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LNN > SEC Filings for LNN > Form 10-Q on 6-Jan-2014All Recent SEC Filings

Show all filings for LINDSAY CORP

Form 10-Q for LINDSAY CORP


6-Jan-2014

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 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, 2013. 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, 2013, 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, 2013. 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 three months ended November 30, 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

Operating revenues for the three months ended November 30, 2013 were $147.7 million versus the $147.4 million of operating revenues for the three months ended November 30, 2012. Total irrigation equipment revenues decreased 4 percent to $129.2 million from $134.2 million in the prior fiscal year's first quarter. U.S. irrigation revenues decreased and were partially offset by increased demand in international markets and the addition of Claude Laval Corporation ("CLC"). U.S. irrigation revenues of $79.3 million decreased 18 percent primarily due to significantly lower agricultural commodity prices and a reduction in the drought driven sales increases that occurred in the Corn Belt last year, while international irrigation revenues of $49.9 million increased 32 percent led by growth in South America and Australia. Infrastructure revenues increased 41 percent to $18.5 million with increases in nearly all of the Company's infrastructure product lines.

Net earnings were $10.2 million or $0.79 per diluted share for the three months ended November 30, 2013 compared with $14.7 million or $1.15 per diluted share for the same prior year period. Lower profits on similar revenues resulted primarily from lower gross margins due to a $2.3 million charge related to a product warranty matter and higher operating expenses associated with incremental expenses of CLC and higher personnel expenses.

Market Conditions and Outlook

The Company's irrigation revenues are highly dependent upon the need for irrigated agricultural crop production, which, in turn, depends upon many factors, including the primary drivers of agricultural commodity prices, net farm income, weather conditions and governmental policies regarding the agricultural sector. The degree to which these factors impact customer's irrigation equipment purchase decisions is difficult to predict.

Farm commodity prices have declined during the past year on indications of strong yields and a decreasing impact of drought conditions in the U.S. Corn Belt. Corn prices have decreased 43 percent and soybeans have decreased 10 percent compared to the same time last year. The regulatory environment remains uncertain although certain tax incentives (Section 179 income tax deduction and bonus depreciation) that encourage equipment purchases were significantly reduced for 2014 and the ethanol mandate that increases corn demand was reduced. Although commodity prices and certain tax incentives have declined, farm incomes remain high. As of November 2013, the U.S. Department of Agriculture (USDA) estimated U.S. 2013 net farm income to be $131.0 billion, the highest on record and 8 percent higher than the USDA's recent August 2013 forecast.

At this point, the Company anticipates significantly lower U.S. irrigation revenues for fiscal 2014 due to the significant decrease in relevant agricultural commodity prices and the decrease of certain tax incentives, although strong farmer balance sheets and net farm income could mitigate the negative impacts. The Company does not expect to have more visibility into the primary selling season of fiscal 2014 until later in the second fiscal quarter.

While the Company anticipates a decline from peak irrigation revenues for the near-term, drivers for the Company's markets of population growth, expanded food production and efficient water use, support the Company's expectation for long-term growth. 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 constricted government funding 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. The Company believes the Road Zipper SystemsTM has an opportunity to drive profitability over the long term as a superior solution to worldwide traffic congestion, lost productivity and energy waste.

For the infrastructure business, government spending on highway and other infrastructure projects remains an impediment to achieving consistent market growth, although the Company believes it has sizeable market penetration opportunities for road safety products and Road Zipper SystemsTM, worldwide, and has seen some positive signs of increased infrastructure activity. Demand for the Company's transportation safety products continues to be driven by population growth and the need for improved road safety.

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Table of Contents

As of November 30, 2013, the Company had an order backlog of $86.6 million compared with $85.1 million at November 30, 2012 and $66.5 million at August 31, 2013. Current year backlog declined in U.S. irrigation markets and was offset by an increase in backlog in international irrigation markets and in the infrastructure segment. The increase in infrastructure backlog included a $12.7 million Road Zipper System order from the Golden Gate Bridge Highway & Transportation District. 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. The Company is pursuing a variety of actions to achieve long-term earnings growth and shareholder value:

Investment in organic growth including capital expenditures and expansion of international markets,

Annual increases in dividends to shareholders,

Synergistic water related acquisitions that provide attractive returns to shareholders, and

Opportunistic share repurchases taking into account cyclical and seasonal fluctuations.

Results of Operations

For the Three Months ended November 30, 2013 compared to the Three Months ended November 30, 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 November 30, 2013 and 2012. It should be read together with the industry segment information in Note 12 to the condensed consolidated financial statements:

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