Form 10-Q
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 May 31, 2010
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
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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2222 N 111th Street, 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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:
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if smaller reporting company)
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Smaller reporting company o |
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 July 6, 2010, 12,486,372 shares of the registrants common stock were outstanding.
Lindsay Corporation
INDEX FORM 10-Q
- 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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Nine months ended |
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May 31, |
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May 31, |
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(in thousands, except per share amounts) |
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2010 |
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2009 |
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2010 |
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2009 |
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Operating revenues |
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$ |
100,073 |
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$ |
84,578 |
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$ |
271,239 |
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$ |
262,845 |
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Cost of operating revenues |
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74,818 |
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63,509 |
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198,051 |
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199,851 |
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Gross profit |
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25,255 |
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21,069 |
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73,188 |
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62,994 |
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Operating expenses: |
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Selling expense |
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5,909 |
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5,186 |
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16,683 |
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17,567 |
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General and administrative expense |
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7,348 |
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7,000 |
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22,963 |
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21,837 |
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Engineering and research expense |
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1,949 |
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1,346 |
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5,418 |
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4,706 |
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Total operating expenses |
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15,206 |
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13,532 |
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45,064 |
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44,110 |
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Operating income |
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10,049 |
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7,537 |
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28,124 |
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18,884 |
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Other income (expense): |
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Interest expense |
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(474 |
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(465 |
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(1,291 |
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(1,570 |
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Interest income |
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49 |
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200 |
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215 |
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741 |
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Other income (expense), net |
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12 |
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636 |
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72 |
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(832 |
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Earnings before income taxes |
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9,636 |
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7,908 |
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27,120 |
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17,223 |
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Income tax provision |
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3,388 |
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2,639 |
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8,217 |
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5,482 |
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Net earnings |
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$ |
6,248 |
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$ |
5,269 |
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$ |
18,903 |
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$ |
11,741 |
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Basic net earnings per share |
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$ |
0.50 |
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$ |
0.43 |
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$ |
1.52 |
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$ |
0.96 |
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Diluted net earnings per share |
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$ |
0.50 |
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$ |
0.42 |
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$ |
1.50 |
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$ |
0.94 |
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Weighted average shares outstanding |
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12,486 |
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12,305 |
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12,439 |
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12,280 |
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Diluted effect of stock equivalents |
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124 |
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136 |
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138 |
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168 |
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Weighted average shares outstanding assuming dilution |
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12,610 |
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12,441 |
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12,577 |
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12,448 |
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Cash dividends per share |
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$ |
0.080 |
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$ |
0.075 |
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$ |
0.240 |
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$ |
0.225 |
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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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May 31, |
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May 31, |
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August 31, |
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($ in thousands, except par values) |
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2010 |
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2009 |
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2009 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
83,509 |
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$ |
63,212 |
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$ |
85,929 |
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Receivables, net of allowance, $2,246, $1,503, and $1,864, respectively |
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56,804 |
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57,371 |
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42,862 |
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Inventories, net |
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47,070 |
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54,355 |
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46,255 |
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Deferred income taxes |
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5,974 |
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8,591 |
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6,881 |
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Other current assets |
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9,071 |
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5,886 |
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7,602 |
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Total current assets |
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202,428 |
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189,415 |
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189,529 |
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Property, plant and equipment, net |
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56,379 |
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56,964 |
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59,641 |
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Other intangible assets, net |
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26,728 |
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28,383 |
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29,100 |
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Goodwill, net |
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23,292 |
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24,079 |
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24,174 |
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Other noncurrent assets |
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5,652 |
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5,479 |
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5,453 |
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Total assets |
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$ |
314,479 |
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$ |
304,320 |
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$ |
307,897 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
29,547 |
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$ |
18,463 |
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$ |
20,008 |
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Current portion of long-term debt |
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4,286 |
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6,171 |
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6,171 |
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Other current liabilities |
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29,981 |
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30,957 |
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33,008 |
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Total current liabilities |
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63,814 |
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55,591 |
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59,187 |
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Pension benefits liabilities |
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6,192 |
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5,588 |
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6,407 |
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Long-term debt |
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9,643 |
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20,997 |
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19,454 |
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Deferred income taxes |
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9,431 |
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11,935 |
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10,391 |
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Other noncurrent liabilities |
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2,053 |
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5,619 |
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4,800 |
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Total liabilities |
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91,133 |
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99,730 |
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100,239 |
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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, ($1 par value, 25,000,000 shares authorized,
18,184,620, 18,121,203 and 18,128,743 shares issued at May 31, 2010
and 2009 and August 31, 2009, respectively) |
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18,185 |
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18,121 |
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18,129 |
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Capital in excess of stated value |
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30,515 |
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28,304 |
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28,944 |
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Retained earnings |
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265,373 |
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248,594 |
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249,588 |
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Less treasury stock (at cost, 5,698,448, 5,813,448 and 5,763,448 shares
at May 31, 2010 and 2009 and August 31, 2009, respectively) |
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(90,961 |
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(92,796 |
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(91,998 |
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Accumulated other comprehensive income, net |
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234 |
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2,367 |
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2,995 |
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Total shareholders equity |
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223,346 |
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204,590 |
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207,658 |
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Total liabilities and shareholders equity |
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$ |
314,479 |
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$ |
304,320 |
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$ |
307,897 |
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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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Nine Months Ended |
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May 31, |
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($ in thousands) |
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2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings |
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$ |
18,903 |
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$ |
11,741 |
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Adjustments to reconcile net earnings to net cash provided by
operating activities: |
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Depreciation and amortization |
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8,027 |
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7,917 |
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Provision for uncollectible accounts receivable |
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568 |
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205 |
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Deferred income taxes |
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(990 |
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(1,897 |
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Stock-based compensation expense |
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1,755 |
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1,504 |
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(Gain) loss on disposal of fixed assets |
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(537 |
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89 |
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Other, net |
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121 |
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983 |
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Changes in assets and liabilities: |
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Receivables |
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(16,095 |
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28,703 |
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Inventories |
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(2,280 |
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(2,248 |
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Other current assets |
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(3,127 |
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1,406 |
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Accounts payable |
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10,439 |
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(13,443 |
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Other current liabilities |
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(2,768 |
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(9,715 |
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Current taxes payable |
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2,285 |
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(2,356 |
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Other noncurrent assets and liabilities |
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(1,513 |
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1,372 |
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Net cash provided by operating activities |
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14,788 |
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24,261 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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(3,962 |
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(6,148 |
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Proceeds from sale of property, plant and equipment |
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577 |
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25 |
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Acquisition of business, net of cash acquired |
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(132 |
) |
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Proceeds from settlement of net investment hedge |
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565 |
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859 |
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Net cash used in investing activities |
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(2,952 |
) |
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(5,264 |
) |
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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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544 |
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638 |
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Principal payments on long-term debt |
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(11,697 |
) |
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(4,628 |
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Net borrowing (payments) on revolving line of credit |
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345 |
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(108 |
) |
Excess tax benefits from stock-based compensation |
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368 |
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321 |
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Dividends paid |
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(2,991 |
) |
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(2,764 |
) |
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Net cash used in financing activities |
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(13,431 |
) |
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|
(6,541 |
) |
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Effect of exchange rate changes on cash |
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(825 |
) |
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(4 |
) |
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Net (decrease) increase in cash and cash equivalents |
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(2,420 |
) |
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|
12,452 |
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Cash and cash equivalents, beginning of period |
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85,929 |
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50,760 |
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Cash and cash equivalents, end of period |
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$ |
83,509 |
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$ |
63,212 |
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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, 2009.
