Lindsay Corp (LNN) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Lindsay Manufacturing Company's second-quarter 2005 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. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Wednesday, March 23 of 2005. I would now like to turn the conference over to Diane Hettwer with the Financial Relations Board. Please go ahead, ma'am.

Thank you. 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 second-quarter ended February 28, 2005. If anyone has not received the release, please call the Financial Relations Board at 312-266-7800 and ask for Han We (ph) who will send you another copy.

Joining us today from the management team of Lindsey manufacturing we have Rick Parod, President and Chief Executive Officer; Dave Downing, Vice President and Chief Financial Officer; Bruce Karsk, Executive Vice President of Finance and Treasurer; and Tim Paymal, Corporate Controller. Management will provide an overview of the quarter and then open the call up to your questions.

Before we begin, we'd 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. In conjunction with this call, the Company has posted a slide presentation on its website which can be viewed at www.Lindseymanufacturing.com.

At this point then, I'd like to turn the call over to Rick. Please go ahead, Rick.

Thank you. Good morning and thank you for joining us today. Revenues for the second-quarter fiscal 2005 were 41.5 million declining 19% from 51.5 million for the same prior year quarter. Net earnings were 600,000 or $0.05 per diluted share compared with 3.5 million or $0.29 per diluted share in the prior year's second quarter.

Orders were weak throughout the quarter as farmers psychology was affected by high irrigation equipment prices due to the steel increases realized throughout fiscal 2004. And significantly lower worldwide agricultural commodity prices as compared to a year ago.

In the domestic irrigation market revenues declined 31% in the second quarter compared to the same period last year. Excluding price increases implemented in fiscal 2004 the unit decline in the second quarter was more than 40%. Year-to-date domestic irrigation revenues are down 19% from the first half of last year. We believe that the factors that have contributed to the lower demand include the significant change in agricultural commodity prices, the higher irrigation equipment prices, higher input costs for farmers and a reduction in the drought conditions from the same time last year.

From this time last year the price of corn has dropped approximately 30% and soybeans approximately 38% reflecting higher commodity inventories due to the plentiful harvest this past season. In addition to lower commodity prices, farmers are facing higher input costs for fertilizers and energy.

Irrigation equipment prices are now approximately 17% higher than the same time last year due to the rise in steel prices experienced in fiscal 2004. At this time we believe farmers are anticipating reductions in steel prices and are therefore differing irrigation equipment purchases in anticipation of lower prices.

In the international markets including exports, revenues were 10.5 million for the second quarter declining 11% from the same period last year. Year-to-date international revenues are 3% higher than in the first half of last year. All of the increase however is attributable to the addition of Stettyn, the irrigation company acquired in South Africa in the fourth quarter of fiscal 2004. The significantly lower commodity prices and lower value of the U.S. dollar relative to local currencies have greatly impacted farmer’s profitability in South America and South Africa.

In the international markets we've seen declines in all major markets with the exception of exports to Latin America in which revenues were slightly higher for the second quarter of fiscal 2005.

While agricultural market declines have impacted equipment demand, our international units have made improvements in their supply efficiencies resulting in improved gross margins over the same period last year. We expect additional improvements in the second half of the year.

Diversified manufacturing revenues increased 94% to 5.3 million for the quarter. Year-to-date diversified manufacturing revenues are 9.7 million up 83% from the first half of last year.

The focus we placed on expanding our diversified products business is paying off. We're continuing to develop our relationship with GE Transportation Systems as well as cultivating new relationships in industries outside of agriculture and irrigation. However, as we bring on any new significant projects and diversified products, we're finding that we do face short-term challenges in achieving optimal efficiencies resulting in margins below our expectations. As we gain experience with our new diversified business base, we expect to realize margin improvements bringing margins closer to those earned on irrigation equipment revenues.

Our employees are continuing to achieve success in developing new business opportunities in diversified and we expect to see continued growth supported by appropriate investment. Diversified manufacturing continues to contribute to operating income and we remain optimistic about new opportunities for growth and expansion.

