Lindsay Corp (LNN) 2009 Q4 法說會逐字稿

Good morning.

My name is Christy and I will be your conference operator today.

At this time I would like to welcome everyone to the Lindsay Corporation fourth-quarter 2009 earnings 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 are subject to risks and uncertainties and which reflect management's 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.

I would now like to turn the call over to Mr.

Rick Parod, President and Chief Executive Officer.

Good morning and thank you for joining us today.

Revenues for the fourth quarter of fiscal 2009 were $73.4 million, 50% below the same quarter last year.

Net earnings were $2.1 million or $0.17 per diluted share, compared with $11.3 million or $0.90 per diluted share in the prior year's fourth quarter.

Total revenues for fiscal 2009 were $336.2 million, down 29% from last year.

Net earnings for the fiscal year were $13.8 million or $1.11 per diluted share, compared to $39.4 million or $3.20 per diluted share in fiscal 2008.

As you may recall, last year at this time, the Company reported record domestic and international irrigation revenues and a record backlog resulting from high commodity prices, strong biofuel demand, and concern over the adequacy of global food supplies.

Early in the first quarter of fiscal 2009 the economic recession significantly affected farmers' sentiment regarding capital investments, resulting in a dramatic decrease in irrigation equipment demand in the US market, shortly followed by a similar decrease in the international market.

Since then, near-record projected harvests have resulted in significantly lower commodity prices compared to prices at the same time last year.

Commodity prices for corn, soybeans, and wheat are approximately 25% to 40% lower.

USDA projections for 2009 net farm income show a 38% decline from 2008 estimates and is projected to be 15% below the 10-year average.

Throughout the traditional selling season in fiscal 2009 and in the typically slower fourth quarter, farmers remained cautious about making investments in capital goods.

In the domestic irrigation market, revenues were $29.3 million for the fourth quarter, decreasing 59% over the same quarter last year.

For the total fiscal 2009 year, domestic irrigation revenues were $158 million, down 34% from last year, given the weaker commodity prices.

International irrigation revenues were $25.5 million for the fourth quarter, 41% lower than the same period last year.

Exports decreased in Australia, Central America, and the Middle East, partially offset with increases in China and Mexico.

Fourth-quarter revenues from our international irrigation business units in Brazil and South Africa were also significantly lower than the fourth quarter of last year.

For the full fiscal 2009 year, international irrigation revenues were $97.5 million, down 28% from the prior year.

While global farmers' sentiment regarding capital goods purchases was impacted by general economic conditions and lower commodity prices, the long-term market drivers remain positive.

With a growing worldwide population, the benefits of mechanized irrigation and expanding yields, improving water use efficiencies, and reducing inadvertent pollution remain a very compelling proposition for farmers.

In our infrastructure business segment, revenues declined 42% from the fourth quarter of last year.

This is primarily attributable to decreased revenues from our Diversified Manufacturing and Barrier Systems business units compared to the prior year's fourth quarter.

For our Barrier Systems business, the initial deposit was received on the previously announced Mexico City Road Project, and the revenues and profits from the project are expected to be realized in the first half of fiscal 2010.

While additional projects have resulted from the federal stimulus package, future projects may be impacted by the uncertainty surrounding the passage of a new federal highway bill.

It is unknown as to when a new multiyear bill providing funding will be passed, and a significant delay is likely to affect the start of planned projects.

Diversified Manufacturing revenues were down primarily on sales of tubing and contract manufacturing with ag equipment manufacturers.

Revenues were also lower on shipments of railroad signaling structure sold to GE Transportation Systems.

During the fourth quarter, Lindsay Corporation purchased this product line from GE and is transitioning to selling these products directly to railroads and system integrators.

We expect this to improve gross margins in Diversified Manufacturing as this change is fully implemented.

For the total fiscal 2009 year, Infrastructure revenues were $80.7 million, down 19% from last year.

Barrier Systems revenues were down 32%, while Snoline revenues increased 10% compared to last year.

Overall, gross profit fell to $17.6 million for the fourth quarter versus $37.4 million in the same quarter last year due to the lower irrigation unit volume and infrastructure product mix.

Total gross margins declined to 24% compared to 25.4% for the fourth quarter last year on 50% lower revenues, reflecting good pricing discipline in irrigation markets and effective cost management.