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. These reclassifications were not material to
the Companys condensed 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 outstanding plus dilutive potential common shares
outstanding during the period. Dilutive potential common shares consist of stock options and
restricted stock units to the extent they are not anti-dilutive. Performance stock units are
excluded from the calculation of dilutive potential common shares until the threshold performance
conditions have been satisfied. At May 31, 2010, the threshold performance conditions for the
November 16, 2007 grants had been satisfied resulting in the inclusion of 11,650 performance stock
units in the calculation of diluted net earnings per share. The threshold performance conditions
for the Companys outstanding performance stock units that were granted on November 3, 2008 and
November 12, 2009 had not been satisfied as of May 31, 2010, resulting in the exclusion of 70,693
performance stock units from the calculation of diluted net earnings per share.
Employee equity share options, nonvested shares and similar equity instruments granted by the
Company are treated as potential common shares outstanding in computing diluted net earnings per
share. The Companys diluted common shares outstanding reported in each period include the dilutive
effect of restricted stock units, in-the-money options, and performance stock units for which
threshold performance conditions have been satisfied 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 on share based awards, and the amount of
excess tax benefits that would be recorded in additional paid-in capital when shares are issued and
assumed to be used to repurchase shares.
There were no restricted stock units excluded from the calculation of diluted net earnings per
share for the three months ended May 31, 2010. There were 37,465 restricted stock units excluded
from the calculation of diluted net earnings per share for the three months ended May 31, 2009,
since their inclusion would have been anti-dilutive. Additionally, there were 635 and 32,044
restricted stock units excluded from the calculation of diluted net earnings per share as a result
of being anti-dilutive for the nine months ended May 31, 2010 and 2009, respectively.
- 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, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,248 |
|
|
$ |
5,269 |
|
|
$ |
18,903 |
|
|
$ |
11,741 |
|
|
Other comprehensive income(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan, net of tax |
|
|
27 |
|
|
|
27 |
|
|
|
83 |
|
|
|
81 |
|
Unrealized gain (loss) on cash flow hedges, net of tax |
|
|
603 |
|
|
|
(607 |
) |
|
|
1,159 |
|
|
|
(192 |
) |
Foreign currency translation, net of hedging activities |
|
|
(3,131 |
) |
|
|
6,545 |
|
|
|
(4,003 |
) |
|
|
(2,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
3,747 |
|
|
$ |
11,234 |
|
|
$ |
16,142 |
|
|
$ |
9,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of tax expense of $523 and $1,016 for the three months and nine
months ended May 31, 2010, respectively. |
|
|
|
Net of tax (benefit) expense of ($191) and $225 for the three months and nine months
ended May 31, 2009, 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 Company recorded income tax expense of $3.4 million and $8.2 million for the three and
nine months ended May 31, 2010, respectively. The Company recorded income tax expense of $2.6
million and $5.5 million for the three and nine months ended May 31, 2009, respectively. The
estimated effective tax rate used to calculate income tax expense before discrete items was 35.4%
and 34.7% for the periods ended May 31, 2010 and 2009, respectively.
For the three months ended May 31, 2010, the Company recorded discrete items that had a
minimal impact on income tax expense. These included an expense of $0.3 million related to a
change in estimate used in calculating a certain tax credit and a benefit of $0.3 million that
related to an immaterial adjustment for tax expense that had been incorrectly recorded in prior
periods.
For the nine months ended May 31, 2010, the Company recorded discrete items that reduced
income tax expense. The discrete items included a benefit of $1.1 million related to income tax
credits earned in the first nine months of fiscal 2010, a benefit of $0.3 million for an immaterial
correction of previously recorded tax expense and a benefit of $0.4 million for the reversal of
previously recorded liabilities for uncertain tax positions. This reversal was recorded due to the
expiration of the statute of limitations in the applicable tax jurisdictions without any actual tax
liability being assessed. These benefits were slightly offset by additional expense of $0.4
million in the first quarter of fiscal 2010 relating to a tax ruling impacting the Companys French
subsidiary.
For the three months ended May 31, 2009, no discrete items were recorded. For the nine months
ended May 31, 2009, the Company recorded discrete items that reduced income tax expense for the
period. These included a benefit of $0.1 million related to the reversal of previously recorded
liabilities for uncertain tax positions due to the expiration of the statute of limitations as well
as a benefit of $0.4 million resulting from finalizing the fiscal 2008 income tax return
calculation that was less than the estimated fiscal 2008 income tax provision.
(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, China and other 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 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
May 31, |
|
|
August 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2009 |
|
Inventory: |
|
|
|
|
|
|
|
|
|
|
|
|
FIFO inventory |
|
$ |
21,141 |
|
|
$ |
23,610 |
|
|
$ |
16,561 |
|
LIFO reserves |
|
|
(6,927 |
) |
|
|
(7,864 |
) |
|
|
(7,190 |
) |
|
|
|
|
|
|
|
|
|
|
LIFO inventory |
|
|
14,214 |
|
|
|
15,746 |
|
|
|
9,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average inventory |
|
|
17,475 |
|
|
|
18,180 |
|
|
|
14,762 |
|
Other FIFO inventory |
|
|
17,747 |
|
|
|
21,896 |
|
|
|
23,765 |
|
Obsolescence reserve |
|
|
(2,366 |
) |
|
|
(1,467 |
) |
|
|
(1,643 |
) |
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
47,070 |
|
|
$ |
54,355 |
|
|
$ |
46,255 |
|
|
|
|
|
|
|
|
|
|
|
The estimated percentage distribution between major classes of inventory before reserves is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
May 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
Raw materials |
|
|
11 |
% |
|
|
10 |
% |
|
|
7 |
% |
Work in process |
|
|
8 |
% |
|
|
10 |
% |
|
|
8 |
% |
Finished goods and purchased parts |
|
|
81 |
% |
|
|
80 |
% |
|
|
85 |
% |
(6) Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization,
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
May 31, |
|
|
August 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2009 |
|
Operating property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
2,407 |
|
|
$ |
2,266 |
|
|
$ |
2,271 |
|
Buildings |
|
|
28,126 |
|
|
|
25,778 |
|
|
|
28,622 |
|
Equipment |
|
|
63,228 |
|
|
|
60,090 |
|
|
|
60,717 |
|
Other |
|
|
5,072 |
|
|
|
6,895 |
|
|
|
6,863 |
|
|
|
|
|
|
|
|
|
|
|
Total operating property, plant and equipment |
|
|
98,833 |
|
|
|
95,029 |
|
|
|
98,473 |
|
Accumulated depreciation |
|
|
(57,122 |
) |
|
|
(54,691 |
) |
|
|
(55,077 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating property, plant and equipment, net |
|
$ |
41,711 |
|
|
$ |
40,338 |
|
|
$ |
43,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased property: |
|
|
|
|
|
|
|
|
|
|
|
|
Machines |
|
|
4,169 |
|
|
|
4,148 |
|
|
|
4,248 |
|
Barriers |
|
|
16,106 |
|
|
|
16,227 |
|
|
|
16,253 |
|
|
|
|
|
|
|
|
|
|
|
Total leased property |
|
$ |
20,275 |
|
|
$ |
20,375 |
|
|
$ |
20,501 |
|
Accumulated depreciation |
|
|
(5,607 |
) |
|
|
(3,749 |
) |
|
|
(4,256 |
) |
|
|
|
|
|
|
|
|
|
|
Total leased property, net |
|
$ |
14,668 |
|
|
$ |
16,626 |
|
|
$ |
16,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
56,379 |
|
|
$ |
56,964 |
|
|
$ |
59,641 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $2.0 million and $1.9 million for the three months ended May 31, 2010 and
2009, and $6.1 million and $5.7 million for the nine months ended May 31, 2010 and 2009,
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 Societe Generale, a European commercial bank, under which it could borrow up to
2.3 million Euros, which equates to approximately USD $2.8 million as of May 31, 2010, for working
capital purposes (the Euro Line of Credit). There was $0.3 million and $1.6 million outstanding
on the Euro Line of Credit as of May 31, 2010 and 2009, respectively. These amounts were included
in other current liabilities on the consolidated balance sheets. As of August 31, 2009, there were
no borrowings outstanding on the Euro Line of Credit. 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 the Euro Interbank Offered Rate plus 150 basis points (1.84% at May 31, 2010).
