cell (ph) side is about, you know, a changing attitude maybe some increased reliance on government money incurring, bringing spending on any thoughts or observations?

No that's a difficult question, I guess, I don't really, I haven't seen anything that would indicate a change in that attitude. I wouldn't say that it isn't possible or doesn't exist, but I can't say that I have anything that I've seen that would indicate that change.

Okay. Thanks.

Alright, Bruce anything you would add.

Thank you and gentleman that was your final question, please continue with any further comments.

Thank you. Well, we are pleased with the growth we achieved in revenues and earnings in fiscal 2002. The successes we've realized from our multiple growth and cost reduction initiatives have placed us in a strong position to capitalize on an improved agricultural equipment market, which we expect to see in fiscal 2003. We will continue to take actions to further differentiate our products and strengthen our market position around the world including providing locally manufactured products when prudent. We expect to see continued emphasis on improving farm productivity through the installation of efficient and intelligent irrigation and field management systems throughout the world. Globally, there will be continued regulation and emphasis on efficiently using our fresh water resources. Lindsay Manufacturing as an industry leader is in a unique position to provide solutions to those needs. We will continue to seek additional business extensions through acquisitions that are congruent with our mission and provide access to new markets. I'd like to thank all of you for your questions and participation in this call. Thank you.

Thank you, Sir. Ladies and gentlemen, this concludes the Lindsay Manufacturing fourth quarter and year-end conference call. We thank you for your participation, you may now disconnect.