LINDSAY CORP - Annual Report: 2007 (Form 10-K)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2007
OR
| o | 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)
| Delaware | 47-0554096 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 2707 North 108th Street, Suite 102, Omaha, Nebraska | 68164 | |
| (Address of principal executive offices) | (Zip Code) |
402-428-2131
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of Class | Name of each exchange on which registered | |
| Common Stock, $1.00 par value | New York Stock Exchange, Inc. (Symbol LNN) |
Indicate by check mark if the registrant is a well-known seasoned issuer, (as defined in Rule 405
of the Securities Act). Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15 (d) of the Exchange Act Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or an non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer 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
The aggregate market value of Common Stock of the registrant, all of which is voting, held by
non-affiliates based on the closing sales price on the New York Stock Exchange, Inc. on February
28, 2007 was $400,324,624.
As of November 2, 2007, 11,756,360 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement pertaining to the Registrant’s 2008 annual shareholders’ meeting
are incorporated herein by reference into Part III. Exhibit index is located on page 55-56.
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1 – Business
INTRODUCTION
Lindsay Corporation (“Lindsay” or the “Company”) is a leading designer and manufacturer of
self-propelled center pivot and lateral move irrigation systems which are used principally in the
agricultural industry to increase or stabilize crop production while conserving water, energy, and
labor. The Company has been in continuous operation since 1955, making it one of the pioneers in
the automated irrigation industry. The Company also manufactures and markets various
infrastructure products, including movable barriers for traffic lane management, crash cushions,
preformed reflective pavement tapes and other road safety devices. In addition, the Company’s
infrastructure segment produces large diameter steel tubing, and provides outsourced manufacturing
and production services for other companies. Industry segment information about Lindsay is
included in Note R to the consolidated financial statements.
Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska, USA. The
Company’s principal irrigation manufacturing facilities are located in Lindsay, Nebraska, USA. The
Company also has international sales and irrigation production facilities in France, Brazil, South
Africa and China which provide it with important bases of operations in key international markets.
Lindsay Europe SAS, located in France, was acquired in March 2001 and manufactures and markets
irrigation equipment for the European market. Lindsay America do Sul Ltda., located in Brazil, was
acquired in April 2002 and manufactures and markets irrigation equipment for the South American
market. Lindsay Manufacturing Africa, (PTY) Ltd, located in South Africa, was organized in
September 2002 and manufactures and markets irrigation equipment in southern Africa. The Company
also leases warehouse facilities in Beijing and Dalian, China.
Barrier Systems, Inc. (“BSI”) is located in Rio Vista, California, and manufactures movable
barrier products, specialty barriers and crash cushions. BSI has been in business since 1984 and
was acquired 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 sales of road marking and safety equipment for use on
roadways.
Lindsay has two additional operating subsidiaries, including Irrigation Specialists, Inc.,
which is a retail irrigation dealership based in Washington State that operates at three locations
(“Irrigation Specialists”). Irrigation Specialists was acquired by the Company in March 2002 and
provides a strategic distribution channel in a key regional irrigation market. The other operating
subsidiary is Lindsay Transportation, Inc., located in Lindsay, Nebraska. Lindsay Transportation,
Inc. primarily provides delivery of irrigation equipment in the U.S. See “Subsidiaries” below.
PRODUCTS BY SEGMENT
IRRIGATION SEGMENT
Products - The Company markets its center pivot and lateral move irrigation systems domestically
and internationally under its Zimmatic brand. The Company also manufactures and markets separate
lines of center pivot and lateral move irrigation equipment for use on smaller fields under its
Greenfield and Stettyn brands, and hose reel travelers under the Perrot brand (Greenfield in the
United States, Perrot in Europe, and Stettyn in South Africa). The Company also produces irrigation
controls, chemical injection systems and remote monitoring and control systems which it sells under
its GrowSmart brand. In addition to whole systems, the Company manufactures and markets repair and
replacement parts for its irrigation systems and controls.
The Company’s irrigation systems are primarily of the standard sized center pivot type, with a
small portion of its products consisting of the lateral move type. Both are automatic, continuous
move systems consisting of sprinklers mounted on a water carrying pipeline which is supported
approximately 11 feet off the ground by a truss system suspended between moving towers.
A typical center pivot for the U.S. market is approximately 1,300 feet long and is designed to
circle within a quarter-section of land, which comprises 160 acres, wherein it irrigates
approximately 130 to 135 acres. A typical center pivot for the international market is somewhat
shorter than that in the U.S. market. A center pivot or lateral move system can also be custom
designed and can irrigate from 25 to 600+ acres. A mini-pivot is a small version of the standard
pivot and is used for smaller fields and/or shorter crops than standard pivots.
A center pivot system represents a significant investment to a farmer. In a dry land
conversion to center pivot irrigation, approximately one-half of the investment is for the pivot
itself and the remainder is attributable to installation
of additional equipment such as wells, pumps, underground water pipes, electrical supply and a
concrete pad upon which the pivot is anchored.
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The Company also manufactures and distributes mini-pivots and hose reel travelers. These
systems are considered to be relatively easy to operate, and the hose reel travelers are easily
moved from field to field. They are typically deployed in smaller or irregular fields. Mini-pivots
and hose reel travelers require, on average, a lower investment than a typical standard center
pivot.
The Company also markets pivot monitoring and control systems, which include remote telemetry
and a web or personal computer hosted data acquisition and monitoring application. These systems
allow growers to monitor their pivot system, accumulate data on the operation of the system, and
control the pivot from a remote location by logging onto an internet web site. The pivot
monitoring and control systems are marketed under the GrowSmart brand with product names of
FieldNET, FieldSENTRY, FieldLink and Online Control.
Other Types of Irrigation – Center pivot and lateral move irrigation systems compete with three
other types of irrigation: flood, drip, and other mechanical devices such as hose reel travelers.
The bulk of the worldwide irrigation is accomplished by the traditional method of flood irrigation.
Flood irrigation is accomplished by either flooding an entire field, or by providing a water
source (ditches or a pipe) along the side of a field, which is planed and slopes slightly away from
the water source. The water is released to the crop rows through gates in the ditch or pipe, or
through siphon tubes arching over the ditch wall into some of the crop rows. It runs down through
the crop row until it reaches the far end of the row, at which time the water source is moved and
another set of rows are flooded. A significant disadvantage or limitation of flood irrigation is
that it cannot be used to irrigate uneven, hilly, or rolling terrain or fields. In “drip” or “low
flow” irrigation, perforated plastic pipe or tape is installed on the ground or buried underground
at the root level. Several other types of mechanical devices, such as hose reel travelers, irrigate
the remaining irrigated acres.
Center pivot, lateral move, and hose reel traveler irrigation offers significant advantages
when compared with other types of irrigation. It requires less labor and monitoring; can be used
on sandy ground which, due to poor water retention ability, must have water applied frequently; can
be used on uneven ground, thereby allowing previously unsuitable land to be brought into
production; can also be used for the application of fertilizers, insecticides, herbicides, or other
chemicals (termed “chemigation”); and conserves water and chemicals through precise control of the
amount and timing of the application.
Markets — General. Water is an essential and critical requirement for crop production, and the
extent, regularity, and frequency of water application can be a critical factor in crop quality and
yield.
The fundamental factors which govern the demand for center pivot and lateral move systems are
essentially the same in both the domestic and international markets. Demand for center pivot and
lateral move systems is determined by whether the value of the increased crop production
attributable to center pivot or lateral move irrigation exceeds any increased costs associated with
purchasing, installing, and operating the equipment. Thus, the decision to purchase a center pivot
or lateral move system, in part, reflects the profitability of agricultural production, which is
determined primarily by the prices of agricultural commodities and other farming inputs.
The current demand for center pivot systems has three sources: conversion to center pivot
systems from less water efficient, more labor intensive types of irrigation; replacement of older
center pivot systems, which are beyond their useful lives or are technologically obsolete; and
conversion of dry land farming to irrigated farming. In addition, demand for center pivots and
lateral move irrigation equipment depends upon the need for the particular operational
characteristics and advantages of such systems in relation to alternative types of irrigation,
primarily flood. More efficient use of the basic natural resources of land, water, and energy
helps drive demand for center pivot and lateral move irrigation equipment. Increasing global
population not only increases demand for agricultural output, but also places additional and
competing demands on land, water, and energy. The Company expects demand for center pivots and
lateral move systems to continue to increase relative to other irrigation methods because center
pivot and lateral move systems are required where the soil is sandy, the terrain is not flat, there
is a shortage of reliable labor, water supply is restricted and conservation is critical, and/or
chemigation will be utilized.
United States Market – In the United States, the Company sells its branded irrigation systems,
including Zimmatic, to approximately 200 independent dealer locations, who resell to their
customer, the farmer. Dealers assess their customer’s requirements, assemble and erect the system
in the field, and provide additional system components, primarily relating to water supply (wells,
pumps, pipes) and electrical supply (on-site generation or hook-up to power lines). Lindsay
dealers generally are established local agri-businesses, many of which also deal in related
products, such as well drilling and water pump equipment, farm implements, grain handling and
storage systems, or farm structures.
International Market – Over the years, the Company has sold center pivot and lateral move
irrigation systems throughout the world. The Company has production and sales operations in
France, Brazil and South Africa as well as
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sales operations in China, Australia, New Zealand and
the Middle East serving the key European, South American, African, China, Australia/New Zealand and
Middle Eastern markets, respectively. The Company also exports some of its equipment from the U.S.
to other international markets. The majority of the Company’s U.S. export sales is denominated in
U.S. dollars and is shipped against prepayments or U.S. bank confirmed irrevocable letters of
credit or other secured means.
The Company’s international markets differ with respect to the need for irrigation, the
ability to pay, demand, customer type, government support of agriculture, marketing and sales
methods, equipment requirements, and the difficulty of on-site erection. The Company’s industry
position is such that it believes that it will likely be considered as a potential supplier for
most major international agricultural development projects utilizing center pivot or lateral move
irrigation systems.
Competition – The U.S. center pivot irrigation system industry has seen significant
consolidation of manufacturers over the years; four primary domestic manufacturers remain today.
The international market includes participation and competition by the leading U.S. manufacturers
as well as certain regional manufacturers. The Company competes in certain product lines with
several manufacturers, some of whom may have greater financial resources than the Company. The
Company competes by continuously improving its products through ongoing research and development
activities. The Company’s engineering and research expenses related to irrigation totaled
approximately $3.0 million, $2.7 million, and $2.7 million for fiscal years 2007, 2006, and 2005,
respectively. Competition also occurs in areas of price and seasonal programs, product quality,
durability, controls, product characteristics, retention and reputation of local dealers, customer
service, and, at certain times of the year, the availability of systems and their delivery time.
The Company believes it competes favorably with respect to all of these factors.
INFRASTRUCTURE SEGMENT
Products – Quickchange Moveable Barrier – The Company’s Quickchange Moveable Barrier (“QMB”) system
is composed of three parts: 1) T-shaped concrete barriers that are connected to form a continuous
wall, 2) a Barrier Transfer Machine (“BTM”) capable of moving the barrier laterally across the
pavement, and 3) the variable length barriers necessary for accommodating curves. A barrier
element is approximately 32 inches high, 13-24 inches wide, 3 feet long and weighs 1,500 pounds.
The barrier elements are interconnected by very heavy duty steel hinges to form a continuous
barrier. The BTM employs an inverted S-shaped conveyor mechanism that lifts the barrier, moving it
laterally before setting it back on the roadway surface.
In permanent applications, the QMB systems increase capacity and reduce congestion by varying
the number of traffic lanes to match the traffic demand. Roadways with fixed medians have a set
number of lanes in each direction and cannot adjust to traffic demands that may change over the
course of a day, or to capacity reductions caused by traffic incidents or road repair and
maintenance. Applications include high volume highways where expansion may not be feasible due to
lack of additional right-of-way, environmental concerns, or insufficient funding. The QMB system
is particularly useful in busy commuter corridors and at choke points such as bridges and tunnels.
QMB systems can also be deployed at roadway or roadside construction sites to accelerate
construction, improve traffic flow and safeguard work crews and motorists by positively separating
the work area and traffic. Examples of types of work completed with the help of a QMB system
include highway reconstruction, paving and resurfacing, road widening, median and shoulder
construction, and repairs to tunnels and bridges.
The Company offers a variety of equipment lease options for the moveable barrier and transfer
machine used in construction applications. The leases extend for periods of three months and
greater for equipment already existing in inventory. Longer lease periods may be required for
specialty equipment that must be built for specific projects.
These systems have been in use in the U.S. and abroad for over 20 years. Significant progress
has been made in recent years introducing the products into the European markets. Typical sales
for a highway safety or road improvement project are $2.0-$15.0 million, making them significant
capital investments.
Crash Cushions – BSI and Snoline offer a complete line of redirective and non-redirective crash
cushions which are used to enhance highway safety at locations such as toll booths, freeway
off-ramps, medians and roadside barrier ends, bridge supports, utility poles and other fixed
roadway hazards. The Company’s primary crash cushion products cover a full range of lengths,
widths, speed capacities and application accessories and include the following brand names:
TAU®, Universal TAU-II®, TAU-B_NR™ and ABSORB 350®. In
addition to these products the Company also offers guardrail and cable barrier end terminal
products such as the X-Tension™, CableGuard™ and TESI® systems.
The crash cushions and end terminal products compete with other vendors in the world market. These
systems are generally sold
through a distribution channel that is domiciled in particular geographic areas. These systems
typically sell in the range of $5,000-$20,000; however, multiple units may be installed on a
project.
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Specialty Barriers – BSI and Snoline also offer specialty barrier products such as the
SAB™, ArmourGuard™, PaveGuard™ and DR46™ portable
barrier and/or barrier gate systems. These products offer portability and flexibility in setting
up and modifying barriers in work areas and provide quick opening, high containment gates for use
in median or roadside barriers. The gates are generally used to create openings in barrier walls
of various types for both construction and incident management purposes. The DR46 is an energy
absorbing barrier to shield motorcyclists from impacting guardrail posts which is becoming an area
of focus for reducing a significant number of injuries.
Road Marking and Road Safety Equipment – Snoline also offers preformed tape and a line of road
safety accessory products. The preformed tape is used in both temporary and permanent applications
such as markings for work zones, street crossings, and road center lines or boundaries. The road
safety equipment consists of mostly plastic and rubber products used for delineation, slowing
traffic, and signaling. BSI also performs full-scale impact testing of certain products onsite in
accordance with National Cooperative Highway Research Program (“NCHRP”) 350 guidelines. The NCHRP
350 guidelines are procedures required by the U.S. Department of Transportation Federal Highway
Administration for the safety performance evaluation of highway features.
Contract Manufacturing – The Company provides outsourced manufacturing and production services,
including the production of large diameter steel tubing, for other companies.
Markets – The U.S. highway infrastructure market has annual expenditures of over $100 billion and
includes projects such as new roadway construction, bridges, tunnels, maintenance and resurfacing,
and the purchase of right-of-ways for roadway expansion and development of technologies for relief
of roadway congestion. BSI’s and Snoline’s primary market includes portable concrete barriers,
delineation systems, guardrails and similar protective equipment. Much of the U.S. highway
infrastructure market is driven by government (state and federal) spending programs. For example,
the U.S. government funds highway and road improvements through the Federal Highway Trust Fund
Program. This program provides funding to improve the nation’s roadway system. Matching funding
from the various states may be required as a condition of federal funding. Federal highway program
legislation, SAFETEA-LU, was enacted in 2005 and provides for $286.4 billion in guaranteed funding
for federal surface transportation programs over five years through 2009. The Company believes
this legislation provides a solid platform for future growth in the US market. Governments and
communities desire to reduce traffic congestion by improving road and highway systems.
The European market is presently very different from country to country, but the
standardization in performance requirements and acceptance criteria for highway safety devices
adopted by the European Committee for Standardization is expected to lead to greater uniformity and
a larger installation program. This will also be influenced by the general European prevention
program which has the goal to lower fatalities by 50% in the current decade.
Competition – The Company competes in certain product lines with several manufacturers, some of
whom may have greater financial resources than the Company. The Company competes by continuously
improving its products through ongoing research and development activities. The Company’s
engineering and research expenses related to infrastructure products totaled approximately $1.7
million for fiscal year 2007. During both fiscal 2006 and 2005, engineering and research expenses
for infrastructure products were less than $0.1 million. The Company competes with certain products
and companies in its crash cushion business, but has limited competition in its moveable barrier
line, as there is not another moveable barrier product today comparable to the QMB system.
However, the Company’s barrier product does compete with traditional “safety shaped” concrete
barriers and other safety barriers. In addition, the Company continues to expand its
infrastructure products into contract manufacturing. The Company continues to develop new
relationships for infrastructure manufacturing in industries outside of agriculture and irrigation.
The Company’s customer base includes certain large industrial companies. Each benefits from the
Company’s design and engineering capabilities as well as the Company’s ability to provide a wide
spectrum of manufacturing services, including welding, machining, painting, forming, galvanizing
and assembly of hydraulic, electrical, and mechanical components.
Distribution methods and channels – The Company has production and sales operations in California
and Italy. BSI’s and Snoline’s sales efforts consist of both direct sales and sales programs
managed by its network of distributors and third-party representatives. The sales teams have
responsibility for new business development and assisting distributors and dealers in soliciting
large projects and new customers. The distributor and dealer networks have exclusive territories
and are responsible for developing sales and providing service, including product maintenance,
repair and installation.
The typical dealer sells an array of safety supplies, road signs, crash cushions, delineation
equipment and other highway products. Customers include Departments of Transportation, municipal
transportation road agencies,
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roadway contractors, subcontractors, distributors and dealers. Due
to the project nature of the roadway construction and congestion management markets, the Company’s
customer base changes from year-to-year. Due to the limited life of projects, it is rare that a
single customer will account for a significant amount of revenues in consecutive years. The
customer base also varies depending on the type of product sold. The Company’s moveable barrier
products are typically sold to transportation agencies or the contractors or suppliers serving
those agencies. In contrast, distributors account for a majority of crash cushion sales since
those products have lower price points and tend to have shorter lead times.
GENERAL
Certain information generally applicable to both of the Company’s reportable segments is set forth
below.
The following table describes the Company’s total irrigation and infrastructure revenues for the
past three years. United States export revenue is included in the region of destination.
| For the years ended August 31, | ||||||||||||||||||||||||
| 2007 | 2007 | 2006 | 2006 | 2005 | 2005 | |||||||||||||||||||
| % of Total | % of Total | % of Total | ||||||||||||||||||||||
| ($ in millions) | Revenues | Revenues | Revenues | Revenues | Revenues | Revenues | ||||||||||||||||||
United States |
$ | 192.5 | 68 | $ | 167.5 | 74 | $ | 126.5 | 71 | |||||||||||||||
Europe, Africa, Australia, & Middle East
|
57.4 | 20 | 33.5 | 15 | 30.1 | 17 | ||||||||||||||||||
Mexico & Latin America |
19.4 | 7 | 21.1 | 9 | 16.1 | 9 | ||||||||||||||||||
Other International
|
12.6 | 5 | 3.9 | 2 | 4.6 | 3 | ||||||||||||||||||
Total Revenues |
$ | 281.9 | 100 | $ | 226.0 | 100 | $ | 177.3 | 100 | |||||||||||||||
SEASONALITY
Irrigation equipment sales are seasonal by nature. Farmers generally order systems to be delivered
and installed before the growing season. Shipments to U. S. customers usually peak during the
Company’s second and third fiscal quarters for the spring planting period. Sales of infrastructure
products are traditionally higher during prime construction seasons and lower in the winter. The
primary construction season in North America is from March until late September which corresponds
to the Company’s third and fourth fiscal quarters.
CUSTOMERS
The Company is not dependent for a material part of either segment’s business upon a single
customer or upon very few customers. The loss of any one customer would not have a material
adverse effect on the Company’s financial condition, results of operations or cash flow.
