Lindsay Corp (LNN) 2008 Q2 法說會逐字稿

Good morning. My name is Janet, and I will be conference operator today. At this time, I wold like to welcome everyone to the Lindsay Corporation second quarter 2008 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) During this call management may make forward-looking statements that aer subject to risks and uncertainties and which reflect managements current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company and those statements preceded by, followed by, or including the words expectation, outlook, could, may, should or similar expressions. For these statements we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Thank you.

I would like to turn the call over to Mr. Rick Parod, Chief Executive Officer. You may begin your conference.

Good morning, and thank you for joining us today. Revenues for the second quarter of fiscal 2008 rose 70% to $108.4 million as compared to $63.7 million for the same prior-year quarter. Net earnings were $9.7 million, or $0.79 per diluted share, compared with $2.5 million, or $0.21 per diluted share in the prior-year second quarter. The quarter also included an increase in our income tax expense of $610,000, or $0.05 per diluted share, related to Section 162M of the Internal Revenue Code, which limits the deductible portion of executive compensation. Total revenues for the first half of fiscal 2008 were $184.3 million, rising 60% above the same period last year. Net earnings for the first half were $14 million, or $1.15 per diluted share, compared to $4.3 million, or $0.36 per diluted share for the first six months of fiscal 2007.

At the end of January we acquired Watertronics, Inc., a manufacturer of water pumping stations based in Hartland, Wisconsin. While we have not disclosed all the details of the acquisition, the 12-months trailing revenue of the Company was between $18 million and $20 million, and the $18 million investment included the acquisition of the business and related real estate. Since the acquisition was only inclusive for February the operating results for Watertronics, Inc. had a minimal impact on the quarter. We expect the acquisition to be accretive in fiscal 2008.

In the domestic irrigation market revenues were $53.5 million for the second quarter, increasing 44% over the same quarter last year. Economic conditions for U.S. farmers remain very robust due to high corn, soybean, wheat and cotton prices. Corn prices are up more than 30% from the same time last year, soybean prices up are up more than 100%, and wheat has increased more than 130% in price per bushel. Net farm income is currently projected to be up 4.1% for the '08 crop year, achieving a new record level of $92.3 billion. Corn usage for ethanol production for the '08 crop year is estimated to be over 30% of production, continuing to support strong commodity prices. In addition, the recently-passed economic stimulus package provides opportunities for farmers to accelerate depreciation on equipment purchasers, which is likely to favorably impact calendar 2008 demand.

International irrigation revenues were $29.1 million for the quarter, up 113% over the same period last year. Exports were up in all regions and were up in total more than 130% over the same quarter last year aided by the weaker dollar. In addition, we've seen significant growth in our sales from each of our international irrigation business units. For the first six months of fiscal 2008 international irrigation revenues were $51 million, up 97% from the same time last year. The higher global commodity prices have improved economic conditions for growers in most international markets, boosting demand for efficient irrigation technology. In addition, the weaker dollar is aiding our competitiveness against regional competitors.

Infrastructure revenues rose 103% to $25.8 million, up from $12.7 million in the second quarter of last year. Barrier Systems revenues were strong in the quarter, rising more than 160% over the same quarter last year. During the quarter Barrier Systems continued to earn revenue from the project in Puerto Rico and has continued to see strong domestic and international interest in their movable barrier and crash cushion product lines. Revenues from Snoline were also higher in the quarter due to the inclusion of one more month than in a comparable period last year, since the acquisition was acquired at the -- the business was acquired at the end of December '06. Revenues for our diversified manufacturing business also rose more than 30% in the quarter on higher tubing sales. Year to date at the end of the second quarter infrastructure revenues were $45.2 million, up 72% from the same time last year. Barrier Systems revenues were up more than 60% and diversified manufacturing revenues up more than 30% than in the first half of fiscal '07.

Gross profit rose to $30 million for the second quarter versus $14.5 million in the same quarter last year. Gross margin continued to climb in the quarter, rising to 27.7% compared to 22.7% for the second quarter of last year. The gross margin improvement is the result of improved efficiencies in our manufacturing operations, favorable volume mix and pricing, and our cost reduction initiatives. Year to date at the end of the second quarter gross profit was $49.3 million compared to $26.9 million in the prior-year period. While revenues rose 60% in the first half of fiscal 2008, gross profit rose 83%, reflecting leverage from the higher volume and a favorable revenue mix. Gross margin was 26.8% year to date compared to 23.4% in the first half of last year.