Gross profit was 7.8 million compared to 11.6 million for the comparable quarter last year due mostly to the lower domestic unit production and resultant factory variances. Overall, our gross selling margins for the first half of fiscal 2005 were comparable to the first half of fiscal 2004 reflecting improvements in our pricing relative to the steel cost increases. At the end of fiscal 2004 we successfully implemented process changes to facilitate passing through price increases as costs increased. While the price increases implemented have been sizable, we believe we have remained competitive and have not lost market share due to the change.

During the second quarter of fiscal 2005, the Lindsay, Nebraska factory produced substantially fewer units than the same quarter last year reducing the base for allocation of overhead. During the second quarter and subsequently we have made staff reductions in each of our locations to size the organization appropriately for the current and forecasted demand. In addition we did see steel prices level off during the quarter.

We have also had sufficient quantities of steel on hand purchased during the first quarter of fiscal 2005 to meet our second-quarter production needs. We believe that our steel coil on hand will be beneficial to our production needs for the next couple of months.

In the international markets the majority of our locations have made good progress in improving their margins and while the international margins remained below domestic margins they have and are expected to continue to improve.

Total operating expenses were 210,000 higher in the second quarter resulting from increases in insurance, incremental operating expenses from addition of Stettyn, and compliance-related costs.

Year-to-date operating expenses are 630,000 higher than the first half of last year also reflecting the incremental expenses from Stettyn and higher insurance and compliance-related expenses.

During the second quarter actions were implemented to appropriately reduce operating expenses in all locations. Lindsay's order backlog at February 28, 2005 was 15.3 million as compared to 32.2 million February 29, 2004. The lower backlog reflects significant reduction in demand due to the higher irrigation equipment prices, lower agricultural commodity prices, a reduction in domestic drought conditions and the change made in our open order pricing policy.

Cash and marketable securities at February 28, 2005 were 43.8 million compared with 50.3 million February 29, 2004. Accounts receivable were 4.1 million lower than the same time last year reflecting the lower revenues in the quarter. Inventories were higher by 5 million at the end of the second quarter due primarily to higher quantities of steel on hand.

We did repurchase 138,500 shares of common stock during the second quarter of fiscal 2005. We have an existing repurchase authorization of 1.1 million shares.

In summary, the irrigation equipment demand during the second quarter of fiscal 2005 was below our expectations. Even with slightly higher projected net cash farm income for the 2005 crop year, the lower commodity prices, higher equipment prices are adversely affecting farmer's psychology and short-term demand.

From a positive perspective, we've taken action to prudently reduce expenses yet maintain our strategic initiatives and our strong competitive position. We're pleased with the growth realized in diversified manufacturing and we expect continued growth in revenues and improvements in profitability from that segment. We're continuing efforts to differentiate our product offering including the recent addition of a new product called field century for remote monitoring and control of pivots.

We're continuing the expansion of our geographic reach by adding sales structures in Eastern Europe, China and India. We're continuing our investment in manufacturing process improvements globally to enhance our margins.

In addition we're further expanding our acquisition initiative seeking bolt-on assets and synergistic differentiation opportunities. These initiatives will remain our focus throughout the year in addition to our strong focus on appropriate reductions in working capital and resultant improvements in cash flow.

I would now like to open it up for your questions.

(OPERATOR INSTRUCTIONS) John Bratz (ph). Please state your company name followed by your question.

John Bratz. KMC Capital (ph). Can you talk a little bit about the material weakness in your internal controls that you noted in the -- in your press release? I know things are tough with Sarbanes-Oxley but can you expand upon that a little bit?

I can. I think it would be beneficial if Dave Downing were to comment on that. Dave?

The material weakness again in Sarb-Ox 404 parlance relates to what could have happened as opposed what did happen. So this was a weakness that was around a couple of key positions that were open and review of manual journal entries identified the weakness, we have remediated the weakness and feel like we are on top of it. But it was something that we needed to disclose for the quarter.