For the full year of fiscal 2009 gross profit was $80.6 million compared to $123.8 million in the prior year.

Gross margin was 24% for the year compared to 26.1% last year.

Total operating expenses for the quarter were $14.1 million versus $18 million in the same quarter last year.

Significant reductions in personnel-related expenses were the primary origin of the reduced spending levels.

For the quarter, operating expenses were 19.2% of sales compared to 12.2% in the prior year's fourth quarter due to the lower sales base.

For fiscal 2009, total operating expenses were $58.2 million compared to $61.6 million for fiscal 2008, reflecting higher spending in the first quarter, offset by reductions made throughout the year.

In the first quarter of fiscal 2009, operating expenses were higher than the same quarter last year due to the inclusion of Watertronics, which was acquired in the second quarter of fiscal 2008, and staff additions made in support of the higher revenues and growth opportunities perceived at that time.

Expense reductions began during the first quarter of fiscal 2009.

Our order backlog was $43.6 million on August 31, 2009, as compared to $40.2 million May 31, 2009, and $92.3 million on August 31, 2008.

The irrigation equipment backlog was about equal to the backlog at May 31, 2009, and down from August 31, 2008, which was a record backlog for year-end.

Infrastructure backlog including the Mexico City Project at August 31, 2009, was up from the backlog of the previous quarter and higher than the same time last year.

Our balance sheet is in excellent condition.

Cash and cash equivalents are $85.9 million and are more than $35 million higher than the same time last year.

Long-term debt has been reduced $6.2 million, improving our net cash position by more than $41 million.

Accounts receivable decreased $45.5 million from the same time last year due to the lower revenues; and days sales outstanding on receivables decreased to 52 days.

Inventories decreased $7.2 million over the same time last year, while we carried approximately $8 million of inventory for the Mexico City Project at year-end.

Balance sheet initiatives remain focused on working capital reductions and overall cash management.

In summary, global economic conditions adversely impacted our Irrigation and Infrastructure businesses in the quarter and through fiscal 2009.

Globally, farmers demonstrated hesitancy in purchasing capital goods through most of the traditional selling season due to the economic recession and the uncertainty regarding farm income opportunities.

Infrastructure projects from stimulus funds have implemented, but it appears that those projects have had minimal incremental effect on demand, as states have faced reduced tax revenues, resulting in curtailing other planned infrastructure projects.

In addition, the early stimulus funds have been applied primarily to shovel-ready maintenance projects versus more significant road-widening or road construction projects, which are more likely to use our movable barrier and crash cushion products.

We've responded to those contracted market activities with reductions in our workforce and overall spending reduction in all of our operations.

In addition, we've implemented actions to enhance cash flow, resulting in a stronger balance sheet with a further improved net cash position.

I'm very pleased with our management team's prompt action to reduce costs and expenses and in establishing appropriate controls.

In spite of the near-term challenges, we are confident that increasing agricultural yields to boost food supply, improve water use efficiency, expanding biofuel production, and improving our transportation infrastructure will remain global priorities and will be strong drivers for markets.

Our balance sheet has positioned Lindsay well to benefit from future growth opportunities.

I would now like to open it up for your questions.

(Operator Instructions) Michael Cox, Piper Jaffray.

Good morning, gentlemen.

Thanks for taking my question.

My first question is on the G&A line item.

I was just wondering if you could provide a little more color around the sequential increase in G&A this quarter, despite the sales dropping off a little bit.

G&A in total was down for the quarter in dollars.

Are you referring to a percentage basis, or are you looking at the year?

Well, I guess --

(multiple speakers) total, sorry.

Just the G&A line item; it looks like it was $8 million, up from $7 million.

Maybe I had my math wrong here, as I was subtracting out the previous quarters.

Just one moment.

Do you have that, Dave?

We have it for the year quarter.

I've got it for the year.

For the year, Michael, we were actually down on G&A.

But I would have to look back at that for the specific quarter number.

Okay.

Okay, that's fine.

Looking at the seasonally, it's nice to see the backlog stabilized on the Irrigation side.

Would you expect as we move through this seasonal slow period that we'll see sales in the Irrigation business stabilize at these depressed levels?

