e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
Commission File Number 1-13419
Lindsay Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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47-0554096 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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2707 North 108th Street, Suite 102, Omaha, Nebraska
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68164 |
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(Address of principal executive offices)
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(Zip Code) |
402-829-6800
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of January 5, 2009, 12,282,554 shares of the registrants common stock were outstanding.
Lindsay Corporation
INDEX FORM 10-Q
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Page No. |
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4 |
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5 |
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6-14 |
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15-20 |
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21 |
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21 |
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22 |
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22 |
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23 |
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24 |
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- 2 -
Part I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Lindsay Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three months ended |
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November 30, |
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(in thousands, except per share amounts) |
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2008 |
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2007 |
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Operating revenues |
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$ |
113,121 |
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$ |
75,928 |
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Cost of operating revenues |
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84,472 |
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56,632 |
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Gross profit |
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28,649 |
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19,296 |
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Operating expenses: |
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Selling expense |
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6,763 |
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5,130 |
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General and administrative expense |
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8,349 |
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6,144 |
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Engineering and research expense |
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1,741 |
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1,506 |
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Total operating expenses |
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16,853 |
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12,780 |
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Operating income |
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11,796 |
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6,516 |
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Other income (expense): |
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Interest expense |
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(625 |
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(599 |
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Interest income |
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316 |
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476 |
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Other income (expense), net |
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(1,706 |
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114 |
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Earnings before income taxes |
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9,781 |
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6,507 |
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Income tax provision |
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3,459 |
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2,141 |
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Net earnings |
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$ |
6,322 |
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$ |
4,366 |
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Basic net earnings per share |
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$ |
0.52 |
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$ |
0.37 |
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Diluted net earnings per share |
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$ |
0.51 |
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$ |
0.36 |
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Weighted average shares outstanding |
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12,250 |
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11,766 |
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Diluted effect of stock equivalents |
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235 |
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462 |
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Weighted average shares outstanding assuming dilution |
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12,485 |
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12,228 |
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Cash dividends per share |
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$ |
0.075 |
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$ |
0.070 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
- 3 -
Lindsay Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited) |
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(Unaudited) |
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November 30, |
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November 30, |
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August 31, |
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($ in thousands, except par values) |
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2008 |
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2007 |
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2008 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
28,298 |
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$ |
17,324 |
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$ |
50,760 |
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Marketable securities |
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8,207 |
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Receivables, net of allowance, $1,241, $1,029 and $1,457, respectively |
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84,089 |
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60,437 |
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88,410 |
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Inventories, net |
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72,488 |
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54,964 |
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53,409 |
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Deferred income taxes |
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7,754 |
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5,645 |
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8,095 |
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Other current assets |
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6,627 |
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8,453 |
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7,947 |
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Total current assets |
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199,256 |
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155,030 |
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208,621 |
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Property, plant and equipment, net |
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55,669 |
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47,286 |
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57,571 |
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Other intangible assets, net |
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29,195 |
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27,713 |
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30,808 |
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Goodwill, net |
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23,333 |
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18,829 |
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24,430 |
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Other noncurrent assets |
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4,973 |
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6,112 |
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5,447 |
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Total assets |
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$ |
312,426 |
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$ |
254,970 |
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$ |
326,877 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
33,300 |
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$ |
24,664 |
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$ |
32,818 |
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Current portion of long-term debt |
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6,171 |
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6,171 |
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6,171 |
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Other current liabilities |
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33,058 |
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25,427 |
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43,458 |
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Total current liabilities |
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72,529 |
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56,262 |
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82,447 |
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Pension benefits liabilities |
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5,606 |
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5,426 |
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5,673 |
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Long-term debt |
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24,082 |
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30,253 |
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25,625 |
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Deferred income taxes |
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12,197 |
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10,036 |
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11,786 |
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Other noncurrent liabilities |
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4,281 |
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5,503 |
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5,445 |
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Total liabilities |
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118,695 |
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107,480 |
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130,976 |
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Shareholders equity: |
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Preferred stock, ($1 par value, 2,000,000 shares authorized, no shares
issued and outstanding) |
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Common stock, ($1 par value, 25,000,000 shares authorized,
18,093,191, 17,795,683 and 18,055,292 shares issued
at November 2008 and 2007 and August 2008, respectively) |
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18,093 |
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17,796 |
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18,055 |
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Capital in excess of stated value |
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26,818 |
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12,924 |
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26,352 |
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Retained earnings |
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245,019 |
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207,422 |
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239,676 |
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Less treasury stock (at cost, 5,813,448, 5,998,448 and 5,843,448 shares
at November 2008 and 2007 and August 2008, respectively) |
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(92,796 |
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(95,749 |
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(93,275 |
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Accumulated other comprehensive income (loss), net |
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(3,403 |
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5,097 |
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5,093 |
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Total shareholders equity |
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193,731 |
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147,490 |
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195,901 |
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Total liabilities and shareholders equity |
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$ |
312,426 |
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$ |
254,970 |
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$ |
326,877 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
- 4 -
Lindsay Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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($ in thousands) |
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November 30, |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings |
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$ |
6,322 |
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$ |
4,366 |
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Adjustments to reconcile net earnings to net cash
used in operating activities: |
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Depreciation and amortization |
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2,686 |
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2,131 |
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Provision for uncollectible accounts receivable |
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27 |
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(68 |
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Deferred income taxes |
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338 |
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281 |
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Stock-based compensation expense |
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457 |
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572 |
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Other, net |
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67 |
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(36 |
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Changes in assets and liabilities: |
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Receivables, net |
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1,507 |
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(12,114 |
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Inventories, net |
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(22,684 |
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(11,612 |
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Other current assets |
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(44 |
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(983 |
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Accounts payable |
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2,128 |
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4,424 |
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Other current liabilities |
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(6,489 |
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161 |
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Current taxes payable |
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(867 |
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604 |
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Other noncurrent assets and liabilities |
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225 |
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(2,873 |
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Net cash used in operating activities |
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(16,327 |
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(15,147 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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(2,275 |
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(4,502 |
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Proceeds from sale of property, plant and equipment |
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6 |
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5 |
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Acquisition of business, net of cash acquired |
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(3,520 |
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Proceeds from settlement of net investment hedge |
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859 |
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Purchases of marketable securities available-for-sale |
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(13,860 |
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Proceeds from maturities of marketable securities
available-for-sale |
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33,265 |
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Net cash (used in) provided by investing activities |
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(1,410 |
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11,388 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of common stock under stock
compensation plan |
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116 |
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307 |
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Principal payments on long-term debt |
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(1,543 |
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(1,543 |
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Net payments on revolving line of credit |
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(1,630 |
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Excess tax benefits from stock-based compensation |
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328 |
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373 |
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Dividends paid |
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(920 |
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(826 |
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Net cash used in financing activities |
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(3,649 |
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(1,689 |
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Effect of exchange rate changes on cash |
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(1,076 |
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1,750 |
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Net decrease in cash and cash equivalents |
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(22,462 |
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(3,698 |
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Cash and cash equivalents, beginning of period |
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50,760 |
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21,022 |
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Cash and cash equivalents, end of period |
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$ |
28,298 |
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$ |
17,324 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
- 5 -
Lindsay Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Condensed Consolidated Financial Statements
The condensed consolidated financial statements are presented in accordance with the requirements
of Form 10-Q and do not include all of the disclosures normally required by U.S. generally accepted
accounting principles for financial statements contained in Lindsay Corporations (the Company)
annual Form 10-K filing. Accordingly, these condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto included in the
Companys Form 10-K for the fiscal year ended August 31, 2008.
In the opinion of management, the condensed consolidated financial statements of the Company
reflect all adjustments of a normal recurring nature necessary to present a fair statement of the
financial position and the results of operations and cash flows for the respective interim periods.
The results for interim periods are not necessarily indicative of trends or results expected by
the Company for a full year.
Notes to the condensed consolidated financial statements describe various elements of the
financial statements and the accounting policies, estimates, and assumptions applied by management.
While actual results could differ from those estimated by management in the preparation of the
condensed consolidated financial statements, management believes that the accounting policies,
assumptions, and estimates applied promote the representational faithfulness, verifiability,
neutrality, and transparency of the accounting information included in the condensed consolidated
financial statements. Certain reclassifications have been made to prior financial statements and
notes to conform to the current year presentation.