ORDER BACKLOG
As of August 31, 2007, the Company had an order backlog of $49.4 million, an increase of 84% from
$26.8 million at August 31, 2006. The irrigation segment backlog increased by $12.5 million, or
112%, over the prior year. At fiscal year end 2007, the Company had a $23.7 million order backlog
for irrigation equipment, compared to $11.2 million at fiscal year end 2006. At fiscal year end
2007, order backlog for the infrastructure segment products totaled $25.7 million, compared to
$15.6 million at fiscal year end 2006. The irrigation backlog increase reflects improved selling
conditions globally, and success in winning a large irrigation project in Egypt. The significant
increase in the infrastructure segment backlog is due primarily to increased market penetration for
BSI’s products in the U.S. and international markets. The Company expects that the existing
backlog of orders will be filled in fiscal 2008.
Generally, the Company manufactures or purchases the components for its irrigation equipment
from a sales forecast and prepares the equipment for shipment upon the receipt of a U.S. or
international dealer’s firm order. Orders from U.S. dealers are accompanied with a down payment
unless they are purchased through one of the Company’s preferred vendor financing programs. Orders
being delivered to international markets from the U.S. are generally shipped against prepayments or
receipt of an irrevocable letter of credit confirmed by a U.S. bank or other secured means, which
call for delivery within time periods negotiated with the customer. Orders delivered from the
Company’s international manufacturing operations are generally shipped according to payment and/or
credit terms customary to that country or region.
RAW MATERIALS AND COMPONENTS
Raw materials used by the Company include coil steel, angle steel, plate steel, zinc, tires,
gearboxes, concrete, rebar, fasteners, and electrical and hydraulic components (motors, switches,
cable, valves, hose and stators). The Company
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has, on occasion, faced shortages of certain such
materials. The Company believes it currently has ready access to adequate supplies of raw
materials and components.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 2007, 2006, and 2005 were $14.6 million, $3.6 million and $4.1
million, respectively. Capital Expenditures consist of two primary categories. The first category
is used primarily for updating manufacturing plant and equipment, expanding manufacturing capacity,
and further automating the Company’s facilities. The second category is for expanding its fleet of
BTMs and inventory of moveable barrier that it maintains for leasing, which are expanded as revenue
generation opportunities arise. Fiscal 2007 capital expenditures consist of $7.7 million for
machinery and equipment and $6.9 million for leased barrier and the BTM fleet. Capital
expenditures for fiscal 2008, excluding the leased barrier and BTM fleet, are expected to be
approximately $7.0 to $8.0 million and will be used primarily to improve the Company’s existing
facilities, expand its manufacturing capabilities, integrate acquired businesses and increase
productivity.
PATENTS, TRADEMARKS, AND LICENSES
Lindsay’s Zimmatic, Greenfield, GrowSmart, Quickchange Moveable Barrier, ABSORB 350, TAU, Universal
TAU-II, TAU-B_NR, X-Tension, CableGuard, TESI, SAB,ArmourGuard, PaveGuard DR46 and other trademarks
are registered or applied for in the major markets in which the Company sells its products.
Lindsay follows a policy of applying for patents on all significant patentable inventions. Although
the Company believes it is important to follow a patent protection policy, Lindsay’s business is
not dependent, to any material extent, on any single patent or group of patents.
EMPLOYEES
The number of persons employed by the Company and its wholly-owned subsidiaries at fiscal year ends
2007, 2006, and 2005 were 899, 763, and 645, respectively. None of the Company’s U.S. employees
are represented by a union. Certain of the Company’s non-U.S. employees are unionized due to local
governmental regulations.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
Like other manufacturing concerns, the Company is subject to numerous laws and regulations that
govern environmental and occupational health and safety matters. The Company believes that its
operations are substantially in compliance with all such applicable laws and regulations and that
it holds all necessary permits in each jurisdiction in which its facilities are located.
Environmental and health and safety regulations are subject to change and interpretation. In some
cases, compliance with applicable regulations or standards may require the Company to make
additional capital and operational expenditures. The Company, however, is not currently aware of
any material capital expenditures required to comply with such regulations, other than as described
below and does not believe that these matters, individually or in the aggregate, are likely to have
a material adverse effect on the Company’s consolidated financial condition, results of operations,
or cash flows.
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 EPA’s 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. In 2003, the
Company and the EPA conducted a second five-year review of the status of the remediation of the
contamination of the site. As a result of this review, the EPA issued a letter placing the Company
on notice that additional remediation actions were required. The Company and its environmental
consultants have completed and submitted a supplemental remedial action work plan that, when
implemented, will allow the Company and the EPA to better identify the boundaries of the
contaminated groundwater and will allow the Company and the EPA to more effectively assure that the
contaminated groundwater is being contained by current and planned wells that pump and aerate it.
During the third quarter of fiscal 2007, the Company accrued for additional expected costs of $0.5
million to address the additional remediation action required by the EPA and to remain in
compliance with the EPA’s second five-year review. Although the Company has been able to
reasonably estimate the cost of completing the remediation actions defined in the supplemental
remedial action work plan, it is at least reasonably possible that the cost of completing the
remediation actions may be revised in the near term. Related balance sheet liabilities recognized
were approximately $0.7 million and $0.2 million at August 31, 2007 and 2006, respectively.
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SUBSIDIARIES
The Company has eight wholly-owned operating subsidiaries: Lindsay Manufacturing, LLC, Lindsay
Transportation, Inc., Lindsay Europe SAS, Irrigation Specialists, Inc., Lindsay America do Sul
Ltda., Lindsay Manufacturing Africa (PTY) Ltd., Barrier Systems, Inc., and Snoline S.P.A.
Lindsay Manufacturing, LLC was formed in 1955 located in Lindsay, Nebraska, and is a
manufacturer and marketer of irrigation equipment for the North American market and international
export market. The Lindsay, Nebraska location also manufactures products for the infrastructure
segment.
Lindsay Transportation, Inc. was formed in 1975. It owns approximately 105 trailers and,
through the leasing of tractors and arranging with independent drivers, supplies the ground
transportation in the United States and Canada for the Company’s products and the bulk of incoming
raw materials, and hauls other products on backhauls.
Lindsay Europe SAS, located in France, was acquired in March 2001, and is a manufacturer and
marketer of irrigation equipment for the European market.
Irrigation Specialists, Inc., a retail irrigation dealership in Washington State, was acquired
in March 2002.
Lindsay America do Sul Ltda., located in Brazil, was acquired in April 2002 and is a
manufacturer and marketer of irrigation equipment for the South American market.
Lindsay Manufacturing Africa (PTY) Ltd, located in South Africa, was organized in September
2002 and is a manufacturer and marketer of irrigation equipment for the southern African market.
Barrier Systems, Inc. is located in Rio Vista, California and manufactures its moveable
barrier products along with other specialty barriers and crash cushions. BSI has been in business
since 1984 and was acquired by Lindsay in June 2006.
Snoline, S.P.A. is located in Milan, Italy and manufactures and markets road safety equipment
and preformed reflective tape for use on roadways. Snoline has been in business since 1955 and was
acquired by Lindsay in December 2006.
The Company also has ten non-operational subsidiaries.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
The Company’s primary production facility is located in the United States, but it also has smaller
production facilities in France, Brazil, South Africa and Italy. Most financial transactions are
in U.S. dollars, although sales from the Company’s foreign subsidiaries, which are approximately
15% of total consolidated Company sales in fiscal 2007, are conducted in local currencies.
A portion of the Company’s cash flow is derived from sales and purchases denominated in
foreign currencies. To reduce the uncertainty of foreign currency exchange rate movements on these
sales and purchase commitments, the Company monitors its risk of foreign currency fluctuations. In
conjunction with the acquisition of Snoline in December 2006, the Company entered into a cross
currency swap to hedge both foreign currency and interest rate risk related to the Euro-denominated
long term note. For information on international revenues see the section entitled “Results of
Operations” included in Item 7 of Part II of this report.
INFORMATION AVAILABLE ON LINDSAY WEBSITE
The Company makes available free of charge on its website, through a link to the Securities
Exchange Commission (SEC) website, its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, Proxy Statements, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon
as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. The Company’s internet address is http://www.lindsay.com; however, information posted on its
website is not part of this report on Form 10-K. The following documents are also posted on the
Company’s website:
Audit Committee Charter
Compensation Committee Charter
Corporate Governance and Nominating Committee Charter
Corporate Governance Principles
Code of Ethical Conduct
Code of Business Conduct and Ethics
Employee Complaint Procedures for Accounting and Auditing Matters
Special Toll-Free Hotline Number, E-mail Address, and Mail Address for Making Confidential or Anonymous Complaints
Compensation Committee Charter
Corporate Governance and Nominating Committee Charter
Corporate Governance Principles
Code of Ethical Conduct
Code of Business Conduct and Ethics
Employee Complaint Procedures for Accounting and Auditing Matters
Special Toll-Free Hotline Number, E-mail Address, and Mail Address for Making Confidential or Anonymous Complaints
These documents are also available in print to any shareholder upon request, by sending a letter
addressed to the Secretary of the Company.
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New York Stock Exchange Certification
On February 28, 2007, the Company’s Chief Executive Officer certified to the New York Stock
Exchange that he was not aware of any violation by the Company of the New York Stock Exchange
corporate governance listing standards as of that date. This certification made by the CEO is an
annual certification required by the New York Stock Exchange.
ITEM 1A — Risk Factors
The Company’s domestic and international irrigation equipment sales are highly dependent on the
agricultural industry. The Company’s domestic and international irrigation equipment sales are
highly dependent upon the need for irrigated agricultural crop production which, in turn, depends
upon many factors, including total worldwide crop production, the profitability of agricultural
crop production, agricultural commodity prices, aggregate net cash farm income, governmental
policies regarding the agricultural sector, water and energy conservation policies, the regularity
of rainfall, and foreign currency exchange rates. As farm income decreases, farmers may postpone
capital expenditures or seek less expensive irrigation equipment.
The Company’s infrastructure revenues are highly dependent on government funding of transportation
projects. The demand for the Company’s infrastructure products depends to a large degree on the
amount of government spending authorized to improve road and highway systems. For example, the
U.S. government funds highway and road improvements through the Federal Highway Program and
matching funding from states may be required as a condition of federal funding. If highway funding
is reduced or delayed, it may reduce demand for the Company’s infrastructure products.
The Company’s profitability may be negatively affected by increases in the cost of raw materials,
as well as in the cost of energy. Certain of the Company’s input costs, such as the cost of steel,
zinc, and other raw materials, may increase rapidly from time to time. Because there is a level of
price competition in the market for irrigation equipment and certain infrastructure products, the
Company may not be able to recoup increases in these costs through price increases for its
products, which would result in reduced profitability. Whether increased operating costs can be
passed through to the customer depends on a number of factors, including farm income and the price
of competing products. The cost of raw materials can be volatile and is dependent on a number of
factors, including availability, demand, and freight costs.
The Company’s international irrigation equipment sales are highly dependent on foreign market
conditions. Approximately 25% of the Company’s revenues are generated from international
irrigation sales. Specifically, international revenues are primarily generated in Australia,
Canada, Central and Western Europe, Mexico, the Middle East, South Africa, China, and Central and
South America. In addition to risks relating to general economic and political stability in these
countries, the Company’s international sales are affected by international trade barriers,
including governmental policies on tariffs, taxes, and foreign currency exchange rates.
International sales are also more susceptible to disruption from political instability and similar
incidents.
Compliance with applicable environmental regulations or standards may require additional capital
and operational expenditures. Like other manufacturing concerns, the Company is subject to
numerous laws and regulations which govern environmental and occupational health and safety
matters. The Company believes that its operations are substantially in compliance with all such
applicable laws and regulations and that it holds all necessary permits in each jurisdiction in
which its facilities are located. Environmental and health and safety regulations are subject to
change and interpretation. Compliance with applicable regulations or standards may require the
Company to make additional capital and operational expenditures. The Company, however, is not
currently aware of any material capital expenditures required to comply with such regulations,
other than as described Note O to the Company’s consolidated financial statements and does not
believe that these matters, individually or in the aggregate, are likely to have a material adverse
effect on the Company’s consolidated financial condition, results of operations, or cash flows.
ITEM
1B — Unresolved Staff Comments
None
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ITEM 2 — Properties
The Company’s principal U.S. manufacturing plant is a 300,000 square foot facility consisting of
eight separate buildings located on 43 acres in Lindsay, Nebraska where it manufactures irrigation
and infrastructure products for North American markets as well as certain export markets. The
Company owns this facility as well as an additional 79 acres of undeveloped land adjacent to its
primary property which it uses for research, development and testing purposes.
The Company leases approximately 16,000 square feet of office space in Omaha, Nebraska where
it maintains its executive offices as well as its domestic and international sales, marketing
offices and engineering laboratory space. The lease expires in 2008.
Lindsay Europe SAS owns a manufacturing plant located in La Chapelle, France where it
manufactures irrigation products for European markets. This facility consists of three separate
buildings containing approximately 72,000 square feet of usable space situated on approximately 3.5
acres.
Lindsay America do Sol, Ltda. leases a manufacturing plant located in Mogi-Mirim, Sao Paulo,
Brazil where it manufactures irrigation products for South American markets. This facility
consists of two buildings containing approximately 67,000 square feet of usable space. The lease
on this facility expires in 2008 and may be canceled by Lindsay America do Sol, Ltda. prior to that
time upon one month notice.
Lindsay Manufacturing Africa (PTY) Ltd. currently leases a manufacturing facility in Capetown,
South Africa where it manufactures irrigation products for African markets. The facility contains
a total of 61,000 square feet of usable space. The lease on the facility expires in 2012 and may
be canceled by Lindsay Manufacturing Africa (PTY) Ltd. prior to that time upon six months notice.
BSI owns a 30,000 square foot commercial building located on seven acres in Rio Vista,
California where it manufactures its infrastructure products. BSI leases additional office space
in Rio Vista, California where it maintains its executive offices. The lease on this facility
expires in 2008.
Snoline owns a 45,000 square foot commercial building located in Milan, Italy where it
maintains its executive offices and manufactures its infrastructure products.
Irrigation Specialists Inc. conducts its retail operations in leased buildings located in
Pasco, Grandview and Othello, Washington. The buildings range in size from 4,000 square feet to
22,225 square feet. The leases on these retail stores expire in 2012 for Pasco, and 2014 for
Grandview and Othello.
The Company also leases warehouse facilities in Bejing and Dalian, China for its irrigation
business. The Bejing lease expires in 2008 and may be canceled prior to that time upon a
three-month notice. The Dalian lease expires in 2008 and will be extended for one year
automatically and continuously, unless one-month written notice is given prior to the contract
expiration.
The Company believes that each of its current facilities is adequate to support normal and
planned operations and intends to renew or commence additional leasing arrangements as existing
arrangements expire.
ITEM 3 — 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. No such current proceedings, individually or in the aggregate, are expected to have a
material effect on the business or financial condition of the Company.
ITEM 4 — Submission of Matters to a Vote of Security Holders
No matters were submitted to the vote of security holders during the fourth quarter of fiscal 2007.
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EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The executive officers and significant employees of the Company, their ages, positions and past
five years experience are set forth below. Mr. Parod and Mr. Denman are the only executive
officers of the Company with employment agreements. Both Mr. Parod’s and Mr. Denman’s agreements
extend through April 2009. All other executive officers of the Company are appointed by the Board
of Directors annually. There are no family relationships between any director, executive officer,
or person nominated to become a director or executive officer. There are no arrangements or
understandings between any executive officer and any other person pursuant to which they were
selected as an officer.
| Age | Position | |||
Richard W. Parod |
54 | President and Chief Executive Officer | ||
Owen S. Denman |
59 | President and CEO, Barrier Systems, Inc. | ||
David B. Downing |
52 | Senior Vice President, Chief Financial Officer, Treasurer and Secretary | ||
Samir A. Haidar |
56 | Vice President – International Irrigation | ||
Randy S. Hester* |
44 | Vice President – Human Resources | ||
Tim J. Paymal |
33 | Corporate Controller | ||
Mark A. Roth* |
33 | Vice President – Corporate Development | ||
Barry A. Ruffalo |
37 | President – North American Irrigation | ||
Douglas A. Taylor* |
44 | Vice President – Chief Information Officer |
| * The employee is not an executive officer of the Registrant. | ||
Mr. Richard W. Parod is President and Chief Executive Officer (“CEO”) of the Company, and has
held such positions since April 2000. Prior to that time and since 1997, Mr. Parod was Vice
President and General Manager of the Irrigation Division of The Toro Company. Mr. Parod was
employed by James Hardie Irrigation from 1993 through 1997, becoming President in 1994. Mr. Parod
has been a Director since April 2000, when he began his employment with the Company.
Mr. Owen S. Denman, is President and CEO of Barrier Systems, Inc., a wholly-owned subsidiary
of Lindsay Corporation, and has held such position since 1999. Prior to that time and since 1978,
Mr. Denman was an executive officer in several positions with Quixote Corporation and several
subsidiaries (Energy Absorption Systems, Safe Hit Corporation, Spin Cast Plastics, Inc, and
others).
Mr. David B. Downing is Senior Vice President, Chief Financial Officer (“CFO”), Treasurer and
Secretary. He was promoted to Senior Vice President from Vice President in September 2006. He has
held the CFO position since August 2004 when he joined the Company and was appointed Treasurer and
Secretary in September 2005. Prior to August 2004, Mr. Downing was President of FPM L.L.C., a
heat-treating company in Elk Grove Village, Illinois, after joining the company in January 2001 as
Vice President and CFO. From July 1998 to December 2000, Mr. Downing was Vice President and
Controller for Thermo-King, a unit of Ingersoll-Rand Company Limited, which manufactures transport
refrigeration equipment.
Mr. Samir A. Haidar is Vice President – International of the Company, and has held such
position since April 2006. Prior to that time and since 1987, Mr. Haidar has held several positions
with the Company, most recently as Director of Business Development.
Mr. Randall S. Hester is Vice President – Human Resources of the Company and has held such
position since April 2006. Prior to that time and since 1999, Mr. Hester was most recently a
Director of Human Resources for Level 3 Communications, L.L.C.
Mr. Tim J. Paymal is Corporate Controller of the Company, and has held such position since
January 2005, when he joined the Company. Prior to that time and since 1996, Mr. Paymal was most
recently an Audit Senior Manager with Deloitte & Touche LLP.
Mr. Mark A. Roth is Vice President of Corporate Development of the Company, and has held such
position since March 2007. Mr. Roth joined Lindsay in 2004, as Director of Corporate Development.
Prior to that time and since March 2001, Mr. Roth was an Associate with McCarthy Group, Inc., a
Midwest-based investment bank and private equity fund. From January 1998 through February of 2001,
Mr. Roth was a Senior Credit Analyst at US Bancorp.
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Mr. Barry A. Ruffalo is President of North America Irrigation of the Company, and has held
such position since March of 2007, when he joined the Company. Mr. Ruffalo was most recently a
Director of North American Operations for Joy Global Inc., since February 2007. Prior to that time
and since 1996, Mr. Ruffalo held various positions of increasing responsibility with Case New
Holland; the last 5 years were spent in Operations Management within the Tractor and the Hay and
Forage divisions for both the Case IH and New Holland brands.
Mr. Douglas A. Taylor is Vice President and Chief Information Officer (“CIO”) of the Company.
He joined the Company in May 2005 as the Chief Information Officer. Mr. Taylor was recently
promoted to Vice President and CIO in October 2006. From 2004 through early 2005, Mr. Taylor was a
Technology Consultant. Prior to that time and since 1999, Mr. Taylor held several positions with
ConAgra Foods, most recently as the Vice President of Process and Systems Integration, Vice
President of Financial Systems, and Director of Information Systems.
PART II
ITEM 5 — Market For the Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities.
Lindsay Common Stock trades on the New York Stock Exchange, Inc. (NYSE) under the ticker symbol
“LNN”. As of September 30, 2007, there were approximately 146 shareholders of record.