Unpaid principal and interest is due by January 31, 2011, which is the termination date of the Euro
Line of Credit.
BSI Term Note
The Company entered into an unsecured $30.0 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 Companys wholly-owned Italian subsidiary, Snoline S.P.A. (Snoline) had an unsecured
$13.2 million seven-year Term Note and Credit Agreement with Wells Fargo Bank, N.A. that was
effective on December 27, 2006 (the Snoline Term Note). Borrowings under the Snoline Term Note
were guaranteed by the Company and had interest at a rate equal to LIBOR plus 50 basis points. 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 as the Snoline Term Note and to receive payments of $0.5 million per quarter over
a seven year period commencing March 27, 2007. This was approximately equivalent to converting the
$13.2 million seven-year Snoline Term Note into a 10.0 million Euro seven-year note at a fixed rate
of 4.7% as described in Note 8, Financial Derivatives. On May 17, 2010, the Company repaid the
$7.1 million outstanding balance on the Snoline Term Note in its entirety.
Revolving Credit Agreement
The Company has an unsecured $30.0 million Revolving Credit Note and Credit Agreement with
Wells Fargo Bank, N.A. (the Revolving Credit Agreement). The Company entered into the First
Amendment to the Revolving Credit Agreement, effective January 23, 2010 in order to extend the
Revolving Credit Agreements termination date from January 23, 2010 to January 23, 2012. The
Revolving Credit Agreement, as amended, is hereinafter referred to as the Amended Revolving Credit
Agreement. The borrowings from the Amended Revolving Credit Agreement will primarily be used for
working capital purposes and funding acquisitions. At May 31, 2010 and 2009 and August 31, 2009,
there was no outstanding balance on the Amended Revolving Credit Agreement.
Borrowings under the Amended Revolving Credit Agreement bear interest at a rate equal to LIBOR
plus 120 basis points compared to LIBOR plus 50 basis points under the previous Revolving Credit
Agreement, subject to adjustment as set forth in the Amended Revolving Credit Agreement. Interest
is paid on a monthly to quarterly basis depending on loan type. The Company also pays an annual
commitment fee of 0.25% on the unused portion of the Amended Revolving Credit Agreement. Unpaid
principal and interest is due by January 23, 2012, which is the termination date of the Amended
Revolving Credit Agreement.
The BSI Term Note and the Amended Revolving Credit Agreement (collectively, the Notes) each
contain the same covenants, including certain covenants relating to the Companys 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. In connection with entering
into the Amended Revolving Credit Agreement during the second quarter of fiscal 2010, these
covenants for each of the Notes were modified, at the lenders request, by adding a tangible net
worth requirement to the already existing covenants. 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.
- 9 -
Outstanding long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
May 31, |
|
|
August 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2009 |
|
BSI Term Note |
|
$ |
13,929 |
|
|
$ |
18,214 |
|
|
$ |
17,143 |
|
Snoline Term Note |
|
$ |
|
|
|
|
8,954 |
|
|
|
8,482 |
|
Less current portion |
|
|
(4,286 |
) |
|
|
(6,171 |
) |
|
|
(6,171 |
) |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
9,643 |
|
|
$ |
20,997 |
|
|
$ |
19,454 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense was $0.5 million for each of the three months ended May 31, 2010 and 2009, and
$1.3 million and $1.6 million for the nine months ended May 31, 2010 and 2009, respectively.
Principal payments due on long-term debt are as follows:
|
|
|
|
|
Due within: |
|
|
|
|
1 year |
|
$ |
4,286 |
|
2 years |
|
|
4,286 |
|
3 years |
|
|
4,286 |
|
4 years |
|
|
1,071 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
13,929 |
|
|
|
|
|
(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 records the fair value of these derivative
instruments on the balance sheet. For those instruments that are designated as a cash flow hedge
and meet certain documentary and analytical requirements to qualify for hedge accounting treatment,
changes in the fair value for the effective portion are reported in other comprehensive income
(OCI), net of related income 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 (AOCI), 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.
Financial derivatives consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments |
|
|
|
Asset (Liability) Derivatives |
|
|
|
|
|
May 31, |
|
|
May 31, |
|
|
August 31, |
|
$ in thousands |
|
Balance Sheet Location |
|
2010 |
|
|
2009 |
|
|
2009 |
|
Derivatives designated as hedging
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other current assets |
|
$ |
117 |
|
|
$ |
|
|
|
$ |
|
|
Interest rate swap |
|
Other current liabilities |
|
|
(477 |
) |
|
|
(650 |
) |
|
|
(602 |
) |
Interest rate swap |
|
Other noncurrent liabilities |
|
|
(525 |
) |
|
|
(897 |
) |
|
|
(732 |
) |
Cross currency swap |
|
Other current liabilities |
|
|
|
|
|
|
(380 |
) |
|
|
(425 |
) |
Cross currency swap |
|
Other noncurrent liabilities |
|
|
|
|
|
|
(772 |
) |
|
|
(847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments |
|
|
|
$ |
(885 |
) |
|
$ |
(2,699 |
) |
|
$ |
(2,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- 10 -
In addition, accumulated other comprehensive income included (gains) losses, net of related income
tax effects of ($1.0) million, $0.6 million and $0.5 million at May 31, 2010 and 2009, and August
31, 2009, respectively, related to derivative contracts designated as hedging instruments.
Cash Flow Hedging Relationships
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 (see Note 7, Credit Arrangements). 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 AOCI, net of related income tax effects.
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 received variable interest rate payments and made fixed interest rate payments, thereby
creating the equivalent of fixed-rate debt (see Note 7, Credit Arrangements). Changes in the fair
value of the cross currency swap designated as a hedging instrument that effectively offset the
hedged risks were reported in AOCI, net of related income tax effects. On May 17, 2010, in
conjunction with repaying the Snoline Term Note, the Company exited the cross currency swap
transaction with a zero fair value.