Except as described below, no changes were made to the Companys accounting policies disclosed in
Note A of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended August 31, 2008.
Fair Value Measurements As described in Note 9, Fair Value Measurements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS
No. 157), which defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. The provisions of SFAS No. 157 were effective as of
September 1, 2008 for the Companys financial assets and liabilities, as well as for other assets
and liabilities that are carried at fair value on a recurring basis in our consolidated financial
statements. The FASB has provided for a one-year deferral of the implementation of this standard
for certain nonfinanical assets and liabilities. Assets and liabilities subject to this deferral
include goodwill, intangible assets, and long-lived assets measured at fair value for impairment
assessments, and nonfinancial assets and liabilities initially measured at fair value in a business
combination. The adoption of SFAS No. 157 did not have a material impact on the Companys
consolidated financial statements.
(2) Net Earnings per Share
Basic net earnings per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted net earnings per share is computed using the
weighted-average number of common shares and dilutive potential common shares outstanding during
the period. Dilutive potential common shares consist of stock options and restricted stock units.
Performance stock units are excluded from the calculation of dilutive potential common shares until
the performance conditions have been satisfied. At November 30, 2008, the performance conditions
for the Companys outstanding performance stock units had not been satisfied.
Statement of Financial Accounting Standards No. 128, Earnings per Share, requires that
employee equity share options, nonvested shares and similar equity instruments granted by the
Company be treated as potential common shares outstanding in computing diluted net earnings per
share. Diluted shares outstanding include the dilutive effect of restricted stock units and
in-the-money options, and is calculated based on the average share price for each fiscal period
using the treasury stock method. Under the treasury stock method, the amount the employee must pay
for exercising stock options, the amount of compensation cost for future service that the Company
has not yet recognized, and the amount of excess tax benefits that would be recorded in additional
paid-in capital when exercised are assumed to be used to repurchase shares.
For the three months ended November 30, 2008 and 2007, all stock options and restricted stock
units had a dilutive effect; therefore, no options or restricted stock units were excluded from the
diluted net earnings per share calculations.
- 6 -
(3) Comprehensive Income
The accumulated other comprehensive income, net, shown in the Companys consolidated balance sheets
includes the unrealized gain (loss) on cash flow hedges, unrealized gain on available-for-sale
securities, changes in the transition obligation and net actuarial losses from the defined benefit
pension plan and the accumulated foreign currency translation adjustment, net of hedging
activities. The following table shows the difference between the Companys reported net earnings
and its comprehensive income:
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|
|
|
|
|
Three months ended |
|
|
|
November 30, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,322 |
|
|
$ |
4,366 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized net gain on available for sale securities, net of tax |
|
|
|
|
|
|
9 |
|
Defined Benefit Pension Plan, net of tax |
|
|
27 |
|
|
|
|
|
Unrealized gain (loss) on cash flow hedges, net of tax |
|
|
530 |
|
|
|
(918 |
) |
Foreign currency translation, net of hedging activities |
|
|
(9,053 |
) |
|
|
3,457 |
|
|
|
|
|
|
|
|
Total comprehensive income (loss) (1) |
|
$ |
( 2,174 |
) |
|
$ |
6,914 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of tax expense (benefit) of $437 and ($600) for the three months ended November 30, 2008 and
2007, respectively. |
(4) Income Taxes
It is the Companys policy to report income tax expense for interim periods using an estimated
annual effective income tax rate. However, the tax effects of significant or unusual items are not
considered in the estimated annual effective tax rate. The tax effects of such discrete events are
recognized in the interim period in which the events occur.
The Companys effective tax rate of 35.4% for the three months ended November 30, 2008 was
higher than the effective tax rate of 32.9% for the three months ended November 30, 2007. For the
three months ended November 30, 2007, the Company received a deduction for tax-exempt interest
income on the investment portfolio and currently only holds a minimal balance in these tax-free
investments thus reducing the tax benefit received. In addition, an increase in the international
non-deductible items increased the effective tax rate for the three months ended November 30, 2008.
The Companys effective tax rate of 35.4% for the three months ended November 30, 2008 was higher
than the U.S. statutory tax rate primarily due to state and local taxes as well as international
non-deductible items. These items were partially offset by the domestic production activities
deduction and other tax credits.
The Company files income tax returns in the U.S. federal jurisdiction, and various state and
foreign jurisdictions. The U.S. Internal Revenue Service has closed examination of the Companys
income tax returns through 2004. In addition, with regard to a number of state and foreign tax
jurisdictions, the Company is no longer subject to examination by tax authorities for years prior
to 2002. During the three months ended November 30, 2008, there were no material changes to the
liability for uncertain tax positions related to FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes.
While it is expected that the amount of unrecognized tax benefits will change in the next
twelve months as a result of the expiration of statutes of limitations, the Company does not expect
this change to have a significant impact on its results of operations or financial position.
(5) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the last-in,
first-out (LIFO) method for the Companys Lindsay, Nebraska inventory and two warehouses in Idaho
and Texas. Cost is determined by the first-in, first-out (FIFO) method for inventory at the
Companys Omaha, Nebraska warehouse, its wholly-owned subsidiaries, Barrier Systems, Inc. (BSI)
and Watertronics, LLC and non-U.S. warehouse locations. Cost is determined by the weighted average
cost method for inventory at the Companys other operating locations in Washington State, France,
Brazil, Italy and South Africa. At all locations, the Company reserves for obsolete, slow moving,
and excess inventory by estimating the net realizable value based on the potential future use of
such inventory.
- 7 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
August 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2008 |
|
Inventory: |
|
|
|
|
|
|
|
|
|
|
|
|
FIFO inventory |
|
$ |
42,164 |
|
|
$ |
27,374 |
|
|
$ |
24,867 |
|
LIFO reserves |
|
|
(9,581 |
) |
|
|
(6,139 |
) |
|
|
(8,203 |
) |
|
|
|
|
|
|
|
|
|
|
LIFO inventory |
|
|
32,583 |
|
|
|
21,235 |
|
|
|
16,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average inventory |
|
|
19,845 |
|
|
|
18,777 |
|
|
|
20,568 |
|
Other FIFO inventory |
|
|
21,304 |
|
|
|
15,801 |
|
|
|
17,586 |
|
Obsolescence reserve |
|
|
(1,244 |
) |
|
|
(849 |
) |
|
|
(1,409 |
) |
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
72,488 |
|
|
$ |
54,964 |
|
|
$ |
53,409 |
|
|
|
|
|
|
|
|
|
|
|
The estimated percentage distribution between major classes of inventory before reserves is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
November 30, |
|
August 31, |
|
|
2008 |
|
2007 |
|
2008 |
Raw materials |
|
|
13 |
% |
|
|
14 |
% |
|
|
9 |
% |
Work in process |
|
|
8 |
% |
|
|
11 |
% |
|
|
8 |
% |
Finished goods and purchased parts |
|
|
79 |
% |
|
|
75 |
% |
|
|
83 |
% |
(6) Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization,
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
August 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2008 |
|
Operating property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
2,195 |
|
|
$ |
1,539 |
|
|
$ |
2,269 |
|
Buildings |
|
|
23,140 |
|
|
|
20,250 |
|
|
|
23,893 |
|
Equipment |
|
|
57,726 |
|
|
|
53,454 |
|
|
|
58,382 |
|
Other |
|
|
7,202 |
|
|
|
7,720 |
|
|
|
6,661 |
|
|
|
|
|
|
|
|
|
|
|
Total operating property, plant and equipment |
|
|
90,263 |
|
|
|
82,963 |
|
|
|
91,205 |
|
Accumulated depreciation |
|
|
(51,079 |
) |
|
|
(49,319 |
) |
|
|
(51,144 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating property, plant and equipment, net |
|
$ |
39,184 |
|
|
$ |
33,644 |
|
|
$ |
40,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased property: |
|
|
|
|
|
|
|
|
|
|
|
|
Machines |
|
|
3,522 |
|
|
|
2,808 |
|
|
|
3,597 |
|
Barriers |
|
|
15,694 |
|
|
|
12,063 |
|
|
|
16,210 |
|
|
|
|
|
|
|
|
|
|
|
Total leased property |
|
$ |
19,216 |
|
|
$ |
14,871 |
|
|
$ |
19,807 |
|
Accumulated depreciation |
|
|
(2,731 |
) |
|
|
(1,229 |
) |
|
|
(2,297 |
) |
|
|
|
|
|
|
|
|
|
|
Total leased property, net |
|
$ |
16,485 |
|
|
$ |
13,642 |
|
|
$ |
17,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
55,669 |
|
|
$ |
47,286 |
|
|
$ |
57,571 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1.9 million and $1.5 million for the three months ended November 30, 2008
and 2007, respectively.