Well, I think it would be probably more fair or appropriate to talk about farmer sentiment a little bit in terms of what we are hearing and seeing at this stage.

The way I would describe it today is that farmer sentiment is much improved over the same time last year.

If you recall last year, we had a large backlog going into the first quarter of fiscal 2009; however, orders dropped off precipitously at one point because farmer sentiment turned very negative as the recession really started to have an impact.

So it's much improved over that time.

And I think that farmers and our dealers would describe the sentiment and position they are in today as more average or normal 1than anything else.

So I wouldn't call it depressed.

I would say that they view it as a more normal perspective today.

Okay.

That's helpful.

In terms of the cash on the balance sheet, certainly a good problem to have.

Could you talk a little bit about opportunities to deploy that cash?

Certainly.

The first priority when we look at the cash is the organic growth opportunities and investments that we make in our business.

Coming to that, we expect that our CapEx for this next year is probably about $10 million, similar to what we did in 2009, and also about equal to depreciation and amortization.

So we'll have internal investment in organic growth opportunities like our expansion of our plant in China which is underway, and other growth opportunities that we foresee and that are built into our plans.

In addition to that, we see acquisition opportunities in both the Infrastructure and in water areas that we continue to pursue.

Those would be the first couple of priorities that would be on our list for a use of cash.

Okay.

That's helpful.

My last question is on pricing in the irrigation market.

I was just wondering if you could comment on what you are seeing from a pricing perspective.

Either what you are doing or what you are seeing in the marketplace, and perhaps compare that to where pricing was a year ago.

Yes.

Well if you look at the full year, pricing for irrigation is up from last year.

In fact, it's probably somewhere in the 7% to 9% range in terms of year-over-year increase in pricing.

Most of that in the domestic market.

So I'd say that pricing discipline has been strong.

There has been certainly some movement of steel prices down; but pricing of systems within our market has not followed that directly.

Okay, great.

Thank you.

Joe Giamichael, Rodman & Renshaw.

Good morning, Rick.

In your conversations with dealers, what have you been hearing in terms of the trends of the inventories that they are carrying?

Do you think that part of your slowdown is the fact that they have been sort of selling through and not reordering?

Or what is it?

Then also along those lines, what has a difficult credit environment done to impact the end-market demand that they are seeing?

We'll take the inventory question first.

Typically the dealers do not carry much, if any, inventory.

What we do have is, when we see a big year as we did in 2008, we'll have dealers that will take some inventory at the end of the fiscal year and possibly a little bit at the beginning of the fiscal year very early on, in anticipation of a big season.

Because they know that if we are running at peak production levels it may stretch out lead-times to get those units later in the year or during the peak selling season.

We did see that during fiscal 2009.

So the very early days in the beginning of the quarter, there was some dealers taking some stock as there was at the end of fiscal 2008.

Now that stock has basically been burned off or sold through.

So I don't really believe there is any stock out there at all at this point.

If there is, it could be down to a unit or two, but really nothing of any significance.

So dealers are now really prepared for this next season.

Okay.

Then just in regards to the credit environment, is the typical purchase being made with some form of financing?

And if so, obviously the environment that we're in has probably stymied a lot of that demand.

Well, we've seen historically that the pivots are purchased with financing, and it's probably about a third of the units are covered by financing.

The financing is provided by third parties, and that has continued to be pretty strong.

We really haven't really seen an issue there.

What we have seen in 2009 was a little bit of tightening in the terms of the financing provided, really not that much, and no real significant drop-off.

Following up with at least one of these financing companies, their comments were that financing is still strong.

Money is still available, and they really don't see it as an issue.

Okay, great.

Then just in looking at the cash flows, it looks like you had made a small acquisition in Q4.

Is that right?

Yes, in my opening comments I referenced the small product line purchased from GE Transportation Systems, which was the railroad signaling structures.

Now, we made those on a contract manufacturing basis for GE Transportation Systems in the past, and they decided that it was really not a core activity for them.

And we purchased that product line, which really doesn't did a great deal in incremental revenues; probably something similar to the acquisition amount.

But it does recover some margin because we were passing those through in a sense, through GE to the railroads.

So now it will be a direct sale to those customers.

Okay, great.

I'll jump out of the way and let some other people ask.

Ned Borland, Next Generation Equity.