The remediation of that weakness by the way was filling a couple of positions that were vacant at the same time which is an unusual abnormal situation.

Okay, so it was just the vacancy, there wasn't anything -- any accounting issues or anything like that?

There was an accounting error that was discovered that was tied to the manual or the review of manual journal entries and getting to the root cause of it was really determined to be the vacancies in those financial management positions. And those were filled.

All right. I understand. Thank you very much.

Richard Paget.

Good morning everybody. I wanted to try and get back to the overall demand. Looking at some of the numbers net farm income you know might be down compared to last year with some of the projections but its still historically high and your sales in this particular quarter looks like it's to levels back in '02 when farm net income was significantly lower. Is this -- how should we think about this? Is the farmer's psychology waiting and trying to see if these prices have come down to get a better idea or is this year we should think that with expenses and all the other issues that you mentioned that just overall demand is just going to be down?

Well, it is a complex question and I'll try to give you a fairly complex answer to it. It's one that's really puzzled us as we have gone through this past quarter because I will say that on an ongoing basis that demand has really not materialized as we expected it would as we have gone through this past quarter. In fact, we have been really surprised almost every month with the direction that it has taken.

We could anticipate or sense some softness because certainly commodity prices are not as high as they were at the same time last year; however, net cash farm income is really still projected to be slightly higher than last year. And the farmers are sitting really with a lot of cash and have had great profits in the past couple of years. So the only thing that a number of factors we can attribute this to really come down to their psychology regarding the drop in commodity prices which means they are not as positive and optimistic as they were a year ago with where prices were sitting. And therefore possibly deferring or holding off on spending.

Certainly, there is some change in drought conditions in the western states and if you look at the drought monitor for the western states you can see that the severe drought area is now predominantly in the northwest where originally it covered a majority of the western states. So drought conditions have changed some. But there is not in my view a really good logical reason for this other than the change in psychology including the perception that steel prices may drop and therefore equipment prices will drop as well.

And just looking at one of the steel indexes, they have come -- steel prices have come down a little bit versus their highs. Would you -- let's say steel does come down a little bit more, would you guys drop prices or are these the 20% price increases kind of here to stay?

It would be market-driven. We'll look at it from the standpoint of what is taking place in the market and market factors. I think if there were significant reductions in steel prices, it would be realistic to expect that there will be some reductions in prices of equipment. Minor reductions in steel prices probably will not be reflected back or at least not relatively quickly.

But the real answer from our standpoint is we will be competitive. This is the business that we're in. We will remain competitive.

I guess on the more positive side in the diversified segment you know you talked about bringing on the new customers and eventually hoping to get similar operating margins to irrigation. What's the time period on a learning curve like that in terms of what the ramp up is? Are we talking a couple of years? Is it --?

No I think the learning curve will generally be months not years and it's difficult to assess. I would say that in many cases the quoting that we're doing on diversified business today, margins are comparable to or close to the irrigation type margins but what we're finding on the startup of projects is there are always a number of issues to work through and there is a learning curve. But that learning curve is really generally consists of months, not years.

Okay. Thank you very much.

Alex Paris (ph). Please state your company name followed by your question.

(indiscernible) Research. Good morning. Just listening to what you said it sounds like you were still seeing no visibility in the last month of the quarter in terms of increasing demand. This is your big quarter coming up, right? Or that we're in, right?

Well the second and third quarters are both big quarters. To answer your question we haven't seen a significant change and what was really puzzling at the end of the first quarter and we had just come off of a significant meeting with dealers, had discussion with dealers and the dealers were optimistic coming in even to the second quarter. And I think many of our dealers have been puzzled by what has happened with demand as well.