Total operating expenses for the quarter were $14.2 million versus $10.7 million in the same quarter last year, primarily due to the inclusion of Watertronics and higher personnel-related expenses. For the quarter operating expenses were 13.1% of sales compared to 16.9% in the prior-year second quarter. For the first half of fiscal 2008 operating expenses were $27 million, or 14.6%, compared to $20.6 million and 17.9% in the first half of fiscal 2007. We continued to leverage operating expenses in the quarter and the first half of the year. Our order backlog rose to $98.5 million on February 29, 2008 as compared to $38.4 million on February 28, 2007. The irrigation equipment backlog was up $58.6 million on significantly higher order flow and the inclusion of Watertronics backlog of $3 million. Accounts receivable increased $21.5 million from the same time last year due to the higher revenues and inclusion of $1.8 million from Watertronics. Inventories increased $15.7 million over the same time last year in support of the higher backlog and from the inclusion of $2.2 million of inventory from Watertronics.

In summary, strong agricultural commodity prices continue to support strong demand for efficient irrigation equipment. We are pleased with the continued strengthening in irrigation equipment demand in both the domestic and international markets. We expect to realize continued organic growth in demand for our irrigation equipment globally over the previous year. In addition, we will continue to invest in product line extensions and additions through acquisitions similar to Watertronics, Inc.. in our infrastructure segment we are very pleased with the strength of demand and interest in Barrier Systems' unique movable barrier product line, and we're also pleased with the revenue and earnings growth of Barrier Systems -- Barrier Systems has earned since our acquisition. We continue to see many domestic and international opportunities for growth in our infrastructure business including leveraging across our international platform.

I would now like to open it up for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Joe Giamichael with Rodman & Renshaw.

Thank you, gentlemen. I believe someone had begun to ask you about your capacity utilization on the irrigation side and I wasn't able to hear the answer. At what point do you have to significantly expand to meet the projected demand?

Well, let me answer it from a little different perspective, but I will answer your questions, Joe. The question earlier today was at what level of capacity we're operating at or how does capacity effect us going forward, and my response is that we're operating and did operate during the quarter at a fairly high level of capacity in all of our manufacturing operations, but certainly not at the maximum level. What we did find during the quarter, however, is as the volume and order flow picked up is that our supply chain, in general, was strained in that process. We're not losing sales certainly by the -- our backlog at this point or by our capacity situation today and we can add incremental capacity to many of our manufacturing processes relatively easily, but the difficulty becomes having the supply chain able to follow along.

So the question of when do we add capacity, I think it will vary by process within our manufacturing process and we can add manufacturing capacity to most of the processes relatively easily and fairly quickly. In some cases they will be a little less efficient than the more-automated processes we have today, but we can add a secondary process -- or a less-automated process to supplement. But the big issue we have with the order flow that we saw in the first -- or the second quarter, rather, is that the order flow ramped up fairly quickly and our supply chain had difficulty keeping up with it.

Okay, I think that's fair. Along those lines, what do you envision peak gross margins on the irrigation side being, assuming today's input costs?

Well, I can't answer it in terms of a specific gross margin. I think the question would be, are we at that peak level, and I would say I don't view it as being at a peak. I think we still have upside potential in our gross margins in irrigation and our gross margins in total. Some of that upside potential is in implementation of the Lean initiatives that we're doing inside our operations. Some of it is in implementation of automated processes that we continue to implement on a regular basis or ongoing cost reductions in product cost reductions, and it extends beyond our domestic operations to our international operations, as well. In addition to that we have upside potential in our overall margin through the mix changes that are taking place with a higher percentage of our sales coming from the infrastructure piece of business than what was -- than what we had seen in the past with a higher overall margin level, so we're seeing margin improvements there.

Now the other side of the question that you're asking is related to the input costs and we do see rising steel and rising (inaudible) costs. However with our pricing policy and procedure today we don't commit to pricing for more than 30 days after receipt of order. So if we're not covered with steel either on hand or committed to in terms of procurement process, we have that option at the end of the 30 days to reprice that order if necessary. Now obviously we try not do it because it can put our dealer into a difficult pos -- excuse me, position, however we do do that from time to time and there are times when we need to cover. So we generally are taking orders and committing only to the extent that we are covered with the significant raw materials and now having signif -- so that we do not have a significant exposure.