The following table sets forth for the periods indicated the range of the high and low stock price
and dividends paid per share:
| Fiscal 2007 Stock Price | Fiscal 2006 Stock Price | |||||||||||||||||||||||
| High | Low | Dividends | High | Low | Dividends | |||||||||||||||||||
First Quarter |
$ | 36.62 | $ | 28.01 | $ | 0.065 | $ | 25.88 | $ | 18.31 | $ | 0.060 | ||||||||||||
Second Quarter |
37.77 | 28.55 | 0.065 | 26.10 | 18.67 | 0.060 | ||||||||||||||||||
Third Quarter |
35.65 | 29.55 | 0.065 | 28.01 | 21.59 | 0.060 | ||||||||||||||||||
Fourth Quarter |
50.65 | 32.83 | 0.070 | 28.97 | 20.27 | 0.065 | ||||||||||||||||||
Year |
$ | 50.65 | $ | 28.01 | $ | 0.265 | $ | 28.97 | $ | 18.31 | $ | 0.245 | ||||||||||||
Purchases of equity securities by the issuer and affiliated purchases — The Company made no
repurchases of its common stock under the Company’s stock repurchase plan during the fiscal year
ended August 31, 2007; therefore, tabular disclosure is not presented. During the second and third
quarters of fiscal 2005, the Company repurchased a total of 324,379 shares. From time to time, the
Company’s Board of Directors has authorized management to repurchase shares of the Company’s common
stock. Under this share repurchase plan, management has existing authorization to purchase,
without further announcement, up to 881,139 shares of the Company’s common stock in the open market
or otherwise.
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ITEM 6
— Selected Financial Data
| For the years ended August 31, | ||||||||||||||||||||
| (in millions, except per share amounts) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Operating revenues (1) |
$ | 281.9 | $ | 226.0 | $ | 177.3 | $ | 196.7 | $ | 163.4 | ||||||||||
Gross profit |
69.7 | 48.2 | 33.6 | 39.5 | 39.7 | |||||||||||||||
Selling, general and administrative, and
engineering and research
expenses |
46.0 | 32.7 | 28.1 | 27.5 | 23.4 | |||||||||||||||
Operating income |
23.8 | 15.5 | 5.5 | 12.0 | 16.4 | |||||||||||||||
Net earnings |
15.6 | 11.7 | 4.8 | 9.3 | 12.9 | |||||||||||||||
Net diluted earnings per share
|
1.31 | 1.00 | 0.41 | 0.78 | 1.08 | |||||||||||||||
Cash dividends per share |
0.265 | 0.245 | 0.225 | 0.205 | 0.155 | |||||||||||||||
Property, plant and equipment, net |
44.3 | 27.0 | 17.3 | 16.4 | 13.9 | |||||||||||||||
Total assets |
242.2 | 192.2 | 134.8 | 139.0 | 131.2 | |||||||||||||||
Long-term obligations |
31.8 | 25.7 | — | — | — | |||||||||||||||
Return on sales |
5.5 | % | 5.2 | % | 2.7 | % | 4.7 | % | 7.9 | % | ||||||||||
Return on beginning assets (2) |
8.1 | % | 8.7 | % | 3.5 | % | 7.1 | % | 11.2 | % | ||||||||||
Diluted weighted average shares |
11,964 | 11,712 | 11,801 | 11,947 | 11,896 | |||||||||||||||
| (1) | Fiscal 2007 includes the acquisition of Snoline S.P.A. in the 2nd quarter of fiscal 2007. Fiscal 2006 includes the acquisition of Barrier Systems, Inc. in the fourth quarter of fiscal 2006. | |
| (2) | Defined as net earnings divided by beginning of period total assets. |
ITEM 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Concerning Forward-Looking Statements - This Annual Report on Form 10-K 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 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”, and similar expressions generally identify forward-looking statements. The entire
section entitled Market Conditions and Fiscal 2008 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 contained in Item 1. Readers should not
place undue reliance on any forward-looking statement and should recognize that the statements are
predictions of future results which may not occur as anticipated. Actual results 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
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.
Overview- The Company manufactures and markets Zimmatic, Greenfield, Stettyn, and Perrot center
pivot, lateral move, and hose reel irrigation systems. The Company also produces irrigation
controls, chemical injection systems and remote monitoring and control systems which it sells under
its GrowSmart brand. These products are used by farmers to increase or stabilize crop production
while conserving water, energy, and labor. The Company sells its irrigation products primarily to
a world-wide independent dealer network, who resell to their customer, the farmer. The Company’s
principal irrigation manufacturing facilities are located in Lindsay, Nebraska, USA. The Company
also has irrigation production facilities in France, South Africa, and Brazil. The Company also
manufactures and markets various infrastructure products, including movable barriers for traffic
lane management, crash cushions, preformed reflective pavement tapes and other road safety devices,
through its wholly-owned subsidiaries BSI (located in Rio Vista, California) and Snoline (located
in Milan, Italy). In addition, the Company’s infrastructure segment produces large diameter steel
tubing, and provides outsourced manufacturing and production services for other companies.
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Key factors which impact demand for the Company’s irrigation products include agricultural
commodity prices, crop yields, weather, environmental regulations, and interest rates. Higher crop
prices, improved U.S. Department of Agriculture (“USDA”) projected Net Farm income, and improved
farmer sentiment created favorable market conditions for domestic irrigation equipment sales during
fiscal 2007. International sales were primarily influenced by the same factors affecting the
domestic market. A key factor which impacts demand for the Company’s infrastructure products is the
amount of spending authorized by governments to improve road and highway systems. Much of the U.S.
highway infrastructure market is driven by government spending programs. For example, the U.S.
government funds highway and road improvements through the Federal Highway Program. This program
provides funding to improve the nation’s roadway system. Matching funding from the various states
may be required as a condition of federal funding.
The Company will continue to focus on opportunities for growth both organically and through
attractive acquisitions. On December 27, 2006, the Company completed the acquisition of Snoline.
The acquisition reflects the execution of the Company’s strategy to grow its infrastructure
business with additional proprietary infrastructure products. The Company sees opportunities to
create shareholder value through manufacturing synergies, supporting Snoline’s expansion in Europe
and in international expansion where the Company can provide support through its local entities.
With Snoline added to the Company’s previously-existing infrastructure business, the Company has
significantly enhanced its position in the road safety markets.
Over the past seven years, the Company has added the operations in Europe, South America, and
South Africa. The addition of those operations has allowed the Company to strengthen its market
position in those regions, yet they remain relatively small in scale. None of the international
operations has achieved the operating leverage of the United States based operations.
Recent Accounting Pronouncements - On July 13, 2006, the FASB issued Interpretation 48, Accounting
for Uncertainty in Income Taxes-an Interpretation of FASB Statement No 109 (“FIN 48”). FIN 48
provides a consistent recognition threshold and measurement attribute, as well as clear criteria
for recognizing, derecognizing and measuring uncertain tax positions for financial statement
purposes. The Interpretation also requires expanded disclosure with respect to uncertain income
tax positions. FIN 48 will be effective for the Company beginning in the first quarter of fiscal
year 2008. Based on management’s evaluation as of August 31, 2007, the Company does not believe
that FIN 48 will have a material impact on its consolidated financial statements.
In September 2006, the FASB issued 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.
Management is currently assessing the effect of this pronouncement on the Company’s consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans, (“SFAS No. 158”). This Statement requires recognition of
the funded status of a single-employer defined benefit postretirement plan as an asset or liability
in its statement of financial position. Funded status is determined as the difference between the
fair value of plan assets and the benefit obligation. Changes in that funded status should be
recognized in other comprehensive income. The Company’s adoption of SFAS No. 158 as of August 31,
2007 did not 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. Management is currently assessing the effect of this pronouncement on the
Company’s consolidated financial statements.
On September 13, 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 108 (“SAB 108”), which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a current
year misstatement. SAB 108 was adopted by the Company as of August 31, 2007. Adopting this
pronouncement had no impact on the Company’s consolidated financial statements.
On September 7, 2006, the Task Force reached a 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.
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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.
On September 7, 2006, the Task Force reached a consensus on EITF Issue No. 06-5, Accounting
for Purchases of Life Insurance – Determining the Amount That Could Be Realized in Accordance with
FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance (“EITF 06-5”). The
scope of EITF 06-5 consists of six separate issues relating to accounting for life insurance
policies purchased by entities protecting against the loss of “key persons.” The six issues are
clarifications of previously issued guidance in FASB Technical Bulletin No. 85-4. EITF 06-5 is
effective for the Company beginning in the first quarter of fiscal year 2008. The Company does not
expect it to have a material impact on the Company’s consolidated financial statements.
Critical Accounting Policies
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 2007.
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 BSI 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, Snoline 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 2007 Compared to Fiscal 2006” and the “Fiscal 2006 Compared to Fiscal 2005”
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.
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Fiscal 2007 Compared to Fiscal 2006
The following table provides highlights for fiscal 2007 compared with fiscal 2006:
| For the Years Ended | ||||||||||||
| 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 | % | ||||||||
Selling, general and administrative, and engineering and
research expenses |
$ | 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, 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) |
||||||||||||
Goodwill |
1,495 | 1,423 | 5.1 | |||||||||
Operating revenues |
$ | 216,480 | $ | 193,673 | 11.8 | |||||||
Operating income (1) |
$ | 33,460 | $ | 25,513 | 31.1 | |||||||
Operating margin |
15.5 | % | 13.2 | % | ||||||||
Infrastructure Segment (See Note R) |
||||||||||||
Goodwill |
15,350 | 9,706 | 58.1 | |||||||||
Operating revenues |
$ | 65,377 | $ | 32,328 | 102.2 | |||||||
Operating income (1) |
$ | 14,196 | $ | 7,055 | 101.2 | |||||||
Operating margin |
21.7 | % | 21.8 | % | ||||||||
| (1) | Excludes unallocated general & administrative expenses. Beginning in 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 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 last year. In addition, soybean prices were up more than 80%
and wheat was up more than 110% as compared to the prior year. Net Farm income is 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 are 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 continues to
see strong domestic and international interest in BSI’s movable barrier and crash cushion product
lines. With the addition of Snoline, the Company has expanded its
presence in crash cushions and other road safety products in Europe. The Company expects to see continued
growth from these businesses.
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Gross Margin
Gross margin was 24.7% for fiscal 2007 compared to 21.3% for the prior fiscal year. 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.
Selling, General and Administrative, and Engineering and Research Expenses
The Company’s operating expenses for fiscal 2007 increased $13.2 million or 40% over the prior
year. 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 Income, Other Income, and Taxes
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 the prior year.
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.
Other income of $0.6 million for fiscal 2007 increased $0.1 million compared to fiscal 2006.
The Company’s effective tax rate of 35.3% for fiscal 2007 is lower than the normal effective
tax rate primarily due to federal tax-exempt interest income, the Section 199 domestic production
activities deduction, the qualified export activities deduction, and other tax credits These items
were partially offset by state and local taxes, non-deductible officer’s compensation and other
immaterial items.
Net Earnings
Net earnings were $15.6 million, or $1.31 per diluted share, for fiscal 2007, compared with $11.7
million, or $1.00 per diluted share, for fiscal 2006.
17
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Fiscal 2006 Compared to Fiscal 2005
The following table provides highlights for fiscal 2006 compared with fiscal 2005:
| For the Years Ended | ||||||||||||
| August 31, | % Increase | |||||||||||
| ($ in thousands) | 2006 | 2005 | (Decrease) | |||||||||
Consolidated |
||||||||||||
Operating revenues |
$ | 226,001 | $ | 177,271 | 27.5 | % | ||||||
Cost of operating revenues |
$ | 177,760 | $ | 143,700 | 23.7 | |||||||
Gross profit |
$ | 48,241 | $ | 33,571 | 43.7 | |||||||
Gross margin |
21.3 | % | 18.9 | % | ||||||||
Selling, general and administrative and
engineering and research expenses |
$ | 32,739 | $ | 28,073 | 16.6 | |||||||
Operating income |
$ | 15,502 | $ | 5,498 | 182.0 | |||||||
Operating margin |
6.9 | % | 3.1 | % | ||||||||
Interest expense |
$ | (697 | ) | $ | (159 | ) | 338.4 | |||||
Interest income |
$ | 2,101 | $ | 1,338 | 57.0 | |||||||
Other income, net |
$ | 503 | $ | 273 | 84.2 | |||||||
Income tax provision |
$ | 5,709 | $ | 2,112 | 170.3 | |||||||
Effective income tax rate |
32.8 | % | 30.4 | % | ||||||||
Net earnings |
$ | 11,700 | $ | 4,838 | 141.8 | |||||||
Irrigation Equipment Segment (See Note R) |
||||||||||||
Goodwill |
1,423 | 1,364 | 4.3 | |||||||||
Operating revenues |
$ | 193,673 | $ | 156,313 | 23.9 | |||||||
Operating income (2) |
$ | 25,513 | $ | 17,280 | 47.6 | |||||||
Operating margin |
13.2 | % | 11.1 | % | ||||||||
Infrastructure Segment (See Note R) |
||||||||||||
Goodwill |
9,706 | — | 100.0 | |||||||||
Operating revenues |
$ | 32,328 | $ | 20,958 | 54.3 | |||||||
Operating income (2) |
$ | 7,055 | $ | 2,595 | 171.9 | |||||||
Operating margin |
21.8 | % | 12.4 | % | ||||||||
| (2) | Excludes unallocated general & administrative expenses. Beginning in 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 2006 increased by $48.7 million or 28% from fiscal 2005. This
increase was attributable to a 24% increase in irrigation equipment revenues and a 54% increase in
infrastructure product revenues.
Domestic irrigation revenues increased $29.7 million or 28% over fiscal 2005. The increase in
revenues was primarily a result of an increase in the volume of units shipped during the year. In
addition, price increases implemented during the year increased revenues. Demand was generally
affected by improved domestic farmer sentiment. Increased ethanol production continued to support
the increase in corn prices experienced during fiscal 2006. USDA estimates placed corn usage for
ethanol at approximately 18% of total corn usage for the 2006-2007 crop year and 34% higher than in
the previous year. There were more than 100 ethanol biorefineries operating in the U.S., and more
than 50 either under construction or expanding. Dry conditions in the western United States and
stabilized crop prices created a stronger market for irrigation equipment.
International irrigation revenues increased $7.7 million or 15% over fiscal 2005. Most of the
international revenue increase was realized in Latin America (excluding Brazil), China, Australia,
New Zealand, and the Middle East. The agricultural sector in Brazil was depressed, in spite of the
Brazilian government’s announced support plans which include debt extensions, lower interest rates
and higher debt limits. During fiscal 2006, the Company experienced revenue growth in China.
While the Company has been selling in China for a few years, in fiscal 2006, the
18
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Company realized
the benefits of a greater appreciation of its technology and government funding in support of
efficient irrigation technology.
Infrastructure products segment revenues increased by $11.3 million or 54% compared to fiscal
2005. On June 1, 2006, the Company completed the acquisition of BSI a manufacturer of movable
barrier systems and road safety products. This acquisition added $10.3 million of sales during the
fourth quarter of fiscal 2006. The acquisition reflects the execution of the Company’s strategy to
grow its infrastructure business with more proprietary
infrastructure products. BSI has been a customer of the Company’s infrastructure products
segment for many years, and the Company saw exciting opportunities to create shareholder value
through manufacturing synergies, supporting BSI’s expansion in the United States and in
international expansion where the Company can provide support through its local entities. With the
addition of BSI, the Company continued to build its infrastructure revenues through proprietary
products, commercial tubing, and selected contract manufacturing.
Gross Margin
Gross margin was 21.3% for fiscal 2006 compared to 18.9% for fiscal 2005. The improved margins
resulted from the inclusion of higher margin BSI products, stronger effective pricing on irrigation
equipment, and higher factory volume as compared to the prior year. During the fiscal year, the
Company experienced rapidly rising costs in zinc and copper, which are approximately 11% and 4%
respectively, of the cost of a standard irrigation pivot. At the same time, steel costs remained
relatively stable. The Company believed that the stabilization of major input costs, such as
steel, zinc and copper, would create an opportunity for further strengthening of irrigation and
infrastructure gross margins. The Company proactively responded to the rising costs by
passing-through multiple price increases on its products. The environment for passing-through and
retaining those price increases was improved over fiscal 2005 due to overall higher product demand.
The Company expected to be able to maintain or further increase prices allowing it to realize
margin improvements as material costs stabilize. In addition, the Company realized benefits from
manufacturing and scheduling improvements implemented at the Lindsay, Nebraska facility. The
Company experienced improvements resulting from the higher volume and from the lean manufacturing
principles implemented.
Selling, General and Administrative, and Engineering and Research Expenses
The Company’s operating expenses for fiscal 2006 increased $4.7 million or 17% over fiscal 2005.
The increase in operating expenses for the year was primarily attributable to the inclusion of
share based compensation expense of $1.7 million and the inclusion of $1.8 million of operating
expenses relating to BSI in the fourth quarter.
Interest Income, Other Income, and Taxes
Net interest income during fiscal year 2006 of $1.4 million increased 19% from the $1.2 million
earned during fiscal 2005. The increase was primarily the result of higher interest rates during
2006 when compared to the average interest rate earned in the prior year. Increased interest
income in 2006 was partially offset by the interest expense incurred in 2006 on a $30.0 million
term note used for the acquisition of BSI in June of 2006.
Other income, net, during the fiscal year 2006, increased $0.2 million when compared to the
same period in fiscal year 2005. This increase primarily resulted from a foreign government grant
to the Company’s South African subsidiary and higher other miscellaneous income in fiscal year 2006
compared to the same prior year period. These gains were partially offset by a loss of other
income realized from a 39% minority ownership in a Canadian dealership due to the sale of this
interest on September 1, 2005.
The Company’s effective tax rate for the income tax provision was 32.8% for fiscal year 2006
compared to 30.4% in the prior year. The increase was primarily due to a higher U.S. statutory
rate due to the increase in taxable income, the continued phase-out of the qualified export
activities deduction, higher state and local tax rates due to the increase in the number of state
filings resulting from the BSI acquisition, and other immaterial items. These increases were
partially offset by an increase in federal tax-exempt interest income, the domestic production
activities deduction and a non-recurring tax benefit.
This non-recurring tax benefit of approximately $0.4 million included a credit adjustment of
$0.1 million of prior estimated federal and state tax liabilities, a credit adjustment of $0.4
million of prior estimated deferred tax assets and liabilities due to the Company’s recently
completed IRS Examination offset by less than $0.1 million of tax expense resulting from the
Company’s recently completed state examination. This benefit reduced the Company’s effective tax
rate by 2.5 points for the fiscal year ended August 31, 2006.
Overall, the Company benefits from a U.S. effective tax rate which is lower than the combined
federal and state statutory rates primarily due to the domestic production activities deduction and
the federal tax-exempt interest income on its investment portfolio.
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Net Earnings
Net earnings were $11.7 million, or $1.00 per diluted share, for fiscal 2006, compared with $4.8
million, or $0.41 per diluted share, for fiscal 2005. The adoption of SFAS No. 123(R) had a
negative net of tax effect on earnings of $1.1 million or $0.09 per diluted share.
20
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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 two primary credit arrangements.
The Company’s cash and cash equivalents and marketable securities totaled $48.6 million at
August 31, 2007 compared with $59.3 million at August 31, 2006. The Company’s marketable
securities consist primarily of tax-exempt investment grade municipal bonds.
The Company’s wholly-owned European subsidiary, Lindsay Europe, has an unsecured revolving
line of credit with two commercial banks under which it could borrow up to 2.3 million Euros, which
equates to approximately USD $3.1 million as of August 31, 2007, for working capital purposes. The
outstanding balance on this line of credit was $0.7 million and $0 as of August 31, 2007 and 2006,
respectively. Under the terms of the line of credit, borrowings, if any, bear interest at a
variable rate in effect from time to time designated by the commercial banks as Euro LIBOR plus 200
basis points (all inclusive, 5.5% at August 31, 2007).
The Company entered into an unsecured $30 million Term Note and Credit Agreement, each
effective as of June 1, 2006, with Wells Fargo Bank, N.A. (collectively, the “BSI Term Note”) to
partially finance the acquisition of BSI. Borrowings under the BSI Term Note bear interest at a
rate equal to LIBOR plus 50 basis points. However, this variable interest rate has been converted
to a fixed rate of 6.05% through an interest rate swap agreement with the lender. Principal is
repaid quarterly in equal payments of $1.1 million over a seven-year period commencing September,
2006.
