regions, yet they remain relatively small in scale. None of the international operations has achieved the operating margin of the United States based irrigation operations.
Recently Issued Accounting Pronouncements In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 will be effective for the Company beginning in the first quarter of fiscal year 2009. The Company does not expect this pronouncement to have a material impact on the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, ("SFAS No. 159"). This Statement, which is expected to expand fair value measurement, permits entities to elect to measure many financial instruments and certain other items at fair value. SFAS No. 159 will be effective for the Company beginning in the first quarter of fiscal year 2009. The Company does not expect this pronouncement to have a material impact on the Company's consolidated financial statements.
On September 7, 2006, the Emerging Issues Task Force ("EITF") reached consensus on EITF Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, ("EITF 06-4") and on March 15, 2007, the Task Force reached a consensus on EITF Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements, ("EITF 06-10"). The scope of these two Issues relates to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance arrangements and for collateral assignment split-dollar life insurance arrangements, respectively. EITF 06-4 and EITF 06-10 are both effective for the Company beginning in the first quarter of fiscal year 2009. The Company does not expect either to have a material impact on the Company's consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS No. 141R"). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R will be effective for the Company for business combinations for which the acquisition date is on or after September 1, 2009. Management is currently assessing the effect of this pronouncement on any future acquisitions by the Company.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment to SFAS No. 133 ("SFAS No. 161"), which requires enhanced disclosures about how derivative and hedging activities affect the Company's financial position, financial performance and cash flows. SFAS No. 161 will be effective for the Company beginning in the second quarter of its fiscal year 2009. This pronouncement will result in enhanced disclosures in the Company's future reports, but is not expected to have an impact on the Company's consolidated financial statements.
In May 2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States ("GAAP"). SFAS No. 162 will be effective November 15, 2008. The Company does not expect this pronouncement to have a material impact on the Company's consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets ("FSP No. FAS 142-3"). FSP No. FAS 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for SFAS No. 142's, Goodwill and Other Intangible Assets, entity-specific factors. FSP No. FAS 142-3 will be effective for the Company beginning in the first quarter of its fiscal year 2010. Management is currently assessing the effect of this pronouncement on the Company's consolidated financial statements.
Critical Accounting Policies and Estimates In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), management must make a variety of decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, management applies judgment based on its understanding and analysis of the relevant facts and circumstances. Certain of the Company's

accounting policies are critical, as these policies are most important to the presentation of the Company's consolidated results of operations and financial condition. They require the greatest use of judgments and estimates by management based on the Company's historical experience and management's knowledge and understanding of current facts and circumstances. Management periodically re-evaluates and adjusts the estimates that are used as circumstances change. There were no significant changes to the Company's critical accounting policies during fiscal 2008.
Following are the accounting policies management considers critical to the Company's consolidated results of operations and financial condition:
Inventories - Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for the Company's 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 Company's Omaha, Nebraska warehouse, BSI, Watertronics and non-U.S. warehouse locations. Cost is determined by the weighted average cost method for inventory at the Company's 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.
Note A to the consolidated financial statements provides a summary of the significant accounting policies followed in the preparation of the consolidated financial statements. Other footnotes describe various elements of the financial statements and the assumptions on which specific amounts were determined. While actual results could differ from those estimated at the time of the preparation of the consolidated financial statements, management is committed to preparing financial statements which incorporate accounting policies, assumptions, and estimates that promote the representational faithfulness, verifiability, neutrality, and transparency of the accounting information included in the consolidated financial statements.

Results of Operations
The following "Fiscal 2008 Compared to Fiscal 2007" and the "Fiscal 2007 Compared to Fiscal 2006" sections present an analysis of the Company's consolidated operating results displayed in the Consolidated Statements of Operations and should be read together with the industry segment information in Note R to the consolidated financial statements. Fiscal 2008 Compared to Fiscal 2007
The following table provides highlights for fiscal 2008 compared with fiscal 2007:

                                                  For the Years Ended         Percent
                                                      August 31,             Increase
   $ in thousands                                 2008          2007        (Decrease)
   Consolidated
   Operating revenues                          $ 475,087     $ 281,857           68.6 %
   Cost of operating revenues                  $ 351,255     $ 212,125           65.6 %
   Gross profit                                $ 123,832     $  69,732           77.6 %
   Gross margin                                     26.1 %        24.7 %
   Operating expenses (1)                      $  61,593     $  45,973           34.0 %
   Operating income                            $  62,239     $  23,759          162.0 %
   Operating margin                                 13.1 %         8.4 %
   Interest expense                            $  (3,035 )   $  (2,399 )         26.5 %
   Interest income                             $   1,735     $   2,162          (19.8 %)
   Other income (expense), net                 $     172     $     611          (71.8 %)
   Income tax provision                        $  21,706     $   8,513          155.0 %
   Effective income tax rate                        35.5 %        35.3 %
   Net earnings                                $  39,405     $  15,620          152.3 %
   Irrigation Equipment Segment (See Note R)
   Operating revenues                          $ 374,906     $ 216,480           73.2 %
   Operating income (2)                        $  75,544     $  33,460          125.8 %
   Operating margin (2)                             20.2 %        15.5 %
   Infrastructure Products Segment
   Operating revenues                          $ 100,181     $  65,377           53.2 %
   Operating income (2)                        $  16,705     $  14,196           17.7 %
   Operating margin (2)                             16.7 %        21.7 %

(1) Includes $30.0 million and $23.9 million of unallocated general and administrative expenses for fiscal 2008 and fiscal 2007, respectively.