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 its 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.
Changes in the fair value of the forward exchange contracts or option contracts designated as
hedging instruments that effectively offset the hedged risks are reported in AOCI, net of related
income tax effects. The Company had no forward exchange contracts or option contracts with cash
flow hedging relationships outstanding at May 31, 2010 and 2009 or August 31, 2009. However, as
described below the Company did have a foreign currency forward contract with a net investment
hedging relationship outstanding at May 31, 2010.
- 11 -
Derivatives Designated as Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in OCI on Derivatives |
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Interest rate swap |
|
$ |
78 |
|
|
$ |
95 |
|
|
$ |
237 |
|
|
$ |
(136 |
) |
Cross currency swap |
|
|
525 |
|
|
|
(702 |
) |
|
|
922 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total1 |
|
$ |
603 |
|
|
$ |
(607 |
) |
|
$ |
1,159 |
|
|
$ |
(192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of tax expense of $247 and $493 for the three and nine months ended
May 31, 2010, respectively. |
|
|
|
Net of tax (benefit) of ($208) and ($105) for the three and nine months ended May 31,
2009, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Reclassified from AOCI into Income |
|
|
|
Location of Loss |
|
Three months ended |
|
|
Nine months ended |
|
|
|
Reclassified from AOCI |
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
into Income |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Interest rate swap |
|
Interest expense |
|
$ |
(204 |
) |
|
$ |
(248 |
) |
|
$ |
(660 |
) |
|
$ |
(739 |
) |
Cross currency swap |
|
Interest expense |
|
|
(604 |
) |
|
|
(80 |
) |
|
|
(884 |
) |
|
|
(239 |
) |
Foreign currency
forward contracts |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Foreign currency
forward contracts |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(808 |
) |
|
$ |
(328 |
) |
|
$ |
(1,544 |
) |
|
$ |
(1,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Recognized in Income on Derivatives |
|
|
|
|
|
(Ineffectiveness) |
|
|
|
Location of Gain/(Loss) |
|
Three months ended |
|
|
Nine months ended |
|
|
|
Recognized in Income |
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
(Ineffectiveness) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Interest rate swap |
|
Other income (expense), net |
|
$ |
1 |
|
|
$ |
21 |
|
|
$ |
(49 |
) |
|
$ |
103 |
|
Cross currency swap |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
forward contracts |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1 |
|
|
$ |
21 |
|
|
$ |
(49 |
) |
|
$ |
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 12 -
Net Investment Hedging Relationships
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.
These foreign currency forward contracts qualify as a hedge of net investments in foreign
operations. Changes in fair value of the net investment hedge contracts are reported in OCI as
part of the currency translation adjustment, net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in OCI on Derivatives |
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
May 31, |
|
|
May 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign currency
forward contracts1 |
|
$ |
73 |
|
|
$ |
|
|
|
$ |
424 |
|
|
$ |
533 |
|
|
|
|
(1) |
|
Net of tax expense of $44 and $258 for the three and nine months
ended May 31, 2010. |
|
|
|
Net of tax expense of $326 for the nine months ended May 31, 2009. |
During the second quarter of fiscal 2010, the Company entered into and settled a Euro foreign
currency forward contract resulting in an after-tax gain of $0.4 million which was included in OCI
as part of a currency translation adjustment. For the three and nine months ended May 31, 2010 and
2009, there were no amounts recorded in the consolidated statement of operations related to
ineffectiveness of Euro foreign currency forward contracts. Accumulated currency translation
adjustment in AOCI at May 31, 2010 and 2009 and August 31, 2009 reflected after-tax gains of $1.7
million, $1.2 million and $1.2 million, net of related income tax effects of $1.0 million, $0.8
million and $0.8 million, respectively, related to settled foreign currency forward contracts.
At May 31, 2010, the Company had one outstanding Euro foreign currency forward contract to
sell 5.0 million Euro on August 25, 2010 at a fixed price of $1.2505 USD per Euro. The forward
spot rate at May 31, 2010 was $1.2271 USD per Euro. The Companys foreign currency forward
contract qualifies as a hedge of a net investment in foreign operations. At May 31, 2009 and
August 31, 2009, the Company had no outstanding Euro foreign currency forward contracts with net
investment hedging relationships.
Derivatives Not Designated as Hedging Instruments
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 the Companys 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. Changes in the fair value of undesignated hedges are recognized currently in the
income statement as other income (expense).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Gain/(Loss) Recognized in Income on Derivatives |
|
|
|
Location of |
|
Three months ended |
|
|
Nine months ended |
|
|
|
Gain/(Loss) |
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
Recognized in Income |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign currency
forward contracts |
|
Other income (expense) |
|
$ |
|
|
|
$ |
(78 |
) |
|
$ |
|
|
|
$ |
68 |
|
- 13 -
(9) Fair Value Measurements
The Financial Accounting Standards Boards guidance on fair value measurements that establishes a
framework for measuring fair value, and expands disclosures about fair value measurements was
adopted by the Company for its financial assets and liabilities, effective September 1, 2008. In
addition, the Company adopted this guidance for its nonfinancial assets and liabilities effective
September 1, 2009. These nonfinancial assets and liabilities requiring nonrecurring fair value
measurements include long-lived assets, goodwill and certain other intangible assets. These items
are recognized at fair
value when they are considered other than temporarily impaired. There were no required fair value
adjustments for assets and liabilities measured at fair value on a non-recurring basis for the
three and nine months ended May 31, 2010.
The fair value measurements guidance 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 May 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
83,509 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
83,509 |
|
Derivative Assets |
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
117 |
|
Derivative Liabilities |
|
|
|
|
|
|
(1,002 |
) |
|
|
|
|
|
|
(1,002 |
) |
The carrying amount of long-term debt (including current portion) was $13.9 million as of May 31,
2010. The fair value of this debt at May 31, 2010 was estimated at $13.5 million. Fair value of
long-term debt (including current portion) is estimated by discounting the future estimated cash
flows of each instrument at current market interest rates for similar debt instruments of
comparable maturities and credit quality.
(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 contaminants 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 have developed a 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 remediation methods. The Company accrues the anticipated cost of remediation
when the obligation is probable and can be reasonably estimated. Although the Company has accrued
all reasonably estimable costs of completing the actions defined in the current ongoing work plan
agreed to between the Company and the EPA, it is possible that additional testing may be required
or additional actions could be requested or mandated by the EPA at any time, resulting in the
recognition of additional related expenses.
- 14 -
(11) Retirement Plan
The Company has a supplemental non-qualified, unfunded retirement plan for six 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 |
|
|
Nine months ended |
|
|
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
88 |
|
|
|
87 |
|
|
|
263 |
|
|
|
260 |
|
Net amortization and deferral |
|
|
44 |
|
|
|
44 |
|
|
|
134 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
132 |
|
|
$ |
131 |
|
|
$ |
397 |
|
|
$ |
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
May 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
Warranties: |
|
|
|
|
|
|
|
|
Product warranty accrual balance, beginning of period |
|
$ |
1,405 |
|
|
$ |
1,598 |
|
Liabilities accrued for warranties during the period |
|
|
701 |
|
|
|
778 |
|
Warranty claims paid during the period |
|
|
(818 |
) |
|
|
(689 |
) |
|
|
|
|
|
|
|
Product warranty accrual balance, end of period |
|
$ |
1,288 |
|
|
$ |
1,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
May 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
Warranties: |
|
|
|
|
|
|
|
|
Product warranty accrual balance, beginning of period |
|
$ |
1,736 |
|
|
$ |
2,011 |
|
Liabilities accrued for warranties during the period |
|
|
2,122 |
|
|
|
2,164 |
|
Warranty claims paid during the period |
|
|
(2,570 |
) |
|
|
(2,488 |
) |
|
|
|
|
|
|
|
Product warranty accrual balance, end of period |
|
$ |
1,288 |
|
|
$ |
1,687 |
|
|
|
|
|
|
|
|
(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, including similar products, production processes, type or class
of customer and methods for distribution.