On December 27, 2006, the Company entered into an unsecured $13.2 million Term Note and Credit
Agreement (the “Snoline Term Note”) with Wells Fargo Bank, N.A. in conjunction with the acquisition
of Snoline, S.P.A. and the holding company of Snoline, Flagship Holding Ltd. Borrowings under the
Snoline 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 4.7% through a cross currency swap
transaction entered into with Wells Fargo Bank, N.A. This cross currency swap agreement also fixes
the conversion rate of Euros to U.S. dollars for the Snoline Term Note at 1.3195. Principal is
repaid quarterly in equal payments of $0.5 million over a seven-year period commencing March 27,
2007. All borrowings under the Snoline Term Note are secured by the acquired shares of Flagship
and Snoline and are guaranteed by the Company.
The BSI Term Note and the Snoline Term Note (collectively, the “Notes”) both contain the same
covenants, including certain covenants relating to Lindsay’s financial condition. Upon the
occurrence of any event of default of these covenants specified in the Notes, including a change in
control of the Company (as defined in the Notes), all amounts due thereunder may be declared to be
immediately due and payable. At August 31, 2007, the Company was in violation of a loan covenant
not to exceed $7.0 million on capital expenditures in any fiscal year. During fiscal year 2007,
the Company exceeded this amount by incurring $14.6 million of capital expenditures. The investment
over the covenant amount was primarily for additions to the lease fleet of barrier and BTMs which
generate revenue in future periods. The Company obtained a waiver of this default from Wells Fargo
dated October 8, 2007 and does not feel that this covenant violation in any way inhibits the
Company from being able to timely service the debt payments for either the BSI Term Note or the
Snoline Term Note. The Company has subsequently obtained a permanent modification for this
covenant from Wells Fargo.
The Company believes its current cash resources (including cash and marketable securities
balances), projected operating cash flow, and 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 $10.1 million during the fiscal year ended August
31, 2007, compared to $14.4 million provided by operations during the same prior year period. The
$4.3 million decrease in cash flows provided by operations was primarily due to an $8.9 million
increase in inventory, a $2.3 million increase in other current assets, a $2.2 million increase in
current taxes payable, and an increase of $1.2 million in other noncurrent assets and liabilities.
These decreases in cash provided by operations were offset by a $3.9 million increase in cash
provided by net income, a $4.6 million increase in accounts payable, and a $3.1 million increase in
depreciation and amortization.
Cash flows used in investing activities totaled $42.7 million during the fiscal year ended
August 31, 2007 compared to cash flows used in investing activities of $24.2 million during the
same prior year period. This increase in use of cash was primarily due an increase of $11.1
million of cash used in purchases of property, plant and equipment and a decrease of $24.7 million
of cash provided by marketable securities activities. This was partially offset by a $17.7 million
decrease in cash used to acquire businesses. Capital expenditures were $14.6 million and $3.6
million during the fiscal year ended August 31, 2007 and 2006, respectively. Capital expenditures
were used primarily for updating manufacturing plant and equipment, expanding manufacturing
capacity, further automating the Company’s facilities and increasing the BSI pool of assets
available for lease.
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Table of Contents
Cash flows provided by financing activities totaled $9.5 million during the fiscal year ended
August 31, 2007 compared to $27.7 million of cash provided by financing activities during the same
prior year period. The decrease in cash provided by financing is due primarily to a decrease of
$16.8 million of proceeds from issuance of long-term debt, offset by a $5.2 million increase in
cash used for principal payments on long-term debt.
Inflation
The Company is subject to the effects of changing prices. During fiscal 2007, the Company realized
stabilized pricing for purchases of certain commodities, in particular steel and zinc products,
used in the production of its products. While the cost outlook for commodities used in the
production of the Company’s products is not certain, management believes it can manage these
inflationary pressures by introducing appropriate sales price adjustments and by actively pursuing
internal cost reduction efforts, while further refining the Company’s inventory and raw materials
risk management system.
Off-Balance Sheet Arrangements
The Company has certain off balance sheet arrangements as described in Note Q to the consolidated
financial statements. The Company does not believe these arrangements are reasonably likely to have
a material effect on the Company’s financial condition.
Contractual Obligations and Commercial Commitments
In the normal course of business, the Company enters into contracts and commitments which obligate
the Company to make future payments. The table below sets forth the Company’s significant future
obligations by time period. Where applicable, information included in the Company’s consolidated
financial statements and notes is cross-referenced in this table.
($ in thousands)
| More | ||||||||||||||||||||||||
| Note | Less than | 2-3 | 4-5 | than 5 | ||||||||||||||||||||
| Contractual Obligations | Reference | Total | 1 year | years | years | years | ||||||||||||||||||
Leases |
O | $ | 3,056 | $ | 1,088 | $ | 1,197 | $ | 684 | $ | 87 | |||||||||||||
Term Note Obligation |
M | 37,967 | 6,171 | 12,342 | 12,342 | 7,112 | ||||||||||||||||||
Interest Expense |
M | 8,219 | 2,218 | 3,392 | 2,000 | 609 | ||||||||||||||||||
Supplemental
Retirement
Plan |
P | 4,262 | 368 | 944 | 898 | 2,052 | ||||||||||||||||||
Total |
$ | 53,504 | $ | 9,845 | $ | 17,875 | $ | 15,924 | $ | 9,860 | ||||||||||||||
Market Conditions and Fiscal 2008 Outlook
Strong agricultural commodity prices, higher Net Farm Income and improved farmer sentiment in the
United States are favorable drivers for the Company’s irrigation equipment. Globally, long-term
drivers remain positive as population growth, the need for productivity improvements and fresh
water constraints drive demand for the Company’s efficient irrigation technology. In addition, the
Company expects the federal highway program legislation enacted in 2005 to have a favorable impact
on the infrastructure segment. Demand for the Company’s products may, however, be adversely
affected by variable factors such as weather, crop prices and governmental action including funding
delays. The Company will continue to create shareholder value by pursuing a balance of organic
growth opportunities, attractive acquisitions, share repurchases and dividend payments.
ITEM
7A — Quantitative and Qualitative Disclosures About Market Risk
The market value of the Company’s investment securities fluctuates inversely with movements in
interest rates because all of these investment securities are debt instruments. Accordingly,
during periods of rising interest rates, the market value of these securities will decline.
However, the Company does not consider itself to be subject to material market risks with respect
to its portfolio of investment securities because the maturity of these securities is relatively
short, making their value less susceptible to interest rate fluctuations.
The Company has manufacturing operations in the United States, France, Brazil, Italy and South
Africa. The Company has sold products throughout the world and purchases certain of its components
from third-party foreign suppliers. Export sales made from the United States are principally U.S.
dollar denominated. Accordingly,
22
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these sales are not subject to significant foreign currency transaction risk. However, a
majority of the Company’s revenue generated from operations outside the United States is
denominated in local currency. The Company’s most significant transactional foreign currency
exposures are the Euro, Brazilian real, and the South African rand in relation to the U.S. dollar.
Fluctuations in the value of foreign currencies create exposures, which can adversely affect the
Company’s results of operations. This exposure was not hedged as of August 31, 2007.
The Company’s translation exposure resulting from translating the financial statements of
foreign subsidiaries into U.S. dollars was not hedged as of August 31, 2007.
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
only to hedge exposures in the ordinary course of business and does not invest in derivative
instruments for speculative purposes.
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 converts the variable
interest rate on the entire amount of these borrowings 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, thereby creating the equivalent of fixed-rate debt. Similarly, for
the Snoline Term Note, the variable interest rate has been converted to a fixed rate of 4.7%
through a cross currency swap transaction entered into with Wells Fargo Bank, N.A. This cross
currency swap agreement also fixes the conversion rate of Euros to dollars for the Snoline Term
Note at 1.3195. Under the terms of the cross currency swap, the Company receives variable interest
rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate
debt.
23
Table of Contents
ITEM 8
— Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Lindsay Corporation:
Lindsay Corporation:
We have audited the accompanying consolidated balance sheets of Lindsay Corporation and
subsidiaries (the Company) as of August 31, 2007 and 2006, and the related consolidated statements
of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years
in the three-year period ended August 31, 2007. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule listed in Item 15(a)(2)
of this Form 10-K. These consolidated financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company and its subsidiaries as of August 31, 2007
and 2006, and the results of its their operations and their cash flows for each of the years in the
three-year period ended August 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in note P to the consolidated financial statements, the Company adopted the provisions
of Statement of Financial Accounting Standard (SFAS) No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment to FASB Statements No. 87, 88, 106
and 132(R), as of August 31, 2007.
As discussed in note S to the consolidated financial statements, the Company changed its method of
accounting for stock-based compensation effective September 1, 2005.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of August 31,
2007, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
November 12, 2007 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting
/s/ KPMG LLP
Omaha, Nebraska
November 12, 2007
November 12, 2007
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Lindsay Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended August 31, | ||||||||||||
| (in thousands, except per share amounts) | 2007 | 2006 | 2005 | |||||||||
Operating revenues |
$ | 281,857 | $ | 226,001 | $ | 177,271 | ||||||
Cost of operating revenues |
212,125 | 177,760 | 143,700 | |||||||||
Gross profit |
69,732 | 48,241 | 33,571 | |||||||||
Operating expenses: |
||||||||||||
Selling expense |
17,396 | 12,932 | 11,031 | |||||||||
General and administrative expense |
23,897 | 17,066 | 14,377 | |||||||||
Engineering and research expense |
4,680 | 2,741 | 2,665 | |||||||||
Total operating expenses |
45,973 | 32,739 | 28,073 | |||||||||
Operating income |
23,759 | 15,502 | 5,498 | |||||||||
Other income: |
||||||||||||
Interest expense |
(2,399 | ) | (697 | ) | (159 | ) | ||||||
Interest income |
2,162 | 2,101 | 1,338 | |||||||||
Other income |
611 | 503 | 273 | |||||||||
Earnings before income taxes |
24,133 | 17,409 | 6,950 | |||||||||
Income tax provision |
8,513 | 5,709 | 2,112 | |||||||||
Net earnings |
$ | 15,620 | $ | 11,700 | $ | 4,838 | ||||||
Basic net earnings per share |
$ | 1.34 | $ | 1.01 | $ | 0.42 | ||||||
Diluted net earnings per share |
$ | 1.31 | $ | 1.00 | $ | 0.41 | ||||||
Weighted average shares outstanding – basic |
11,633 | 11,529 | 11,649 | |||||||||
Weighted average shares outstanding – diluted |
11,964 | 11,712 | 11,801 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
25
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Lindsay Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| August | August | |||||||
| ($ in thousands, except par values) | 2007 | 2006 | ||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 21,022 | $ | 43,344 | ||||
Marketable securities |
27,591 | 10,179 | ||||||
Receivables, net of allowances, $946 and $595, respectively |
46,968 | 38,115 | ||||||
Inventories, net |
41,099 | 26,818 | ||||||
Deferred income taxes |
6,108 | — | ||||||
Other current assets |
6,990 | 3,947 | ||||||
Total current assets |
149,778 | 122,403 | ||||||
Long-term marketable securities |
— | 5,778 | ||||||
Property, plant and equipment, net |
44,292 | 26,981 | ||||||
Other intangible assets, net |
25,830 | 20,998 | ||||||
Goodwill, net |
16,845 | 11,129 | ||||||
Other noncurrent assets |
5,460 | 4,945 | ||||||
Total assets |
$ | 242,205 | $ | 192,234 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 18,367 | $ | 9,565 | ||||
Current portion of long-term debt |
6,171 | 4,286 | ||||||
Other current liabilities |
26,964 | 23,619 | ||||||
Total current liabilities |
51,502 | 37,470 | ||||||
Pension benefits liabilities |
5,384 | 5,003 | ||||||
Long-term debt |
31,796 | 25,714 | ||||||
Deferred income taxes |
9,860 | 1,870 | ||||||
Other noncurrent liabilities |
2,635 | 1,277 | ||||||
Total liabilities |
101,177 | 71,334 | ||||||
Shareholders’ equity: |
||||||||
Preferred stock, ($1 par value, 2,000,000 shares
authorized, no shares issued and outstanding) |
— | — | ||||||
Common stock, ($1 par value, 25,000,000 shares authorized,
17,744,458 and 17,600,686 shares issued and outstanding
in 2007 and 2006, respectively) |
17,744 | 17,600 | ||||||
Capital in excess of stated value |
11,734 | 5,896 | ||||||
Retained earnings |
204,750 | 192,319 | ||||||
Less treasury stock (at cost, 5,998,448 and 6,048,448 shares
in 2007 and 2006, respectively) |
(95,749 | ) | (96,547 | ) | ||||
Accumulated other comprehensive income, net |
2,549 | 1,632 | ||||||
Total shareholders’ equity |
141,028 | 120,900 | ||||||
Total liabilities and shareholders’ equity |
$ | 242,205 | $ | 192,234 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
26
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Lindsay Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
| Capital in | Accumulated | |||||||||||||||||||||||||||||||
| Shares of | Shares of | excess of | other | Total | ||||||||||||||||||||||||||||
| Common | Treasury | Common | stated | Retained | Treasury | comprehensive | Shareholders’ | |||||||||||||||||||||||||
| (in thousands, except per share amounts) | stock | stock | stock | value | earnings | stock | income (loss) | equity | ||||||||||||||||||||||||
Balance at August 31, 2004 |
17,493,841 | 5,724,069 | 17,494 | 2,966 | 181,209 | (89,898 | ) | 413 | 112,184 | |||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net earnings |
— | — | — | — | 4,838 | — | — | 4,838 | ||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Unrealized net loss on available for
sale securities, net of tax
for sale securities, net of
tax |
— | — | — | — | — | — | (321 | ) | (321 | ) | ||||||||||||||||||||||
Currency translation |
— | — | — | — | — | — | 1,382 | 1,382 | ||||||||||||||||||||||||
Minimum pension liability, net of
tax |
— | — | — | — | — | — | (299 | ) | (299 | ) | ||||||||||||||||||||||
Total comprehensive income |
5,600 | |||||||||||||||||||||||||||||||
Cash dividends ($0.225) per share |
— | — | — | — | (2,603 | ) | — | — | (2,603 | ) | ||||||||||||||||||||||
Purchases of 324,379 shares of
common stock |
324,379 | (6,649 | ) | (6,649 | ) | |||||||||||||||||||||||||||
Exercise of employee stock options |
74,243 | — | 74 | 588 | — | — | — | 662 | ||||||||||||||||||||||||
Stock option tax benefits |
— | — | — | 136 | — | — | — | 136 | ||||||||||||||||||||||||
Balance at August 31, 2005 |
17,568,084 | 6,048,448 | 17,568 | 3,690 | 183,444 | (96,547 | ) | 1,175 | 109,330 | |||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net earnings |
— | — | — | — | 11,700 | — | — | 11,700 | ||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Unrealized net gain on available for
sale securities, net of tax
for sale securities, net of
tax |
— | — | — | — | — | — | 44 | 44 | ||||||||||||||||||||||||
Currency translation |
— | — | — | — | — | — | 612 | 612 | ||||||||||||||||||||||||
Minimum pension liability, net of
tax |
— | — | — | — | — | — | 149 | 149 | ||||||||||||||||||||||||
Unrealized loss on cash flow hedge,
net of tax |
— | — | — | — | — | — | (348 | ) | (348 | ) | ||||||||||||||||||||||
Total comprehensive income |
12,157 | |||||||||||||||||||||||||||||||
Cash dividends ($0.245) per share |
— | — | — | — | (2,825 | ) | — | — | (2,825 | ) | ||||||||||||||||||||||
Exercise of employee stock options |
32,602 | — | 32 | 488 | — | — | — | 520 | ||||||||||||||||||||||||
Stock option tax benefits |
— | — | — | 25 | — | — | — | 25 | ||||||||||||||||||||||||
Share-based compensation expense |
— | — | — | 1,693 | — | — | — | 1,693 | ||||||||||||||||||||||||
Balance at August 31, 2006 |
17,600,686 | 6,048,448 | 17,600 | 5,896 | 192,319 | (96,547 | ) | 1,632 | 120,900 | |||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net earnings |
— | — | — | — | 15,620 | — | — | 15,620 | ||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Unrealized net gain on available for
sale securities, net of tax
for sale securities, net of
tax |
— | — | — | — | — | — | 78 | 78 | ||||||||||||||||||||||||
Currency translation |
— | — | — | — | — | — | 1,354 | 1,354 | ||||||||||||||||||||||||
Minimum pension liability, net of
tax |
— | — | — | — | — | — | (112 | ) | (112 | ) | ||||||||||||||||||||||
Unrealized loss on cash flow hedges,
net of
tax |
— | — | — | — | — | — | (215 | ) | (215 | ) | ||||||||||||||||||||||
Total comprehensive income |
16,725 | |||||||||||||||||||||||||||||||
Cash dividends ($0.265) per share |
— | — | — | — | (3,090 | ) | — | — | (3,090 | ) | ||||||||||||||||||||||
Exercise of employee stock options |
143,772 | (50,000 | ) | 144 | 2,507 | (99 | ) | 798 | — | 3,350 | ||||||||||||||||||||||
Stock option tax benefits |
— | — | — | 1,157 | — | — | — | 1,157 | ||||||||||||||||||||||||
Share-based compensation expense |
— | — | — | 2,174 | — | — | — | 2,174 | ||||||||||||||||||||||||
Adjustment to initially apply FASB
Statement No. 158, net of tax |
— | — | — | — | — | — | (188 | ) | (188 | ) | ||||||||||||||||||||||
Balance at August 31, 2007 |
17,744,458 | 5,998,448 | $ | 17,744 | $ | 11,734 | $ | 204,750 | $ | (95,749 | ) | $ | 2,549 | $ | 141,028 | |||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
27
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Lindsay Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| August | August | August | ||||||||||
| ($ in thousands) | 2007 | 2006 | 2005 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net earnings |
$ | 15,620 | $ | 11,700 | $ | 4,838 | ||||||
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities: |
||||||||||||
Depreciation and amortization |
7,160 | 4,081 | 3,481 | |||||||||
Amortization of marketable securities premiums, net |
39 | 204 | 248 | |||||||||
(Gain) loss on sale of property, plant and equipment |
(67 | ) | (114 | ) | 37 | |||||||
Provision for uncollectible accounts receivable |
60 | 95 | 88 | |||||||||
Deferred income taxes |
(2,630 | ) | (3,689 | ) | (1,140 | ) | ||||||
Equity in net earnings of equity method investments |
— | (4 | ) | (257 | ) | |||||||
Share-based compensation expense |
2,174 | 1,739 | — | |||||||||
Other, net |
(78 | ) | (65 | ) | 152 | |||||||
Changes in assets and liabilities: |
||||||||||||
Receivables, net |
(3,497 | ) | (5,183 | ) | 6,203 | |||||||
Inventories, net |
(10,925 | ) | (2,030 | ) | 828 | |||||||
Other current assets |
(2,606 | ) | (332 | ) | (45 | ) | ||||||
Accounts payable |
4,335 | (310 | ) | (2,429 | ) | |||||||
Other current liabilities |
1,604 | 5,903 | (3,031 | ) | ||||||||
Current taxes payable |
(349 | ) | 1,898 | 257 | ||||||||
Other noncurrent assets and liabilities |
(716 | ) | 503 | 2,548 | ||||||||
Net cash provided by operating activities |
10,124 | 14,396 | 11,778 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Purchases of property, plant and equipment |
(14,647 | ) | (3,592 | ) | (4,122 | ) | ||||||
Proceeds from sale of property, plant and equipment |
165 | 267 | 55 | |||||||||
Acquisition of business, net of cash acquired |
(16,705 | ) | (34,428 | ) | — | |||||||
Proceeds from sale of an equity investment |
— | 354 | — | |||||||||
Purchases of marketable securities available-for-sale |
(90,700 | ) | — | (1,841 | ) | |||||||
Proceeds from maturities or sales of marketable securities available-for-sale |
79,150 | 13,169 | 19,100 | |||||||||
Net cash (used in) provided by investing activities |
(42,737 | ) | (24,230 | ) | 13,192 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds from issuance of common stock under stock option plan |
3,350 | 485 | 621 | |||||||||
Proceeds from issuance of long-term debt |
13,196 | 30,000 | — | |||||||||
Principal payments on long-term debt |
(5,229 | ) | — | — | ||||||||
Repurchases of common stock |
— | — | (6,649 | ) | ||||||||
Excess tax benefits from stock-based compensation |
1,266 | — | — | |||||||||
Dividends paid |
(3,090 | ) | (2,825 | ) | (2,603 | ) | ||||||
Net cash provided by (used in) financing activities |
9,493 | 27,660 | (8,631 | ) | ||||||||
Effect of exchange rate changes on cash |
798 | (46 | ) | 252 | ||||||||
Net increase (decrease) in cash and cash equivalents |
(23,322 | ) | 17,780 | 16,591 | ||||||||
Cash and cash equivalents, beginning of period |
43,344 | 25,564 | 8,973 | |||||||||
Cash and cash equivalents, end of period |
$ | 21,022 | $ | 43,344 | 25,564 | |||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||||||
Income taxes paid |
$ | 9,082 | $ | 3,803 | $ | 2,185 | ||||||
Interest paid |
$ | 2,397 | $ | 228 | $ | 145 | ||||||
The
accompanying notes are an integral part of the consolidated financial statements.