Morning, Rick and Dave.

First of all, maybe I missed it, but do you have the operating income by segment?

It is in the slide deck, Ned, that was posted on the website.

I don't know if you pulled that off, but it would be I think about the last page of the slide deck.

Okay, fair enough.

And I do believe we have that handy.

Sorry, maybe second to the last page.

Tim, would you like to cover this?

Sure.

Ned, to give you a little bit more detail, recently we have made some concerted efforts to allocate direct G&A expenses to the respective segments, to better evaluate business segments and the Company as a whole.

So in addition to that, prior-year disclosures will be recast in the issuance of the 10-K.

But specific numbers for Irrigation and Infrastructure, operating income is $35.5 million for Irrigation, with an operating margin of 13.9%.

And Infrastructure had zero operating income at zero margin.

Okay.

For the full year.

All right.

Just sticking with margin-related questions here, what did you realize in restructuring savings over the course of the fiscal 2009?

And where did that track with your expectations?

And how much of that is permanent?

I don't have the total amount offhand.

I think we had talked about this in the past of probably in about the $7 million range in terms of total restructuring savings -- or let's say, reductions that were made during the year.

Some of those -- I would have to pull that back, Ned, to find that out; but we will research that in just a second.

But I would say the majority of it is permanent in the sense that they are not variable expenses that are going to be forced to -- that will go up with revenue automatically.

We will, on the other hand, look at some incremental investments as we see the opportunities come up.

Okay.

Then in terms of the irrigation demand, the three buckets -- replacement, new farmland, mechanized irrigation.

I mean is it -- do we have to see the replacement side of the equation kind of pick up first in order to get a recovery in irrigation?

Or are there other drivers that you see out there that are going to be more meaningful near-term?

No, I don't think that would be the case.

It's interesting to look at that information, because what we saw in 2008 is where that mix had been fairly even in terms of a third, a third, a third roughly, between dry land conversion and replacement markets, in 2008 we saw a significant increase -- a fairly sizable increase -- in installation into dry land.

That moved up to about 40%.

I think that was really driven by the higher commodity prices and the fast payback that was achievable by moving from dry land to irrigated farmland.

What I've seen in 2009 in looking at the data is that mix is very close to a third, a third, a third again.

So it's come back to let's say more normal levels.

I think the indication that we would see is if -- as commodity prices move up and that profitability opportunity moves up, dry land is the first to move up.

Okay.

Then one final question on infrastructure.

It seems like there was a whole slew of funds that was doled out over the summer, July/August time frame.

I guess some industry sources are saying that some of these projects connected with the stimulus have sort of a longer tail to them.

Is that the sort of thing that you are hearing?

And if so, would you expect to see some sort of a rebound from those projects over the first half of 2010?

Well, we do expect to see more benefit come from the stimulus funds and from some of the projects that were delayed.

But I think there's a couple of issues that come into play.

One is if you look at the American Recovery and Reinvestment Act of 2009 from the Federal Highway Administration and the data that they put out, it shows that about $26 billion was appropriated for the infrastructure -- let's say highway type infrastructure projects.

Of which about $20 billion of it has been obligated, or 73%; and $12.6 billion of it, about 64%, is in process; and only $2.7 billion has been expanded to date.

So roughly 10%.

So there is a lot still in process that hasn't been expanded and there is still some more to be appropriated.

I think that is certainly one factor.

Now the other factor that comes into play is I think that as that stimulus money has been doled out, the states of course have faced reduced tax revenues.

And I think that has impacted in their willingness and ability to take on other projects.

So while we expected to see more market growth come from this, what we've seen is more of a leveling take place.

That probably would be my best description of it.

Now I expect that there still will be stimulus effect that we will see.

I'm not really sure of the certainty of it, and I think if the economy continues to lag and if there is more money that is invested in trying to stimulate it, it certainly would be in that area.

Okay.

Thank you.

Brian Drab, William Blair.

Good morning.

First question, just around the Irrigation segment and some of the drivers that maybe we haven't talked about yet.

Three different categories, maybe you can talk about the relative impact of each.

There is a lot of discussion around moratoriums on wells, particularly in Nebraska.

Then also I think there are some tax incentives for farmers that could have some bearing on demand for the balance of calendar 2009.