- 15 -
Infrastructure: This segment includes the manufacture and marketing of moveable barriers,
specialty barriers and crash cushions, providing outsource manufacturing services and the
manufacturing and selling of large diameter steel tubing and railroad signaling structures. The
infrastructure segment consists of three operating segments that have similar economic
characteristics and meet the aggregation criteria.
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, 2009. 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 unallocated corporate general and administrative expenses,
interest income, interest expense, other income and expenses, and income taxes. Operating income
for segment purposes does include general and administrative expenses, 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 current
accounting standards 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 or nine months ended May 31, 2010 or 2009, respectively.
Summarized financial information concerning the Companys reportable segments is shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
May 31, |
|
|
May 31, |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
80,341 |
|
|
$ |
66,362 |
|
|
$ |
201,502 |
|
|
$ |
200,750 |
|
Infrastructure |
|
|
19,732 |
|
|
|
18,216 |
|
|
|
69,737 |
|
|
|
62,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
100,073 |
|
|
$ |
84,578 |
|
|
$ |
271,239 |
|
|
$ |
262,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
14,386 |
|
|
$ |
10,603 |
|
|
$ |
33,158 |
|
|
$ |
28,098 |
|
Infrastructure |
|
|
(937 |
) |
|
|
210 |
|
|
|
5,594 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
13,449 |
|
|
|
10,813 |
|
|
|
38,752 |
|
|
|
28,317 |
|
Unallocated general and administrative expenses |
|
|
(3,400 |
) |
|
|
(3,276 |
) |
|
|
(10,628 |
) |
|
|
(9,433 |
) |
Interest and other income, net |
|
|
(413 |
) |
|
|
371 |
|
|
|
(1,004 |
) |
|
|
(1,661 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
9,636 |
|
|
$ |
7,908 |
|
|
$ |
27,120 |
|
|
$ |
17,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
1,562 |
|
|
$ |
702 |
|
|
$ |
2,104 |
|
|
$ |
4,673 |
|
Infrastructure |
|
|
415 |
|
|
|
270 |
|
|
|
1,858 |
|
|
|
1,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,977 |
|
|
$ |
972 |
|
|
$ |
3,962 |
|
|
$ |
6,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation |
|
$ |
1,665 |
|
|
$ |
1,079 |
|
|
$ |
3,886 |
|
|
$ |
3,330 |
|
Infrastructure |
|
|
1,012 |
|
|
|
1,527 |
|
|
|
4,141 |
|
|
|
4,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,677 |
|
|
$ |
2,606 |
|
|
$ |
8,027 |
|
|
$ |
7,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
May 31, |
|
|
August 31, |
|
Total Assets: |
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
Irrigation |
|
|
|
|
|
$ |
210,471 |
|
|
$ |
189,234 |
|
|
$ |
186,558 |
|
Infrastructure |
|
|
|
|
|
|
104,008 |
|
|
|
115,086 |
|
|
|
121,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
314,479 |
|
|
$ |
304,320 |
|
|
$ |
307,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 16 -
(14) Share Based Compensation
The Company measures and recognizes 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 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 $0.6 million for each of the three months ended May 31, 2010 and 2009.
Share-based compensation expense was $1.8 million and $1.5 million for the nine months ended May
31, 2010 and 2009, respectively.
On January 25, 2010, the stockholders of the Company approved the 2010 Long-Term Incentive
Plan (the 2010 Plan). The 2010 Plan replaces its predecessor plan, the 2006 Long-Term Incentive
Plan (the Predecessor Plan). The 2010 Plan 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. The maximum number of shares as to
which stock awards may be granted under the 2010 Plan is 435,000 shares. In addition, any shares
subject to awards under the Predecessor Plan or the Companys 2001 Long-Term Incentive Plan that
expire, are forfeited or become unexercisable without having been issued will also be authorized
for issuance under the 2010 Plan. At May 31, 2010, no awards had been granted under the 2010 Plan.
- 17 -
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
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, will, and similar expressions generally identify forward-looking statements. The
entire section entitled Market Conditions and Fiscal 2010 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, 2009. 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.
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, 2009. 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 nine months ended May 31, 2010.
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 and is one of the pioneers in the
automated irrigation industry. Through the acquisition of Watertronics, LLC (Watertronics) in
January 2008, the Company entered the market for water pumping stations and controls which provides
further opportunities for integration with irrigation control systems. The Company also
manufactures and markets various infrastructure products, including moveable barriers for traffic
lane management, crash cushions, road marking and other road safety devices. In addition, the
Companys infrastructure segment produces large diameter steel tubing and railroad signaling
structures, and provides outsourced manufacturing and production services for other companies.
Industry segment information about Lindsay is included in Note 13 to the consolidated financial
statements.
- 18 -
Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska. The
Companys principal irrigation manufacturing facility is located in Lindsay, Nebraska. 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 SAS, located in La Chapelle, France, was acquired in March 2001 and manufactures
and markets irrigation equipment for the European market. Lindsay America do Sul Ltda., located in
Mogi Mirim, Brazil, was acquired in April 2002 and manufactures and markets irrigation equipment
for the South American market. Lindsay Manufacturing Africa, (PTY) Ltd., located in Paarl, South
Africa, was organized in September 2002 and manufactures and markets irrigation equipment for the
sub-Saharan Africa market. Lindsay (Tianjin) Industry Co., Ltd., located in Tianjin, China, was
organized in June 2009 and manufactures and markets irrigation equipment for the Chinese market.
In addition, the Company leases office space in Beijing, China.
Watertronics, located in Hartland, Wisconsin, designs, manufactures, and services water
pumping stations and controls for the agriculture, golf, landscape 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. (LTI), located in Lindsay, Nebraska, primarily brokers delivery of
irrigation equipment in the U.S.
Barrier Systems, Inc. (BSI), located in Rio Vista, California, manufactures moveable barrier
products, specialty barriers and crash cushions. BSI has been in business since 1984 and was
acquired by the Company in June 2006.
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.
- 19 -
Results of Operations
For the Three Months ended May 31, 2010 compared to the Three Months ended May 31, 2009
The following section presents an analysis of the Companys operating results displayed in the
condensed consolidated statements of operations for the three months ended May 31, 2010 and 2009.