- 8 -
(7) Credit Arrangements
Euro Line of Credit
The Companys wholly-owned European subsidiary, Lindsay Europe, has an unsecured revolving
line of credit with a commercial bank under which it could borrow up to 3.0 million Euros, which
equates to approximately USD $3.8 million as of November 30, 2008, for working capital purposes
(the Euro Line of Credit). As of November 30, 2008 and 2007, there was no outstanding balance on
the Euro Line of Credit. As of August 31, 2008, there was $1.8 million outstanding on the Euro
Line of Credit, which was included in other current liabilities on the consolidated balance sheets.
Under the terms of the Euro Line of Credit, borrowings, if any, bear interest at a floating rate
in effect from time to time designated by the commercial bank as Euro OverNight Index Average plus
150 basis points (all inclusive, 4.7% at November 30, 2008). Unpaid principal and interest is due
by January 31, 2009, which is the termination date of the Euro Line of Credit.
BSI Term Note
The Company entered into an unsecured $30 million Term Note and Credit Agreement, effective
June 1, 2006, with Wells Fargo Bank, N.A. (the BSI Term Note) to partially finance the
acquisition of BSI. Borrowings under the BSI Term Note bear interest at a rate equal to LIBOR plus
50 basis points. The Company has fixed the rate at 6.05% through an interest rate swap as
described in Note 8, Financial Derivatives. Principal is repaid quarterly in equal payments of
$1.1 million over a seven-year period that began in September of 2006. The BSI Term Note is due in
June of 2013.
Snoline Term Note
The Company entered into an unsecured $13.2 million seven-year Term Note and Credit Agreement,
effective December 27, 2006, with Wells Fargo Bank, N.A. (the Snoline Term Note) to partially
finance the acquisition of Snoline S.P.A. (Snoline). Borrowings under the Snoline Term Note are
guaranteed by the Company and bear interest at a rate equal to LIBOR plus 50 basis points. The
Snoline Term Note is due in December of 2013. In connection with the Snoline Term Note, the
Company entered into a cross currency swap transaction obligating the Company to make quarterly
payments of 0.4 million Euros per quarter over the same seven-year period and to receive payments
of $0.5 million per quarter over a seven year period commencing March 27, 2007. This is
approximately equivalent to converting the $13.2 million seven-year Snoline Term Note into a 10.0
million Euro seven-year term note at a fixed rate of 4.7% as described in Note 8, Financial
Derivatives.
Revolving Credit Agreement
The Company entered into an unsecured $30.0 million Revolving Credit Note and Credit
Agreement, effective as of January 24, 2008, with Wells Fargo Bank, N.A. (the Revolving Credit
Agreement). The borrowings from the Revolving Credit Agreement will primarily be used for working
capital purposes and funding acquisitions. As of November 30, 2008, there was no outstanding
balance on the Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement bear interest at a rate equal to LIBOR plus 50
basis points. Interest is paid on a monthly to quarterly basis depending on loan type. The
Company also pays an annual commitment fee of 0.125% on the unused portion of the Revolving Credit
Agreement. Unpaid principal and interest is due by January 23, 2010, which is the termination date
of the Revolving Credit Agreement.
The BSI Term Note, the Snoline Term Note and the Revolving Credit Agreement (collectively, the
Notes) each contain the same covenants, including certain covenants relating to Lindsays
financial condition. Upon the occurrence of any event of default of these covenants specified in
the Notes, including a change in control of the Company (as defined in the Notes), all amounts due
thereunder may be declared to be immediately due and payable.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
August 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2008 |
|
BSI Term Note |
|
$ |
20,357 |
|
|
$ |
24,643 |
|
|
$ |
21,429 |
|
Snoline Term Note |
|
|
9,896 |
|
|
|
11,781 |
|
|
|
10,367 |
|
Revolving Credit Agreement |
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion |
|
|
(6,171 |
) |
|
|
(6,171 |
) |
|
|
(6,171 |
) |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
24,082 |
|
|
$ |
30,253 |
|
|
$ |
25,625 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense was $0.6 million for both the three months ended November 30, 2008 and 2007.
- 9 -
Principal payments due on long-term debt are as follows:
|
|
|
|
|
Due within: |
|
|
|
|
1 year |
|
$ |
6,171 |
|
2 years |
|
|
6,171 |
|
3 years |
|
|
6,171 |
|
4 years |
|
|
6,171 |
|
5 years |
|
|
5,098 |
|
Thereafter |
|
|
471 |
|
|
|
|
|
|
|
$ |
30,253 |
|
|
|
|
|
(8) Financial Derivatives
The Company uses certain financial derivatives to mitigate its exposure to volatility in interest
rates and foreign currency exchange rates. The Company uses these derivative instruments to hedge
exposures in the ordinary course of business and does not invest in derivative instruments for
speculative purposes. Each derivative is designated as a cash flow hedge, a hedge of a net
investment, or remains undesignated. The Company accounts for these derivative instruments in
accordance with SFAS No. 133, Accounting for Derivatives Instruments and Hedging Activity (SFAS
No. 133), which requires all derivatives to be carried on the balance sheet at fair value and to
meet certain documentary and analytical requirements to qualify for hedge accounting treatment.
Changes in the fair value of derivatives that are designated and effective as cash flow hedges are
recorded in other comprehensive income, net of tax related tax effects, and are reclassified to the
income statement when the effects of the item being hedged are recognized in the income statement.
Changes in fair value of derivative instruments that qualify as hedges of a net investment in
foreign operations are recorded as a component of accumulated currency translation adjustment in
accumulated other comprehensive income, net of related income tax effects. Changes in the fair
value of undesignated hedges are recognized currently in the income statement as other income
(expense). All changes in derivative fair values due to ineffectiveness are recognized currently
in income.
In order to reduce interest rate risk on the BSI Term Note, the Company entered into an
interest rate swap agreement with Wells Fargo Bank, N.A. that is designed to convert the variable
interest rate on the entire amount of this borrowing to a fixed rate of 6.05% per annum. Under the
terms of the interest rate swap, the Company receives variable interest rate payments and makes
fixed interest rate payments on an amount equal to the outstanding balance of the BSI Term Note,
thereby creating the equivalent of fixed-rate debt. Changes in the fair value of the interest rate
swap designated as a hedging instrument that effectively offset the variability of cash flows
associated with variable-rate, long-term debt obligations are reported in accumulated other
comprehensive income, net of related income tax effects. The fair value of the swap agreement at
November 30, 2008 and 2007 and August 31, 2008 was a liability of $1.8 million, $1.2 million and
$1.4 million, respectively. For the three months ended November 30, 2008 and 2007, less than $0.1
million was recorded in the consolidated statements of operations related to ineffectiveness of
this interest rate swap.
Similarly, the Company entered into a cross currency swap transaction with Wells Fargo Bank,
N.A. fixing the conversion rate of Euro to U.S. dollars for the Snoline Term Note at 1.3195 and
obligating the Company to make quarterly payments of 0.4 million Euros per quarter over the same
seven-year period as the Snoline Term Note and to receive payments of $0.5 million per quarter. In
addition, the variable interest rate was converted to a fixed rate of 4.7%. This is approximately
equivalent to converting the $13.2 million seven-year Snoline Term Note into a 10.0 million Euro
seven-year term note at a fixed rate of 4.7%. Under the terms of the cross currency swap, the
Company receives variable interest rate payments and makes fixed interest rate payments, thereby
creating the equivalent of fixed-rate debt. Changes in the fair value of the cross currency swap
designated as a hedging instrument that effectively offset the hedged risks are reported in
accumulated other comprehensive income, net of related income tax effects. As of November 30, 2008
and 2007 and August 31, 2008, the fair value of the swap agreement was an asset of less than $0.1
million and a liability of $1.3 million and $1.1 million, respectively. For the three months ended
November 30, 2008 and 2007, there were no amounts recorded in the consolidated statement of
operations related to ineffectiveness of this cross currency swap.
