Lindsay Corporation (LNN) Q3 2012 Earnings Report, Transcript and Summary

Good morning. My name is Jodie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Third Quarter 2012 Earnings Call. [Operator Instructions] During this call, management may make forward-looking statements that are subject to risks and uncertainties 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 the 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. Joining me on today's call are Jim Raabe, Lindsay Corporation's Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer. In the third quarter of fiscal 2012, we continue to see strong U.S. irrigation equipment demand, which drove revenues in the quarter to a record $172.1 million, 12% higher than last year. Irrigation sales gains and gross margin improvements across both of our business segments led to strong cash flows and higher operating margins in the quarter. Net earnings were $18.8 million or $1.47 per diluted share compared with $15.3 million or $1.20 per diluted share from the prior year's third quarter. Operating margins increased to 16.7% compared to 15.1% in the same quarter last year. Total revenues for the first 9 months of fiscal 2012 were a record high of $423.4 million, increasing 17% from the same period last year. Net earnings for the first 9 months were $34.5 million or $2.70 per diluted share compared to $30.9 million or $2.44 per diluted share for the first 9 months of fiscal 2011. Year-to-date 2012 results included a $7.2 million accrual for environmental remediation at our Lindsay, Nebraska facility. Excluding the environmental accrual, net earnings for the first 9 months of fiscal 2012 were $3.07 per diluted share, and operating margin improved to 14.2% compared to 13.2% in the same period last year. Irrigation segment sales totaled $149.6 million in the quarter, 18% higher than last year. Irrigation operating margins improved to 20.9% compared to 20.2% last year. In the U.S. irrigation market, revenues were $105.6 million for the third quarter, increasing 38% over the same period last year. Order volumes continued to be strong throughout the primary selling season, and revenues grew in virtually all U.S. regions, with the lowest growth in the drought-stricken Texas market. Commodity prices remain relatively high by historical standards, partially driven by dry weather concerns across the Midwest. The USDA projects U.S. net farm income in 2012 to be the second-highest on record and 28% higher than the 10-year average, continuing to represent positive economic conditions for U.S. farmers. For the third quarter of fiscal 2012, international irrigation revenues decreased 12% to $44 million. As we've noted in the past, revenues in the developing markets are often more project-based and therefore tend to be less linear. Revenues in China reflected the largest regional variance due to delays in a provincial government tender. However, we anticipate China revenues to recover in the fourth quarter. Irrigation quoting activity in our international markets remain strong, and we expect that these markets will continue to be a source of growth in both the near and long-term. For the first 9 months of fiscal 2012, irrigation segment revenues increased 32% to $367.3 million. U.S. irrigation revenues were $249.1 million, increasing 39% while international irrigation revenues increased 20% to about $118.2 million, even with the delays in China revenue. Infrastructures segment revenues were $22.5 million, decreasing $4 million or 15% from the third quarter of last year due primarily to lower road safety and rail product sales. On the lower revenue base, infrastructure operating margins improved to 6.4% of revenues compared to 4.1% last year, reflecting actions taken in recent quarters to reduce product costs and operating expenses. QMB system sales were slightly lower than the same quarter last year, and we have continued to experience delays in anticipated projects. However, it is, as noted in a recent press report by the Golden Gate Bridge Highway and Transportation District, which indicated plans to move forward with movable barrier on the Golden Gate Bridge in 2013, interest continues for our QMB system and for overall solution to traffic congestion and enhancing highway workers' safety. We continue to be encouraged by the long-term opportunities in our infrastructure business. Year-to-date, infrastructure revenues were $56.1 million, a decrease of 33% due primarily to the decreasing QMB system sales for large infrastructure projects. Gross profit was $49 million or 28.5% of sales for the third quarter versus $41.5 million or 27% in the same quarter last year. Total gross margins increased in both our irrigation and infrastructure segment. Irrigation gross margin gains reflected favorable sales mix, while infrastructure gross margins improved as a result of improved pricing and road safety and diversified products, along with continued efforts to lower manufacturing costs. Operating expenses in the third quarter increased by $1.9 million to $20.2 million. The increase was primarily driven by inclusion of acquired businesses and personnel-related expenses. Operating expenses as a percent of sales improved to 11.8% for the quarter compared to 12% for the same period last year. Our order backlog was $44.5 million on May 31, 2012, as compared to $43.3 million on May 31, 2011, and $87.3 million on February 29, 2012. Irrigation backlog is higher than a year ago, while infrastructure backlog is lower. Irrigation backlog at this time of year is typically not indicative of future revenues as it is the end of the North American selling season, and delivery lead times are generally less than one month. Cash and cash equivalents rose $19.2 million over the same time last year, while debt decreased $4.3 million over the same period and $4.9 million of acquisitions were completed. Accounts receivable were $8.1 million higher due to higher sales, and inventories increased $9.3 million. Inventory turns continued to improve. Our primary use of cash remains investing in organic growth opportunities while continuing to seek accretive acquisitions that add new businesses and/or product lines. In summary, we attained record revenues in the third quarter of fiscal 2012 and expanded operating margins. Government spending on highway and other infrastructure projects continues to be impediment to growth in our infrastructure segment. However, we believe the underlying demand for road safety and improved infrastructure will rebound, although the timing is uncertain and subject to government funding. We believe the improvements we've made in the infrastructure business had better positioned us for profitable growth as funding improves. In North America, the very robust primary selling season for irrigation equipment has drawn to a close as most fields are now planted. In the international markets, irrigation equipment demand remains strong as farmers and governments seek solution for enhancing yields, improving water use efficiency and reducing pollution. While international irrigation revenues lagged the same period last year, quota activity remains solid, particularly for large irrigation projects in developing markets, and we anticipate continued strong growth in the international markets. I'd now like to open it up for your questions.