Then thirdly, are there any changes globally in regulatory and subsidy policy in some of your key markets that we should keep an eye on?

Okay.

Let's take the moratorium discussion.

The moratorium discussion has taken place for quite a while in Nebraska; and as you know, some moratoriums were put in place in the Western part of the state.

I think that discussion will probably continue.

But there was a period of a couple of months back when there was quite a bit of activity in that, and decision was made not to put in moratoriums, that the rivers were not fully appropriated at that time.

So some of those moratorium discussions I'd say have been softened a bit because there really were some challenges to the science in terms of how much water has been used and how much is still available to use.

So there is a fair amount of discussion that is taking place there.

I think to comment on that also, Brian, I would say that is somewhat of a global discussion from time to time.

We see that in markets like Australia as well.

And yet we'll see conditions that will restrict or limit water availability for periods of time; but generally, water conservation and the acknowledgment of the water efficiency improvements required is good for our business.

Moratoriums of course are not.

But general water concern and restrictions are good for our business.

I think California is the state that's going through a fair amount of discussion of that right now.

It will be interesting to see what comes of that.

Because there is the discussion of -- do they provide the water to the farmers, or do they put it in some restrictions that are going to somewhat dictate how that water is used?

From a restriction standpoint, that can be beneficial to us; and we have seen more sales in California in the last couple of years than we had in the past, and we expect that to be beneficial to us.

However, when it goes to the extremes of saying moratoriums or cutting off water, that's always difficult for our business.

I will add one other point, that where we have seen moratoriums go in, in advance usually there is a fair amount of activity in the state where they are putting in new wells in advance of moratoriums.

And we will see a short-term possible pop from that in some markets.

Okay.

Now the tax incentive one, I'm not sure specifically what you're referring to.

I don't know of anything specific on the tax incentive.

I know we had some in 2008, tax incentives.

I'm not familiar with the specifics on that.

Okay.

Well, let's pass on that one.

I had heard from some of the lenders in the ag space that maybe there were some tax incentives driving near-term growth for the balance of the year; but I'll leave that for later.

Okay.

Well let's come back I think the more global one I think you were asking, in terms of subsidies and things.

Certainly we do have some government subsidies in China that are beneficial to us.

I'm not aware of any new specific subsidies going into place at this point.

I do know that as countries and regions are becoming more aware of their water issues, that is discussed.

And I think I would expect to see more in the future.

I would expect to see possibly ones in markets like India in the future.

But we haven't seen that really to date that would impact our business.

And a follow-up to that, is there any -- have there been any changes to the EQIP program this year in the US that would have some impact on the business or impact on fiscal 2010?

No, I think EQIP in 2009 was about the same.

I think there were some delays in terms of getting funding out to people, which certainly created some issues, maybe delayed some of the conversion that should have taken place.

So that could be somewhat beneficial into the next year.

I couldn't estimate the amount of that; but I think EQIP is one of those programs that is perceived by the government to be very beneficial because it does result in improved water efficiency.

And it's perceived by farmers and the local regions as being beneficial as well.

So I think it's a very positive program in total.

Great, and then just one more question.

Could you give us some detail on how the plant startup went in China and what you expect out of that plant in fiscal 2010?

Yes, the plant startup has gone fine.

I was over there about two or three weeks ago, three weeks ago, and was watching some of the training that was taking place with employees there.

We are now at a position today where we are -- I would say that the next orders that come in for China will be directed through that plant.

So we're able to produce at that plant.

Some of the startup will continue in a sense through the next couple of months, in terms of bringing in still some additional equipment and expanding the capabilities in that factory.

But overall, it's on schedule and producing and doing well.

In terms of the overall capacity or what we expect out of that plant, I really wouldn't comment too much on the volume part of it for competitive purposes.

But I would say initially for this year we expect it to be pretty cost neutral in terms of having any margin impact.

Because there is the startup versus the offset or the benefit of producing in-country, which reduces some freight costs and some other things.

So this year I would anticipate it being pretty neutral to the bottom line; and next year I would expect it to be more beneficial.

Okay, great.

Thanks a lot.

Ryan Connors, Boenning & Scattergood.

Yes, I wonder if we could just go back to the discussion you kind of started into a little bit with one of the prior callers about the cyclicality of the irrigation business.