During fiscal 2008, the Company entered into Euro foreign currency forward contracts to hedge
its Euro net investment exposure in its foreign operations. During the first quarter of its fiscal
2009, the Company settled its only outstanding Euro foreign currency forward contract for an
after-tax gain of $0.5 million which was included in other comprehensive income as part of the
currency translation adjustment, net of tax. This foreign currency forward contract qualified as a
hedge of net investments in foreign operations under the provisions of SFAS No. 133. At November
30, 2008, accumulated currency translation adjustment in accumulated other comprehensive income
reflected after-tax gains of $1.2 million, net of related income tax effects of $0.8 million
related to settled foreign currency forward contracts. For the three months ended November 30,
2008, there were no amounts recorded in the consolidated statement of
operations related to
ineffectiveness of Euro foreign
- 10 -
currency forward contracts. At November 30, 2008, the Company had
no outstanding Euro foreign currency forward contracts.
In order to reduce exposures related to changes in foreign currency exchange rates, the
Company, at times, may enter into forward exchange or option contracts for transactions denominated
in a currency other than the functional currency for certain of our operations. This activity
primarily relates to economically hedging against foreign currency risk in purchasing inventory,
sales of finished goods, and future settlement of foreign denominated assets and liabilities. As of
November 30, 2008, the net fair value of such instruments was less than $0.1 million. There were
no such outstanding instruments as of November 30, 2007 and August 31, 2008.
(9) Fair Value Measurements
SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements was adopted by the
Company effective September 1, 2008 for its financial assets and liabilities, as well as for other
assets and liabilities that are carried at fair value on a recurring basis in our consolidated
financial statements. The Financial Accounting Standards Board (the FASB) has provided for a
one-year deferral of the implementation of this standard for certain nonfinanical assets and
liabilities. Assets and liabilities subject to this deferral include goodwill, intangible assets,
and long-lived assets measured at fair value for impairment assessments, and nonfinancial assets
and liabilities initially measured at fair value in a business combination. The adoption of SFAS
No. 157 did not have a material impact on the Companys consolidated financial statements.
SFAS No. 157 establishes the fair value hierarchy that prioritizes inputs to valuation
techniques based on observable and unobservable data and categorizes the inputs into three levels,
with the highest priority given to Level 1 and the lowest priority given to Level 3. The levels are
described below.
|
|
|
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2 Significant observable pricing inputs other than quoted prices included within
Level 1 that are either directly or indirectly observable as of the reporting date.
Essentially, this represents inputs that are derived principally from or corroborated by
observable market data. |
|
|
|
|
Level 3 Generally unobservable inputs, which are developed based on the best
information available and may include the Companys own internal data. |
The following table presents the Companys financial assets and liabilities measured at fair value
based upon the level within the fair value hierarchy in which the fair value measurements fall, as
of November 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Derivative Assets |
|
$ |
97 |
|
|
$ |
13 |
|
|
$ |
|
|
|
$ |
110 |
|
Derivative Liabilities |
|
|
(60 |
) |
|
|
(1,828 |
) |
|
|
|
|
|
|
(1,888 |
) |
(10) Commitments and Contingencies
In 1992, the Company entered into a consent decree with the Environmental Protection Agency of the
United States Government (the EPA) in which the Company committed to remediate environmental
contamination of the groundwater that was discovered in 1982 through 1990 at and adjacent to its
Lindsay, Nebraska facility (the site). The site was added to the EPAs list of priority
superfund sites in 1989. Between 1993 and 1995, remediation plans for the site were approved by
the EPA and fully implemented by the Company. Since 1998, the primary remaining contamination at
the site has been the presence of volatile organic chemicals in the groundwater. The current
remediation process consists of drilling wells into the aquifer and pumping water to the surface to
allow these chemicals to be removed by aeration. In 2008, the Company and the EPA conducted a
periodic five-year review of the status of the remediation of the contamination of the site. In
response to the review, the Company and its environmental consultants are in the process of
developing a supplemental remedial action work plan that will allow the Company and the EPA to
better identify the boundaries of the contaminated groundwater and determine whether the
contaminated groundwater is being contained by current and planned wells that pump and aerate it.
The Company accrues the anticipated cost of remediation where the obligation is probable and can be
reasonably estimated. During the first quarter of fiscal 2009, the Company accrued incremental
costs of $0.7 million for additional environmental monitoring and remediation in connection with
the current ongoing supplemental remedial action work plan. Amounts accrued and included in
balance sheet liabilities related to the remediation actions were
$1.0 million, $0.5 million and
$0.3 million at November 30, 2008 and 2007 and August 31, 2008, respectively.
- 11 -
Although the Company has accrued all reasonably estimatable costs of completing the remediation actions defined in the
supplemental remedial action work plan, it is possible that the cost of completing the remediation
actions could be revised upon finalizing the plan with the EPA.
(11) Retirement Plan
The Company has a supplemental non-qualified, unfunded retirement plan for two current and four
former employees. Plan benefits are based on the participants average total compensation during
the three highest compensation years of employment during the ten years immediately preceding the
participants retirement or termination. This unfunded supplemental retirement plan is not subject
to the minimum funding requirements of ERISA. The Company has purchased life insurance policies on
four of the participants named in this supplemental retirement plan to provide partial funding for
this liability. Components of net periodic benefit cost for the Companys supplemental retirement
plan include:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
November 30, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Net periodic benefit cost: |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
10 |
|
Interest cost |
|
|
87 |
|
|
|
84 |
|
Net amortization and deferral |
|
|
44 |
|
|
|
40 |
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
131 |
|
|
$ |
134 |
|
|
|
|
|
|
|
|
(12) Warranties
The Company generally warrants its products against certain manufacturing and other defects. These
product warranties are provided for specific periods and/or usage of the product. The accrued
product warranty costs are for a combination of specifically identified items and other incurred,
but not identified, items based primarily on historical experience of actual warranty claims. This
reserve is classified within other current liabilities.
The following tables provide the changes in the Companys product warranties:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
November 30, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Warranties: |
|
|
|
|
|
|
|
|
Product warranty accrual balance, beginning of period |
|
$ |
2,011 |
|
|
$ |
1,644 |
|
Liabilities accrued for warranties during the period |
|
|
1,076 |
|
|
|
216 |
|
Warranty claims paid during the period |
|
|
(1,286 |
) |
|
|
(386 |
) |
|
|
|
|
|
|
|
Product warranty accrual balance, end of period |
|
$ |
1,801 |
|
|
$ |
1,474 |
|
|
|
|
|
|
|
|
(13) Industry Segment Information
The Company manages its business activities in two reportable segments:
Irrigation: This segment includes the manufacture and marketing of center pivot, lateral
move, and hose reel irrigation systems as well as various water pumping stations and controls. The
irrigation segment consists of eight operating segments that have similar economic characteristics
and meet the aggregation criteria of SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, (SFAS No. 131).
Infrastructure: This segment includes the manufacture and marketing of movable barriers,
specialty barriers and crash cushions; providing outsource manufacturing services and the
manufacturing and selling of large diameter steel tubing. The infrastructure segment consists of
three operating segments that have similar economic characteristics and meet the aggregation
criteria of SFAS No. 131.
- 12 -
The accounting policies of the two reportable segments are described in the Accounting
Policies section of Note A to the consolidated financial statements contained in the Companys
Form 10-K for the fiscal year ended August 31, 2008. The Company evaluates the performance of its
reportable segments based on segment sales, gross profit, and operating income, with operating
income for segment purposes excluding general and administrative expenses (which include corporate
expenses), interest income, interest expense, other income and expenses, and income taxes.
Operating income for segment purposes does include selling expenses, engineering and research
expenses and other overhead charges directly attributable to the segment. There are no
inter-segment sales. Certain segment reporting prescribed by SFAS No. 131 is not shown as this
information cannot be reasonably disaggregated by segment and is not utilized by the Companys
management.
The Company had no single customer representing 10% or more of its total revenues during the
three months ended November 30, 2008 or 2007.