But there isn't in polling those dealers and talking to people in the field, there isn't one answer and that answer in some cases varies by region. For example in the western states, it was more of a drought effect. And other markets it may be anticipated that the farmers are sitting on the sidelines waiting to see what changes with prices. So there isn't a good one logical answer for it but I think a multitude or at least a handful of answers that really identify what's happening with the farmer's psychology on buying irrigation equipment today.

In your gross margin was most of the decline in the quarter due to volume that is, did your price increases come pretty close to offsetting the steel price costs?

Yes, our selling margins were where we expected them to be and they are very comparable to last year. The margin variances were in production variances; our factory related overhead allocation type variances. The difficulty that we went through during the quarter was really continuing to project what was going to happen in next month and being staffed to handle expected demand. But what we have now done is really bring down that workforce to a new level. So we have attempted to bring it down as we went through the quarter but we've made some significant changes now.

Given your little backlog even if you were really surprised and business came in sufficient to meet your sales of a year ago, would you even be able to produce fast enough to meet that demand?

I feel we would. We have a quantity of steel on hand. I think from inventory standpoint, we're okay. And I think in terms of being able to restaff at this point I would anticipate that we could meet that demand if it came in.

Do you sense that dealers have any inventory on hand? I guess they wouldn't compared -- in light of your policy change.

Well the dealers generally would not have at anytime this time of year have much inventory on hand even in the past and that would be true at this stage this year as well. They would not have inventory on hand.

(OPERATOR INSTRUCTIONS) Our next question comes from Dick Henderson. Please state your company name followed by your question.

Pershing LLC. Rick, could you guys comment on the OPEC members? Obviously with the rise in oil prices petrol dollars have mounted and they are recirculating. Are you seeing any of that?

No. We're really not seeing any of that at this time. You know I don't know if we will but we have not seen that at this time. I assume you're referring to some things like would we see an increase in revenue from the Middle East?

Right.

And we haven't. We do have continual revenue in the region but we're not seeing anything significant change there. In fact, I think the most recent things that I've seen and read on Saudi Arabia is probably leaning more towards conservation of water and moving away from the farm subsidies that drove some of the large volumes in the region in the past. We do continue to see replacement and parts business there however.

With the downturn in demand and I guess it's from your comments, it's pretty much across the board and also international to a lesser extent than here but you guys with your superb balance sheet and cash hoard, are you seeing more acquisition opportunities? Do you think there will be?

I don't know that I would say that we are seeing more acquisition opportunities but I will say that we are stepping up our acquisition opportunities. We stepped it up about a year ago with the addition of one full-time person on staff in addition to some of the things we were doing outside. And we're stepping it up once again and we see some really good opportunities from an acquisition standpoint still for bolt-on type acquisitions like this the Stettyn one we did. But also for some diversification opportunities that are still very synergistic to our core business.

I think if anything we will be stepping up that pace and to some extent the current market conditions may present those opportunities.

Right. You also mentioned the shifting of the drought from the West to the Northwest. Are you seeing an increase in orders in the Northwest?

I think the orders in the Northwest have been very solid and continue to be. Actually the orders through all of the western region were very solid and drought driven but I would say yes we do see still strong orders there.

The backlog in the diversified products that one is on the upswing -- versus a year ago, is that up meaningfully?

Dave, do you have the specifics?

I think the backlog is up fairly meaningfully in diversified.

Could you disclose what it was last year and what it is this year?

We don't really disclose the backlog specifics on this Dick. We prefer not to do that.

Last question. In looking at the composition whether it's corn or soybeans or cotton or whatever other than the weather, is it possible that changes in subsidy programs or talk of changes in subsidy programs would favor more of the Midwest as opposed to some of the peanut guys and cotton guys? Would that account for any of the drop in demand?

I think that potential changes in subsidy programs could affect a change in demand. I don't really see that as a factor as of today. I don't really think that has been a factor. I think that there's certainly some concern on the cotton side with some of the WTO activity regarding cotton pricing but I don't really believe that what we're seeing in the market today reflects the concern over commodity prices. I think there may be some anticipation regarding what's going to happen with the proposed cuts, proposed cuts to the farm bill or to farm subsidies. But I don't really see that as being a factor in driving demand today.