It should be read together with the industry segment information in Note 13 to the condensed
consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Percent |
|
|
|
May 31, |
|
|
Increase |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
100,073 |
|
|
$ |
84,578 |
|
|
|
18.3 |
% |
Cost of operating revenues |
|
$ |
74,818 |
|
|
$ |
63,509 |
|
|
|
17.8 |
% |
Gross profit |
|
$ |
25,255 |
|
|
$ |
21,069 |
|
|
|
19.9 |
% |
Gross margin |
|
|
25.2 |
% |
|
|
24.9 |
% |
|
|
|
|
Operating expenses (1) |
|
$ |
15,206 |
|
|
$ |
13,532 |
|
|
|
12.4 |
% |
Operating income |
|
$ |
10,049 |
|
|
$ |
7,537 |
|
|
|
33.3 |
% |
Operating margin |
|
|
10.0 |
% |
|
|
8.9 |
% |
|
|
|
|
Interest expense |
|
$ |
(474 |
) |
|
$ |
(465 |
) |
|
|
1.9 |
% |
Interest income |
|
$ |
49 |
|
|
$ |
200 |
|
|
|
(75.5 |
)% |
Other income (expense), net |
|
$ |
12 |
|
|
$ |
636 |
|
|
|
(98.1 |
)% |
Income tax provision |
|
$ |
3,388 |
|
|
$ |
2,639 |
|
|
|
28.4 |
% |
Effective income tax rate |
|
|
35.2 |
% |
|
|
33.4 |
% |
|
|
|
|
Net earnings |
|
$ |
6,248 |
|
|
$ |
5,269 |
|
|
|
18.6 |
% |
Irrigation Equipment Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating revenues |
|
$ |
80,341 |
|
|
$ |
66,362 |
|
|
|
21.1 |
% |
Segment operating income (2) |
|
$ |
14,386 |
|
|
$ |
10,603 |
|
|
|
35.7 |
% |
Segment operating margin (2) |
|
|
17.9 |
% |
|
|
16.0 |
% |
|
|
|
|
Infrastructure Products Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating revenues |
|
$ |
19,732 |
|
|
$ |
18,216 |
|
|
|
8.3 |
% |
Segment operating income (loss) (2) |
|
$ |
(937 |
) |
|
$ |
210 |
|
|
|
546.2 |
% |
Segment operating margin (2) |
|
|
(4.7 |
)% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
(1) |
|
Includes $3.4 million and $3.3 million of unallocated general and administrative expenses for
the three months ended May 31, 2010 and 2009, respectively. |
|
(2) |
|
Excludes unallocated general and administrative expenses. Beginning in fiscal 2009,
segment-specific general and administrative expenses have been allocated to each of the Companys reporting segments. Prior
year disclosures have been modified accordingly. |
Revenues
Operating revenues for the three months ended May 31, 2010 increased by 18% to $100.1 million
compared with $84.6 million for the three months ended May 31, 2009. The increase is attributable
to a $14.0 million increase in irrigation equipment revenues and a $1.5 million increase in
infrastructure revenues.
Domestic irrigation equipment revenues for the three months ended May 31, 2010 of $48.5
million increased 17% compared to the same period last year. The increase in domestic irrigation
revenues is primarily due to an increase in the number of irrigation systems sold compared to the
prior years third fiscal quarter. While commodity prices for corn, soybeans and wheat are down
20%-30% compared to the same time last year, prices have been relatively stable at current levels
for the past six to nine months, resulting in some improvement in the sentiment of farmers toward
capital goods purchases. USDA projections for 2010 Net Farm Income indicate a 12% increase
compared to 2009 estimates, putting projected 2010 Net Farm Income near the ten year average.
International irrigation equipment revenues for the three months ended May 31, 2010 of $31.9
million increased 29% from $24.7 million compared to the same prior year period. Significant
export increases in Australia and Mexico along with strong revenues from the Companys South
American and South African international irrigation business units drove the third quarter
increase.
- 20 -
Infrastructure products segment revenues for the three months ended May 31, 2010 of $19.7
million increased 8% from the same prior year period. This was driven by increased sales of
railroad structures and lights and commercial tubing used in grain handling, wind energy and
industrial manufacturing. Road safety products revenue rose in the quarter and the Company has
experienced somewhat higher quote activity related to stimulus funded projects.
Gross Margin
Gross profit was $25.3 million for the three months ended May 31, 2010. This was an increase of
$4.2 million compared to the three months ended May 31, 2009. Gross margin was 25.2% for the three
months ended May 31, 2010 compared to 24.9% for the same prior year period. Irrigation margins
increased from improved factory efficiencies at the Companys Lindsay, Nebraska facility and
favorable regional sales mix compared to the same period last year. Infrastructure margins were
lower primarily due to decreased revenues from higher margin moveable barrier products.
Operating Expenses
The Companys operating expenses of $15.2 million for the three months ended May 31, 2010 were $1.7
million higher than the same prior year period. The increase in operating expenses was primarily
due to increased incentive compensation and research and development investments. Operating
expenses were 15.2% of sales for the three months ended May 31, 2010 compared to 16.0% of sales for
the three months ended May 31, 2009.
Interest, Other Income (Expense), net
Interest expense for the three months ended May 31, 2010 was essentially flat compared to the same
prior year period.
Interest income for the three months ended May 31, 2010 decreased by $0.2 million compared to
the same prior year period. The decrease in interest income is primarily due to earning a lower
interest rate on investments of the Companys cash balances.
Other income, net during the three months ended May 31, 2010 decreased $0.6 million compared
with the same prior year period. The higher income for the three months ended May 31 2009,
primarily resulted from foreign currency transaction gains realized from the volatility of exchange
rates.
Income Taxes
The Company recorded income tax expense of $3.4 million and $2.6 million for the three months ended
May 31, 2010 and 2009, respectively.
For the three months ended May 31, 2010, the Company recorded discrete items that had a
minimal impact on income tax expense. These included an expense of $0.3 million related to a
change in estimate used in calculating a certain tax credit and a benefit of $0.3 million that
related to an immaterial adjustment for tax expense that had been incorrectly recorded in prior
periods.
Net Earnings
Net earnings were $6.2 million or $0.50 per diluted share for the three months ended May 31, 2010
compared with $5.3 million or $0.42 per diluted share for the same prior year period.