(2) Excludes unallocated general and administrative expenses.

Revenues
Operating revenues for fiscal 2008 increased by $193.2 million or 69% from fiscal 2007. This increase was attributable to a 73% increase in irrigation equipment revenues and a 53% increase in infrastructure product revenues.
Domestic irrigation revenues increased $92.2 million or 63% over fiscal 2007. The increase in revenues was a result of increased volume and price increases implemented throughout the year, triggered by rising input costs. Even though unit prices increased, overall demand in the U.S. irrigation market remained strong as a result of higher crop prices and improved USDA projected Net Farm income. The Company experienced robust demand for its irrigation equipment, driven by high economic returns for farmers, global food requirements, biofuel demand, agricultural development, and water use efficiency demands. In addition, the most current USDA projected Net Farm Income is up 10.3% in crop year 2008 over the 2007 crop year.
International irrigation revenues increased $66.2 million or 95% over fiscal 2007, with the most significant demand growth in Australia, Brazil, China, Latin America and Europe. Higher commodity prices and expanded agricultural development in many regions have increased the demand for the Company's yield-enhancing irrigation systems. The continued need to improve farm efficiency in food production has driven the expansion of the mechanized irrigation market globally.
Infrastructure products segment revenues increased by $34.8 million or 53% compared to fiscal 2007. The increased infrastructure revenues are attributable to BSI's range of crash cushions and moveable barrier products, the

Diversified Manufacturing business and Snoline. Fiscal year 2008 includes a full year of Snoline's financial results while fiscal 2007 included only eight months of Snoline results. The Company continues to see strong domestic and international interest in BSI's movable barrier and crash cushion product lines. The Company has expanded its presence in crash cushions and other road safety products in Europe through its Snoline subsidiary. The Company expects to see continued long-term growth from these businesses. Gross Margin
Gross margin was 26.1% for fiscal 2008 compared to 24.7% for the prior fiscal year. The gross margin improvement was primarily a result of a continuation of improved irrigation margins. While gross margin improved on irrigation products compared to the prior fiscal year, gross margin on infrastructure products decreased, primarily as a result of unfavorable product mix, manufacturing variances, and higher steel costs. The Company's on-going cost reduction process and Lean Manufacturing initiatives, coupled with pricing discipline and strong equipment demand allowed the Company to achieve higher efficiency in its Lindsay, Nebraska factory.
Operating Expenses
The Company's operating expenses for fiscal 2008 increased $15.6 million or 34% over the prior year. The increase in operating expenses for the year is primarily attributable to the inclusion of Watertronics, acquired in January 2008, a full year of Snoline operating expenses and higher personnel related expenses, resulting from adding personnel in key growth supporting positions in fiscal 2008.
Interest Expense and Interest Income
Interest expense for fiscal 2008 increased by $0.6 million compared to the prior year. The increase in interest expense was primarily due to the borrowings incurred to finance the acquisitions of Snoline and Watertronics.
Interest income for fiscal 2008 of $1.7 million decreased $0.4 million from fiscal 2007 primarily due to the Company's lower interest bearing deposits and bond balances compared to the prior year. Interest bearing deposits were lower due to the working capital needs of the business. Taxes
The effective tax rate for fiscal 2008 was comparable to the effective tax rate for fiscal 2007. The Company's effective tax rate of 35.5% for fiscal 2008 was higher than the U.S. statutory tax rate primarily due to state, local and foreign taxes. These items were partially offset by federal tax-exempt interest income on the investment portfolio, the Section 199 domestic production activities deduction, a reduction in the tax rate for deferred tax items and other tax credits. The effective tax rate was also reduced by a correction of previously recorded tax expense related to Section 162(m) of the Internal Revenue Code, which resulted in a $0.5 million or $0.04 per diluted share reduction to fiscal 2008 income tax expense. This correction is further discussed in Note E to the consolidated financial statements.
The Company expects its effective tax rate in fiscal 2009, exclusive of any unusual transactions or tax events, to be in the range of 34% to 36%. Net Earnings
Net earnings were $39.4 million, or $3.20 per diluted share, for fiscal 2008, compared with $15.6 million, or $1.31 per diluted share, for fiscal 2007.