Just give us some more of your perspective from a high level.

Just trying to get our arms around where we are in the cycle.

I know that you -- I think correctly -- made the distinction that these are not depressed levels.

Correct me if I'm wrong.

But even though this is a big year-over-year decline this is the second highest fourth-quarter revenue in the Company's history, at least by the records that we're looking at.

So if you could just give us your perspective on where we are in the cycle, whether you think this really is -- you kind of characterize it as a normal level.

Or do we ultimately settle out somewhat of a level below this as normal?

How abnormal was 2008?

And how long do you think it might be till we get back to a level like that, if ever?

Just kind of give us from a high level your perspective on the cyclicality of the business and where we are in the cycle right now.

Okay.

I think the best way I would characterize it, I would come back to the earlier comment about whether we would call it a distressed level in terms of the cycle or the business today, and I would not.

I would characterize it as -- in terms of trying to paint the picture a little bit, 2008 was an exceptional year in terms of the run-up in commodity prices, the profitability for the farmers.

And it built up from 2007, so there were a number of really exceptional things that occurred in 2008, which I do believe are repeatable.

I don't think these are one-off type things that we won't see again.

I firmly believe that they are repeatable and were driven by some very positive things, like the biofuel demand and the recognition of global food supplies, as well as what was happening with oil prices and things at the time.

So from that standpoint, 2008 was somewhat exceptional.

Now 2009 was exceptional, but in a different way.

It started out almost as a fairly normal year with a very high backlog, but a fairly normal order activity, and then collapsed pretty quickly given some things that were happening with the government at the time, with the discussion about the stimulus spending and those things.

When it became evident that I think consumers and farmers alike all viewed the country was in recession and it was time to make some changes, farmers pulled back from making spending decisions and buying capital goods as well as trucks and anything else that they would be looking at.

So we saw a pretty drastic drop-off in orders which I think was uncharacteristic of any other year that I've seen.

So when I say a normal year, I'm looking at it in terms what we are seeing in the fourth quarter of some fairly good still order activity, good order activity.

The farmers' sentiment is past that crash that they saw in 2009.

I wouldn't say it's a 2008 kind of bullishness level, but a fairly normal kind of perspective at this point and the kind that we had seen in the years previous to 2008.

Okay.

That's helpful.

I think that's probably the best color I could add to this at this point, Ryan.

Sure.

Then obviously we're entering -- or I guess we're kind of in already kind of a seasonally slow period here for the business from a seasonal standpoint.

So can you give us an idea -- you sort of touched on this earlier, but if you could expand on it.

As you managed your capacity and try to have the business where it needs to be next, say, spring when we enter the next -- the 2010 selling season, what are some of the indicators that you watch in terms of how you see that market shaping up?

Especially things that we in the financial community can follow.

I mean is it as simple as watching corn prices and net farm income projections?

Or are there some other kind of niche indicators that you look at?

If so, what are they, and what are the kind of levels at which you start to think that things might be looking a little better?

Or where things are -- you get a little more worried?

Well, I think the primary things, I certainly watch commodity prices and I certainly do watch -- in some years, will watch more weather conditions, things like drought situations and things like that, which really wouldn't be a factor today.

In fact, I would say it's probably quite wet in a lot of regions, which is affecting harvests.

So we will look at really just a multitude of factors.

In fact, I would come to that and say that the late harvest that is taking place may affect some early order or preseason kind of ordering that we could see in the first quarter.

I'm not hearing that as of this time; I'm just saying I think that is a reality of -- it could affect order flow.

Not full-year demand, but certainly the timing of orders.

So we would watch things like that.

In terms of anything else, I think the biggest one that I found in the last few years really has been that farmers' sentiment going forward.

Much more important than looking at, say, farm income or looking at the projections for farm income.

Because if the farmer views that the there is a significant opportunity that is ahead of him, he will look at the capital investments like the irrigation equipment that is going to improve his yield and improve his return on his investment.

So those are the general factors.

There is not anything real clear that you can look at or any direct correlation that you could draw.

Okay, well that's very helpful, though.

Thanks a lot, Rick.

(Operator Instructions)

While, we're waiting for that question, if I could just come in and come back to Michael Cox's question.

This is Dave Downing.

