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Lindsay Corporation 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for Lindsay Corporation, a leading designer and manufacturer of self-propelled center pivot irrigation systems and infrastructure products (movable barriers, crash cushions). The report covers the three and six-month periods ended February 28, 2009. The Company operates two reportable segments: Irrigation and Infrastructure.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Operating revenues for the three months ended Feb 28, 2009, dropped 40% to $65.1 million compared to $108.4 million in the prior year. The six-month decline was 3.3% to $178.3 million.
• Profitability Compression: Gross margin decreased to 20.4% (Q2) and 23.5% (YTD) from 27.7% and 26.8% in the prior year, respectively, driven by reduced factory volume and lower-margin product mix.
• Operating Loss: The Company reported an operating loss of $0.4 million for the quarter, a significant shift from the $15.9 million operating income in the same period last year.
• Segment Performance:
  • Irrigation: Revenues fell 41.4% in the quarter due to a >50% decline in systems shipped, attributed to falling commodity prices and unfavorable economic conditions for farmers.
  • Infrastructure: Revenues fell 35.2% in the quarter. The segment reported an operating loss of $0.1 million, compared to $5.8 million income previously, largely due to the absence of high-margin project revenues (e.g., Puerto Rico project) and delays in the Mexico City project.
• Cash Flow: Net cash used in operating activities was $2.0 million for the six months ended Feb 28, 2009, an improvement from $10.4 million used in the prior year period, primarily due to lower cash usage in accounts receivable.

Outlook, Risks, and Management Commentary

• Market Conditions: Management cites a worldwide economic crisis and a 20% projected decline in 2009 Net Farm Income as primary drivers for reduced capital investment by farmers. Commodity prices for corn, soybeans, and wheat have dropped significantly (30-50%) while input costs remain high.
• Order Backlog: Total order backlog decreased to $45.5 million as of Feb 28, 2009, down from $98.5 million a year ago. The Irrigation backlog dropped to $17.6 million, while the Infrastructure backlog increased to $28.0 million, bolstered by the delayed Mexico City project.
• Liquidity: The Company maintains $41.1 million in cash and cash equivalents. It has a $30.0 million revolving credit facility (currently unutilized) and two term notes. Management believes current resources are sufficient to meet working capital needs and planned capital expenditures ($9.0-$10.0 million for fiscal 2009).
• Environmental Contingency: The Company accrued an additional $0.7 million in Q1 for environmental remediation at its Lindsay, Nebraska facility. Total accrued liabilities for this matter were $1.0 million as of Feb 28, 2009. Additional costs may be required if the EPA mandates further actions.
• Foreign Currency: The Company utilizes derivatives to hedge interest rate and foreign currency risks. Significant transactional exposures exist in the Euro, Brazilian real, and South African rand.

Investor Verification Checklist

• Verify the status and expected revenue recognition timeline for the delayed Mexico City infrastructure project.
• Monitor commodity price trends (corn, soybeans, wheat) and USDA Net Farm Income projections for the remainder of fiscal 2009.
• Review the supplemental remedial action work plan with the EPA to assess potential for additional environmental liabilities beyond the $1.0 million accrued.
• Track the Company's ability to maintain loan covenants (funded debt to EBITDA, fixed charge coverage) given the decline in operating income.
• Assess the impact of the strong U.S. dollar on international irrigation revenues, particularly in Brazil, South Africa, and France.