28
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Lindsay Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Lindsay Corporation (the “Company” or “Lindsay”) manufactures automated agricultural irrigation
systems and sells these products in both U.S. and international markets. The Company also
manufactures and markets various infrastructure products, including movable barriers for traffic
lane management, crash cushions, preformed reflective pavement tapes and other road safety devices.
In addition, the Company’s infrastructure segment produces large diameter steel tubing, and
provides outsourced manufacturing and production services for other companies. The Company’s
sales and production facilities are located in Lindsay, Nebraska, USA, France, Brazil, South
Africa, Italy and China. The Company’s corporate office is located in Omaha, Nebraska, USA. The
Company also owns a retail irrigation dealership with three separate retail locations based in the
eastern Washington state region. The Company’s primary infrastructure locations include Rio Vista,
California and Milan, Italy. These locations manufacture and market movable and specialty
barriers, crash cushions and road marking and safety equipment for use on roadways.
Notes to the 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 at the time of preparation of the 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 consolidated financial statements.
The significant accounting policies of the Company are as follows:
(1) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries.
Significant intercompany balances and transactions are eliminated in consolidation.
(2) Reclassifications
Certain reclassifications have been made to prior financial statements to conform to the
current-year presentation.
(3) Stock Based Compensation
The Company accounts for its share-based compensation arrangements in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”)
which requires the measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors based on estimated fair values. The Company uses the
straight-line amortization method over the vesting period of the awards. SFAS No. 123(R)
supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (“APB No. 25”) beginning in fiscal 2006. In March 2005,
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”)
relating to SFAS No. 123(R). The Company has applied the provisions of SAB 107 in its adoption of
SFAS No. 123(R).
The Company has historically issued shares upon exercise of stock options from new stock
issuances, except for certain non-plan option shares granted in March 2000 that are issued from
Treasury Stock upon exercise.
(4) Revenue Recognition
Revenues from the sale of the Company’s irrigation products to its domestic independent dealers
utilizing the Company’s transportation subsidiary, LTI, are recognized upon delivery of the product
to the dealer. A smaller portion of the Company’s domestic irrigation products are shipped by a
common carrier unaffiliated with the Company, in which the dealer organizes delivery. In these
specific situations, revenue is recognized when the products ship from the Lindsay Nebraska
factory. Revenues from the sale of the Company’s irrigation products to its international
locations are recognized based on the delivery terms in the sales contract. The Company has no
post delivery obligations to its independent dealers other than standard warranties. Revenues for
retail sales of irrigation products are recognized when the product or service is delivered to the
end-user customers. Revenues from the sale of infrastructure products are recognized when the
product is delivered to the customer. The Company also leases certain infrastructure products to
customers. Revenues for the lease of infrastructure products are recognized ratably over the lease
term. Revenues and gross profits on intercompany sales are eliminated in consolidation.
29
Table of Contents
The costs related to revenues are recognized in the same period in which the specific revenues
are recorded. Shipping and handling revenue is reported as a component of operating revenues.
Shipping and handling costs are reported as a component of cost of operating revenues. Shipping
and handling revenues and costs are not significant to total operating revenues or cost of
operating revenues. Customer rebates, cash discounts, and other sales incentives are recorded as a
reduction of revenues at the time of the original sale. Other sales incentives such as guarantees
issued by the Company to support end-user customer financing are recognized as cost of sales.
Estimates used in the recognition of operating revenues and cost of operating revenues include, but
are not limited to, estimates for rebates payable and cash discounts expected.
(5) Warranty Costs
Provision for the estimated warranty costs is made in the period in which such costs become
probable. This provision is periodically adjusted to reflect actual experience.
Warranty costs were $1.2 million, $1.8 million, and $2.7 million for the fiscal years ended
August 31, 2007, 2006 and 2005, respectively. Warranty costs decreased $0.9 million in fiscal year
2006 compared to the same period in 2005 primarily due to a voluntary repair campaign relating to
the end gun solenoid valves on Zimmatic irrigation systems in fiscal year 2005.
(6) Cash Equivalents, Marketable Securities, and Long-term Marketable Securities
Cash equivalents are included at cost, which approximates market. At August 31, 2007, the Company’s
cash equivalents were held primarily by two financial institutions. The Company considers all
highly liquid investments with original maturities of three months or less to be cash equivalents,
while those having original maturities in excess of three months are classified as marketable
securities or as long-term marketable securities when maturities are in excess of one year.
Marketable securities and long-term marketable securities consist primarily of investment-grade
municipal bonds.
At the date of acquisition of an investment security, management designates the security as
belonging to a trading portfolio, an available-for-sale portfolio, or a held-to-maturity portfolio.
Currently, the Company holds no securities designated as held-to-maturity or trading. All
investment securities are classified as available-for-sale and carried at fair value. Unrealized
appreciation or depreciation in the fair value of available-for-sale securities is reported in
accumulated other comprehensive income, net of related income tax effects. The Company monitors
its investment portfolio for any decline in fair value that is other-than-temporary and records any
such impairment as an impairment loss. No impairment losses for other-than-temporary declines in
fair value have been recorded in fiscal years 2007, 2006, or 2005. In the opinion of management,
the Company is not subject to material market risks with respect to its portfolio of investment
securities because of the investment grade quality of the securities and the maturities of these
securities are relatively short, making their value less susceptible to interest rate fluctuations.
(7) 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 BSI 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, Snoline, 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.
(8) Property, Plant and Equipment
Property, plant, equipment, and capitalized assets held for lease are stated at cost. The
Company’s policy is to capitalize major expenditures and to charge to operating expenses the cost
of current maintenance and repairs. Provisions for depreciation and amortization have been
computed principally on the straight-line method for buildings and equipment. Rates used for
depreciation are based principally on the following expected lives: buildings — 15 to 30 years;
temporary structures — 5 years; equipment — 3 to 10 years; leased BTM — 8 to 10 years; leased
barriers — 12 years; other — 2 to 20 years and leasehold improvements – shorter of the economic
life or term of the lease. All of the Company’s long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized based upon the difference between the fair value of the
asset and its carrying value. During fiscal 2007, 2006 and 2005 no events occurred that would
indicate an impairment loss. The cost and accumulated depreciation relating to assets retired or
otherwise disposed of are eliminated from the respective accounts at the time of disposition. The
resulting gain or loss is included in operating income in the consolidated statements of
operations.
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Table of Contents
(9) Equity Investments
The Company held a 39% minority investment in an irrigation dealership based outside of the United
States. This investment was accounted for on the equity method. On September 1, 2005, the Company
sold its minority position in the irrigation dealership. The Company recognized an immaterial gain
from the sale of the dealership.
(10) Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in
a business combination. Acquired intangible assets are recognized separately from goodwill.
Goodwill and intangible assets with indefinite useful lives are tested for impairment at least
annually at the reporting unit level using a two-step impairment test. The Company updated its
impairment evaluation of goodwill and intangible assets with indefinite useful lives at August 31,
2007. No impairment losses were indicated as a result of the annual impairment testing for fiscal
years 2007, 2006, and 2005. The estimates of fair value of its reporting units and related
goodwill depend on a number of assumptions, including forecasted sales growth and improved
operating expense ratios. To the extent that the reporting unit is unable to achieve these
assumptions, impairment losses may emerge. Intangible assets which have identifiable useful lives
are amortized over the term of their useful lives and are tested for impairment upon the occurrence
of events that would indicate the assets may be impaired. No impairment losses were recorded in
fiscal years 2007, 2006, and 2005.
(11) Net Earnings per Share
Basic net earnings per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted net earnings per share is computed using the
weighted-average number of common shares and dilutive potential common shares outstanding during
the period. Dilutive potential common shares consist of stock options, restricted stock units and
performance stock units.
Statement of Financial Accounting Standards No. 128, Earnings per Share, (“SFAS No. 128”),
requires that employee equity share options, nonvested shares and similar equity instruments
granted by the Company be treated as potential common shares outstanding in computing diluted net
earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money
options, which is calculated, based on the average share price for each fiscal period using the
treasury stock method. Under the treasury stock method, the amount the employee must pay for
exercising stock options, the amount of compensation cost for future service that the Company has
not yet recognized, and the amount of benefits that would be recorded in additional paid-in-capital
when exercised are assumed to be used to repurchase shares.
For the year ended August 31, 2007, all stock options, restricted stock units, and performance
stock units had a dilutive effect; no stock options, restricted stock units, or performance stock
units were excluded from diluted net earnings per share. For the years ended August 31, 2006 and
2005, there were 155,762 and 377,184 shares of stock options and restricted stock units excluded
from the calculation of diluted net earnings per share, respectively. The weighted average price
of the excluded shares for the years ended August 31, 2006 and 2005 was $26.27 and $25.32,
respectively, with expiration dates ranging from September 2007 – August 2015.
The reconciliation of basic weighted average shares outstanding to diluted weighted average shares
outstanding is as follows:
| For the years ended August 31, | ||||||||||||
| (in thousands) | 2007 | 2006 | 2005 | |||||||||
Weighted average shares
outstanding –
basic |
11,633 | 11,529 | 11,649 | |||||||||
Dilutive effect of stock
options |
295 | 181 | 152 | |||||||||
Dilutive effect of
restricted stock units and
performance stock units |
36 | 2 | — | |||||||||
Weighted average shares
outstanding –
diluted |
11,964 | 11,712 | 11,801 | |||||||||
(12) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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(13) Derivatives Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities, (‘SFAS No. 133”) as amended, which requires that all derivative instruments be recorded
on the balance sheet at their respective fair values. On the date a derivative contract is entered
into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge,
or the hedge of a net investment in a foreign operation.
When an election to apply hedge accounting is made, the Company formally documents the hedging
relationship and its risk-management objective and strategy for undertaking the hedge, the hedging
instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s
effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and
a description of the method of measuring ineffectiveness.
The Company also formally assesses, both at the hedge’s inception and on an ongoing basis,
whether the derivative that is used in the hedging transaction is highly effective in offsetting
changes in cash flows of the hedged items. Changes in the fair value of a derivative that is highly
effective and that is designated and qualifies as a hedging instrument are recorded in accumulated
other comprehensive income, net of related income tax effects, to the extent that the derivative is
effective as a hedge, until earnings are affected by the variability in cash flows of the
designated hedged item. The ineffective portion of the change in fair value of a derivative
instrument that qualifies as a cash-flow hedge is reported in earnings.
The Company discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the
derivative expires or is sold, terminated, or exercised, or management determines that designation
of the derivative as a hedging instrument is no longer appropriate.
In all situations in which hedge accounting is discontinued and the derivative is retained,
the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any
subsequent changes in its fair value in earnings.
(14) Treasury Stock
When the Company repurchases its outstanding stock, it records the repurchased shares at cost as a
reduction to shareholder’s equity. The weighted average cost method is then utilized for share
re-issuances. The difference between the cost and the re-issuance price is charged or credited to
a “capital in excess of stated value – treasury stock” account to the extent that there is a
sufficient balance to absorb the charge. If the treasury stock is sold for an amount less than its
cost and there is not a sufficient balance in the capital in excess of stated value – treasury
stock account, the excess is charged to retained earnings.
(15) Recently Issued Accounting Pronouncements
On July 13, 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes –
an Interpretation of FASB Statement No 109, (“FIN 48”). FIN 48 provides a consistent recognition
threshold and measurement attribute, as well as clear criteria for recognizing, derecognizing and
measuring uncertain tax positions for financial statement purposes. The Interpretation also
requires expanded disclosure with respect to uncertain income tax positions. FIN 48 will be
effective for the Company in the first quarter of fiscal year 2008. Based on management’s
evaluation as of August 31, 2007, the Company does not believe that FIN 48 will have a material
impact on its consolidated financial statements.
In September 2006, the FASB issued 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.
Management is currently evaluating the impact that the adoption of this statement will have on the
Company’s consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans, (“SFAS No. 158”). This Statement requires recognition of
the funded status of a single-employer defined benefit postretirement plan as an asset or liability
in its statement of financial position. Funded status is determined as the difference between the
fair value of plan assets and the benefit obligation. Changes in that funded status should be
recognized in other comprehensive income. The Company’s adoption of SFAS No. 158 as of August 31,
2007 did not 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
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will be effective for the Company beginning in the first quarter of fiscal year 2009.
Management is currently assessing the effect of this pronouncement on the Company’s consolidated
financial statements.
On September 13, 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 108 (“SAB 108”), which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a current
year misstatement. SAB 108 was adopted by the Company as of August 31, 2007. Adopting this
pronouncement had no impact on the Company’s consolidated financial statements.
On September 7, 2006, the Task Force 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.
On September 7, 2006, the Task Force reached a conclusion on EITF Issue No. 06-5, Accounting
for Purchases of Life Insurance – Determining the Amount That Could Be Realized in Accordance with
FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance, (“EITF 06-5”). The
scope of EITF 06-5 consists of six separate issues relating to accounting for life insurance
policies purchased by entities protecting against the loss of “key persons.” The six issues are
clarifications of previously issued guidance in FASB Technical Bulletin No. 85-4. EITF 06-5 will
be effective for the Company beginning in the first quarter of fiscal year 2008. The Company does
not expect it to have a material impact on the Company’s consolidated financial statements.
B. ACQUISITIONS
Snoline, S.P.A.
On December 27, 2006, the Company acquired all of the outstanding shares of both Flagship Holding
Ltd. (“Flagship”) and Snoline, S.P.A. (“Snoline”), a subsidiary of Flagship. As a result, Snoline,
a leading European designer and manufacturer of highway marking and safety equipment based in
Milan, Italy, became an indirect subsidiary of Lindsay.
Total cash consideration paid to the selling stockholders was 12.5 million Euros
(approximately $16.5 million). The purchase price was financed with approximately $3.3 million of
cash on hand and borrowing under a new $13.2 million Term Note and Credit Agreement entered into by
Lindsay Italia S.R.L. with Wells Fargo Bank, N.A., described in Note M, Credit Arrangements. The
total purchase price has been preliminarily allocated (pending settlement of escrow) to the
tangible and intangible assets and liabilities acquired based on management’s estimates of current
fair values. The resulting goodwill and other intangible assets have been accounted for under SFAS
No. 142, Goodwill and Other Intangible Assets, (“SFAS No. 142”). Goodwill recorded in connection
with this acquisition is not deductible for income tax purposes.
Barrier Systems, Inc.
On June 1, 2006, Lindsay completed the acquisition of Barrier Systems, Inc. (“BSI”) and its
subsidiary Safe Technologies, Inc. through the merger of a wholly-owned subsidiary of Lindsay with
and into BSI (the “Merger”). As a result, BSI has become a wholly-owned subsidiary of Lindsay.
BSI is engaged in the manufacture of roadway barriers and traffic flow products that are used to
reduce traffic congestion and enhance safety.
Total cash merger consideration paid to the stockholders of BSI and holders of options to
acquire BSI stock was $35.0 million. Of the cash merger consideration, $3.5 million was held in
escrow to secure the indemnification obligations of the shareholders and option holders of BSI and
$1.0 million was held in escrow pending calculation of the final merger consideration based on the
adjusted net assets of BSI at closing. After completion of the closing balance sheet the purchase
price was reduced by approximately $1.2 million related to the net asset test discussed above. The
Company funded the payment of the merger consideration using a combination of its own working
capital and borrowing under a new credit agreement. The results of operations of BSI have been
included in the accompanying consolidated statements of operations for the year ended August 31,
2006 from the date of the acquisition. The total purchase price was allocated to the tangible and
intangible assets and liabilities acquired based on management’s estimates of current fair values.
The resulting goodwill and other intangible assets were accounted for under SFAS No. 142.
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As part of the purchase price allocation, intangible assets were identified and valued. Of
the total purchase price, $13.7 million was assigned to patents, $2.7 million was assigned to
trademarks, and $4.6 million was assigned to other intangible assets, which consist of customer
relationships of $2.9 million, non-compete agreements of $1.6 million, and a license of $35,000.
The amount assigned to patents, $13.7 million, is being amortized over the remaining life of
the patents. The weighted average life of the remaining patents is approximately fourteen years.
The acquired trademarks have been assigned an indefinite life and will not be amortized. The
trademarks will be reviewed for impairment or for indicators of a limited useful life on an annual
basis or when events indicate that the asset may be impaired.
The amount assigned to customer relationships, $2.9 million, is being amortized using a method
that reflects the pattern in which the economic benefits of the intangible asset are expected to be
consumed over a remaining life of approximately eight years. The amount assigned to non-compete
agreements, $1.6 million, is being amortized on a straight-line basis over the period that the
agreements are enforceable, approximately three years. The amount assigned to the license,
$35,000, is being amortized on a straight-line basis over the remaining life of the license of
approximately 0.5 years.
The excess of the purchase price over the fair value of tangible and identifiable intangible
net assets was allocated to goodwill, which is non-deductible for tax purposes.
The following unaudited pro forma financial information is based on historical data, and gives
effect to the acquisition of BSI as if it had occurred on September 1, 2004. The pro forma
financial information includes adjustments (“pro forma adjustments”) having a continuing impact on
the Company’s consolidated results of operations. The pro forma adjustments are based upon
available information and certain assumptions that management believes are reasonable. The
unaudited pro forma financial information is not intended to represent or be indicative of the
consolidated results of operations of the Company that would have been reported had the acquisition
been completed as of the date presented, and should not be taken as representative of the future
consolidated results of operations of the Company. The unaudited pro forma information does not
reflect any adjustments for the effect of operating synergies or potential cost savings that the
Company may realize as a result of the acquisition.