[Operator Instructions] Your first question comes from Schon Williams from BB&T Capital Markets. Christopher Schon Williams - BB&T Capital Markets, Research Division: I wonder if we could just dive into the weather impact a little bit. Generally, I think about drought conditions usually being a follow-on effect for irrigation, such that if we're seeing drought conditions this year that may bode well for purchases next year. But it seems like weather may actually be hurting you. You mentioned Texas. I'm just trying to get a sense of whether the drought conditions that we're seeing, especially in the Midwest and much of the corn crop is being stressed here. I'm just trying to get a sense of where do you see this kind of net-net coming out on the weather this year given the drought conditions?

Well, Schon, it's obviously a little too soon to tell. But we're watching the U.S. drought monitor, and you can see the drought conditions in the Southwest, in the Midwest expanding and also in pockets that are a little surprising enough, say Southern Illinois and Indiana, where it may have a larger impact on crop. Typically, what we see is as you have described, the drought condition in this year, which could affect yields, may drive commodity prices up, which we've seen some of that in at least from a secular standpoint in recent weeks and then can drive additional demand in the following year, particularly in areas where farmers are dry land farmers and not irrigating today. If we see droughts continue, and I think Texas is one of those markets where it's continued now for a number of years, then you get to a little bit of a situation wherein we may see selling less equipment. And we did see the lowest growth in that Texas market in the quarter relative to other markets because water becomes less available and therefore, they just really can't buy equipment, it's really not going to solve the problem. Now once that changes, then we would typically see those markets pick up again. So in what we've -- I think I'd add to that, what we've often seen is that in the first year of a drought, we typically don't see that much follow-on increase but a multiple-year drought certainly drive higher demand. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay. And then could you just talk about in general, very good growth in the quarter, can you give -- talk a little bit about what you see in terms of the replacement demand versus dry land conversion versus incremental demand?

Yes. I think that as we've talked about in the past, we typically have seen in a normal year -- and I'm not sure what a normal year is now, but in a typical normal year in the past, we would see about 1/3 of our units that would ship out in a year going into dry land, and 1/3 into conversion from gravity irrigation and 1/3 into replacement. And on a year-to-date basis, looking at the information we've collected on the units that we've sold out of the U.S. primarily in North American market, about 45% of the machines are going into dry land applications, 26% into conversion and 29% into replacement. And we've seen this historically that when commodity prices rise, the first land to convert or to add irrigation to or pivots where the biggest return is will be that dry land conversion. And after that, we'll see more in terms of conversion of the gravity irrigation and replacement. But dry land moves to the top when commodity prices are high.

Your next question comes from Brett Wong from Piper Jaffray.

I'm wondering if you could talk a little bit more about the international scope and see within China, if you are seeing any issues with financing tightening up.