Okay, one or two more questions then I'll get out of the way. I know there's been some concern that maybe you were sacrificing margin in an attempt to capture share internationally, and without asking you to be too specific could you talk about the margins you're earning in the irrigation segment from domestic versus international standpoint?

Well, I would characterize it as the margins internationally are typically lower and have been lower for as long as I've been with Lindsay and probably going back much longer than that in the international markets. I would say that it's well understood inside the Company our philosophy regarding margin, including in the international markets, which means the philosophy is we know where we want to be positioned, which is at the high end in the marketplace not at the low end. We are not interested in capturing share specifically at the sake of margins. In fact, we're very interested in protecting our margins and we believe we have a premium brand and we want to protect that position.

There are, of course, times when we're in a competitive situation in a market where we will be as competitive as needed, because it is a core business for us and we're going to play a very competitive position. But generally speaking, I think everyone understands the position that we want in the marketplace and our philosophy regarding margins and we monitor that in a number of different ways. We have pricing policies in place that require approvals in terms of deviation from -- let's say deviations in discounts or in pricing -- from a pricing perspective. Also in our monthly review process we have discussions around margins with each of our business units. So I think we've got a pretty good control on that margin process.

Okay, I think that's fair. And just one last question. Your backlog is up significantly year over year and I believe you stated that Watertronics contributed slightly to that, but it sounded like it was mostly irrigation related. Assuming that is the case and we're to use backlog as a forward indicator, what do you anticipate the conversion time for backlog?

I would say that that conversion time in general in terms of what's in backlog is less than a quarter, and we continue to receive orders today that will still be within the quarter, so it's less than a quarter.

Okay, great. Well, congratulations on the quarter and thank you very much.

Thank you.

Your next question comes from the line of Ryan Connors with Boenning & Scattergood,

Hi, guys, thanks for the do over, very helpful.

Thank you, Ryan.

Wanted to revisit the capacity issue for a second and just come at it from a little bit of a different angle. Is there any truth to the idea that it's tougher to post the type of growth that you just had in the first and second quarters in the third quarter because it's so seasonally strong? In other words, in a less robust year the third quarter is still pretty good so the comps are tougher and so maybe you don't get quite the same level of growth year over year, does that make any sense to think that way?

If I understand what you're really looking for is what kind of growth to expect the third quarter year over year versus what we saw in the second quarter, and as you know I can't give you guidance in that standpoint. I would say that I would look at it in terms we have a very strong market, we had a very strong second quarter, we're starting with a -- what I consider to be an exceptional backlog going into the third quarter and the market conditions are not changing significantly. So I'm not going to make a projection or any kind of guidance on the third quarter other than to point to those few facts.

Okay, that's fair. And then is there any evidence to suggest -- it doesn't sound like it based on your comments, but is there any evidence to suggest that there's been any demands -- all the strength that we've seen in the first and second quarters has pulled any demand forward at the expense of future quarters or is this just really bona fide organic demand growth in the market that should continue?

Well, again, without getting into projections we -- we had said at the beginning of this year that we expected year-over-year unit growth, we're seeing year-over-year unit growth. I wouldn't be projecting a significant change from the directions we've talked about in any way in the third quarter. And I think the other more anecdotal point that I would make is we recently had a meeting with a number of our key dealers and dealers are still very bullish about this year and bullish about the market in general, and I think that's the best perspective I can give to you. There isn't anyone who is really pulling back at this point to say we've really pulled in all that we can get.

Okay. And then just more of a bigger picture and step back and look at the big picture for a second, Rick. I think one of the things that investors are struggling with is whether this is still a cyclical market as it's been in the past or whether we really are in a new world order with biofuels and so forth and therefore, this cycle's going to be stronger and longer and so forth. I'd be interested to get your thoughts on that, both in terms of the big big picture, agriculture in general, and then specifically, obviously, on center pivots. How long do you -- basically do you see this cycle lasting longer than past cycles?

Well, my -- I'll give you a perspective and I'm sure there's many different perspectives on it, and mine would be this is a new situation and a new territory for irrigation and for the ag market in general. I think the biofuels demand is creating a significant demand in agricultural commodities and certainly agricultural production and raising prices. But it's also a very global phenomenon and where we've typically seen the seasonal aspect of our business, as you've noted, in the second and third quarter we're seeing that shifting a little bit in terms of a more global demand and not necessarily as big a dips or whatever we'd seen in the past. So I think it is a new environment in the sense that there are some fundamentals beneath us that are strong on a global basis.