Fiscal 2007 Compared to Fiscal 2006
The following table provides highlights for fiscal 2007 compared with fiscal
2006:

                                                  For the Years Ended         Percent
                                                      August 31,             Increase
   $ in thousands                                 2007          2006        (Decrease)
   Consolidated
   Operating revenues                          $ 281,857     $ 226,001            24.7 %
   Cost of operating revenues                  $ 212,125     $ 177,760            19.3 %
   Gross profit                                $  69,732     $  48,241            44.5 %
   Gross margin                                     24.7 %        21.3 %
   Operating expenses (1)                      $  45,973     $  32,739            40.4 %
   Operating income                            $  23,759     $  15,502            53.3 %
   Operating margin                                  8.4 %         6.9 %
   Interest expense                            $  (2,399 )   $    (697 )         244.2 %
   Interest income                             $   2,162     $   2,101             2.9 %
   Other income (expense), net                 $     611     $     503            21.5 %
   Income tax provision                        $   8,513     $   5,709            49.1 %
   Effective income tax rate                        35.3 %        32.8 %
   Net earnings                                $  15,620     $  11,700            33.5 %
   Irrigation Equipment Segment (See Note R)
   Operating revenues                          $ 216,480     $ 193,673            11.8 %
   Operating income (2)                        $  33,460     $  25,513            31.1 %
   Operating margin (2)                             15.5 %        13.2 %
   Infrastructure Products Segment
   Operating revenues                          $  65,377     $  32,328           102.2 %
   Operating income (2)                        $  14,196     $   7,055           101.2 %
   Operating margin (2)                             21.7 %        21.8 %

(1) Includes $23.9 million and $17.1 million of unallocated general and administrative expenses for fiscal 2007 and fiscal 2006, respectively.

(2) Excludes unallocated general and administrative expenses. Beginning in the fiscal quarter of fiscal 2007, engineering and research expenses have been allocated to each of the Company's reporting segments; prior year disclosures have been modified accordingly.

Revenues
Operating revenues for fiscal 2007 increased by $55.9 million or 25% from fiscal 2006. This increase was attributable to a 12% increase in irrigation equipment revenues and a 102% increase in infrastructure product revenues.
Domestic irrigation revenues increased $11.7 million or 9% over fiscal 2006. The increase in revenues was primarily a result of price increases implemented throughout the year, triggered by rising input costs. Even though unit prices increased, overall demand in the U.S. irrigation market remained strong as a result of higher crop prices, improved USDA projected Net Farm income, and improved farmer sentiment. At the end of the 2007 fiscal year, commodity prices for the primary agricultural commodities on which irrigation equipment is used remained strong. Corn prices were up more than 40% over the same time in 2006. In addition, soybean prices were up more than 80% and wheat was up more than 110% as compared to 2006. Net Farm income was projected to be higher by approximately 45% for the 2007 crop year, creating very positive economic conditions for U.S. farmers.
International irrigation revenues increased $11.1 million or 19% over fiscal 2006. Most of the international revenue increase was realized in Europe, the Middle East, Australia, New Zealand, and Central America and was primarily the result of increased demand. Higher commodity prices and expanded agricultural development in many regions have increased the need for the Company's irrigation equipment, and has improved the return on investment for growers.
Infrastructure products segment revenues increased by $33.1 million or 102% compared to fiscal 2006. The increased infrastructure revenues were primarily attributable to the inclusion of BSI and Snoline. Fiscal year 2007 includes a full year of BSI's results and eight months of Snoline's financial results while fiscal 2006 only had three

months of BSI results. The Company continued to see strong domestic and international interest in BSI's movable barrier and crash cushion product lines. With the addition of Snoline, the Company expanded its presence in crash cushions and other road safety products in Europe. Gross Margin
Gross margin was 24.7% for fiscal 2007 compared to 21.3% for fiscal 2006. The gross margin improvement was primarily a result of a continuation of improved irrigation margins and the inclusion of the new infrastructure acquisitions. The Company's on-going cost reduction process, coupled with pricing discipline and strong equipment demand that allowed the Company to maintain higher efficiency in its Nebraska factory, has been effective in moving irrigation margins higher. In addition, the inclusion of a full year of BSI sales and eight months of Snoline sales consisting of higher margin products led to an overall increase in the Company's margin.
Operating Expenses
The Company's operating expenses for fiscal 2007 increased $13.2 million or 40% over fiscal 2006. Over 70% of the increase in operating expenses for the year is attributable to the inclusion of the full year of BSI and the acquisition of Snoline. Higher medical expenses, infrastructure product line development costs, and added personnel in key growth supporting positions also increased operating costs in fiscal 2007.
Interest Expense and Interest Income
Interest expense for fiscal 2007 increased by $1.7 million compared to the prior year. The increase in interest expense was primarily due to the borrowings incurred to finance the acquisitions of BSI and Snoline.
Interest income for fiscal 2007 of $2.2 million was essentially flat compared to fiscal 2006. The Company had lower interest bearing deposits and bond balances compared to 2006. Interest bearing deposit balances were lower due to working capital needs of the business. The lower interest bearing deposit balances were offset by higher interest rates realized during the year. Taxes
The Company's effective tax rate of 35.3% for fiscal 2007 was higher than the U.S. statutory tax rate primarily due to state and local taxes and other . . .