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LNN > SEC Filings for LNN > Form 10-Q on 3-Apr-2013All Recent SEC Filings

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Form 10-Q for LINDSAY CORP


Quarterly Report

ITEM 2 - Management's 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 Company's 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," "plan," "project," and similar expressions generally identify forward-looking statements. The entire section entitled "Market Conditions and Fiscal 2013 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 Company's Annual Report on Form 10-K for the year ended August 31, 2012. 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 and in the Company's other public filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the Company's fiscal year ended August 31, 2012, as well as other risks and uncertainties not now anticipated. The risks and uncertainties described herein and in the Company's other public filings are not exclusive and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's 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 Company's condensed consolidated financial statements in conformity with U.S. GAAP, 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 Company's historical experience.

The Company's 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 discussion of the Company's critical accounting policies under Item 7 in the Company's Annual Report on Form 10-K for the Company's fiscal year ended August 31, 2012. Management periodically re-evaluates and adjusts its critical accounting policies as circumstances change. There were no changes in the Company's critical accounting policies during the six months ended February 28, 2013.

New Accounting Pronouncements

See Note 2 - New Accounting Pronouncements to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Table of Contents

Executive Overview and Outlook

Operating revenues for the three months ended February 28, 2013 increased by 33 percent to $175.5 million compared with $132.1 million for the three months ended February 29, 2012. Operating revenues for the six months ended February 28, 2013 increased by 28 percent to $322.9 million compared with $251.3 million for the six months ended February 29, 2012. The increases are primarily attributable to an increase in domestic irrigation revenues. The trend for fiscal 2013 included higher demand for irrigation systems stimulated by positive drivers in the agricultural economy and lower demand for infrastructure products impacted by government funding issues and project delays. As last year's drought conditions across the U.S. pushed commodity prices higher, the recognition of the importance of efficient, mechanical irrigation rose, creating robust demand for irrigation equipment in the current fiscal year.

Gross margins improved to 28.7 percent for the three months ended February 28, 2013 compared to 27.6 percent in the comparable prior year period as higher gross margins realized in the irrigation segment more than offset lower gross margins realized in the infrastructure segment. Gross margins improved to 28.9 percent for the six months ended February 28, 2013 compared to 26.6 percent in the comparable prior year period.

Net earnings were $19.4 million or $1.50 per diluted share for the three months ended February 28, 2013 compared with $12.8 million or $1.00 per diluted share for the same prior year period. Net earnings were $34.1 million or $2.65 per diluted share for the six months ended February 28, 2013 compared with $15.7 million or $1.23 per diluted share for the same prior year period.

Positive farmer sentiment along with historically high farm incomes and commodity prices provide a solid backdrop for strong irrigation sales. As of February 2013, the USDA projects U.S. 2013 Net Farm Income to be the highest on record and 73 percent above the 10-year average, continuing to represent positive economic conditions for U.S. farmers. Expectations of record crop planting and improved yields are leading to projections of lower commodity prices, which could lead to reduced demand over the balance of 2013 and into 2014. Demand for the Company's irrigation equipment is closely aligned with Net Farm Income and commodity prices and can fluctuate significantly on a quarterly or annual basis. The U.S. federal government examines the level of farm subsidies and tax deductions periodically and changes could have a positive or adverse impact on irrigation equipment demand. The Company believes the most significant opportunities for growth over the next several years are in international markets, where irrigation use is significantly less developed, and demand is driven primarily by food security, water scarcity and population growth.

Infrastructure demand, including for Road Zipper SystemTM projects, has proven to be challenging due to funding issues and project delays. The infrastructure segment continues to experience revenue and profit volatility due to the project nature of the Road Zipper SystemsTM and the fixed nature of some operating expenses. However, the Company has focused on operating efficiencies, lean manufacturing and pricing controls to improve profitability as the market strengthens. During 2012, the U.S. government extended the multi-year U.S. highway bill through 2014, creating moderately positive sentiment for U.S. infrastructure spending. The outlook for government funded infrastructure spending remains challenging due to global governmental budget constraints. The Company is confident in the opportunity for Road Zipper SystemsTM to drive significant profitability over the long term as a superior solution to worldwide traffic congestion, lost productivity and energy waste. Demand for the Company's transportation safety products continues to be driven by population growth and the need for improved road safety.

As of February 28, 2013, the Company had an order backlog of $159.3 million compared with $87.3 million at February 29, 2012 and $85.1 million at November 30, 2012. Current year backlog includes strong domestic irrigation volume along with a $39.1 million contract in the Middle East consisting of irrigation machines and ancillary equipment that will be shipped and delivered primarily over the balance of fiscal 2013. Contracts in this geographic region carry elevated levels of risks and are more susceptible to disruption from changing social economic conditions and political hostilities as well as increased executional costs, all which could impact the profitability of this contract. The Company believes the quarter end backlog and order trends will support strong sales in the third quarter. However, the Company continues to see evidence of a pull forward in irrigation equipment orders in anticipation of dry weather and possible water restrictions. The Company's backlog can fluctuate from period to period due to the seasonality, cyclicality, timing and execution of contracts. Typically, the Company's backlog at any point in time represents only a portion of the revenue it expects to realize during the following three month period. However, the timing related to certain project oriented contracts may extend longer than three months.

For the business overall, the global, long-term drivers of water conservation, population growth, increasing importance of biofuels, and the need for safer, more efficient transportation solutions remain positive. In addition, the Company continues to have an ongoing, structured, acquisition process that is expected to generate additional growth opportunities throughout the world in water and infrastructure. The Company is committed to achieving earnings growth by employing sound business strategies, including without limitation global market expansion, improvements in margins, and/or strategic acquisitions.

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Table of Contents

Results of Operations

For the Three Months ended February 28, 2013 compared to the Three Months ended February 29, 2012

The following section presents an analysis of the Company's operating results displayed in the condensed consolidated statements of operations for the three months ended February 28, 2013 and February 29, 2012. It should be read together with the industry segment information in Note 12 to the condensed consolidated financial statements:

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