Unaudited pro forma results for the year ended August 31, 2006 and 2005 were as follows:
Lindsay Corporation and Subsidiaries
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
| Year ended August 31, | ||||||||
| (in thousands, except per share amounts) | 2006 | 2005 | ||||||
Operating revenues |
$ | 239,117 | $ | 196,340 | ||||
Net earnings |
$ | 12,573 | $ | 3,420 | ||||
Basic net earnings per
share |
$ | 1.09 | $ | 0.29 | ||||
Diluted net earnings per
share |
$ | 1.07 | $ | 0.29 | ||||
Weighted average shares outstanding –
basic |
11,529 | 11,649 | ||||||
Weighted average shares outstanding –
diluted |
11,712 | 11,801 | ||||||
C. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income is included in the accompanying Consolidated Balance Sheets
in the shareholders’ equity section, and consists of the following components:
| For the years ended August 31, | ||||||||
| $ in thousands | 2007 | 2006 | ||||||
Accumulated other comprehensive income, net: |
||||||||
Unrealized loss on available for sale
securities, net of tax of $11 and $56 |
$ | (14 | ) | $ | (92 | ) | ||
Currency
translation |
4,711 | 3,357 | ||||||
Defined Benefit Pension Plans, net of tax of
$964 and $780 |
(1,585 | ) | (1,285 | ) | ||||
Unrealized loss on cash flow hedges, net of
tax of $387 and 216 |
(563 | ) | (348 | ) | ||||
Total accumulated other comprehensive income,
net of taxes |
$ | 2,549 | $ | 1,632 | ||||
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D. OTHER INCOME, NET
| For the years ended August 31, | ||||||||||||
| $ in thousands | 2007 | 2006 | 2005 | |||||||||
Other income, net: |
||||||||||||
Cash surrender value of life insurance |
$ | 75 | $ | 78 | $ | 72 | ||||||
Foreign currency transaction (loss) gains, net |
144 | 18 | (18 | ) | ||||||||
Foreign government grant |
152 | 142 | — | |||||||||
All other, net |
240 | 265 | 219 | |||||||||
Total other income, net |
$ | 611 | $ | 503 | $ | 273 | ||||||
E. INCOME TAXES
For financial reporting purposes earnings before income taxes include the following components:
| For the years ended August 31, | ||||||||||||
| $ in thousands | 2007 | 2006 | 2005 | |||||||||
United
States |
$ | 24,479 | $ | 18,509 | $ | 6,588 | ||||||
Foreign |
(346 | ) | (1,100 | ) | 362 | |||||||
| $ | 24,133 | $ | 17,409 | $ | 6,950 | |||||||
Significant components of the income tax provision are as follows:
| For the years ended August 31, | ||||||||||||
| $ in thousands | 2007 | 2006 | 2005 | |||||||||
Current: |
||||||||||||
Federal |
$ | 10,152 | $ | 8,149 | $ | 2,223 | ||||||
State |
704 | 1,200 | 336 | |||||||||
Foreign |
287 | 68 | 314 | |||||||||
Total current |
11,143 | 9,417 | 2,873 | |||||||||
Deferred: |
||||||||||||
Federal |
(2,099 | ) | (2,868 | ) | (474 | ) | ||||||
State |
(145 | ) | (241 | ) | (60 | ) | ||||||
Foreign |
(386 | ) | (599 | ) | (227 | ) | ||||||
Total deferred |
(2,630 | ) | (3,708 | ) | (761 | ) | ||||||
Total income tax
provision |
$ | 8,513 | $ | 5,709 | $ | 2,112 | ||||||
Total income tax provision resulted in effective tax rates differing from that of the statutory
United States Federal income tax rates. The reasons for these differences are:
| For the years ended August 31, | ||||||||||||||||||||||||
| 2007 | 2006 | 2005 | ||||||||||||||||||||||
| $ in thousands | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
U.S. statutory
rate |
$ | 8,447 | 35.0 | $ | 6,093 | 35.0 | $ | 2,363 | 34.0 | |||||||||||||||
State and local
taxes, net of
federal tax
benefit |
331 | 1.4 | 409 | 2.4 | 134 | 1.9 | ||||||||||||||||||
Federal & state
reserve
adjustment |
— | — | (404 | ) | (2.3 | ) | — | — | ||||||||||||||||
Non deductible
officer’s
compensation |
463 | 1.9 | — | — | — | — | ||||||||||||||||||
Domestic production activities deduction |
(255 | ) | (1.1 | ) | (258 | ) | (1.5 | ) | — | — | ||||||||||||||
Municipal bond
interest
income |
(350 | ) | (1.5 | ) | (219 | ) | (1.3 | ) | (98 | ) | (1.4 | ) | ||||||||||||
Qualified export
activity
income |
(23 | ) | (0.1 | ) | (112 | ) | (0.6 | ) | (328 | ) | (4.7 | ) | ||||||||||||
R&D, Phone, and
Fuel tax
credits |
(250 | ) | (1.0 | ) | (17 | ) | (0.1 | ) | (56 | ) | (0.8 | ) | ||||||||||||
Other
|
150 | 0.7 | 217 | 1.2 | 97 | 1.4 | ||||||||||||||||||
Effective
rate |
$ | 8,513 | 35.3 | $ | 5,709 | 32.8 | $ | 2,112 | 30.4 | |||||||||||||||
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as
follows:
| August 31, | ||||||||
| $ in thousands | 2007 | 2006 | ||||||
Deferred tax assets: |
||||||||
Deferred rental revenue |
$ | 2,388 | $ | 1,913 | ||||
Employee benefits liability |
2,130 | 1,158 | ||||||
Net operating loss carryforwards |
572 | 518 | ||||||
Defined benefit pension plan |
982 | 799 | ||||||
Share-based compensation |
1,440 | 649 | ||||||
Inventory |
322 | 271 | ||||||
Warranty |
577 | 723 | ||||||
Vacation |
643 | 542 | ||||||
Accrued expenses and allowances |
2,261 | 2,431 | ||||||
Deferred tax assets |
$ | 11,315 | $ | 9,004 | ||||
Deferred tax liabilities: |
||||||||
Intangible Assets |
(9,301 | ) | (7,768 | ) | ||||
Property, plant and equipment |
(4,287 | ) | (2,158 | ) | ||||
Inventory |
(164 | ) | (382 | ) | ||||
Other |
(783 | ) | (218 | ) | ||||
Deferred tax liabilities |
$ | (14,535 | ) | $ | (10,526 | ) | ||
Net deferred tax liabilities |
$ | (3,220 | ) | $ | (1,522 | ) | ||
The Company’s foreign net operating loss carryforwards include approximately $0.4 million that will
begin to expire in fiscal 2011 and approximately $0.2 million that have no expiration date.
In assessing the ability to realize deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the deferred tax assets
are deductible, management believes it is more likely than not that the Company will realize the
benefits of these deductible differences. Accordingly, a valuation allowance for deferred tax
assets at August 31, 2007 and 2006 has not been established.
The American Jobs Creation Act of 2004 (the “Jobs Act”)
On October 22, 2004, the Jobs Act was enacted, which directly impacts the Company in several areas.
The Company currently takes advantage of the extraterritorial income exclusion (“EIE”) in the
calculation of its federal income tax liability. The Jobs Act repealed the EIE, the benefits of
which were phased out over three years, with 80% of the prior benefit allowed in 2005, 60% in 2006
and 0% allowed in any calendar year after 2006. The Company reported an EIE of $0.1 million, $0.3
million and $0.3 million at fiscal years ended 2007, 2006 and 2005, respectively. The Jobs Act
replaced the EIE with the new “manufacturing deduction” that allows a deduction from taxable income
of up to 9% of “qualified production activities income” not to exceed taxable income. The
deduction is phased in over a nine-year period, with the eligible percentage increasing from 3% in
2005 to 9% in
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2010. The Company reported a $0.7 million and $0.5 million manufacturing deduction
for fiscal years 2007 and 2006, respectively. There was no manufacturing deduction taken for
fiscal year 2005 as the Jobs Act was not yet effective.
The Jobs Act includes a foreign earnings repatriation provision that provides an 85% dividends
received deduction for certain dividends received from controlled foreign corporations. The
Company does not intend to repatriate earnings of its foreign subsidiaries and accordingly, under
APB Opinion No. 23, “Accounting for Income Taxes-Special Areas” has not recorded deferred tax
liabilities for repatriated foreign earnings. However, the
Company continues to analyze the potential tax impact should it elect to repatriate foreign
earnings pursuant to the Jobs Act; currently the amount is not determinable.
F. MARKETABLE SECURITIES
The Company’s marketable securities consist of investment-grade municipal bonds. Marketable
securities may mature earlier than their weighted-average contractual maturities because of
principal prepayments.
Amortized cost and fair value of investments in marketable securities classified as
available-for-sale according to management’s intent are summarized as follows:
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | ||||||||||||||
| $ in thousands | cost | gains | losses | Fair value | ||||||||||||
As of August 31, 2007: |
||||||||||||||||
Due within one
year |
$ | 27,616 | $ | — | $ | (25 | ) | $ | 27,591 | |||||||
Due after one year
through five
years |
— | — | — | — | ||||||||||||
| $ | 27,616 | $ | — | $ | (25 | ) | $ | 27,591 | ||||||||
As of August 31, 2006: |
||||||||||||||||
Due within one
year |
$ | 10,238 | $ | 3 | $ | (62 | ) | $ | 10,179 | |||||||
Due after one year through five
years |
5,867 | — | (89 | ) | 5,778 | |||||||||||
| $ | 16,105 | $ | 3 | $ | (151 | ) | $ | 15,957 | ||||||||
Proceeds and gains and losses from the maturities or sales of available-for-sale securities are as
follows:
| For the years ended August 31, | ||||||||||||
| $ in thousands | 2007 | 2006 | 2005 | |||||||||
Proceeds from maturities
or sales |
$ | 79,150 | $ | 13,169 | $ | 19,100 | ||||||
Gross realized
gains |
$ | — | $ | — | $ | 5 | ||||||
Gross realized
losses |
$ | — | $ | — | $ | (51 | ) | |||||
Marketable securities classified as available-for-sale in a continuous loss position for less than
12 months and greater than 12 months as of August 31, 2007 and 2006 are as follows:
| August 31, 2007 | ||||||||
| Greater | ||||||||
| Less than | than 12 | |||||||
| $ in thousands | 12 months | months | ||||||
Total amount of unrealized losses |
$ | — | $ | (25 | ) | |||
Total fair value of investments with unrealized losses |
$ | — | $ | 5,761 | ||||
| August 31, 2006 | ||||||||
| Greater | ||||||||
| Less than | than 12 | |||||||
| 12 months | months | |||||||
Total amount of unrealized losses |
$ | — | $ | (151 | ) | |||
Total fair value of investments with unrealized losses |
$ | — | $ | 14,880 | ||||
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G. RECEIVABLES
| August | August | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Receivables: |
||||||||
Trade accounts and current portion of notes receivable |
$ | 47,914 | $ | 38,710 | ||||
Allowance for doubtful accounts |
(946 | ) | (595 | ) | ||||
Net receivables |
$ | 46,968 | $ | 38,115 | ||||
H. INVENTORIES
| August | August | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Inventory: |
||||||||
FIFO inventory |
$ | 20,319 | $ | 16,301 | ||||
LIFO reserve |
(6,235 | ) | (5,032 | ) | ||||
LIFO inventory |
14,084 | 11,269 | ||||||
Weighted average inventory |
12,810 | 8,491 | ||||||
Other FIFO inventory |
14,916 | 7,694 | ||||||
Obsolescence reserve |
(711 | ) | (636 | ) | ||||
Total inventories |
$ | 41,099 | $ | 26,818 | ||||
The estimated percentage distribution between major classes of inventory before reserves is as
follows:
| August | August | |||||||
| 2007 | 2006 | |||||||
Raw materials |
15 | % | 15 | % | ||||
Work in process |
12 | % | 13 | % | ||||
Finished Goods |
73 | % | 72 | % | ||||
I. PROPERTY, PLANT AND EQUIPMENT
| August | August | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Property, plant and equipment: |
||||||||
Land |
$ | 1,496 | $ | 1,222 | ||||
Buildings |
19,617 | 12,229 | ||||||
Equipment |
51,862 | 43,687 | ||||||
Other |
7,961 | 4,562 | ||||||
Total property, plant and
equipment |
80,936 | 61,700 | ||||||
Accumulated depreciation and
amortization |
(47,743 | ) | (41,402 | ) | ||||
Total Property, plant and equipment, net |
33,193 | 20,298 | ||||||
Leased property: |
||||||||
Machines |
2,405 | 2,322 | ||||||
Barriers |
9,590 | 4,519 | ||||||
Total rental property |
11,995 | 6,841 | ||||||
Accumulated depreciation and
amortization |
(896 | ) | (158 | ) | ||||
Total leased property, net |
11,099 | 6,683 | ||||||
Property, plant and equipment, net |
$ | 44,292 | $ | 26,981 | ||||
Depreciation expense was $4.8 million, $3.4 million and $3.3 million for the years ended August 31,
2007, 2006, and 2005, respectively.
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J. OTHER NONCURRENT ASSETS
| August | August | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Cash surrender value of life insurance
policies |
$ | 2,128 | $ | 2,054 | ||||
Deferred income taxes |
532 | 347 | ||||||
Notes receivable |
1,779 | 1,311 | ||||||
Split dollar life insurance |
924 | 922 | ||||||
Intangible pension asset |
— | 234 | ||||||
Other |
97 | 77 | ||||||
Total noncurrent assets |
$ | 5,460 | $ | 4,945 | ||||
K. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The carrying amount of goodwill by reportable segment for the year ended August 31, 2007 and 2006
is as follows:
| $ in thousands | Irrigation | Infrastructure | Total | |||||||||
Balance as of September 1,
2005 |
$ | 1,364 | $ | — | $ | 1,364 | ||||||
Acquisition of Barrier
Systems, Inc. |
— | 9,706 | 9,706 | |||||||||
Foreign currency
translation |
59 | — | 59 | |||||||||
Balance as of August 31,
2006 |
1,423 | 9,706 | 11,129 | |||||||||
Acquisition of Snoline
S.P.A |
— | 5,429 | 5,429 | |||||||||
Foreign currency
translation |
72 | 215 | 287 | |||||||||
Balance as of August 31,
2007 |
$ | 1,495 | $ | 15,350 | $ | 16,845 | ||||||
Other Intangible Assets
The components of the Company’s identifiable intangible assets at August 31, 2007 and 2006 are
included in the table below. The increase in the balances from 2007 to 2006 is primarily due to
the acquisition of Snoline during the second quarter of fiscal 2007.
| August | August | |||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
| $ in thousands | Amount | Amortization | Amount | Amortization | ||||||||||||
Amortizable Intangible Assets: |
||||||||||||||||
Non-compete agreements |
$ | 2,056 | $ | (1,106 | ) | $ | 2,046 | $ | (518 | ) | ||||||
Licenses |
699 | (449 | ) | 399 | (175 | ) | ||||||||||
Patents |
19,075 | (1,426 | ) | 13,779 | (251 | ) | ||||||||||
Customer relationships |
3,362 | (442 | ) | 2,916 | (81 | ) | ||||||||||
Plans and specifications |
75 | (22 | ) | 75 | (18 | ) | ||||||||||
Other |
106 | (20 | ) | 35 | (16 | ) | ||||||||||
Unamortizable Intangible Assets: |
||||||||||||||||
Tradenames |
3,922 | — | 2,807 | — | ||||||||||||
Total |
29,295 | (3,465 | ) | $ | 22,057 | $ | (1,059 | ) | ||||||||
Amortization expense for amortizable intangible assets was $2.4 million, $0.6 million and $0.2
million for 2007, 2006, and 2005, respectively. Other intangible assets are being amortized using
the straight-line method over an average term of approximately 10.6 years.
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Future estimated amortization of intangible assets is as follows:
Fiscal years |
||||
2008 |
$ | 2,435 | ||
2009 |
2,160 | |||
2010 |
1,713 | |||
2011 |
1,700 | |||
2012 |
1,700 |
L. OTHER CURRENT LIABILITIES
| August 31, | ||||||||
| $ in thousands | 2007 | 2006 | ||||||
Other current liabilities: |
||||||||
Payroll and vacation |
$ | 7,409 | $ | 6,301 | ||||
Retirement
plans |
385 | 322 | ||||||
Taxes, other than
income |
1,579 | 843 | ||||||
Workers compensation and
product
liability |
744 | 897 | ||||||
Deferred rental
revenue |
4,316 | 3,909 | ||||||
Dealer related
liabilities |
1,627 | 1,547 | ||||||
Warranty |
1,644 | 1,996 | ||||||
Income tax
payable |
1,168 | 2,171 | ||||||
Cash flow hedge
liability |
970 | 564 | ||||||
Other |
7,122 | 5,069 | ||||||
Total other current
liabilities |
$ | 26,964 | $ | 23,619 | ||||
M. CREDIT ARRANGEMENTS
Euro Line of Credit
The Company’s wholly-owned European subsidiary, Lindsay Europe, has an unsecured revolving line of
credit with a commercial bank under which it could borrow up to 2.3 million Euros, which equates to
approximately USD $3.1 million as of August 31, 2007, for working capital purposes. As of August
31, 2007 and 2006 there was $0.7 million and $0 outstanding on this line, respectively. Under the
terms of the line of credit, borrowings, if any, bear interest at a floating rate in effect from
time to time designated by the commercial bank as Euro LIBOR+200 basis points, (5.5% at August 31,
2007).
BSI Term Note
The Company entered into an unsecured $30 million Term Note and Credit Agreement, effective June 1,
2006, with Wells Fargo Bank, N.A. (the “BSI Term Note”) to partially finance the acquisition of BSI
described in Note B, Acquisitions. Borrowings under the BSI Term Note bear interest at a rate
equal to LIBOR plus 50 basis points. Principal is repaid quarterly in equal payments of $1.1
million over a seven year period commencing September, 2006.
Snoline Term Note
The Company entered into an unsecured $13.2 million Term Note and Credit Agreement, effective
December 27, 2006 with Wells Fargo Bank, N.A. (the “Snoline Term Note”) to partially finance the
acquisition of Snoline, described in Note B, Acquisitions. Borrowings under the Snoline Term Note
bear interest at a rate equal to LIBOR plus 50 basis points. Principal is repaid quarterly in
equal payments of approximately $0.5 million over a seven year period commencing March 27, 2007.
All borrowings under the Snoline Term Note are secured by the acquired shares of Flagship and
Snoline and are guaranteed by the Company.
The BSI Term Note and the Snoline Term Note (collectively, the “Notes”) both contain the same
covenants, including certain covenants relating to Lindsay’s financial condition. Upon the
occurrence of any event of default of
these covenants specified in the Notes, including a change in control of the Company (as defined in
the Notes), all
40
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amounts due there under may be declared to be immediately due and payable. At
August 31, 2007, the Company was in violation of a loan covenant not to exceed $7.0 million on
capital expenditures in any fiscal year. During fiscal year 2007, the Company exceeded this amount
by incurring $14.6 million of capital expenditures. The investment over the covenant amount was
primarily for additions to the lease fleet of barrier and BTMs which generate revenue in future
periods. The Company obtained a waiver of this default from Wells Fargo dated October 8, 2007.
The Company has subsequently obtained a permanent modification for this covenant from Wells Fargo.
Term notes payable consist of the following:
| August | August | |||||||
| ($ in thousands) | 2007 | 2006 | ||||||
Term notes payable |
$ | 37,967 | $ | 30,000 | ||||
Less current portion |
(6,171 | ) | (4,286 | ) | ||||
Term notes payable less current portion |
$ | 31,796 | $ | 25,714 | ||||
Interest expense was $2.4 million, $0.7 million and $0.2 million for the years ended August 31,
2007, 2006 and 2005, respectively.
Principal payments due on the term notes are as follows:
Due within:
1 Year |
$ | 6,171 | ||
2 Years |
6,171 | |||
3 Years |
6,171 | |||
4 Years |
6,171 | |||
5 Years |
6,171 | |||
Thereafter |
7,112 | |||
| $ | 37,967 | |||
N. 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 only to
hedge exposures in the ordinary course of business and does not invest in derivative instruments
for speculative purposes. As of August 31, 2007, the Company held two derivative instruments
accounted for as cash flow hedges.
In order to reduce interest rate risk on the BSI Term Note, the Company entered into an
interest rate swap agreement with Wells Fargo Bank, N.A. that is designed to convert the variable
interest rate on the entire amount of this borrowing to a fixed rate of 6.05% per annum. Under the
terms of the interest rate swap, the Company receives variable interest rate payments and makes
fixed interest rate payments on an amount equal to the outstanding balance of the BSI Term Note,
thereby creating the equivalent of fixed-rate debt. Changes in the fair value of the interest rate
swap designated as a hedging instrument that effectively offset the variability of cash flows
associated with the variable-rate, long-term debt obligation are reported in accumulated other
comprehensive income, net of related income tax effects. For the year ended August 31, 2007, less
than $0.1 million was recorded in the consolidated statement of operations related to
ineffectiveness of this interest rate swap. There was no ineffectiveness recorded for the year
ended August 31, 2006.
Similarly, for the Snoline Term Note, the variable interest rate was converted to a fixed rate
of 4.7% through a cross currency swap transaction entered into with Wells Fargo Bank, N.A. This
cross currency swap agreement also fixes the conversion rate of Euros to dollars for the Snoline
Term Note at 1.3195. Under the terms of the cross currency swap, the Company receives variable
interest rate payments and makes fixed interest rate payments on an amount equal to the outstanding
balance of the Snoline Term Note, thereby creating the equivalent of fixed-rate debt. Changes in
the fair value of the cross currency swap designated as a hedging instrument that effectively
offset the hedged risks are reported in accumulated other comprehensive income, net of related
income tax effects. For the year ended August 31, 2007, there were no amounts recorded in the
consolidated statement of
operations related to ineffectiveness of this cross currency swap.
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The Company accounts for these derivative instruments in accordance with SFAS No. 133,
Accounting for Derivatives Instruments and Hedging Activity, which requires all derivatives to be
carried on the balance sheet at fair value and to meet certain documentary and analytical
requirements to qualify for hedge accounting treatment. All of the Company’s derivatives qualify
for hedge accounting under SFAS No. 133 and, accordingly, changes in the fair value are reported in
accumulated other comprehensive income, net of related income tax effects.