And if you were asking how long this will go for I wouldn't really want to make that prediction other than to say I think it's multiple years because a good amount of it is certainly biofuel based or supported, and most of the things I read -- and I'm sure many of the listeners and you as well would say there's not a significant change that is likely in terms of ethenol from other feed stock other than corn in the near term. So it's pretty solid underpinnings in general for the ag market as we see it today. At least that's my perspective.

That's great. Now my understanding, Rick, is that on the international side one of the reasons why the growth is so much more rapid is that there's less -- the penetration rate of center pivot technology is less internationally than it is here in the U.S., and so you sort of have this adoption cycle going on. Number one, is that the case, and number two, I'd be interested to hear, maybe in the top few markets internationally where the growth is coming from, what -- you could kind of use the baseball vernacular and what inning are we in in that adoption up cycle in places like China, Brazil, Australia, et cetera?

The first question -- to answer your first question, yes, it is definitely the case and each of the markets will vary quite a bit, but we'll take the relationship -- or let's take China as an example because I've talked about that one in the past. And with China, we're talking about approximately similar amount of cropland as in the United States, with U.S. cropland -- or roughly farmland about 12% -- 12% to 13% irrigated and about half of that -- or roughly half is floater gravity irrigated and somewhere around 40% is pivot irrigated. And when you look at China with approximately similar amount of cropland and 39% of that land is irrigated, because it's a very arid country and requires irrigation, with little or no pivot or lateral move irrigation penetration in that market -- it's really just starting-- almost all of it is flood irrigated.

So if you think of it in terms of where are we at the beginning and where are we in that market, it's really just at that initial edge of getting into that market and we're seeing that turning now, where we've moved from selling to large U.S. corporations that were growing produce in China to now selling to Chinese farmer funded the government to improve efficiency and to reduce the amount of water being used. So I think when you look at the global markets and the big global markets, it's like China and India and Russia and Ukraine and some of the big agricultural markets, it's really just starting. So that's how I would look at it is it's at the beginning.

Now the other side of this is when you look at the -- what's happening from the biofuel and agricultural commodity perspective every incremental bit of improvement in yield means quite a bit in terms of financial impact for farmers now, so being able to increase yield by adding efficient irrigation makes a big difference. We're moving to a stage where for some -- for a farmer in the past it may have been beneficial and for another farmer it may have been absolutely essential to have irrigation for a crop, and we're moving to a stage where now for farmers to improve their yields and improve their profitability it's also a very significant for them. So it's a little different perspective but a very important one, domestically and internationally.

Okay, great. And then just last one and I apologize if you did address it earlier, but did you break out earlier any of the profit numbers between infrastructure and irrigation in term of the operating income or margin levels?

We did not break that out but I believe that we can -- and we certainly break that out -- typically it'll broken out in terms of the segment reporting in the Q, however Dave I believe has some information and can cover that with you now.

Okay.

We would expect that we'll have irrigation operating margins, as we report in the Q, for the segment of 20% and infrastructure at 22%.

Okay. Well, thanks again for the do over, guys.

Oh, you're welcome, thank you.

Your next question comes from the line of Scott Mackey with aAd Capital.

Good afternoon, gentlemen. Appreciate you doing the call over.

Good afternoon. We're really sorry about the mess up this morning.

And I appreciate the detail on the operating margins by segment. Wonder if you could give us an idea of the relative gross margins by segment, as well?

We don't break out the gross margins by segment, Scott, and part of that is for completive purposes -- for competitive reasons, so we really do not break that out, even in the Q.

Well I guess -- understand and point taken. Just in terms of flow and trying to get back from the different cost structures in the business, certainly there have been dramatic changes. I think if we go back to 2005 and the operating income on the irrigation segment was essentially flat year over year, and is it fair to say, then, that the gross margin improvement has been more dramatic in the irrigation side?

Yes.

Okay.

Yes it has, and I think we have in the past -- or when we made the Barrier Systems acquisition we talked about gross margins in that business in the 40% range.

Okay, so a lot of the gross margin we've seen on the infrastructure side has been through acquisitions?

That would be fair to say as well, yes.

Okay. And what was the -- what was the foreign exchange contribution in each segment to year-over-year revenue growth?