Our SG&A was down in the quarter, Michael.

Our G&A was down in the quarter.

So actually each line item in the fourth quarter for our SG&A between selling, administrative, and engineering were all down.

Administrative was down about a quarter of the total of the $3.9 million that we were down in the quarter.

So we were down about $4 million for the quarter, roughly $3.9 million to $4 million; and all of those line items were down.

Are there any other questions?

Michael Coleman, Sterne, Agee.

Good morning.

That was a good segue.

I wanted to look at what you realized in terms of your cost savings from plans that you implemented earlier in the year; what you realized in 2009; and kind of what the carryover might be to 2010.

Well, I think we were attempting to address this question a little earlier.

I think that it's a hard one to characterize.

I think the SG&A piece of it is probably in that $4 million to $5 million range.

I think I said earlier probably about $7 million, which included some that would be more factory related.

But probably $4 million to $5 million on the SG&A line.

And I think the second part of that question is really how much of this sticks or how variable is it.

I think the SG&A is fairly solid in terms of will stick.

But we will address opportunities as we see those coming up in the next year.

What I mean by that is we do see some additional growth opportunities in a few markets where we will probably add a salesperson or two.

I don't want to get too specific on that.

But in general, the cost that we have taken out is relatively solid.

Okay.

So just to understand that, you took out about $4 million to $5 million on the annual basis for the SG&A and about $7 million at the factory.

So you've got $11 million to $12 million in cost --?

No.

No, no, no.

That was -- I was referring to about $7 million in total.

I was referring to -- there were a couple million of more factory related, say indirect-type costs that were also taken out that are fairly sticky as well.

Okay.

So in the event that your end-markets remain weak and so forth, where do you see yourselves in terms of what you've done so far?

But what do you have in terms of opportunities to continue to attack costs?

What kind of actions, further actions might you have available to you?

Certainly from the operational side there is a lot of opportunity in terms of our lean implementation, which we are down the path on and I would probably put us in the range of maybe a 40% to 50% level of implementation, particularly in the US Irrigation business.

And we really haven't made that kind of progress or really have much more opportunity in our Infrastructure business in terms of implementation of lean.

So I think there are some very significant cost-reduction opportunities that are available to us and that we will be working on during this next fiscal year.

Okay.

A couple of quarters ago I think you had a benefit from your steel costs coming down faster than your end-market pricing.

It didn't look like you had a benefit in the quarter from that.

Is that correct?

Or has that price cost gap cleaned up?

Or was there still some lagging benefit in the quarter?

It's a little more difficult to answer for this fourth quarter because there was more volatility in steel pricing.

We saw it drop down a little bit early in the quarter, and it moved up towards the end of the quarter.

So we had a little more volatility.

I would say that we have some forward buys that we've made on steel that put us in a pretty good position in terms of we're comfortable with where we are on steel for at least the next quarter.

So we are either at or below market in terms of our steel pricing on hand for the next quarter.

But in terms of the pricing gap itself, I'd say that we probably didn't see much impact of a pricing gap from steel to end pricing during the fourth quarter.

Okay.

Sticking with pricing, historically I think if you go back a couple conference calls, you've given an average price in the quarter realized for a pivot.

I was wondering if you might share that and what that would compare with, say, in the previous fourth quarter?

I don't have those numbers offhand, Mike.

I would have to pull that.

But I'm sorry, I just don't have that available right now.

Okay.

Going back to -- you mentioned farmer sentiment as much improved on a year-over-year basis.

More normal.

And that the sentiment is really kind of a key indicator.

Does price have a role in terms of that sentiment or in driving orders?

In the sense that I would assume that your pivot pricing is still materially higher than it was a few years ago, and kind of on the sidelines, wait and see game, to see if pricing does come down.

So I guess the question is, would a cut in pricing spur some order activity?

I think the price elasticity question is a difficult question in the sense that we really haven't seen that in the past.

Where if pricing moves a little bit -- and I guess you defined a little bit; let's say 5% to 10% in the quarter, which could be a pretty sizable price change -- I think that you'd find that you would probably pick up some market share in the quarter.

You probably would not create additional demand.

And that is what we found in the past.

When pricing does heat up to that extent on a competitive basis and somebody does take more drastic pricing action, we usually will find some market share shift; but not much demand change.