No, we really haven't seen anything specific. Well, let's take financing in general in the international markets. We have not seen specific tightening of financing. Financing remains pretty readily available for, at least, for irrigation applications in agriculture. I can't speak for all agricultural equipment, but we haven't seen a change take place. Now when it comes to China, what we've seen is that, as in many developing markets, many of our sales will be in fairly large blocks and large projects. And in some cases, directly to, say, the Chinese government. So in that case, we can see timing shift a little bit from one period to another or a month to -- from one month to another or quarter to another based on when tenders are led or decisions are made on specific purchase or tenders. So we are seeing that in China today. So there's nothing that really causes me great concern in the China market other than the fact that it is lumpy, and that's always a little bit difficult from a forecasting and projection standpoint. In terms of financing in China, there's not really a specific problem because the financing is primarily -- or basically our transaction is with the Chinese government. We do, however, see that they will occasionally delay payments and sometimes, that will stretch out a little bit, but we do get paid.

Okay. And then on the infrastructure side, other than the...

I'm sorry, I didn't hear that part of it.

Sorry, on the infrastructure side, other than the Golden Gate project, any other QMB project that you might be able to shed some light on?

Well, I'd say that we're still optimistic about projects in infrastructure, particularly our QMB system. We continue to track a pretty extensive project list. We still have projects that would say may fall into the fourth quarter, but they're very difficult to predict those. So I wouldn't project that or make any indication if that would happen at this point. I would say that I'm still optimistic about QMB projects in general and the opportunities that it represents globally. In addition, I think the Golden Gate Bridge is one that's been talked about for a number of years in terms of putting QMB on the bridge. And I was encouraged by a press release that appeared on the Golden Gate Bridge Transportation -- or Highway and Transportation District Authority website, indicating a progress on a specific project, which they basically have put -- or using some leased QMB on the road entering the Golden Gate while they're doing some construction. And they've indicated more specifically their plans to complete this project with movable barrier on the Golden Gate Bridge by, I think, fall of '13.

Your next question comes the line of Ryan Connors from Janney Montgomery Scott.

I want to talk a little bit about the margin profile of the business, specifically in irrigation and specifically kind of talk about scenario analysis around 2013. Obviously, a lot of debate in the space broadly is about the cyclical direction. And so I just wonder if you've could -- you've done a lot of things over the last couple of years to improve the cost structure, ERP, et cetera. So in a scenario where you had a modest contraction in unit volume, say on the order of something like 5%, how resilient would margins be in the irrigation business in that kind of scenario relative to the run rate you're at today? Or do you think there would be a notable decremental in that kind of scenario?

I think as indicated back in the 2008, 2009 time period, the margins would be pretty resilient. Now keep in mind, that was a pretty steep drop back with the beginning of the recession. But I'd say that with that kind of level of declines that you are describing or even a little bit more, I would expect margins to be pretty resilient. We have made improvements in terms of implementation of leaner factory and implementation of our ERP system. I would say that margins are as much a factor of what happens with competitive pricing in steel and our ability to pass-through the steel at the corporate rates than it is anything else at this point.

Okay, okay, that's good. And then you actually touched on my second part of my question there, which was what about raw materials and other input costs relative to your pricing power today? I mean, one would assume some of the input costs have come down yet your pricing environment appears to probably be pretty good at this time. So would you look at price cost as a tailwind over the balance of this year?

I think the -- as you would indicate, some of the inputs have come down. The orders moved back some, but I would comment that the move that you've seen in steel has been primarily in the spot market in steel. Some of that would not be directly impacting us in the sense that we pre-bought some steel. So we were already seeing some pretty favorable prices. Right now we're not buying much steel, but we believe that there'll be more buy opportunities in terms of buying steel in the future to solidify our input cost position. But overall, I would say it's favorable in the sense of steel prices pulling back some. From a competitive price standpoint, I think things have been working pretty well and overall in the market, we haven't really seen much that I'd consider to be disruptive in any way. So I would say that we've been able to pass through increases as necessary, and prices are holding quite well.

Okay, great. And then just one final one, a little bit more a big picture. The Senate passed their version of a Farm Bill last week. Is there -- have you had a chance to review that, or have any of your people have a chance to review that? And if so, is their view on that bill and whether or not there are any things in there that are either positive or negative for your business if, in fact, that bill were to become law?