Summarized financial information concerning the Companys reportable segments is shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
November 30, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
85,964 |
|
|
$ |
56,502 |
|
Infrastructure |
|
|
27,157 |
|
|
|
19,426 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
113,121 |
|
|
$ |
75,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
16,195 |
|
|
$ |
9,091 |
|
Infrastructure |
|
|
3,950 |
|
|
|
3,569 |
|
|
|
|
|
|
|
|
Segment operating income |
|
|
20,145 |
|
|
|
12,660 |
|
Unallocated general and administrative expenses |
|
|
(8,349 |
) |
|
|
(6,144 |
) |
Interest and other income, net |
|
|
(2,015 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
9,781 |
|
|
$ |
6,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital Expenditures: |
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
1,826 |
|
|
$ |
810 |
|
Infrastructure |
|
|
449 |
|
|
|
3,692 |
|
|
|
|
|
|
|
|
|
|
$ |
2,275 |
|
|
$ |
4,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation and Amortization: |
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
1,144 |
|
|
$ |
929 |
|
Infrastructure |
|
|
1,542 |
|
|
|
1,202 |
|
|
|
|
|
|
|
|
|
|
$ |
2,686 |
|
|
$ |
2,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
August 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
196,553 |
|
|
$ |
151,076 |
|
|
$ |
201,522 |
|
Infrastructure |
|
|
115,873 |
|
|
|
103,894 |
|
|
|
125,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
312,426 |
|
|
$ |
254,970 |
|
|
$ |
326,877 |
|
|
|
|
|
|
|
|
|
|
|
(14) Share Based Compensation
The Company accounts for awards of share-based compensation in accordance with Statement of
Financial Accounting Standards No. 123, (as revised in 2004), Share-Based Payment, (SFAS No.
123(R)) which requires the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors based on estimated fair values. The Companys
current share-based compensation plan, approved by the stockholders of the Company, provides for
awards of stock options, restricted shares, restricted stock units, stock appreciation rights,
performance shares and performance stock units to employees and non-employee directors of the
Company. In connection with the restricted stock units and performance stock units, the Company is
accruing compensation expense based on the
- 13 -
estimated number of shares expected to be issued
utilizing the most current information available to the Company at the date of the financial
statements. Share-based compensation expense was $0.5 million and $0.6 million for the three
months ended November 30, 2008 and 2007, respectively.
- 14 -
ITEM 2 Managements Discussion and Analysis of Results of Operations and Financial Condition
Concerning Forward-Looking Statements
This quarterly report on Form 10-Q contains not only historical information, but also
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Statements that are not historical are
forward-looking and reflect expectations for future Company conditions or performance. In
addition, forward-looking statements may be made orally or in press releases, conferences, reports,
on the Companys worldwide web site, or otherwise, in the future by or on behalf of the Company.
When used by or on behalf of the Company, the words expect, anticipate, estimate, believe,
intend, and similar expressions generally identify forward-looking statements. The entire
section entitled Market Conditions and Fiscal 2009 Outlook should be considered forward-looking
statements. For these statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve a number of risks and uncertainties, including but not
limited to those discussed in the Risk Factors section in the Companys annual report on Form
10-K for the year ended August 31, 2008. Readers should not place undue reliance on any
forward-looking statement and should recognize that the statements are predictions of future
results or conditions, which may not occur as anticipated. Actual results or conditions could
differ materially from those anticipated in the forward-looking statements and from historical
results, due to the risks and uncertainties described herein, as well as others not now
anticipated. The risks and uncertainties described herein are not exclusive and further
information concerning the Company and its businesses, including factors that potentially could
materially affect the Companys financial results, may emerge from time to time. Except as
required by law, the Company assumes no obligation to update forward-looking statements to reflect
actual results or changes in factors or assumptions affecting such forward-looking statements.
Accounting Policies
In preparing the Companys condensed consolidated financial statements in conformity with U.S.
generally accepted accounting principles, management must make a variety of decisions, which impact
the reported amounts and the related disclosures. These decisions include the selection of the
appropriate accounting principles to be applied and the assumptions on which to base accounting
estimates. In making these decisions, management applies its judgment based on its understanding
and analysis of the relevant circumstances and the Companys historical experience. As discussed
in Note 9 to the condensed consolidated financial statements, the Company adopted SFAS No. 157,
Fair Value Measurements, effective September 1, 2008.
The Companys accounting policies that are most important to the presentation of its results
of operations and financial condition, and which require the greatest use of judgments and
estimates by management, are designated as its critical accounting policies. See further
discussion of the Companys critical accounting policies under Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operations in the Companys Annual Report on
Form 10-K for the Companys year ended August 31, 2008. Management periodically re-evaluates and
adjusts its critical accounting policies as circumstances change. There were no changes in the
Companys critical accounting policies during the three months ended November 30, 2008.
Overview
Lindsay Corporation (Lindsay or the Company) is a leading designer and manufacturer of
self-propelled center pivot and lateral move irrigation systems that are used principally in the
agricultural industry to increase or stabilize crop production while conserving water, energy, and
labor. The Company has been in continuous operation since 1955, making it one of the pioneers in
the automated irrigation industry. Through the acquisition of Watertronics, Inc. (Watertronics)
in January 2008, the Company entered the market for water pumping station controls which provides
further opportunities for integration with irrigation control systems. The Company also
manufactures and markets various infrastructure products, including movable barriers for traffic
lane management, crash cushions, preformed reflective pavement tapes and other road safety devices.
In addition, the Companys infrastructure segment produces large diameter steel tubing, and
provides outsourced manufacturing and production services for other companies. Industry segment
information about Lindsay is included in Note 13 to the condensed consolidated financial
statements.
Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska, USA. The
Companys principal irrigation manufacturing facilities are located in Lindsay, Nebraska, USA. The
Company also has international sales and irrigation production facilities in France, Brazil, South
Africa, and China, which provide it with important bases of operations in key international markets. Lindsay Europe
- 15 -
SAS, located in France, was acquired in
March 2001 and manufactures and markets irrigation equipment for the European market. Lindsay
America do Sul Ltda., located in Brazil, was acquired in April 2002 and manufactures and markets
irrigation equipment for the South American market. Lindsay Manufacturing Africa, (PTY) Ltd.,
located in South Africa, was organized in September 2002 and manufactures and markets irrigation
equipment for the southern African market. The Company also leases office space and a warehouse in
China which are used in marketing irrigation equipment in China.
Watertronics, located in Hartland, Wisconsin, designs, manufactures, and services water
pumping stations and controls for the golf, landscape, agricultural and municipal markets.
Watertronics has been in business since 1986 and was acquired by the Company in January 2008.
Lindsay has two additional irrigation operating subsidiaries. Irrigation Specialists, Inc.
(Irrigation Specialists) is a retail irrigation dealership based in Washington State that
operates at three locations. Irrigation Specialists was acquired by the Company in March 2002 and
provides a strategic distribution channel in a key regional irrigation market. Lindsay
Transportation, Inc., located in Lindsay, Nebraska, primarily provides delivery of irrigation
equipment in the U.S.
Barrier Systems, Inc. (BSI), located in Rio Vista, California, manufactures movable barrier
products, specialty barriers and crash cushions. BSI has been in business since 1984 and was
acquired by the Company in June 2006. In November 2007, the Company completed the acquisition of
certain assets of Traffic Maintenance Attenuators, Inc. and Albert W. Unrath, Inc. through a wholly
owned subsidiary of BSI. The assets acquired primarily relate to patents that enhance the
Companys highway safety product offering globally.
Snoline S.P.A. (Snoline), located in Milan, Italy, was acquired in December 2006, and is
engaged in the design, manufacture and sale of road marking and safety equipment for use on
roadways.