- 21 -
For the Nine Months ended May 31, 2010 compared to the Nine Months ended May 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Percent |
|
|
|
May 31, |
|
|
Increase |
|
$ in thousands |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
271,239 |
|
|
$ |
262,845 |
|
|
|
3.2 |
% |
Cost of operating revenues |
|
$ |
198,051 |
|
|
$ |
199,851 |
|
|
|
(0.9 |
)% |
Gross profit |
|
$ |
73,188 |
|
|
$ |
62,994 |
|
|
|
16.2 |
% |
Gross margin |
|
|
27.0 |
% |
|
|
24.0 |
% |
|
|
|
|
Operating expenses (1) |
|
$ |
45,064 |
|
|
$ |
44,110 |
|
|
|
2.2 |
% |
Operating income |
|
$ |
28,124 |
|
|
$ |
18,884 |
|
|
|
48.9 |
% |
Operating margin |
|
|
10.4 |
% |
|
|
7.2 |
% |
|
|
|
|
Interest expense |
|
$ |
(1,291 |
) |
|
$ |
(1,570 |
) |
|
|
(17.8 |
)% |
Interest income |
|
$ |
215 |
|
|
$ |
741 |
|
|
|
(71.0 |
)% |
Other income (expense), net |
|
$ |
72 |
|
|
$ |
(832 |
) |
|
|
108.7 |
% |
Income tax provision |
|
$ |
8,217 |
|
|
$ |
5,482 |
|
|
|
49.9 |
% |
Effective income tax rate |
|
|
30.3 |
% |
|
|
31.8 |
% |
|
|
|
|
Net earnings |
|
$ |
18,903 |
|
|
$ |
11,741 |
|
|
|
61.0 |
% |
Irrigation Equipment Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating revenues |
|
$ |
201,502 |
|
|
$ |
200,750 |
|
|
|
0.4 |
% |
Segment operating income (2) |
|
$ |
33,158 |
|
|
$ |
28,098 |
|
|
|
18.0 |
% |
Segment operating margin (2) |
|
|
16.5 |
% |
|
|
14.0 |
% |
|
|
|
|
Infrastructure Products Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating revenues |
|
$ |
69,737 |
|
|
$ |
62,095 |
|
|
|
12.3 |
% |
Segment operating income (2) |
|
$ |
5,594 |
|
|
$ |
219 |
|
|
|
2454.3 |
% |
Segment operating margin (2) |
|
|
8.0 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
(1) |
|
Includes $10.6 million and $9.4 million of unallocated general and administrative expenses
for the nine months ended May 31, 2010 and 2009, respectively. |
|
(2) |
|
Excludes unallocated general and administrative expenses. Beginning in fiscal 2009,
segment-specific general and administrative expenses have been allocated to each of the
Companys reporting segments. Prior year disclosures have been modified accordingly. |
Revenues
Operating revenues for the nine months ended May 31, 2010 increased by $8.4 million to $271.2
million compared with $262.8 million for the nine months ended May 31, 2009. The increase is
attributable to a $0.8 million increase in irrigation equipment revenues and $7.6 million increase
in infrastructure segment revenues.
Domestic irrigation equipment revenues for the nine months ended May 31, 2010 of $120.1
million decreased $8.5 million compared to the same period last year. The nine months ended May
31, 2009 reflected a record first quarter irrigation revenue, working off a record backlog from the
end of fiscal 2008. The Company saw a significant decline in orders in the quarters following
August 31, 2008 as a result of the economic slowdown. International irrigation equipment revenues
for the nine months ended May 31, 2010 increased $9.3 million compared to the first nine months of
fiscal 2009. Management believes that the combination of factors described above in the discussion
of the three months ended May 31, 2010 also contributed to the increase in international irrigation
revenues for the nine month period.
Infrastructure products segment revenue of $69.7 million for the first nine months ended May
31, 2010 increased 12% over the same prior year period. For the nine month period ended May 31,
2010, revenue increased at Barrier Systems by over 50% compared to the same prior year period. The
completion of the $19.6 million Mexico City road project benefited Barrier Systems during the first
half of fiscal 2010. This was partially offset by a decrease of over 20% in the Companys
Diversified Manufacturing business for the same period. The decrease in the Companys Diversified
Manufacturing revenues was primarily in contract manufacturing and in commercial tubing in the
first half of fiscal 2010.
- 22 -
Gross Margin
Gross profit for the nine months ended May 31, 2010 was $73.2 million, an increase of $10.2 million
compared to the same prior year period. Gross margin percentage for the nine months ended May 31,
2010 increased to 27.0% from the 24.0% achieved during the same prior year period. Infrastructure
margins increased primarily due to increased revenues from moveable barrier products, resulting
from the Mexico City road project completed in the first half of fiscal 2010. Irrigation margins
increased from improved factory efficiencies at the Companys Lindsay, Nebraska facility and a
favorable regional sales mix compared to the same prior year period.
Operating Expenses
Operating expenses for the first nine months of fiscal 2010 increased by $1.0 million to $45.1
million compared to the same prior year period. Management believes that the combination of
factors described above in the discussion of the three months ended May 31, 2010 are also the
primary factors that contributed to the increase in operating expenses for the nine-month period.
Operating expenses were 16.6% of sales for the nine months ended May 31, 2010 compared to 16.8% of
sales for the nine months ended May 31, 2009.
Interest, Other Income (Expense), net
Interest expense during the nine months ended May 31, 2010 of $1.3 million decreased $0.3 million
from the $1.6 million recognized during the same prior year period for fiscal 2009. The decrease
in interest expense is primarily due to principal reductions on the Companys outstanding term
notes.
Interest income during the nine months ended May 31, 2010 decreased by $0.5 million compared
to the same prior year period. The decrease in interest income is primarily due to earning a lower
interest rate on investments of the Companys cash balances.
Other income (expense), net during the nine months ended May 31, 2010 increased to income of
$0.1 million from an expense of $0.8 million during the same prior year period. The higher expense
for the nine months ended May 31, 2009 resulted primarily from foreign currency transaction losses
realized from the volatility of exchange rates.
Income Taxes
The Company recorded income tax expense of $8.2 million and $5.5 million for the nine months ended
May 31, 2010 and 2009, respectively. The effective tax rate used to calculate income tax expense
before discrete items was 35.4% and 34.7% for the nine months ended May 31, 2010 and 2009,
respectively.
For the nine months ended May 31, 2010, the Company recorded discrete items that reduced
income tax expense. The discrete items included a benefit of $1.1 million related to income tax
credits earned in the first nine months of fiscal 2010, a benefit of $0.3 million for an immaterial
correction of previously recorded tax expense and a benefit of $0.4 million for the reversal of
previously recorded liabilities for uncertain tax positions. This reversal was recorded due to the
expiration of the statute of limitations in the applicable tax jurisdictions without any actual tax
liability being assessed. These benefits were slightly offset by additional expense of $0.4
million in the first quarter of fiscal 2010 relating to a tax ruling impacting the Companys French
subsidiary.
For the nine months ended May 31, 2009, the Company recorded discrete items that reduced
income tax expense for the period. These included a benefit of $0.1 million related to the
reversal of previously recorded liabilities for uncertain tax positions due to the expiration of
the statute of limitations as well as a benefit of $0.4 million resulting from finalizing the
fiscal 2008 income tax return calculation that was less than the estimated fiscal 2008 income tax
provision.
Net Earnings
Net earnings were $18.9 million or $1.50 per diluted share for the nine months ended May 31, 2010
compared with $11.7 million or $0.94 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 three credit arrangements that are described below.
The Companys cash and cash equivalents totaled $83.5 million at May 31, 2010 compared with
$63.2 million at May 31, 2009 and $85.9 million at August 31, 2009.
- 23 -
The Company currently maintains a bank line of credit with Wells Fargo Bank, N.A. and another
with Societe Generale to provide additional working capital or to fund acquisitions, if needed.
The Company has an unsecured $30.0 million Revolving Credit Note and Credit Agreement with Wells
Fargo Bank, N.A. (the Revolving Credit Agreement).
The Company entered into the First Amendment to the Revolving Credit Agreement (the Amended
Revolving Credit Agreement), effective as of January 23, 2010, in order to extend the Revolving
Credit Agreements termination date from January 23, 2010 to January 23, 2012 as well as to modify
the interest rate from LIBOR plus 50 basis points to LIBOR plus 120 basis points. As of May 31,
2010 and 2009 and August 31, 2009, there was no outstanding balance on the Amended Revolving Credit
Agreement.