Well, most of the Senate, the proposed Senate Farm Bill as it's out today, is a pretty significant change from what we've seen in the past in the Farm Bill. The one area in particular that I'd be interested in watching to see what happened with the Environmental Quality Incentive Program, the EQIP money, because that money has been used and has been supportive of the conversion from gravity irrigation to pivot irrigation in the past. So it's difficult to determine what level of involvement that has, whether it's a 5% factor or 10% factor because it's very difficult to see in terms of the -- how much of the conversion is actually funded by EQIP, but we know it is important. What we're seeing in the Senate bill is it has continued with EQIP but at a pretty good level. So we're seeing that as being a very positive thing in the proposed Farm Bill. Now remains to be seen what happens as it goes through the House and what the actual Farm Bill ends up, but EQIP is one that I'd like to see protected.

Your next question comes from Carter Shoop from KeyBanc.

First question on the infrastructure business. It is definitely a little bit more than what I was expecting, and I was hoping that you could give us a little bit of color on what drove the sequential increase, the February to May quarter increase? How much of that was kind of seasonality from the Crafts [ph] business? How much that was from QMB? I believe that you guys did recognize some leasing sales to QMB on the road that goes up to the Golden Gate Bridge in the May quarter, but I want to clarify that. And I thought that would be a pretty small number though, only well less than $500,000 in the quarter. So help me understand why you guys had such a big increase there.

James, will you take that?

Yes. It is -- the primary driver of that is seasonality. But it is -- normally, our third quarter and fourth quarter, when we do see a little bit of an increase, and that is primarily in the road safety and some of the other contract manufacturing as well. But those were the normal changes and that's pretty typical for this time of year.

Okay. I'm just looking at the model here in the past, 1, 2, 3, 4, 4 years, and the biggest sequential increase you saw in the May quarter in that business was about 14%. This quarter, you're doing 49%, so about 4x bigger than the biggest sequential increase in the past 4 years. Anything else going on that you guys know?

No, I think what you could be seeing, some of that is what's happened with the QMB business in the past. So obviously, we didn't have any QMB business in the second quarter. And depending on how much business there is there and in prior quarters, that obviously has a pretty big impact on the sequential numbers.

Okay, that's helpful. And then on the irrigation business, it sounds like we'll shift to a more heavily weighted international versus domestic mix in the fiscal 4Q timeframe. Should we expect a material decline in irrigation margin as a result of that, or should we think of the pricing environment and the margin profile being somewhat similar between the 2 regions?

Well I think there's a couple of different factors there, Carter. One is that I would not conclude that there will be significant shift in mix between international and domestic in the fourth quarter at this point because we're not making any projection or guidance on that. My comment was that we still expect that the -- we will see the China piece at least kind of recovering a little later than the third quarter being moved to the fourth quarter. The second part of that is that margins are slightly lower traditionally in the international markets where our manufacturing structure and cost base is higher than producing in the U.S. because of -- if we have less vertical integration in those markets. So we could see some change in the margins or let's say there could be some margin mix because of the international impact in that third quarter. But I wouldn't conclude a sales mix change at this point.

Okay, that's helpful. Last question, if I may. When you look at the backlog, it came down quite a bit quarter-over-quarter, February to May. And I know this can be very volatile, and there's definitely some seasonality there. But regardless, it came down a little bit more than what I was expecting. Is there anything in there that we can talk about, whether it was more on irrigation side or more on the infrastructure side? Any kind of color on that decline sequentially would helpful.

There's nothing specific in terms of decline. I think that the point that I would make on this is that if you look at the backlog comparable to the previous year, it was slightly up from the previous year at the same time. And as I said, irrigation backlog is higher, and Infrastructure backlog is a little bit lower. And I also would indicate that -- or say that it's really not indicative of future revenues. But if you keep in mind that the backlogs were about the same and then we've had record revenues in fiscal 2012, I wouldn't read too much into that backlog number based on the level of magnitude that it is and also taking into consideration that our shipments from that backlog typically are less than a month.

Your next question comes from Tim Mulrooney from William Blair. Brian Drab - William Blair & Company L.L.C., Research Division: It's actually Brian Drab. So I wanted to ask a follow-up to the question that was just asked about the infrastructure segment first because I wasn't clear on Jim's answer, at least not exactly clear. I think that you said that there were no QMB sales in the second quarter and that QMB dynamic would've affected that sequential growth from the second quarter to third quarter. I guess just to be clear, are you implying that there was more significant step-up in QMB sales from second quarter to third quarter this year than there was in the previous year?