O. 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 it 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 EPA’s 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. In 2003, the Company and the EPA
conducted a second five-year review of the status of the remediation of the contamination of the
site. As a result of this review, the EPA issued a letter placing the Company on notice that
additional remediation actions were required. The Company and its environmental consultants have
completed and submitted a supplemental remedial action work plan that, when implemented, will allow
the Company and the EPA to better identify the boundaries of the contaminated groundwater and will
allow the Company and the EPA to more effectively assure that the contaminated groundwater is being
contained by current and planned wells that pump and aerate it. During the third quarter of fiscal
2007, the Company accrued for additional expected costs of $0.5 million to address the additional
remediation action required by the EPA and to remain in compliance with the EPA’s second five-year
review. Although the Company has been able to reasonably estimate the cost of completing the
remediation actions defined in the supplemental remedial action work plan, it is at least
reasonably possible that the cost of completing the remediation actions may be revised in the near
term. Related balance sheet liabilities recognized were $0.7 million at August 31, 2007, and $0.2
million at August 31, 2006.
The Company leases land, buildings, machinery, equipment, and computer equipment under various
noncancelable operating lease agreements. At August 31, 2007, future minimum lease payments under
noncancelable operating leases were as follows:
| $ in thousands | ||||
Fiscal years |
||||
2008 |
$ | 1,088 | ||
2009 |
629 | |||
2010 |
568 | |||
2011 |
527 | |||
2012 |
157 | |||
Thereafter |
87 | |||
Total future minimum lease payments |
$ | 3,056 | ||
Lease expense was $1.6 million, $1.1 million and $1.0 million for the years ended August 31, 2007,
2006, and 2005, respectively.
P. RETIREMENT PLANS
The Company has a defined contribution profit-sharing plan covering substantially all of its
full-time U.S. employees. Participants may voluntarily contribute a percentage of compensation,
but not in excess of the maximum allowed under the Internal Revenue Code. The plan provides for a
matching contribution by the Company. The Company’s total contributions charged to expense under
this plan were $0.5 million, $0.5 million and $0.4 million for the years ended August 31, 2007,
2006, and 2005, respectively.
A supplementary non-qualified, non-funded retirement plan for six current and former
executives is also maintained. Plan benefits are based on the executive’s average total
compensation during the three highest compensation years of employment. This unfunded supplemental
retirement plan is not subject to the minimum funding requirements of ERISA. The Company has
purchased life insurance policies on certain executives named in this supplemental retirement plan
to provide funding for this liability.
As of August 31, 2007, the funded status of the supplemental retirement plan was recorded in
the consolidated balance sheet as required under the adoption of SFAS No. 158. The Company
utilizes an August 31 measurement date
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for plan obligations related to the supplemental retirement plan. The funded status of the plan
and the net amount recognized in the accompanying balance sheets as of August 31 is as follows:
| For the years ended August 31, | ||||||||||||
| $ in thousands | 2007 | 2006 | 2005 | |||||||||
Change in benefit obligation: |
||||||||||||
Benefit obligation at beginning of year |
$ | 5,512 | $ | 5,478 | $ | 4,839 | ||||||
Service cost |
32 | 19 | 34 | |||||||||
Interest cost |
308 | 267 | 269 | |||||||||
Actuarial loss |
200 | 61 | 654 | |||||||||
Benefits paid |
(313 | ) | (313 | ) | (318 | ) | ||||||
Benefit obligation at end of year |
$ | 5,739 | $ | 5,512 | $ | 5,478 | ||||||
Funded status at end of year |
$ | (5,739 | ) | $ | (5,512 | ) | $ | (5,478 | ) | |||
Unrecognized net actuarial loss |
— | 2,500 | 2,606 | |||||||||
Net accrued pension cost |
$ | (5,739 | ) | $ | (3,012 | ) | $ | (2,872 | ) | |||
Amounts recognized in the statement of financial position consist of:
| August | August | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Accrued benefit cost |
$ | — | $ | (3,012 | ) | |||
Other current liabilities |
(355 | ) | — | |||||
Intangible pension asset |
— | 234 | ||||||
Additional minimum pension liability |
— | (2,299 | ) | |||||
Pension benefit liability |
(5,384 | ) | — | |||||
Accumulated other comprehensive loss |
2,549 | 2,065 | ||||||
Net amount recognized |
$ | (3,190 | ) | $ | (3,012 | ) | ||
The before-tax amounts recognized in accumulated other comprehensive loss as of August 31 consists
of:
| August | August | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Net actuarial loss |
$ | 2,384 | $ | — | ||||
Transition obligation |
165 | — | ||||||
Minimum pension liability |
— | 2,065 | ||||||
Total |
$ | 2,549 | $2,065 | |||||
The assumptions used for the determination of the liability as of years ended:
| August | August | |||||||
| 2007 | 2006 | |||||||
Discount rate |
6.00 | % | 5.75 | % | ||||
Assumed rates of compensation increases |
3.50 | % | 3.50 | % | ||||
Rate of return on underlying 401(k) investments |
7.50 | % | 7.50 | % | ||||
The assumptions used to determine benefit obligations and costs are selected based on current and
expected market conditions. The discount rate is based on a hypothetical portfolio of long-term
corporate bonds with cash flows approximating the timing of expected benefit payments.
The components of the net periodic benefit cost for the supplemental retirement plan for the years
ended August 31 are as follows:
| For the years ended August 31, | ||||||||||||
| $ in thousands | 2007 | 2006 | 2005 | |||||||||
Service cost |
$ | 32 | $ | 19 | $ | 34 | ||||||
Interest cost |
308 | 267 | 269 | |||||||||
Net amortization and deferral |
160 | 158 | 302 | |||||||||
Total |
$ | 500 | $ | 444 | $ | 605 | ||||||
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The estimated actuarial loss and transition obligation for the supplemental retirement plan that
will be amortized, on a pre-tax basis, from accumulated other comprehensive loss into net periodic
benefit cost during fiscal 2008 will be $94,000 and $69,000, respectively.
The assumptions used for the determination of the net periodic benefit cost are:
| For the years ended August 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Discount rate |
5.75 | % | 5.00 | % | 5.75 | % | ||||||
Assumed rates of compensation increases |
3.50 | % | 3.50 | % | 3.50 | % | ||||||
The following net benefits payments, which reflect future service, as appropriate, are expected to be paid:
| $ in thousands | ||||
Fiscal years |
||||
2008 |
$ | 368 | ||
2009 |
477 | |||
2010 |
467 | |||
2011 |
455 | |||
2012 |
443 | |||
Thereafter |
2,052 | |||
Future expected benefit payments through 2017 |
$ | 4,262 | ||
Q. GUARANTEES AND WARRANTIES
Guarantees of Customer Equipment Financing
In the normal course of its business, the Company has arranged for unaffiliated financial
institutions to make favorable financing terms available to end-user purchasers of the Company’s
irrigation equipment. In order to facilitate these arrangements, the Company provides limited
recourse guarantees or full guarantees to the financial institutions on these equipment loans. All
of the Company’s customer-equipment recourse guarantees are collateralized by the value of the
equipment being financed. The estimated maximum potential future payments to be made by the
Company on these guarantees equaled $0.9 million and $1.6 million at August 31, 2007 and 2006,
respectively.
The Company maintains an agreement with one financial institution under which it guarantees
the financial institution’s total pool of financing agreements with end users for loans in the pool
of record as of February 28, 2006. The Company, however, will no longer provide new guarantees
under this arrangement. The Company’s exposure under this agreement is limited to unpaid principal
and interest where the first and/or second annual customer payments on individual loans in the pool
have not yet been made as and when due. The maximum exposure on these pool guarantees is equal to
2.75% of the aggregate original principal balance of the loans in the pool and equaled
approximately $0.2 million and $0.8 million at August 31, 2007 and 2006, respectively.
Separately, the Company provides guarantees on specific customer loans made by two
unaffiliated financial institutions, including the institution for which the pool guarantee is
provided. Generally, the Company’s exposure on these specific customer guarantees is limited to
unpaid principal and interest on customer payments that have not been made as and when due. In
some cases, the guarantee may cover all scheduled payments of a loan. The amount of these
guarantees of specific customer loans equaled approximately $0.7 million and $0.8 million at August
31, 2007 and 2006, respectively. The Company recorded, at estimated fair value, deferred revenue of
$0 at August 31, 2007, compared to $25,000 at August 31, 2006, classified within other current
liabilities, for these guarantees. The estimated fair values of these guarantees are primarily
based on the Company’s experience with these guarantee agreements and related transactions. The
Company recognizes the revenue for the estimated fair value of the guarantees ratably over the
respective terms of the guarantees. Separately, related to these guarantees, the Company has
accrued a liability of approximately $0.1 million at both August 31, 2007 and 2006, also classified
within other current liabilities, for estimated losses on such guarantees.
Product 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
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experience of
actual warranty claims. During the second quarter of fiscal 2007, the Company reduced its product
warranty accrual by approximately $0.3 million as a result of reducing the estimated liability for
the end-gun solenoid repair campaign announced in the fourth quarter of fiscal 2005. This reserve
is classified within other current liabilities.
The following tables provide the changes in the Company’s product warranties:
| For the years ended August 31, | ||||||||
| $ in thousands | 2007 | 2006 | ||||||
Warranties: |
||||||||
Product warranty accrual balance,
beginning of fiscal year |
$ | 1,996 | $ | 2,456 | ||||
Liabilities accrued for warranties
during the period |
1,194 | 1,812 | ||||||
Warranty claims paid during the
period |
(1,546 | ) | (2,272 | ) | ||||
Product warranty accrual balance, end
of period |
$ | 1,644 | $ | 1,996 | ||||
R. 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. The irrigation segment consists of six operating segments
that have similar economic characteristics and meet the aggregation criteria of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, (“SFAS No. 131”).
Infrastructure: This segment includes the manufacture and marketing of movable barriers,
specialty barriers and crash cushions; providing outsource manufacturing services and the
manufacturing and selling of large diameter steel tubing. The infrastructure segment consists of
three operating segments that have similar economic characteristics and meet the aggregation
criteria of SFAS No. 131.
The accounting policies of the two reportable segments are described in the “Accounting
Policies” section of Note A. The Company evaluates the performance of its reportable segments
based on segment sales, gross profit, and operating income, with operating income for segment
purposes excluding general and administrative expenses (which include corporate expenses), interest
income net, other income and expenses, and income taxes. Operating income for segment purposes
does include selling expenses and other overhead charges directly attributable to the segment.
There are no inter-segment sales. Because the Company had utilized many common operating assets
for its irrigation and infrastructure segments, prior to the acquisitions of BSI and Snoline it was
not practical to separately identify assets by reportable segment prior to fiscal year 2006.
Similarly, other segment reporting proscribed by SFAS No. 131 is not shown as this information can
not be reasonably disaggregated by segment and is not utilized by the Company’s management.
The Company has no single major customer representing 10% or more of its total revenues during
fiscal 2007, 2006, or 2005.
Summarized financial information concerning the Company’s reportable segments is shown in the
following tables:
| For the years ended August 31, | ||||||||||||
| $ in millions | 2007 | 2006 | 2005 | |||||||||
Operating revenues: |
||||||||||||
Irrigation |
$ | 216.5 | $ | 193.7 | $ | 156.3 | ||||||
Infrastructure |
65.4 | 32.3 | 21.0 | |||||||||
Total operating
revenues |
$ | 281.9 | $ | 226.0 | $ | 177.3 | ||||||
Operating income: |
||||||||||||
Irrigation |
$ | 33.4 | $ | 25.5 | $ | 17.3 | ||||||
Infrastructure |
14.2 | 7.1 | 2.6 | |||||||||
Segment operating income |
47.6 | 32.6 | 19.9 | |||||||||
Unallocated general & administrative
expenses |
(23.9 | ) | (17.1 | ) | (14.4 | ) | ||||||
Interest and other income,
net |
0.3 | 1.9 | 1.5 | |||||||||
Earnings before income
taxes |
$ | 24.1 | $ | 17.4 | $ | 7.0 | ||||||
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| $ in millions | 2007 | 2006 | 2005 | |||||||||
Total Capital Expenditures: |
||||||||||||
Irrigation
|
$ | 4.3 | $ | 3.3 | $ | 4.1 | ||||||
Infrastructure
|
10.3 | 0.3 | — | |||||||||
| $ | 14.6 | $ | 3.6 | $ | 4.1 | |||||||
Total Depreciation & Amortization: |
||||||||||||
Irrigation
|
$ | 3.6 | $ | 3.4 | $ | 3.3 | ||||||
Infrastructure
|
3.6 | 0.7 | — | |||||||||
| $ | 7.2 | $ | 4.1 | $ | 3.3 | |||||||
Total Assets: |
||||||||||||
Irrigation
|
$ | 143.9 | $ | 134.4 | $ | 134.8 | ||||||
Infrastructure
|
98.3 | 57.8 | — | |||||||||
| $ | 242.2 | $ | 192.2 | $ | 134.8 | |||||||
Summarized financial information concerning the Company’s geographical areas is shown in the
following tables:
| $ in millions | 2007 | 2006 | 2005 | |||||||||
Geographic area revenues: |
||||||||||||
United States |
$ | 192.5 | $ | 167.5 | $ | 126.5 | ||||||
Europe, Africa, Australia & Middle
East |
57.4 | 33.5 | 30.1 | |||||||||
Mexico & Latin
America |
19.4 | 21.1 | 16.1 | |||||||||
Other
International |
12.6 | 3.9 | 4.6 | |||||||||
Total revenues |
$ | 281.9 | $ | 226.0 | $ | 177.3 | ||||||
Geographic area long-lived assets: |
||||||||||||
United States |
$ | 64.7 | $ | 56.3 | $ | 16.1 | ||||||
Europe, Africa, Australia & Middle
East |
21.1 | 1.6 | 2.0 | |||||||||
Mexico & Latin America |
1.2 | 1.2 | 1.2 | |||||||||
Other
International |
— | — | — | |||||||||
Total long-lived assets |
$ | 87.0 | $ | 59.1 | $ | 19.3 | ||||||
S. SHARE BASED COMPENSATION
Share Based Compensation Program
Share based compensation is designed to reward employees for their long-term contributions to the
Company and provide incentives for them to remain with the Company. The number and frequency of
share grants are based on competitive practices, operating results of the Company, and individual
performance. As of August 31, 2007, the Company’s share-based compensation plan was the 2006
Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan was approved by the stockholders of the
Company, and became effective on February 6, 2006, and replaced the Company’s 2001 Long Term
Incentive Plan. The Company currently has outstanding options under its 2001 and 1991 Long-Term
Incentive Plans.
The 2006 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 2006 Plan is 750,000 shares. Stock awards other than stock options will be
counted against the 2006 Plan in a 2 to 1 ratio. If options, restricted stock units or performance
stock units awarded under the 2006 Plan or the 2001 Plan terminate without being fully vested or
exercised, those shares will be available again for grant under the 2006 Plan. The 2006 Plan also
limits the total awards that may be made to any individual. Any options granted under the 2006
Plan would have an exercise price equal to the fair market value of the underlying stock on the
grant date and expire no later than ten years from the grant date. The restricted stock units
granted to employees and directors under the 2006 Plan have a grant date fair value equal to the
fair market value of the underlying stock on the grant date less present value of expected
dividends. The restricted stock units granted to employees vest over
a three-year period at approximately 33% per year. The restricted stock units granted to non-employee directors vest over
a nine-month period.
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On December 1, 2006, the Company issued 20,361 performance stock units under its 2006 Plan to
a certain group of employees. A specified number of shares of common stock will be awarded under
the terms of the performance stock units on November 1, 2009, if performance measures relating to
three-year average revenue growth and a three-year average return on net assets are achieved.
There is a maximum potential for 40,722 shares to be paid out if maximum threshold performance
measures are achieved and a potential of zero shares to be paid out if minimum threshold
performance measures are not achieved. The performance stock units granted to employees have a
grant date fair value equal to the fair market value of the underlying stock on the grant date less
present value of expected dividends. The recipient of the award is not entitled to receive
dividends on the performance stock units during the vesting period.
Accounting for Share Based Compensation
SFAS 123(R) requires companies to estimate the fair value of share-based compensation awards on the
date of grant. The value of the portion of the award that is ultimately expected to vest is
recognized as expense in the Company’s Consolidated Statement of Operations over the periods during
which the employee or director is required to perform service in exchange for the award.
Share-based compensation expense recognized in the Company’s Condensed Consolidated Statement
of Operations for the fiscal years ended August 31, 2007 and 2006, included compensation expense
for share-based compensation awards granted prior to, but not yet vested as of August 31, 2005,
based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS
123 and compensation expense for the share-based payment awards granted subsequent to August 31,
2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).
The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) as its
valuation method for stock option awards. Under the Black-Scholes model, the fair value of stock
option awards on the date of grant is estimated using an option-pricing model that is affected by
the Company’s stock price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to the Company’s expected stock
price volatility over the term of the awards and actual and projected employee stock option
exercise behaviors. Restricted stock, restricted stock units, performance shares and performance
units issued under the 2006 Plan will have a grant date fair value equal to the fair market value
of the underlying stock on the grant date less present value of expected dividends.
Share Based Compensation Information
The following table summarizes information about stock options outstanding as of and for the years
ended August 31, 2007, 2006 and 2005.
| Average | Aggregate | |||||||||||||||
| Average | Remaining | Intrinsic | ||||||||||||||
| Number | Exercise | Contractual | Value | |||||||||||||
| of Shares | Price | Term (years) | (‘000s) | |||||||||||||
Outstanding at
August 31,
2005 |
1,186,731 | $ | 19.84 | 6.2 | $ | 6,651 | ||||||||||
Granted |
45,000 | $ | 19.33 | |||||||||||||
Exercised |
(41,562 | ) | $ | 17.96 | $ | 323 | ||||||||||
Forfeitures |
(26,250 | ) | $ | 24.59 | ||||||||||||
Outstanding at
August 31,
2006 |
1,163,919 | $ | 19.78 | 5.5 | $ | 10,174 | ||||||||||
Granted |
— | — | ||||||||||||||
Exercised |
(180,462 | ) | $ | 20.20 | $ | 3,300 | ||||||||||
Forfeitures |
(16,250 | ) | $ | 23.20 | ||||||||||||
Outstanding at
August 31,
2007 |
967,207 | $ | 19.64 | 4.6 | $ | 20,202 | ||||||||||
Exercisable at
August 31,
2005 |
693,938 | $ | 17.98 | 5.0 | $ | 5,203 | ||||||||||
Exercisable at
August 31,
2006 |
775,923 | $ | 18.64 | 4.6 | $ | 7,662 | ||||||||||
Exercisable at
August 31,
2007 |
715,019 | $ | 19.00 | 4.0 | $ | 15,397 | ||||||||||
There were 121,660, 81,980 and 190,444 outstanding stock options that vested during the fiscal
years ended August
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31, 2007, 2006 and 2005, respectively. The intrinsic value of options exercised
for the fiscal years ended August 31, 2007, 2006 and 2005 was $3.3 million, $0.3 million and $0.9
million, respectively.
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The following table summarizes information about restricted stock units as of and for the
years ended August 31, 2007, 2006 and 2005:
| Weighted- | ||||||||
| Average | ||||||||
| Number of | Grant-Date | |||||||
| Shares | Fair Value | |||||||
Restricted stock units at August 31,
2005 |
— | $ | — | |||||
Granted |
58,826 | 23.11 | ||||||
Vested |
— | — | ||||||
Forfeited |
(1,100 | ) | 18.78 | |||||
Restricted stock units at August 31,
2006 |
57,726 | $ | 22.75 | |||||
Granted |
62,472 | 32.00 | ||||||
Vested |
(24,526 | ) | 21.21 | |||||
Forfeited |
(5,559 | ) | 27.47 | |||||
Restricted stock units at August 31,
2007 |
90,113 | $ | 27.53 | |||||
The vesting date fair value of restricted stock units that vested during fiscal year 2007 was $0.8
million.
