LNN

Business Context and Reporting Period

Lindsay Corporation (NYSE: LNN) is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems and infrastructure products, including movable barriers and road safety devices. The company operates in two primary segments: Irrigation and Infrastructure. This summary covers the fiscal year ended August 31, 2008.

During the fiscal year, the company completed the acquisition of Watertronics, LLC (January 2008) to enhance water pumping station controls and acquired assets from Traffic Maintenance Attenuators, Inc. and Albert W. Unrath, Inc. (November 2007) to expand highway safety offerings.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 69% to $475.1 million, driven by a 73% increase in Irrigation revenues ($374.9M) and a 53% increase in Infrastructure revenues ($100.2M). Growth was fueled by high agricultural commodity prices, strong demand for water efficiency, and the inclusion of Watertronics.
• Profitability: Net earnings surged 152% to $39.4 million. Operating income increased 162% to $62.2 million. Gross margin improved to 26.1% due to pricing discipline and operational efficiencies, despite higher steel costs impacting the Infrastructure segment margin.
• Order Backlog: The order backlog reached a record $92.3 million, an 87% increase from the prior year, with the Irrigation segment backlog rising significantly to $71.7 million.
• Acquisitions: The acquisition of Watertronics added $11.7 million in revenue and $21.9 million in assets. The company also acquired assets related to highway safety patents.

Guidance, Outlook, and Risks

Outlook: Management expects long-term demand drivers to remain strong due to global population growth, biofuel production needs, and water conservation requirements. The company anticipates filling the existing $92.3 million backlog primarily in the first quarter of fiscal 2009.

Risks and Contingencies:

• Economic Conditions: The company faces risks from instability in global financial markets, recessionary concerns, and a significant decline in agricultural commodity prices, which could reduce farmer spending and government infrastructure funding.
• Raw Materials: Profitability is sensitive to the cost of steel, zinc, and energy. While the company has implemented price increases, competitive pressures may limit the ability to pass all cost increases to customers.
• Environmental: The company is subject to an EPA consent decree regarding groundwater remediation at its Lindsay, Nebraska facility. Accrued liabilities were $0.3 million at year-end, though costs may be revised.
• Foreign Currency: Approximately 29% of revenues are international. The company uses forward contracts and swaps to hedge exposure to the Euro, Brazilian real, and South African rand.

Investor Verification Checklist

• Backlog Conversion: Verify the rate at which the record $92.3 million backlog converts to revenue in fiscal 2009, particularly given the recent decline in agricultural commodity prices.
• Raw Material Costs: Monitor steel and zinc price trends and the company's ability to maintain gross margins in the Infrastructure segment.
• Government Funding: Track the status of U.S. federal highway funding (SAFETEA-LU expiration) and its impact on the Infrastructure segment's project pipeline.
• Acquisition Integration: Assess the financial performance and integration progress of the Watertronics acquisition.
• Debt Covenants: Confirm continued compliance with financial covenants on the BSI Term Note, Snoline Term Note, and Revolving Credit Agreement.