So I'd say there is very little elasticity in terms of really creating more demand through pricing.

Now that doesn't mean that if there was a real significant change in pricing that more demand wouldn't be created, because I think obviously that could be.

But we just haven't seen that happen in the past.

Okay.

You also, going back a year or more, you had some long-term targets for sales growth, return on capital, etc.

Have you updated these?

Given the volatility in the last year, do we revert?

I don't have them in front of me, but do we revert to those kind of targets, or do we have new targets?

I think the targets that we set, which were -- and I don't have those in front of me either, but fairly strong targets for both our sales, our revenue growth, our operating margin, RONA numbers, we believe are still the same targets.

We did have a fair amount of pressure in 2008 from different people we've talked to about moving those up.

But I'd say that those targets are still quite strong.

They are the things like revenue growth target is 10% to 15% per year.

RONA is 9% to 14% -- or sorry, operating margin, 9% to 14%; and RONA 9% to 15%.

So I believe that those are still the appropriate targets for our business.

Obviously the cyclical influences, but the sales growth of 10% to 15% per year, is that still -- would you revise that today or look at it differently?

No, I wouldn't revise it.

I still feel the same way about it.

I would say that when those were set we expected that in some years part of that is going to come from acquisitions, whether it's a product line acquisition or a business acquisition.

And in some years, and as we saw in 2008, the growth was over 60%; so there's years when we will see some larger swings one way or the other.

But in some years it will come from acquisition.

Okay.

Thank you.

[Omar Hafez] of Centerra Capital.

Hi, thanks for taking the question.

Just going back to pricing for a minute, you answered earlier that the pricing for the full year was up 7% and 9% when the question was asked at the beginning of the call.

I know you don't have the specific numbers for Q4 on pivot pricing, as you just answered.

But could you maybe give a similar directional sense on Q4 year-over-year pricing as opposed to the full year?

Yes.

For the quarter I would say it was down about probably 5% to 6% compared to the same quarter last year.

That was due to the lower steel prices that we experienced in the third and fourth quarter.

Somewhere in that range.

That's helpful.

Thanks.

Then looking forward, if you see steel prices continue to weaken, do you think the reaction on sellthrough pricing on your end would be similarly elastic?

Would you see a reaction within a quarter or two?

Generally, if pricing is moving up on steel we're able to pass that through very quickly.

So we -- in fact, our pricing is generally guaranteed for no more than 30 days so that we have the opportunity to pass that through.

When we have steel commitments or steel on hand as we do now, we may extend that pricing commitment, because we are locked in for a period of time.

When pricing is -- or when steel is going down, we haven't seen the rapid passthrough either from us or from competitors in terms of passing that back as quickly.

It's partly because there's been so much volatility in the steel market.

As you were talking about pricing going down, pricing on steel has actually moved up from where we were in the third quarter.

So it's been pretty volatile for the last -- probably the last year.

Got it.

Thank you.

Michael Cox, Piper Jaffray.

Thanks, and thanks for circling back on the SG&A question.

I recognize it is down year-over-year.

I was looking sequentially.

Your revenues were down about $10 million sequentially.

But either looking at full SG&A or just SG&A alone -- or pardon me, just G&A alone, it does look like your expenses went up sequentially.

So that is what I was specifically asking about.

Okay.

Thanks for clarifying that.

We are up slightly sequentially and there are some -- there's a couple of small year-end items that are in there, Michael, but not significant.

It is up just $600,000 really for the quarter sequentially.

So it's not a significant item and it does go back to our year-end adjustments that happen generally on an annual basis.

So I guess maybe a slightly different question then.

For the current run rate of sales, is this a good SG&A rate, this $13.5 million to $14 million range we've seen the past three quarters?

I think that's a fair assessment, Michael.

Okay, great.

Thank you.

There are no further questions at this time.

I would now like to turn today's conference back over to Mr.

Parod for any closing remarks.

Well, for our business overall, the global long-term drivers of water conservation, population growth, increasing importance of biofuels, and improvements and 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.

Lindsey is committed to achieving earnings growth through global market expansion, improvements in margin, and strategic acquisitions.

I'd like to thank you for participating in this and thank you for your questions.

This concludes today's conference call.

You may now disconnect.