- 16 -
Results of Operations
For the Three Months ended November 30, 2008 compared to the Three Months ended November 30, 2007
The following section presents an analysis of the Companys operating results displayed in the
condensed consolidated statements of operations for the three months ended November 31, 2008 and
2007. It should be read together with the industry segment information in Note 13 to the condensed
consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Percent |
|
|
November 30, |
|
Increase |
$ in thousands |
|
2008 |
|
2007 |
|
(Decrease) |
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
113,121 |
|
|
$ |
75,928 |
|
|
|
49.0 |
% |
Cost of operating revenues |
|
$ |
84,472 |
|
|
$ |
56,632 |
|
|
|
49.2 |
% |
Gross profit |
|
$ |
28,649 |
|
|
$ |
19,296 |
|
|
|
48.5 |
% |
Gross margin |
|
|
25.3 |
% |
|
|
25.4 |
% |
|
|
|
|
Operating expenses (1) |
|
$ |
16,853 |
|
|
$ |
12,780 |
|
|
|
31.9 |
% |
Operating income |
|
$ |
11,796 |
|
|
$ |
6,516 |
|
|
|
81.0 |
% |
Operating margin |
|
|
10.4 |
% |
|
|
8.6 |
% |
|
|
|
|
Interest expense |
|
$ |
(625 |
) |
|
$ |
(599 |
) |
|
|
4.3 |
% |
Interest income |
|
$ |
316 |
|
|
$ |
476 |
|
|
|
(33.6 |
)% |
Other income (expense), net |
|
$ |
(1,706 |
) |
|
$ |
114 |
|
|
|
(1,596.5 |
)% |
Income tax provision |
|
$ |
3,459 |
|
|
$ |
2,141 |
|
|
|
61.6 |
% |
Effective income tax rate |
|
|
35.4 |
% |
|
|
32.9 |
% |
|
|
|
|
Net earnings |
|
$ |
6,322 |
|
|
$ |
4,366 |
|
|
|
44.8 |
% |
Irrigation Equipment Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating revenues |
|
$ |
85,964 |
|
|
$ |
56,502 |
|
|
|
52.1 |
% |
Segment operating income (2) |
|
$ |
16,195 |
|
|
$ |
9,091 |
|
|
|
78.1 |
% |
Segment operating margin (2) |
|
|
18.8 |
% |
|
|
16.1 |
% |
|
|
|
|
Infrastructure Products Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating revenues |
|
$ |
27,157 |
|
|
$ |
19,426 |
|
|
|
39.8 |
% |
Segment operating income (2) |
|
$ |
3,950 |
|
|
$ |
3,569 |
|
|
|
10.7 |
% |
Segment operating margin (2) |
|
|
14.5 |
% |
|
|
18.4 |
% |
|
|
|
|
|
|
|
(1) |
|
Includes $8,349 and $6,144 of unallocated general and administrative expenses for the three months ended November 30,
2008 and 2007, respectively. |
|
(2) |
|
Excludes unallocated general
& administrative expenses. |
Revenues
Operating revenues for the three months ended November 30, 2008 increased by $37.2 million or 49%
over the same prior year period. Revenues for the first quarter of fiscal 2009 increased for both
the irrigation and infrastructure segments.
Domestic irrigation equipment revenues for the three months ended November 30, 2008 of $53.6
million increased $19.1 million or 55% as compared to the same prior year period. The increase in
domestic irrigation revenues in the quarter was primarily the result of fulfilling the sizeable
order backlog for irrigation equipment which had accumulated at the end of fiscal 2008.
International irrigation equipment revenues for the three months ended November 30, 2008 of $32.3
million increased $10.4 million or 47% as compared to the same prior year period. Exports were up
in all regions, driven by agricultural development, yield improvement initiatives and the high
year-end backlog. Revenue from the Companys business units in Brazil, South Africa and France
were also significantly higher as compared to the prior year quarter. The pressure on increasing
food production and demand for biofuels has increased investments in agricultural development,
including expanding efficient irrigation globally. Overall, the irrigation segment had an order
backlog of $71.7 million at August 31, 2008 compared to $23.7 million at August 31, 2007.
Infrastructure products segment revenues for the three months ended November 30, 2008 of $27.2
million increased $7.7 million or 40% from the same prior year period. Increased revenue in the
quarter was from Snoline, the Companys Diversified Manufacturing business and
- 17 -
Barrier Systems.
The largest revenue increases in this segment were
from Snolines highway tape and crash cushion product lines and from the Companys Diversified
Manufacturing business, both of which earn lower gross margins than Barrier Systems proprietary
products.
Gross Margin
Gross profit was $28.6 million for the three months ended November 30, 2008, an increase of $9.4
million as compared to the three months ended November 30, 2007. Gross margin was 25.3% for the
three months ended November 30, 2008 compared to 25.4% for the same prior year period. Gross
margin on irrigation products increased during the quarter over the same time last year, offset by
a decrease in margin on infrastructure due to unfavorable product mix and factory efficiency
variances in the quarter.
Operating Expenses
The Companys operating expenses of $16.9 million for the three months ended November 30, 2008 were
$4.1 million higher than the same prior year period. The increase is primarily due to the
inclusion of $1.2 million of operating expenses at Watertronics which was acquired in January of
2008, $0.7 million of incremental expenses for additional monitoring and remediation of an EPA work
plan at the Companys Lindsay, Nebraska facility, and $1.2 million of higher personnel related
expenses. For the three months ended November 30, 2008, operating expenses were 14.9% of sales,
compared to 16.8% in the prior year first quarter, reflecting leveraging of operating expenses over
a higher revenue base.
Interest, Other Income (Expense), net, and Taxes
Interest expense during the three months ended November 30, 2008 remained flat compared to the same
prior year period.
Interest income for the three months ended November 30, 2008 decreased by $0.2 million
compared to the same prior year period. The decrease in interest income is due to having lower
interest bearing balances and earning a lower interest rate on overnight investments of the
Companys cash balance.
Other expense, net during the three months ended November 30, 2008 increased $1.8 million when
compared with the same prior year period. This primarily resulted from foreign currency
transaction losses resulting from the volatility of exchange rates.
The Companys effective tax rate of 35.4% for the three months ended November 30, 2008 was
higher than the effective tax rate of 32.9% for the three months ended November 30, 2007. For the
three months ended November 30, 2007, the Company received a deduction for tax-exempt interest
income on the investment portfolio and currently only holds a minimal balance in these tax-free
investments thus reducing the tax benefit received. In addition, an increase in the international
non-deductible items increased the effective tax rate for the three months ended November 30, 2008.
The Companys effective tax rate of 35.4% for the three months ended November 30, 2008 was higher
than the U.S. statutory tax rate primarily due to state and local taxes as well as international
non-deductible items. These items were partially offset by the domestic production activities
deduction and other tax credits.
Net Earnings
Net earnings were $6.3 million or $0.51 per diluted share, for the three months ended November 30,
2008 compared with $4.4 million or $0.36 per diluted share for the same prior year period.
Liquidity and Capital Resources
The Company requires cash for financing its receivables and inventories, paying operating costs and
capital expenditures, and for dividends. The Company meets its liquidity needs and finances its
capital expenditures from its available cash and funds provided by operations along with borrowings
under four primary credit arrangements that are described in Note 7 of the condensed consolidated
financial statements.
The Companys cash and cash equivalents and marketable securities totaled $28.3 million at
November 30, 2008 compared with $25.5 million at November 30, 2007 and $50.8 million at August 31,
2008. The Company held $8.2 million of marketable securities at November 30, 2007, consisting
primarily of tax-exempt investment grade municipal bonds, but had liquidated these marketable
securities by August 31, 2008 in order to provide additional working capital.
The Company currently maintains two bank lines of credit to provide additional working capital
or to fund acquisitions, if needed. The Company entered into an unsecured $30.0 million Revolving
Credit Note and Credit Agreement, effective as of January 24, 2008, with Wells Fargo Bank, N.A.
(the Revolving Credit Agreement). There was no outstanding balance at November 30, 2008 or
August 31, 2008.
Borrowings under the Revolving Credit Agreement bear interest at a rate equal to LIBOR plus 50
basis points. Interest is repaid on a monthly or quarterly basis depending on loan type. The
Company also pays an annual commitment
fee of 0.125% on the unused portion
- 18 -
of the Revolving Credit
Agreement. Unpaid principal and interest is due by January 23, 2010, which is the termination date
of the Revolving Credit Agreement.
The Companys wholly-owned European subsidiary, Lindsay Europe, has an unsecured revolving
line of credit with Societe Generale, a European commercial bank under which it could borrow up to
3.0 million Euros, which equates to approximately USD $3.8 million as of November 30, 2008, for
working capital purposes (the Euro Line of Credit). As of November 30, 2008 and 2007, there was
no outstanding balance on the Euro Line of Credit. As of August 31, 2008, there was $1.8 million
outstanding on the Euro Line of Credit, which was included in other current liabilities on the
consolidated balance sheets. Under the terms of the Euro Line of Credit, borrowings, if any, bear
interest at a variable rate in effect from time to time designated by the commercial banks as Euro
OverNight Index Average plus 150 basis points (all inclusive, 4.7% at November 30, 2008). Unpaid
principal and interest is due by January 31, 2009, which is the termination date of the Euro Line
of Credit. The Companys management intends to renew this line of credit on substantially similar
terms.