Okay thanks.

Mike Kaufman (ph).

Mac Capital (ph). Good morning. Have you seen any changes in the competitive dynamics in the industry or in your overall market share?

You know, we have not seen changes in our overall market share. We believe that in general we're still holding market share. In fact, with the international expansion we've had in the last couple of years, we've gained share. In the current environment I believe we're still holding share and we haven't really seen a significant change. I will say though that as in any market when market demand in general is reduced, competitive intensity can increase. So it's important to us to stay on top of what's happening with the market with competition and that we stay competitive in our products in our offerings.

But I don't believe we've had any real market share change in the domestic market or -- in the domestic market overall and we have gained share in the international markets.

Do you have an estimate as to what your marketshare was domestically and international last quarter?

I don't on a quarter basis. I really couldn't tell you the share on a quarter basis. I can tell you that overall we're probably in the slightly over 30% market share.

Neil Berlant.

I'm with the Seidler Companies. Could you expand a bit on your plans for acquisitions and the strategic areas that you are specifically contemplating?

Yes. Good morning Neil. What we're really looking at are acquisitions that are synergistic to our core business. And generally the center of the target for us are probably water-related type acquisitions which could include filtration, pumping, water delivery and to some extent even treatment type equipment. But our synergies can go beyond that. It could be market synergies or manufacturing synergies. So it could be a number of different areas.

And we think that there are many areas, different types of markets that could be synergistic to our core and accretive for shareholders. But the center of the target from our standpoint would be water related type businesses.

And you are right, there are many.

Yes.

Our next question is a follow-up from John Bratz.

If I'm not mistaken it's been about three years since you repurchased stock and then this quarter you repurchased what was it 138,000 shares? Has there been a change in thinking or is there something I could read into this, this recent share purchase?

I think the thing to read into it is as we stated in the past, when we look at our investment and shareholder enhancement options, it includes organic growth, accretive acquisitions, share repurchase and dividend payments; it includes all of those. And we continue to evaluate all of those. And I wouldn't read more into it other than we do view that as a viable option and we will continue to do that.

Frederick Russell (ph).

Frederick E. Russell, Investment Management Company (ph). I am confused about comments about market share. It said that market share has not been lost and yet it seems to be that it's difficult to measure market share. Or we can't get an exact date as to the last measurement of market share. There seems to be a contradiction here.

I don't think there's a contradiction at all. I think that we have a lot of different factors that we look at in terms of measuring market share. Some of it is fairly fact based. Some of it is more anecdotal, but we do keep a pretty close watch on it. It's not like some industries where there is a lot of good industry data that you point to to determine market share. There are a lot of factors that we do watch and we don't measure it on a -- well we do look at it on a quarterly basis but it's much easier to look at in the domestic markets than it is in the international markets.

What are some of these factors? We as shareholders would like to know.

We look at estimates in terms of what we know that our competitors sell. We look at things like UCC-1 (ph) filing data which is a little more definitive on equipment that has been purchased. So there are a number of factors. We also obviously pick up a quite a bit of information from our dealers regarding specific market information.

A question was asked about the effect of the proposed farm bill on Lindsay's outlook. Rick, you said if I'm correct that you anticipate no significant negative effect. If that is true and if this quarter represents not a secular retreat or not a secular commentary on the outlook. Why wouldn't, given the huge cash position of Lindsay, why wouldn't the Company aggressively buy back its stock?

Well just to take the first comment, I did not say that we didn't anticipate any negative impact from the potential farm cuts. What I did say was that I didn't believe that the pending -- or the discussion on pending or potential cuts in the farm bill were negatively affecting the farmer psychology to the standpoint of affecting current demand. I think the things that are affecting more his current demand are the prices of the equipment today, the price change that has taken place in commodities from last year to this year and the change in the drought conditions.