It's pretty small, On the infrastructure side we think it's about six points of the 113 points of growth --

That's international isn't it?

-- on international irrigation revenue.

Okay, so six points of the revenue growth on the irrigation side.

That's right, Scott.

In total or just for that international component?

Just for that international component

Okay. And you talked a little bit earlier this morning just in terms on relative contribution, relative price and volume. What have the year-over-year price increases been for the center pivots in general?

Well, I don't have the -- Dave, maybe you have the price increase year over year quar -- within the quarter. What we did say this morning -- what I did say is that looking at the revenue growth about one-third was from price and two-thirds from unit volume growth.

Right, and that is helpful, but I guess what I'm looking for or trying to get a feel for is just how much the center pivot pricing is up year over year in general?

I believe it's approximately 10%, it's in that 10% range.

And does that differ internationally versus domestic?

It's going to be pretty close between the two.

Okay. And also just to better understand the business, trying to get an idea of the average order size in the irrigation business, domestically and internationally?

Scott, the classic pivot in the U.S. would be a quarter mile long, it'd seven towers, and it would run somewhere in the $40,000 to $45,000 range at the customer level. Internationally it's a lot tougher because by market sizes vary and we do more -- closer to turnkey operations internationally, so it's very tough to give a average on the international side to that. But it would be higher generally in some markets internationally because the systems would be longer. It would be lower in some markets because they tend to use shorter systems.

And overall it's probably in the maybe R10,000 to $15,000 per system average, but it will vary quite a bit depending on which markets we're shipping to within a time period.

Okay, so on average -- the average order internationally is a little higher?

If you wanted to use that kind of range that would make sense, yes.

Okay, and --

Because as Dave was saying, in many cases with the international markets we may ship more of a turnkey system that will include a pumping system and some other ancillary things.

Okay, and yet that -- on the international side the margins are a little lower?

Yes. Yes, they probably would be a little lower. And some --

Okay, and I want to --

-- of this has to do with size of our operations, by the way, in the international locations. For example, our facility in Brazil is relatively small and we would buy tubing, for example, rather than making tubing -- rolling tubing as we do in our Lindsay facility and doing more outside processes like galvanizing outside rather than in our operation. So we recognize that the margins would be a little less and we also recognize that we could increase those if we wanted to with more capital investment, but certainly it has to be volume warranted.

Okay, and I want to try to tie together the capacity and year-over-year growth questions you've had earlier, maybe a little more directly, in that I think one of the earlier callers talking about the pace of the year-over-year growth as we go to the back half of the year and it sounded as though you weren't playing that down. If I were talk about a 70% year-over-year increase in third quarter revenue again -- or similar to the year-over-year increase in the second quarter, it would give me a total revenue number of about $159 million, which would be about $50 million more than the second quarter or almost a 50% sequential increase in revenue. And just kind of taking a step back and looking at the second quarter, which appears to be the highest revenue number that you've put up in a quarter, is still a little -- certainly higher. It's only about $15 million higher than the number you put out in the third quarter of '07, so I guess to bring that back, especially in the context of suppliers having trouble catching up, that order of magnitude -- are you suggesting that order of magnitude is possible in the third quarter?

No, I'm suggesting that that order of magnitude is possible from a production capacity standpoint and would point out that it would really depend on where it is and what it is, because we're talking about this significant year-over-year growth and it really depends on which market it's going -- that will be realizing that growth and which products. But certainly it is possible from a capacity or delivery standpoint and I'm certainly not in any way saying that that is either possible or likely or any form for the third quarter. My point was that from a capacity standpoint we do have options, some of which could be to add additional operations or processes, and some would be dependent upon what country this demand is going to take place in.

Fair enough. And then when you talk about supplier constraints can you talk a little bit more specifically about where those supplier constraints are, what inputs are supply constrained?

Well, it certainly varies during the quarter and I don't really want to put any specific supplier under pressure on this by naming them out. I would just tell you that it could be everything from individual components we buy to wheels to tires to cables to sprinkles and anything in between, depending on the time period. But there's certainly have been supply issues periodically. We believe we're managing through those fine and we're -- and what we have in backlog we feel comfortable with, so we don't believe that's concern. We just do see that that does put pressure on the supply chain from time to time and our ability to deliver with relatively short notice or lead time.