The Company also has two term loan arrangements that it used to finance previous acquisitions.
The Company entered into an unsecured $30 million Term Note and Credit Agreement, each effective
as of June 1, 2006, with Wells Fargo Bank, N.A. (collectively, the BSI Term Note) to partially
finance the acquisition of BSI. Borrowings under the BSI Term Note bear interest at a rate equal
to LIBOR plus 50 basis points. However, this variable interest rate has been converted to a fixed
rate of 6.05% through an interest rate swap agreement with the lender. Principal is repaid
quarterly in equal payments of $1.1 million over a seven-year period that commenced in September,
2006. The BSI Term Note is due in June of 2013.
On December 27, 2006, the Company entered into an unsecured $13.2 million seven-year Term Note
and Credit Agreement (the Snoline Term Note) with Wells Fargo Bank, N.A. in conjunction with the
acquisition of Snoline. Borrowings under the Snoline Term Note are guaranteed by the Company and
bear interest at a rate equal to LIBOR plus 50 basis points. The Snoline Term Note is due in
December of 2013. In connection with the Snoline Term Note, the Company entered into a cross
currency swap transaction obligating the Company to make quarterly payments of 0.4 million Euros
per quarter over the same seven-year period and to receive payments of $0.5 million per quarter.
In addition, the variable interest rate was converted to a fixed rate of 4.7%. This is
approximately equivalent to converting the $13.2 million seven-year Snoline Term Note into a 10.0
million Euro seven-year term note at a fixed rate of 4.7%.
The BSI Term Note, the Snoline Term Note and the Revolving Credit Agreement (collectively, the
Notes) each contain the same covenants, including certain covenants relating to Lindsays
financial condition. These include maintaining a funded debt to EBITDA ratio, a fixed charge
coverage ratio and a current ratio (all as defined in the Notes) at specified levels. Upon the
occurrence of any event of default of these covenants specified in the Notes, including a change in
control of the Company (as defined in the Notes), all amounts due under the Notes may be declared
to be immediately due and payable. At November 30, 2008, the Company was in compliance with all
loan covenants.
In light of the recent significant changes in credit market liquidity and the general slowdown
in the global economy, sources of funds for the Company have been impacted. However, the Company
believes its current cash resources, projected operating cash flow, and bank lines of credit, which
are fully available at quarter end, are sufficient to cover all of its expected working capital
needs, planned capital expenditures, dividends, and other cash requirements, excluding potential
acquisitions.
Cash flows used in operations totaled $16.3 million during the three months ended November 30,
2008 compared to $15.1 million used in operations during the same prior year period. The $1.2
million increase in cash used in operations was primarily due to a $6.9 million increase in cash
used by working capital primarily driven by the build-up of inventory in anticipation of a
forecasted order rate higher than what actually occurred in the quarter. This increase in cash
used was partially offset by a $2.0 million increase in cash provided by net income, a $3.1 million
increase in cash provided by other noncurrent assets and liabilities, and a $0.5 million increase
in depreciation and amortization.
Cash flows used in investing activities totaled $1.4 million during the three months ended
November 30, 2008 compared to cash flows provided by investing activities of $11.4 million during
the same prior year period. The increase in cash used in investing activities was primarily due to
a $33.3 million decrease in proceeds from maturities of marketable securities. This increase in
cash used in investing activities was partially offset by a decrease of $13.9 million of cash used
for purchases of marketable securities and a decrease of $3.5 million of cash used for the
acquisition of a business in the first quarter of fiscal 2007 as well as a decrease of $2.2 million
of cash used for the purchases of property, plant and equipment. The
activity for marketable securities was driven by the use of cash from
investments to fund acquisitions and working capital needs in fiscal
2008. Capital expenditures for fiscal
2009, excluding possible expansion of the leased barrier and barrier-transfer machine fleet, are
estimated to be approximately $8.0 to $9.0 million. The planned expenditures include equipment for
the planned start-up in China, manufacturing equipment replacement, tooling and equipment for
identified efficiency improvements, and leasehold improvements for the new Omaha office. The
Companys management does maintain flexibility to modify the amount and timing of some of the
planned expenditures in response to economic conditions.
Cash flows used in financing activities totaled $3.6 million during the three months ended
November 30, 2008 compared to cash flows used in financing activities of $1.7 million during the
same prior year period. The increase in cash used was primarily due to the increased net payments
made under the Euro Line of Credit.
- 19 -
Contractual Obligations and Commercial Commitments
There have been no material changes in the Companys contractual obligations and commercial
commitments as described in the Companys Annual Report on Form 10-K for the fiscal year ended
August 31, 2008.
Market Conditions and Fiscal 2009 Outlook
Economic conditions for U.S. farmers continued to change unfavorably during the first quarter of
fiscal 2009 driven by the worldwide economic crisis. Since June 2008, commodity prices for corn
and soybeans have dropped approximately 50% and wheat prices have decreased approximately 40%,
while input costs have not fallen as rapidly. Demand for U.S. corn remains solid, and ending
stocks for the 2008-2009 crop year are estimated to be approximately 15% below the previous year,
so supply and demand relationships would indicate corn prices rising. Current USDA projections are
for Net Farm Income to be essentially flat for the 2008 crop year as compared to the 2007 crop year, although still at near record
levels. Farmers balance sheets remain strong; however, it is likely that farmers will remain
cautious with respect to making capital investments in agricultural equipment until there are
clearer indications of improving farm economics.
In the infrastructure segment, the Company believes that population growth and economic
development will continue to be the impetus for expansion in demand for the Companys products.
The Company continues to see many domestic and international opportunities for growth in the
infrastructure business, and expects that, if there is an increase in government investment in road
infrastructure, the business could continue to benefit.
As of November 30, 2008, the Company had an order backlog of $40.1 million compared with $51.2
million at November 30, 2007 and $92.3 million at August 31, 2008. Irrigation segment backlog of
$23.8 million decreased $6.1 million ($9.0 million prior to the inclusion of Watertronics) from
$29.9 million in the first quarter of fiscal 2008, and decreased $47.9 million from $71.7 million
at August 31, 2008. The reduction in the irrigation segment backlog from the same quarter in the
prior year as well as from the previous year end was due to a slowdown in the incoming order rate
resulting from the deterioration in economic conditions during the quarter. While the Company
experienced a significant reduction in the domestic order rate, its operations outside the U.S. had
not experienced the slow down at the same rate during the quarter. Infrastructure segment backlog
of $16.3 million decreased $5.0 million from $21.3 million in the first quarter of fiscal 2008 and
decreased $4.3 million from $20.6 million at fiscal 2008 year-end. The reduction in the
infrastructure segment backlog is due to the project-based nature of the business.
As the Company enters its second quarter, it continues to be faced with global recessionary
concerns, lower agricultural commodity prices and instability in the global financial markets that
may impact our customers and our suppliers. These factors, which have occurred quite rapidly, may
affect potential customers willingness to invest in agricultural irrigation equipment, and may
impact government agencies ability to fund road and bridge infrastructure projects in the
near-term. In addition, prices for hot-rolled steel coil, one of our primary input costs in
producing irrigation equipment, has continued to decline. While this reduction in steel prices
could be beneficial to the Companys gross margin on sales of irrigation equipment, margins remain
largely dependent upon competitive pricing. Notwithstanding these issues, the
global drivers of increasing food production, improving water-use efficiency, improving
environmental stewardship and improving transportation infrastructure, are beneficial to demand for
the Companys products and services and the Company believes that the current financial resources
and capabilities are sufficient to weather the anticipated economic instability.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
No. 141R). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also
establishes disclosure requirements to enable the evaluation of the nature and financial effects of
the business combination. SFAS No. 141R will be effective for the Company for business combinations
for which the acquisition date is on or after September 1, 2009. The Company will assess the
effect of this pronouncement on any future acquisitions by the Company as they occur.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment to SFAS No. 133 (SFAS No. 161), which requires enhanced
disclosures about how derivative and hedging activities affect the Companys financial position,
financial performance and cash flows. SFAS No. 161 will be effective for the Company beginning in
the second quarter of fiscal 2009. This pronouncement will result in enhanced disclosures in the
Companys future reports, but is not expected to have an impact on the Companys consolidated
financial statements.