I think there is some other factors when you get into the international markets for example, the change the U.S. dollar relative to local currencies has an impact as well. I think that there is a potential factor with the farm bill issues but I don't think that's one that -- we're not picking that up as driving psychology or driving demand decisions today in today's market.

Would you view this quarter as a secular commentary on the outlook for Lindsay, Valmont and others in this business?

I view this as a commentary on the existing farmer psychology and the current market conditions. I view this also as a short-term market issue not a long-term driver or indication of a driver or specific change in demand in any way. I think that there are some very good long-term drivers and I think this is a short-term issue that is really affecting the current mindset. We're affected by a current mindset.

If you say it's a short-term issue, how long would you measure this? How would you define short-term and why?

I can't tell you how long this is because I think we're talking about to some extent the mindset of the farmer regarding steel pricing or the price of the equipment and the commodity prices and a number of factors. In terms of the why, I would say I don't think there are significant driver changes. When I look at commodity prices for example, they are not drastically down, they are down from last year which last year had some pretty phenomenally high numbers. They are down but they're not really way off of some previous year numbers.

I think ending commodity inventories are high but they're not completely out of line and can be worked through especially when you look at corn ending inventories. So I think the overall drivers are still very positive, however the short-term situation is a real factor.

Would you summarize please what the positive -- as you say drivers, I interpret that to be factors to be for this industry?

I think the positive factors are a couple of different things. One is and in fact some of those are in the front of the slide deck really in the first page of it. But a couple of positive factors is there will continue to be a push towards water efficiency and improving water use and conservation.

Commodity prices while they are off short-term, demand in many cases is still very strong. If you look at demand for corn for example with the addition of the ethanol facilities, I think we have got some real positive demand drivers for commodities in total. There's certainly a drive for increased yields and quality of product which can be achieved with our type of product, with our irrigation systems.

And as farms are consolidating throughout the United States and actually throughout the world and becoming more and more efficient, there's even a larger drive for more automation and more improvements in overall efficiency and increased yields. So we're going to see a continual drive towards automation, towards reducing manual input, increased drive towards improving the efficiency and the quality of the product that is grown.

And then in addition to that there's the global agricultural development which is -- this isn't really just a domestic market but it's a worldwide market and we do see growth opportunities outside of the United States; for example, Eastern Europe, China, India, other markets. So I think there are number of very positive drivers and this is a short-term domestic primarily psychology issue and there are some global factors as well.

In the last six months, what international catalyst or events have you seen, Rick, that have been particularly encouraging and suggest a strong international secular outlook?

I don't know that I'd say I've seen international events or occurrences. I will say that we're seeing increased international opportunities in inquiries coming from areas that we had not seen as much in the past. For example, India, Eastern Europe, the old Soviet CIS countries. We are seeing more opportunity in parts of Africa as well than what we had seen in the past. So I don't think it's a huge movement but we see continual expansion and continual interest in water conservation that will continue to drive growth.

Thank you. I've been a shareholder representing my clients for seven or eight years now and have had usually quite friendly and responsive reaction from management. I want to thank you. However, in the last six months I've placed a call to Lindsay and never had my phone call returned and I think that is highly regrettable. And I'm very disappointed about that and I believe that management should address that type of deficiency immediately.

I will definitely address that and I apologize for that. That should not happen. Believe me, we know that you are important to us and that should not occur. And I will address it.

I hope to hear from you.

Trace Carpenter.

Trace Carpenter with Citigroup. I was a bit late getting to the call so I apologize if you've already touch on this, but I was kind of curious about your how are managing your steel costs as far as if you are buying on spot or if you are in a long-term contract arrangements? That sort of thing?