Borrowings under the Amended Revolving Credit Agreement bear interest at a rate equal to LIBOR
plus 120 basis points, subject to adjustment as set forth in the Amended Revolving Credit
Agreement. Interest is repaid on a monthly or quarterly basis depending on loan type. The Company
also pays an annual commitment fee of 0.25% on the unused portion of the Amended Revolving Credit
Agreement. Unpaid principal and interest is due by January 23, 2012, which is the termination date
of the Amended 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
2.3 million Euros, which equates to approximately $2.8 million as of May 31, 2010, for working
capital purposes (the Euro Line of Credit). There was $0.3 million and $1.6 million outstanding
on the Euro Line of Credit as of May 31, 2010 and 2009, respectively. At August 31, 2009, there
were no borrowings outstanding under the Euro Line of Credit. 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 the Euro Interbank Offered Rate plus 150 basis points (all inclusive,
1.84% at May 31, 2010). Unpaid principal and interest is due by January 31, 2011, which is the
termination date of the Euro Line of Credit.
The Company entered into an unsecured $30.0 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 Companys wholly-owned Italian subsidiary entered into an unsecured
$13.2 million seven-year Term Note and Credit Agreement (the Snoline Term Note) with Wells Fargo
Bank, N.A. On May 17, 2010, the Company repaid the $7.1 million outstanding balance on the Snoline
Term Note in its entirety. In conjunction with the repayment of the Snoline Term Note, the Company
exited the cross currency swap associated with this term note at zero fair value.
The BSI Term Note and the Amended 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. In connection with entering into
the Amended Revolving Credit Agreement during the second quarter of fiscal 2010, the covenants for
each of the Notes were modified by adding a tangible net worth requirement. 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 May 31, 2010, the Company was in compliance with all loan
covenants.
The Company believes its current cash resources, projected operating cash flow, and remaining
capacity under its bank lines of credit are sufficient to cover all of its expected working capital
needs, planned capital expenditures, dividends, and other cash requirements, excluding potential
acquisitions.
Cash flows provided by operations totaled $14.8 million during the nine months ended May 31,
2010 compared to $24.3 million provided by operations during the same prior year period. Cash
provided by operations decreased $9.5 million primarily due to an increase in cash used for working
capital items partially offset by an increase in cash provided by net earnings.
Cash flows used in investing activities totaled $3.0 million during the nine months ended May
31, 2010 compared to cash flows used in investing activities of $5.3 million during the same prior
year period. The decrease in cash used for investing activities was primarily due to a decrease of
$2.2 million of purchases of property, plant and equipment.
Cash flows used in financing activities totaled $13.4 million during the nine months ended May
31, 2010 compared to cash flows used in financing activities of $6.5 million during the same prior
year period. The increase in cash used in financing activities was primarily due to the $7.1
million repayment of the Snoline Term Note during the third quarter of fiscal 2010. This was
partially offset by an increase of $0.5 million in net borrowings on revolving lines of credit.
- 24 -
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, 2009.
Market Conditions and Fiscal 2010 Outlook
While commodity prices for corn, soybeans and wheat are down 20%-30% compared to the same time last
year, prices have been relatively stable at current levels for the past six to nine months. USDA
projections for 2010 Net Farm Income indicate a 12% increase compared to 2009 estimates which puts
projected 2010 Net Farm Income near the ten year average. Globally, the Companys management
believes that farmer sentiment has improved over last year; however, the peak selling period for
irrigation equipment has now ended for 2010. Irrigation equipment sales are seasonal by nature.
Farmers generally order systems to be delivered and installed before the growing season. Shipments
to customers in the northern hemisphere, which includes the majority of the Companys sales,
usually peak during the Companys second and third fiscal quarters for the spring planting period.
In the infrastructure markets, because of the project nature and uniqueness of the movable
barrier product line, it is difficult to estimate the global market size. For planning purposes,
the Company maintains a list of potential projects in the moveable barrier product line for traffic
mitigation that remains very strong. Management believes stimulus spending has supported increased
road safety product sales and quote activity; however, a multi-year highway bill is essential for
sustainable growth in the U.S.
Overall, the Company continues to focus on working capital management and tight spending
control in all of the Companys operations. The Companys focus on improving cash flow has
resulted in increasing cash and cash equivalents by $20.3 million to $83.5 million compared with
May 31, 2009. The Company also reduced debt by $13.2 million over the same period.
As of May 31, 2010, the Company had an order backlog of $33.9 million compared with $33.6
million at February 28, 2010 and $40.2 million at May 31, 2009. The May 31, 2009 backlog included
$19.6 million for the Mexico City road project that was completed in the first half of fiscal 2010.
In the long term, the global drivers of increasing food production, improving water-use
efficiency, expanding bio-fuel production, expanding interest in reducing environmental impacts and
improving transportation infrastructure, continue to be positive drivers of demand for the
Companys products. The Companys strong balance sheet has well-positioned the Company to invest
in growth initiatives both organically and through acquisitions.
Recently Issued Accounting Pronouncements
In October 2009, the FASB issued ASU No. 2009-13 (ASU 2009-13), which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products or services
(deliverables) separately rather than as a combined unit. ASU 2009-13 is effective prospectively
for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. The Company is still assessing the impact that the adoption of this standard will
have on its consolidated financial statements, but expects the impact to be minimal.
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, South
Africa and China. 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. At times, export sales may be denominated in a currency other
than the U.S. dollar. A majority of the Companys revenue generated from operations outside the
United States is denominated in local currency. Accordingly, these sales are not typically subject
to significant foreign currency transaction risk. The Companys most significant transactional
foreign currency exposures are the Euro, the Brazilian real, the South African rand and the Chinese
renminbi 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.
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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 third quarter of fiscal 2010, the Company entered into a Euro foreign currency forward
contract to sell 5.0 million Euro on August 25, 2010 at a fixed price of $1.2505 USD per Euro. The
forward spot rate at May 31, 2010 was 1.2271 USD per Euro. The Companys foreign currency forward
contract qualifies as a hedge of net investments in foreign operations.
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 obligated 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%.
On May 17, 2010, in conjunction with repaying the Snoline Term Note, the Company exited the cross
currency swap transaction with a zero fair value.
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
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), 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 CEO and CFO concluded that the Companys
disclosure controls and procedures were effective as of May 31, 2010.
Additionally, the CEO and CFO 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.
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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 contaminants 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 have developed a 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 remediation methods. The Company accrues the anticipated cost of remediation
when the obligation is probable and can be reasonably estimated. Although the Company has accrued
all reasonably estimable costs of completing the actions defined in the current ongoing work plan
agreed to between the Company and the EPA, it is possible that additional testing may be required
or additional actions could be requested or mandated by the EPA at any time, resulting in the
recognition of additional related expenses.
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, 2009.
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 quarter ended May 31, 2010; 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 2010 Long-Term Incentive Plan, approved by the Companys
stockholders on January 25, 2010, together with forms of award agreements |
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31.1 |
* |
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Certification of Chief 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 Chief 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 Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. |
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SIGNATURE
Pursuant to the requirements 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 July 2010.
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LINDSAY CORPORATION
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By: |
/s/ DAVID B. DOWNING
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Name: |
David B. Downing |
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Title: |
Chief Financial Officer and
President International Operations |
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