The table below summarizes the status of the Company’s performance stock units as of and for
the year ended August 31, 2007:
| Weighted- | ||||||||
| Average | ||||||||
| Number of | Grant-Date | |||||||
| Shares | Fair Value | |||||||
Performance stock units at September 1,
2006 |
— | $ | 0.00 | |||||
Granted |
20,361 | 33.49 | ||||||
Vested |
— | 0.00 | ||||||
Forfeited |
(1,089 | ) | 33.49 | |||||
Performance stock units at August 31,
2007 |
19,272 | $ | 33.49 | |||||
In connection with the 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.
As of August 31, 2007, there was $3.9 million pre-tax of total unrecognized compensation cost
related to nonvested share-based compensation arrangements which is expected to be recognized over
a weighted-average period of 1.9 years.
Valuation and Expense Information
The Company adopted SFAS No. 123(R) as of the beginning of its 2006 fiscal year. The following
table summarizes share-based compensation expense under SFAS No. 123(R) for the fiscal years ended
August 31, 2007 and 2006:
| Year Ended | Year Ended | |||||||
| August 31, | August 31, | |||||||
| $ in thousands | 2007 | 2006 | ||||||
Share-based compensation expense included in cost of operating revenues |
$ | 142 | $ | 122 | ||||
Research and development |
147 | 104 | ||||||
Sales and marketing |
446 | 348 | ||||||
General and administrative |
1,439 | 1,165 | ||||||
Share-based compensation expense included in operating expenses |
2,032 | 1,617 | ||||||
Total Share-based compensation expense |
2,174 | 1,739 | ||||||
Tax benefit |
(824 | ) | (659 | ) | ||||
Share-based compensation expense, net of tax |
$ | 1,350 | $ | 1,080 | ||||
49
Table of Contents
The table below reflects the pro forma effects on net earnings and earnings per share for the year
ended August 31, 2005 as if SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”)
fair value recognition provisions had been applied as of the beginning of its fiscal year 2005:
| Year Ended | ||||
| August 31, | ||||
| $ in thousands | 2005 | |||
Net earnings, as reported
(1) |
$ | 4,838 | ||
Share-based compensation expense |
1,900 | |||
Tax benefit |
(720 | ) | ||
Share-based compensation expense, net tax
(2) |
1,180 | |||
Net earnings, including the effect of share-based compensation
expense (3) |
$ | 3,658 | ||
Earnings per share: |
||||
Basic net earnings per share-as reported (1) |
$ | 0.42 | ||
Basic net earnings per share, including the effect of
share-based compensation expense (3) |
$ | 0.31 | ||
Diluted net earnings per share-as reported for the prior period
(1) |
$ | 0.41 | ||
Diluted net earnings per share, including the effect of
share-based compensation expense (3) |
$ | 0.31 | ||
| (1) | Net earnings and net earnings per share prior to fiscal 2006 did not include share-based compensation expense under SFAS 123 because the Company did not adopt the recognition provisions of SFAS 123. | |
| (2) | Share-based compensation expense prior to fiscal 2006 was calculated based on the pro forma application of SFAS 123. | |
| (3) | Net earnings and net earnings per share prior to fiscal 2006 represents pro forma information based on SFAS 123. |
The fair value of each stock option award is estimated on the date of grant using the
Black-Scholes option pricing model that uses the assumptions noted in the following table.
Expected volatilities are based on historical volatilities of the Company’s stock price over the
expected life of the option. The expected volatility assumption was derived by referring to
changes in the Company’s historical common stock prices over the same timeframe as the expected
life of the awards. The Company uses historical data to estimate option exercise and employee
termination behavior within the pricing model; groups of employees that have similar historical
exercise behavior are considered separately for valuation purposes. The expected term of options
granted is derived from historical experience and represents the period of time that options
granted are expected to be outstanding. The risk-free rate for options is based on a U.S. Treasury
rate commensurate with the expected terms.
The use of the Black-Scholes model requires the use of a number of assumptions including
volatility, risk-free interest rate, and expected dividends. There were no stock options granted
for the year ended August 31, 2007 and 45,000 and 128,872 stock options granted in the years ended
August 31, 2006, and 2005, respectively. The weighted-average estimated value of employee stock
options granted during the years ended August 31, 2006 and 2005 were $10.26 and $10.51 per share,
respectively, with the following weighted-average assumptions:
| For the Year ended August 31, | ||||||||
| 2006 | 2005 | |||||||
Expected volatility |
35.13 | % | 34.65 - 35.86 | % | ||||
Expected dividends |
0.76 | % | 0.68 - 0.77 | % | ||||
Expected term (in years) |
7.00 | 7.00 | ||||||
Risk-free interest rate |
4.52 | % | 4.12 - 4.30 | % | ||||
50
Table of Contents
T. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The follow is a tabulation of the unaudited quarterly results of operations for the years ended
August 31, 2007 and 2006:
| For the three months ended the last day of | ||||||||||||||||
| $ in thousands, except per share amounts | November | February | May | August | ||||||||||||
Fiscal 2007 |
||||||||||||||||
Operating revenues |
$ | 51,532 | $ | 63,674 | $ | 93,147 | $ | 73,504 | ||||||||
Cost of operating revenues |
39,067 | 49,219 | 68,725 | 55,114 | ||||||||||||
Earnings before income taxes |
2,744 | 3,615 | 11,535 | 6,239 | ||||||||||||
Net earnings |
1,783 | 2,512 | 7,477 | 3,848 | ||||||||||||
Diluted net earnings per share |
$ | 0.15 | $ | 0.21 | $ | 0.62 | $ | 0.32 | ||||||||
Market price (NYSE) |
||||||||||||||||
High |
$ | 36.62 | $ | 37.77 | $ | 35.65 | $ | 50.65 | ||||||||
Low |
$ | 28.01 | $ | 28.55 | $ | 29.55 | $ | 32.83 | ||||||||
Fiscal 2006 |
||||||||||||||||
Operating revenues |
$ | 39,504 | $ | 54,912 | $ | 75,013 | $ | 56,572 | ||||||||
Cost of operating revenues |
32,077 | 45,048 | 57,977 | 42,658 | ||||||||||||
Earnings before income taxes |
792 | 2,504 | 9,142 | 4,971 | ||||||||||||
Net earnings |
511 | 1,717 | 6,415 | 3,057 | ||||||||||||
Diluted net earnings per share |
$ | 0.04 | $ | 0.15 | $ | 0.55 | $ | 0.26 | ||||||||
Market price (NYSE) |
||||||||||||||||
High |
$ | 25.88 | $ | 26.10 | $ | 28.01 | $ | 28.97 | ||||||||
Low |
$ | 18.31 | $ | 18.67 | $ | 21.59 | $ | 20.27 | ||||||||
2007: The second-quarter includes the acquisition of Snoline, S.P.A on December 27, 2006.
2006: The fourth-quarter includes the acquisition of Barrier Systems Inc. on June 1, 2006.
51
Table of Contents
ITEM 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
NONE
ITEM
9A — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design
and operation of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting, as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Based upon that evaluation, the Company’s Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are
effective in enabling the Company to record, process, summarize and report information required to
be included in the Company’s periodic SEC filings within the required time period.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. The Company’s internal control system was designed to provide
reasonable assurance to the Company’s management and board of directors regarding the preparation
and fair presentation of published financial statements.
The Company acquired Snoline S.P.A. (“Snoline”) during the second quarter of fiscal 2007, and
management excluded from its assessment of the effectiveness of the Company’s internal control over
financial reporting as of August 31, 2007, Snoline’s internal control over financial reporting
associated with total assets of $29.5 million and total revenues of $11.9 million included in the
consolidated financial statements of the Company as of and for the year ended August 31, 2007.
Management has assessed the effectiveness of the Company’s internal control over financial
reporting as of August 31, 2007, based on the criteria for effective internal control described in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, management concluded that the Company’s internal
control over financial reporting was effective as of August 31, 2007.
The Audit Committee has engaged KPMG LLP, the independent registered public accounting firm
that audited the consolidated financial statements included in this Annual Report on Form 10-K, to
attest to and report on management’s evaluation of the Company’s internal control over financial
reporting. The report of KPMG LLP is included herein.
Report of Independent Registered Public Accounting
The Board of Directors and Shareholders
Lindsay Corporation:
Lindsay Corporation:
We have audited Lindsay Corporation’s (the Company) internal control over financial reporting as of
August 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material
52
Table of Contents
weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of August 31, 2007, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
The Company acquired Snoline S.P.A. (Snoline) during the second quarter of fiscal 2007, and
management excluded from its assessment of the effectiveness of the Company’s internal control over
financial reporting as of August 31, 2007, Snoline’s internal control over financial reporting
associated with total assets of $29.5 million and total revenues of $11.9 million included in the
consolidated financial statements of the Company and its subsidiaries as of and for the year ended
August 31, 2007. Our audit of internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial reporting of Snoline.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of the Company as of August 31, 2007 and
2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive
income, and cash flows for each of the years in the three-year period ended August 31, 2007, and
our report dated November 12, 2007 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Omaha, Nebraska
November 12, 2007
November 12, 2007
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that
occurred during the quarter ended August 31, 2007 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B – Other Information
NONE
53
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PART III
ITEM 10 — Directors and Executive Officers of the Registrant
The Company will file with the Securities and Exchange Commission a definitive Proxy Statement not
later than 120 days after the close of its fiscal year ended August 31, 2007. Information about the
Board of Directors required by Items 401 and 407 of Regulation S-K is incorporated by reference to
the Proxy Statement. Information about Executive Officers is shown on pages 11 and 12 of this
filing.
Section 16(a) Beneficial Ownership Reporting Compliance - Item 405 of Regulation S-K calls for
disclosure of any known late filing or failure by an insider to file a report required by Section
16 of the Securities Exchange Act. The information required by Item 405 is incorporated by
reference to the Proxy Statement.
Code of Ethics – Item 406 of Regulation S-K calls for disclosure of whether the Company has
adopted a code of ethics applicable to the principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions. The
Company has adopted a code of ethics applicable to the Company’s principal executive officer and
senior financial officers known as the Code of Ethical Conduct (Principal Executive Officer and
Senior Financial Officers). The Code of Ethical Conduct (Principal Executive Officer and Senior
Financial Officers) is available on the Company’s website. In the event that the Company amends or
waives any of the provisions of the Code of Ethical Conduct applicable to the principal executive
officer and senior financial officers, the Company intends to disclose the same on the Company’s
website at www.lindsay.com. No waivers were provided for the fiscal year ended August 31, 2007.
ITEM 11 — Executive Compensation
The information required by this Item is incorporated by reference to the Proxy Statement.
ITEM 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item relating to security ownership of certain beneficial owners
and management is incorporated by reference to the Proxy Statement.
Equity Compensation Plan Information — The following equity compensation plan information
summarizes plans and securities approved and not approved by security holders as of August 31,
2007:
| (a) | (b) | (c) | ||||||||||
| Number of securities | Weighted-average | Number of securities remaining | ||||||||||
| to be issued upon | exercise price of | available for future issuance | ||||||||||
| exercise of | outstanding | under equity compensation | ||||||||||
| outstanding options, | options, warrants, | plans (excluding securities | ||||||||||
| PLAN CATEGORY | warrants, and rights | and rights | reflected in column (a)) | |||||||||
Equity compensation plans
approved by security holders (1) |
667,207 | $ | 22.18 | 580,615 | ||||||||
Equity compensation plans not
approved by security holders (2) |
300,000 | $ | 14.00 | — | ||||||||
Total |
967,207 | $ | 19.64 | 580,615 | ||||||||
| (1) | Plans approved by shareholders include the Company’s 1991, 2001 and 2006 Long-Term Incentive Plans. While certain options and rights remain outstanding under the Company’s 1991 and 2001 Long-Term Incentive Plans, no future equity compensation awards may be granted under these plans. | |
| (2) | Consists of options issued to Richard W. Parod pursuant to his employment agreement, which was not approved by shareholders. |
ITEM 13 — Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the Proxy Statement.
54
Table of Contents
ITEM
14 — Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to the Proxy Statement.
PART IV
ITEM
15 — Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
The following financial statements of Lindsay Corporation and Subsidiaries are included in
Part II Item 8.
| Page | ||||
| 24 | ||||
| 25 | ||||
| 26 | ||||
| 27 | ||||
| 28 | ||||
| 29-51 | ||||
| 56 | ||||
Financial statements and schedules other than those listed are omitted for the reason that
they are not required, are not applicable or that equivalent information has been included in the
financial statements or notes thereto.
55
Table of Contents
a(2) Exhibit
Lindsay Corporation and Subsidiaries
VALUATION and QUALIFYING ACCOUNTS
Years ended August 31, 2007, 2006 and 2005
(Dollars in thousands)
| Additions | ||||||||||||||||||||
| Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
| beginning | costs and | other | end | |||||||||||||||||
| Description | of period | expenses | accounts | Deductions | of period | |||||||||||||||
Year ended August 31, 2007: |
||||||||||||||||||||
Deducted in the balance sheet from the
assets to which they apply: |
||||||||||||||||||||
- Reserve for guarantee losses(c) |
$ | 110 | $ | 2 | $ | — | $ | — | $ | 112 | ||||||||||
- Allowance for doubtful accounts(a) |
$ | 595 | $ | 412 | $ | — | $ | 61 | $ | 946 | ||||||||||
- Allowance for inventory obsolescence(b) |
$ | 636 | $ | 97 | $ | — | $ | 22 | $ | 711 | ||||||||||
Year ended August 31, 2006: |
||||||||||||||||||||
Deducted in the balance sheet from the
assets to which they apply: |
||||||||||||||||||||
- Reserve for guarantee losses(c) |
$ | 190 | $ | — | $ | — | $ | 80 | $ | 110 | ||||||||||
- Allowance for doubtful accounts(a) |
$ | 702 | $ | (12 | ) | $ | — | $ | 95 | $ | 595 | |||||||||
- Allowance for inventory obsolescence(b) |
$ | 613 | $ | 39 | $ | — | $ | 16 | $ | 636 | ||||||||||
Year ended August 31, 2005: |
||||||||||||||||||||
Deducted in the balance sheet from
the assets to which they apply: |
||||||||||||||||||||
- Reserve for guarantee losses(c) |
$ | 540 | $ | (38 | ) | $ | — | $ | 312 | $ | 190 | |||||||||
- Allowance for doubtful accounts(a) |
$ | 1,386 | $ | 108 | $ | — | $ | 792 | $ | 702 | ||||||||||
- Allowance for inventory obsolescence(b) |
$ | 527 | $ | 228 | $ | — | $ | 142 | $ | 613 | ||||||||||
| Notes: | ||
| (a) | Deductions consist of uncollectible items written off, less recoveries of items previously written off. | |
| (b) | Deductions consist of obsolete items sold or scrapped. | |
| (c) | Represents estimated losses on financing guarantees. | |
56
Table of Contents
a(3) EXHIBIT INDEX
| Exhibit | ||
| Number | Description |
|
3(a)
|
Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 14, 2006. | |
3(b)
|
Restated By-Laws of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 6, 2007. | |
4(a)
|
Specimen Form of Common Stock Certificate incorporated by reference to Exhibit 4(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006. | |
10(a)*
|
Lindsay Manufacturing Co. 2006 Long-Term Incentive Plan and forms of award agreements. Filed herewith to include the form of Performance Stock Unit award agreement. | |
10(b)
|
Indemnification Agreement between the Company and its directors and officers, dated October 24, 2003 incorporated by reference to Exhibit 10 to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003. | |
10(c)
|
Lindsay Manufacturing Co. Profit Sharing Plan, incorporated by reference to Exhibit 10(i) of the Company’s Registration Statement on Form S-1 (Registration No. 33-23084), filed July 15, 1988. | |
10(d)
|
Lindsay Manufacturing Co. Amended and Restated 1991 Long-Term Incentive Plan, incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2000. | |
10(e)
|
Employment Agreement between the Company and Richard W. Parod effective March 8, 2000, incorporated by reference to Exhibit 10(a) to the Company’s Report on Form 10-Q for the fiscal quarter ended May 31, 2000. | |
10(f)
|
First Amendment to Employment Agreement, dated May 2, 2003, between the Company and Richard W. Parod, incorporated by reference to Exhibit 10 (a) of Amendment No. 1 to the Company’s Report on Form 10-Q for the fiscal quarter ended May 31, 2003. | |
10(g)
|
Second Amendment to Employment Agreement, dated December 22, 2004, between the Company and Richard W. Parod, incorporated by reference to Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on December 27, 2004. | |
10(h)
|
Third Amendment to Employment Agreement, dated March 20, 2007, between the Company and Richard W. Parod, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 22, 2007. | |
10(i)
|
Lindsay Manufacturing Co. Supplemental Retirement Plan, incorporated by reference to Exhibit 10(j) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1994. | |
10(j)
|
Lindsay Manufacturing Co. 2001 Amended and Restated Long-Term Incentive Plan, incorporated by reference to Exhibit 10(i) of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001. | |
10(k)
|
Amendment to Lindsay Manufacturing Co. 2001 Amended and Restated Long-Term Incentive Plan, incorporated by reference to Exhibit 10(k) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2005. | |
10(l)
|
Lindsay Corporation Management Incentive Plan (MIP), 2007 Plan Year, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 6, 2007. |
57
Table of Contents
a(3) EXHIBIT INDEX
| Exhibit | ||
| Number | Description |
|
10(m)
|
Term Note, dated June 1, 2006, by and between the Company and Wells Fargo Bank, N.A., incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 2, 2006. | |
10(n)
|
Credit Agreement, dated June 1, 2006, by and between the Company and Wells Fargo Bank, N.A., incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 2, 2006. | |
10(o)
|
Amended and Restated ISDA Confirmation dated May 8, 2006, by and between the Company and Wells Fargo Bank, N.A., incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 2, 2006. | |
10(p)
|
ISDA Master Agreement, dated May 5, 2006, by and between the Company and Wells Fargo Bank, N.A., incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 2, 2006. | |
10(q)
|
Schedule to the ISDA Master Agreement, Dated May 5, 2006, by and between the Company and Wells Fargo Bank, N.A., incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 2, 2006. | |
10(r)
|
Employment Agreement, dated May 1, 2006, between the Company and Owen S. Denman incorporated by reference to Exhibit 10(q) of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2006. | |
10(s)
|
Share Purchase Agreement incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 29, 2006. | |
10(t)
|
Term Note incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on December 29, 2006. | |
10(u)
|
Credit Agreement incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on December 29, 2006. | |
10(v)
|
First Bank Guarantee incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on December 29, 2006. | |
21*
|
Subsidiaries of the Company | |
23*
|
Consent of KPMG LLP | |
24(a)*
|
The Power of Attorney authorizing Richard W. Parod to sign the Annual Report on Form 10-K for fiscal 2007 on behalf of certain directors. | |
31(a)*
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. | |
31(b)*
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350. | |
32(a)*
|
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. |
| * - filed herein | ||
58
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on this 12th day of November, 2007.
| LINDSAY CORPORATION | ||||||
| By: | /s/ david b. downing
|
|||||
| Name: | David B. Downing | |||||
| Title: | Senior Vice President, Chief Financial Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities indicated
on this 12th day of November, 2007.
/s/ RICHARD W. PAROD
|
Director, President and Chief Executive Officer | |||||
Richard W. Parod |
||||||
/s/ DAVID B. DOWNING
|
Vice President, Chief Financial Officer | |||||
David B. Downing |
||||||
/s/ TIMOTHY J. PAYMAL
|
Corporate Controller | |||||
Timothy J. Paymal |
||||||
/s/ Michael N. Christodolou
|
(1 | ) | Chairman of the Board of Directors | |||
Michael N. Christodolou |
||||||
/s/ Howard G. Buffett
|
(1 | ) | Director | |||
Howard G. Buffett |
||||||
/s/ Larry H. Cunningham
|
(1 | ) | Director | |||
Larry H. Cunningham |
||||||
/s/ J.David McIntosh
|
(1 | ) | Director | |||
J. David McIntosh |
||||||
/s/ Michael C. Nahl
|
(1 | ) | Director | |||
Michael C. Nahl |
||||||
/s/ William f. welsh ii
|
(1 | ) | Director | |||
William F. Welsh II |
||||||
(1) By:
|
/s/ Richard W. Parod
|
59