And I guess that kind of leads to the second thing you mentioned in terms of backlog, that you've not losing orders given the size of the backlog. Is there a size -- or an appropriate size to that backlog where you're comfortable or where you'd prefer to operate?

No, I wouldn't really base it on appropriate size. I would say that we're comfortable that the orders that are coming and that have come into our backlog have been appropriately scheduled to where we are doing what we can to meet the demand of the customers and fulfill those delivery requirements and we're comfortable in the way that it's scheduled today. The difficulty is that if the demand were at such where we weren't able to work into our schedule because we either couldn't get components or didn't feel that we had the capacity to provide it we would be pushing that further out into our production schedule. So it's not a matter of how big the backlog is, it's a matter of what period of time that backlog covers and we're comfortable with the backlog that we have today. As I mentioned earlier, that backlog would really reflect less than a quarter.

I see, thank you for your time, gentlemen.

Yes, thank you.

Your next question is a re -- I'm sorry, you're next question is a follow-up question from the line of Joe Giamichael with Rodman & Renshaw.

Thank you. I just wanted to touch upon the Watertronics acquisition. This seemed like a bit of a directional change considering the end markets that they cater to, can you explain the synergies that Watertron -- that you hope Watertronics will have with irrigation business or possibly the new markets that you hope this opens up for you?

Yes. Yes, I'd be happy to. Well, first just let me just say that -- and I mentioned this this morning but I'll repeat a little bit of it. I've know of Watertronics for probably a dozen years or more and first met their owner and a number of their management team and seen their products back probably about 12 years ago and made contact with them maybe about seven year ago regarding a possible acquisition or at least having discussions about it and there wasn't interest at that time. But I was impressed with the product and impressed with the people and felt that there was an opportunity in our market to integrate pump systems with our irrigation systems and wanted to -- and I wanted to continue to pursue that.

Well, as time went by it became a reality and we were able to make that acquisition and I still believe that they have superior product, great people, excellent technology and really seem to be a good fit in terms of being able to integrate their systems with our systems, marriage them -- marry them in some way, and in many cases for some of our export shipments. So we think there's some real technology synergies as well as our ability to provide support and aid to them in growing in their existing markets, partly through our strategic planning process and maybe some of our management and other processes that we have and also through some capital that we can provide in terms of support to grow in their existing market.

Was it more a situation for them where they were a bit capital constrained and that's really what you were bringing to the table and then bringing their business into your own?

I wouldn't call it capital constrained as much as I would say may strategy limited from the standpoint of our perspective in strategy in global footprint is bigger and we felt that there was an opportunity to bring that business, that product line and the management team into this -- into the process and be able to leverage their product across a global footprint as we have and to provide a more complete solution to our end customers, providing irrigation systems and integrated pump station systems.

Okay, great, and just one last question. On the infrastructure segment, can you just remind us of the demand seasonality for those businesses?

Yes, the demand seasonality for a good part of the Barrier Systems piece of infrastructure business will be spring and summer months tied to road construction and that's what you should expect in looking at their sales curtain. Now they will have demand throughout the year, primarily on quick move barrier systems, both the trucks that move the barrier and the barrier itself, and crash cushions, depending on -- and other products depending on the market. But the primary peak would be in that spring and summer time period.

Thank you very much.

Thank you.

Your next question is a follow-up question from the line of Scott Mackey with aAd Capital.

I tried to step back and give somebody else a chance. (LAUGHTER)

That's all right, just go ahead.

I do want to circle back difference in the internat -- or excuse me, the irrigation side, the margin differential, domestic versus international. Can you help us quantify that?

Well, I can't quantify it specifically for competitive purposes. I would say that we typically see lower margins in our international business units, and I really can't quantify it much further than that, and part of it is tied to the size and efficiencies of those international operations and also to the competitive nature of some of the international market. For example, the European marketplace is much more competitive than the U.S. market with many small competitors, which creates a little more of a -- let's say a little less margin, typically, in that marketplace. But other markets we'll find typically only -- maybe one or two regional competitors, so it's not really affected much by margin but a little more by the efficiency or size of our operation there. So typically it's less margin, but I really can't quantify the amount for you.

Are there -- would it be within ten points of each other? I guess I'm just trying to get a ballpark --

Yes. Yes, absolutely. And the other, as I would say, is we always have the option of improving that and narrowing that gap, but it is -- does require some capital investment and we base that -- and that investment will be made based on the opportunity, which is really determined by the size of the specific market. So for example, it may make more sense to invest more in China than it would in South Africa, as an example, but I wouldn't rule out one over the other at this time.