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In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful
Life of Intangible Assets (FSP No. FAS 142-3). FSP No. FAS 142-3 requires companies estimating
the useful life of a recognized intangible asset to consider their historical experience in
renewing or extending similar arrangements or, in the absence of historical experience, to consider
assumptions that market participants would use about renewal or extension as adjusted for SFAS No.
142s, Goodwill and Other Intangible Assets, entity-specific factors. FSP No. FAS 142-3 will be
effective for the Company beginning in the first quarter of its fiscal year 2010. Management is
currently assessing the effect of this pronouncement on the Companys consolidated financial
statements.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
The Company uses certain financial derivatives to mitigate its exposure to volatility in interest
rates and foreign currency exchange rates. The Company uses these derivative instruments to hedge
exposures in the ordinary course of business and does not invest in derivative instruments for
speculative purposes. The credit risk under these interest rate and foreign currency agreements is
not considered to be significant.
The Company has manufacturing operations in the United States, France, Brazil, Italy and South
Africa. The Company has sold products throughout the world and purchases certain of its components
from third-party international suppliers. Export sales made from the United States are principally
U.S. dollar denominated. In addition, a majority of the Companys revenue generated from
operations outside the United States is denominated in local currency. Accordingly, these sales
are not subject to significant foreign currency transaction risk. At times, export sales may be
denominated in a currency other than the U.S. dollar. The Companys most significant transactional
foreign currency exposures are the Euro, the Brazilian real, and the South African rand in relation
to the U.S. dollar. Fluctuations in the value of foreign currencies create exposures, which can
adversely affect the Companys results of operations.
In order to reduce exposures related to changes in foreign currency exchange rates, the
Company, at times, may enter into forward exchange or option contracts for transactions denominated
in a currency other than the functional currency for certain of our operations. This activity
primarily relates to economically hedging against foreign currency risk in purchasing inventory,
sales of finished goods, and future settlement of foreign denominated assets and liabilities.
In order to reduce translation exposure resulting from translating the financial statements of
its international subsidiaries into U.S. dollars, the Company, at times, utilizes Euro foreign
currency forward contracts to hedge its Euro net investment exposure in its foreign operations.
During the first quarter of its fiscal 2009, the Company settled its one outstanding Euro foreign
currency forward contract for an after-tax gain of $0.5 million which was included in other
comprehensive income as part of the currency translation adjustment, net of tax. This foreign
currency forward contract qualified as a hedge of net investments in foreign operations under the
provisions of SFAS No. 133. At November 30, 2008, the Company had no outstanding Euro foreign
currency forward contracts.
In order to reduce interest rate risk on the $30 million BSI Term Note, the Company has
entered into an interest rate swap agreement with Wells Fargo Bank, N.A. that is designed to
convert the variable interest rate on the entire amount of this borrowing to a fixed rate of 6.05%
per annum. Under the terms of the interest rate swap, the Company receives variable interest rate
payments and makes fixed interest rate payments on an amount equal to the outstanding balance of
the BSI Term Note, thereby creating the equivalent of fixed-rate debt.
Similarly, the Company entered into a cross currency swap transaction fixing the conversion
rate of Euros to U.S. dollars for the Snoline Term Note at 1.3195 and obligating the Company to
make quarterly payments of 0.4 million Euros per quarter over the same seven-year period as the
Snoline Term Note and to receive payments of $0.5 million per quarter. In addition, the variable
interest rate was converted to a fixed rate of 4.7%. This is approximately equivalent to
converting the $13.2 million seven-year Snoline Term Note into a 10.0 million Euro seven-year term
note at a fixed rate of 4.7%. Under the terms of the cross currency swap, the Company receives
variable interest rate payments and makes fixed interest rate payments, thereby creating the
equivalent of fixed-rate debt.
ITEM 4 Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation
under the supervision and the participation of the Companys management, including the Companys
principal executive officer (PEO) and principal financial officer (PFO), of the effectiveness of
the design and operation of the Companys disclosure controls and procedures pursuant to Exchange
Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the PEO and PFO concluded that the
Companys disclosure controls and procedures were effective as of November 30, 2008.
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Additionally, the PEO and PFO determined that there has not been any change to the Companys
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) during the last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
Part II OTHER INFORMATION
ITEM 1 Legal Proceedings
In the ordinary course of its business operations, the Company is involved, from time to time,
in commercial litigation, employment disputes, administrative proceedings, and other legal
proceedings. None of these proceedings, individually or in the aggregate, is expected to have a
material effect on the business or financial condition of the Company.
Environmental Matters
In 1992, the Company entered into a consent decree with the Environmental Protection Agency of the
United States Government (the EPA) in which the Company committed to remediate environmental
contamination of the groundwater that was discovered in 1982 through 1990 at and adjacent to its
Lindsay, Nebraska facility (the site). The site was added to the EPAs list of priority
superfund sites in 1989. Between 1993 and 1995, remediation plans for the site were approved by
the EPA and fully implemented by the Company. Since 1998, the primary remaining contamination at
the site has been the presence of volatile organic chemicals in the groundwater. The current
remediation process consists of drilling wells into the aquifer and pumping water to the surface to
allow these chemicals to be removed by aeration. In 2008, the Company and the EPA conducted a
periodic five-year review of the status of the remediation of the contamination of the site. In
response to the review, the Company and its environmental consultants are in the process of
developing a supplemental remedial action work plan that will allow the Company and the EPA to
better identify the boundaries of the contaminated groundwater and determine whether the
contaminated groundwater is being contained by current and planned wells that pump and aerate it.
The Company accrues the anticipated cost of remediation where the obligation is probable and can be
reasonably estimated. During the first quarter of fiscal 2009, the Company accrued incremental
costs of $0.7 million for additional environmental monitoring and remediation in connection with
the current ongoing supplemental remedial action work plan. Amounts accrued and included in
balance sheet liabilities related to the remediation actions were
$1.0 million, $0.5 million and
$0.3 million at November 30, 2008 and 2007 and August 31, 2008, respectively. Although the Company
has accrued all reasonably estimatable costs of completing the remediation actions defined in the
supplemental remedial action work plan, it is possible that the cost of completing the remediation
actions could be revised upon finalizing the plan with the EPA.
ITEM 1A Risk Factors
There have been no material changes in our risk factors as described in our Form 10-K for the
fiscal year ended August 31, 2008.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
The Company made no repurchases of its common stock under the Companys stock repurchase plan
during the three months ended November 30, 2008; therefore, tabular disclosure is not presented.
From time to time, the Companys Board of Directors has authorized the Company to repurchase shares
of the Companys common stock. Under this share repurchase plan, the Company has existing
authorization to purchase, without further announcement, up to 881,139 shares of the Companys
common stock in the open market or otherwise.
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ITEM 6 Exhibits
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3.1 |
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Restated Certificate of Incorporation of the Company, incorporated by reference
to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on December 14, 2006. |
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3.2 |
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Restated By-Laws of the Company, incorporated by reference to Exhibit 3.1 of
the Companys Current Report on Form 8-K filed on November 6, 2007. |
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4.1 |
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Specimen Form of Common Stock Certificate, incorporated by reference to Exhibit
4(a) of the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2006. |
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10.1* |
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Lindsay Corporation Management Incentive Plan (MIP), 2009 Plan Year. ** |
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10.2* |
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Form of Indemnification Agreement between the Company and its Officers and Directors. |
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31.1* |
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Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. |
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31.2* |
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Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. |
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32.1* |
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Certification of Principal Executive Officer and Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. |
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filed herein |
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certain confidential portions of this Exhibit were omitted by means of redacting a
portion of the text. This Exhibit has been filed separately with the Secretary of the
Commission with the redacted text pursuant to the Companys application requesting
confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. |
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SIGNATURE
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 9th day of January 2009.
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LINDSAY CORPORATION |
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By:
Name:
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/s/ TIM J. PAYMAL
Tim J. Paymal
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Title:
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Vice President and Chief Accounting Officer |
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(Principal Financial Officer) |
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