Right, we did make a buy in the first quarter that carried us through the second quarter in terms of steel pricing and the quantity on hand of coil primarily for our main core product line. And that will carry us through for a couple more months. So we really are -- really looking at forecasting in terms of what direction we think steel prices will go and we make buys accordingly. We plan to on an ongoing basis carry an inventory of steel which will probably be in the range of 45 days worth on hand.

Okay so you said you bought in the first quarter and that's in the last couple -- so it's going to be kind of on a quarter-to-quarter basis going forward?

Yes I think that's correct.

Have you given any kind of indication about how steel costs have impacted your margins over the past year or past quarter? That sort of thing?

We have not but I would say that it has had the steel prices have had minimal impact in the past couple of quarters because we have been passing through those increases relatively quickly in our price increases to our dealers. We had an order policy change last year that really didn't -- it took away some protection the dealers had on orders that were placed in our backlog. We now really don't commit to pricing more than 30 days; however, we do expand that from time to time depending on what we see happening with commodities. But in general, we're passing through increases as they are realized.

A follow-up from Dick Henderson.

Yes, Rick, on the replacement side; A, what do you see in demand and do you see or detect that the farmers are patching up their equipment? As perhaps waiting for a drop in steel prices?

Well in terms of replacement, our mix of replacement versus going into new application -- let's say new ground or into conversion -- really hasn't changed much year-over-year for a number of years. So we're seeing a pretty consistent mix in terms of what goes out the door as far as the application whether it's going into a replacement or dry land or to conversion.

We do see that our parts business is very solid and continues to be solid. We're not seeing a significant jump in parts business due to the lower demand on new systems at this time. But I also believe that in a time like this when demand is lower and the farmer is deferring a purchase decision, he's going to make some decisions in terms of patching up or continuing to support his existing equipment. But it's not just replacement that we're seeing off right now. It's really -- it would really be all of those things in terms of conversion, dry land installation and replacement.

Boyd Poston.

A.G. Edwards Asset Management. Good morning. One question, how much actual price discounting have you seen by competitors either here or abroad given the weak season so far?

It's difficult to -- I couldn't quantify it with a number. I could say that we haven't seen a really high level of discounting taking place or very aggressive competitive intensity occur at this point. I do expect that we could see some more of that and I'll talk more for the domestic market. I think generally we're seeing some pretty good price discipline out there from most of our competitors in the domestic market. I think it could increase some based on what the current market demand is but we don't anticipate any significant change there.

In the international markets it's a little more spotty in that in some regions we will see some pretty high level of competitive intensity and a bigger discounting but in others we see very little. So it's region to regions specific. But in general I don't see any major shift that's taking place. I see more of a normal reaction to market conditions.

If the weakness persists say for the next 30 to 60 days, the season is pretty much over, would the farmer tend to wait into the fall if he was going to become more encouraged about buying?

I think it's realistic to expect that if the purchase decision isn't made within the next 60 to 90 days -- I think that's fair that they probably would be making that decision in the fall which is pretty typical to any normal season. Is generally during that normal part of the growing season they will not be buying and installing a new machine.

There are no more audio questions. I'm going to turn it back over to you sir.

Thank you. For our business, the global long-term drivers of water conservation, improving farm efficiency remain very positive. We believe we are taking the appropriate actions to react to the market conditions and at the same time, we'll continue to execute our strategy to grow organically and differentiate our offering.

In addition to the overall business enhancements that have taken place, we continue to have an ongoing structured acquisition process that will generate additional growth opportunities throughout the world. We have strong cash flow and financial flexibility to create shareholder value by pursuing a balance of organic growth opportunities, accretive acquisitions, share repurchase and dividend payments.

We thank you for your questions and participation in this call. Thank you.

Ladies and gentlemen, that concludes the Lindsey Manufacturing second-quarter 2005 conference call. If you would like to listen to a replay of today's conference, you may dial in at 303-590-3000 or 1-800-405-2236, followed by the pass code of 11026379 followed by the # sign. (OPERATOR INSTRUCTIONS)

Thank you for participating in today's conference. You may now disconnect.