Okay, and thanks for the help on the seasonality in the infrastructure segment. Just in the quarter itself, what was the acquisition contribution?

The acquisition contribution was very minimal. I think I mentioned this in the script opening it up, we really had one month of the acquisition in the quarter and it was a very minimal contribution.

And then what was the contribution -- you have the one specific project from Puerto Rico that you mentioned in the slides, how significant was that in the quarter?

I don't know the number off the top on that. I know the project itself was a little over $13 million. Part of it was shipped in -- a small amount was shipped in the fourth quarter of last year, part of it in the first quarter and part of it in this second quarter. I don't know specifically how much in the second quarter and there's a small amount that's left that I believe would probably go into third quarter.

Thank you, that's helpful.

Okay.

And then just take a step back and talk about seasonality in the irrigation business. Is there a seasonality? There's obviously a certain seasonality to revenue that shows up in the numbers, but just in terms of order relative to -- orders relative to the planting season, is there a general seasonal pattern to those orders and would we expect the bulk of those orders to hit?

Yes, there's definitely a seasonality to the orders. Typically we'll see the order flow start in, say, January and it could start earlier than that, but January, February, March, April and -- excuse me, we'll start to see it really taper off probably in May and that's when we would see the order flow really start to drop off because the farmers, at least domestically -- well, all farmers want the machines in place prior to -- at the beginning of the planting season or prior to planting and domestically that's pretty important. Now we do see a slight change in seasonality in terms of orders and revenue as we get more emphasis on the international markets that have different planting timeframes.

Okay, and I guess just a question out of curiosity to help me understand. If I go back to the first quarter balance sheet then I can clearly see that inventory was up 50 -- I think was 58% year over year and receivable were up a smaller amount than that, and that seemed to be indicative of ramping production. But as I look at the second quarter then I believe -- I don't have the number in front of me, but I believe the inventory was about 30%, 35% year over year and receivables were up more than that. Is there something unique or different that's going on to ordering or inventories, why that number would only be up 30% year over year, especially relative to the sales growth and the backlog growth?

No, there's nothing -- nothing really unique or specific to that. I would say we -- in both cases, both in receivables and in inventory (inaudible) we tend to manage working capital and manage those assets to the best of our ability. We also tend to continually improve the process of the inventory management part of it, so I'm pleased when we can see the velocity of inventory movement increase. And what you're seeing right now is that inventory has built up in support of the backlog that we do have on the books and we will see inventory climb and come down based on the -- that backlog and seasonal order flow. And typically what you see is our inventory come down significantly in our fourth quarter.

I see. I guess what I'm getting at -- or trying to get at is if you -- and granted, you've talked at length about ordering steel and -- but it would appear from looking at the inventory count, then, that maybe you were a little better positioner or you had more steel input costs in inventory in the first quarter in anticipation of the second quarter, relative to the second quarter in anticipation of the third. And maybe that goes back to the comment of quarter -- or the trend of orders through the quarter. Is that a fair conclusion or am I trying to read too much into what's going on in the inventory account group?

I think that's -- you're probably reading a little too much into that and I think a part of it also is tied to where that inventory is and what it is. For example, I know that Barrier Systems within the peak of the Puerto Rico and we probably had more Barrier Systems inventory at that point. And I don't have specifics in front of me, but I think you're probably reading more into that than would be necessary.

Okay, I really appreciate your time, gentlemen. Thank you very much.

Yes, thank you.

(OPERATOR INSTRUCTIONS) Sir, there are no further questions. At this time I'll turn it back over to Mr. Parod for any closing remarks.

Well, thank you. For our business overall the global long-term drivers of water conservation, population growth, increasing importance of biofuels, and improvements in infrastructure remain very positive. In addition to the overall business enhancements that have taken place we continue to have an ongoing, structured acquisition process that will generate additional growth opportunities throughout the world in water and infrastructure. Lindsay is committed to achieving earnings growth through global market expansion, improvements in margins and strategic acquisitions. We continue to have the financial flexibility to create shareholder value by pursuing a balance of organic growth opportunities, strategic acquisitions, share repurchases, dividend payments. And we thank you for your questions and participation in this call this afternoon, and we again apologize for the technical difficulties we experienced earlier and appreciate your patience. Thank you.