So let me just clarify a little bit. There were no large QMB projects in the quarter. We will typically have some level of QMB activity, small, maybe small projects, always some leasing activity so there's always some QMB volume, but the sequential view is going to be impacted by whether any of those prior quarters have any large projects in them. So if you go back and you look at some of these prior quarters where there isn't a lot of growth from Q2 to Q3, typically, what you would see is there's a large project in maybe a Q2 quarter and no large QMB project in the Q3 quarter. So it mutes the sequential view. But there is always some QMB activity, just no large projects in those quarters. Brian Drab - William Blair & Company L.L.C., Research Division: So the real driver this year from second quarter to third quarter was seasonality in the contracting in highway infrastructure business?

Correct. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. And then the Golden Gate Bridge project which is talked about quite often on these calls, can you remind us if you've given any indication as to how important that project would be in terms of size?

No. I wouldn't -- I can't do that, but I would point you to trying -- or to take a look at that press release that out under the Golden Gate Bridge Highway or Transportation and -- or Highway and Transportation District Agency. And I believe they refer to the project as, if my recollection is correct, about $26 million as a project, we would have a portion of that. Brian Drab - William Blair & Company L.L.C., Research Division: Okay, got it. Any feeling for how large a portion?

Yes, yes I do, but I'm not going to... Brian Drab - William Blair & Company L.L.C., Research Division: I know. Can you give me a feeling for it?

No, I'm afraid I can't. Brian Drab - William Blair & Company L.L.C., Research Division: Got it. Okay. Well, I can get close, I'm sure, on my own. So -- and then Rick, any indication here just directionally where you think the growth rates go for irrigation in the back half of calendar '12, up or down?

I don't really -- one, I wouldn't want to give an indication at this point, but I'd have to say that there's a lot of things kind of playing out right now as we look at what's happening with commodity prices and the drought. Obviously, I think the drought threat can have some implications in terms of driving some demand. So it's really difficult to say right now. Most are very optimistic about the international market still, and I don't read much into the slightly lower quarter, this quarter. I think that everything I see that's driving towards the opportunity for higher yields and overall food security on a global basis is all very positive. So I wouldn't make a projection, but let's just say I don't have anything that would really make me pessimistic at this point. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. And then if I could lastly on Russia, are you seeing any policy changes and implications on your business there lately?

Well we've seen, certainly, more activity and certainly, indications of more -- I mean, as I've asked my people to research things like government subsidies, they've come back with a couple of programs that have been established in Russia. I haven't seen the official documents, but I'm sure they're in Russian, and it wouldn't help me anyway. But there's a couple that are referring to improvements in soil fertility from 2012 to 2014 and another one that's from 2013 to '20. And these are subsidies that are being put in place by various states or regions in Russia that will be half funded by the regions and half funded by the central government, the federal government in Russia. And they appear to be fairly sizable as much as 50%, let's say, of the irrigation systems, covering various amounts of hectares of land in the various states. Now it does appear to be quite varied by state, so -- but we are seeing most of the primary arboricultural state having these subsidies. So I believe that we're going to really start seeing the impact of it. I don't think it's going to be Russia in terms of everybody trying to buy at one time. But as I said in the past, I think we need these subsidies to get some markets started because in many cases, that Russian market has been waiting for it since the government has announced that they're putting subsidies. And all the evidence I've got at this point says that these are in place. So we should start seeing more of that turn on.

Your next question comes from Andrew O'Connor [ph] from Harris Investments.

So I wanted to ask, what capital expenditures do you expect for fiscal 2012? And in what areas will these expenditures be made? Rick, I think in the last call, you suggested $9 million to $11 million for fiscal '12?

Yes, and we're still in that range. That really hasn't changed. That's the area we would still project.

And is it too early for a guesstimate for next year of fiscal '13?

It's too early to put anything on the table for that. However, I would say that I expect it to increase. We see some good organic growth opportunities in terms of things like expanding our, let's say, vertical integration in a couple of our factories. We see some opportunities to do some things that could lower the cost base now that the volume is picking up. We have some opportunities to expand and some need to expand our operations in China. So there's some definite needs on the table but would require somewhat more capital. But I don't -- we're not talking about $30 million as a capital. We're talking about maybe moving from 12 to 20, but it is definitely too early for me to project that at this point.

Got you. And then lastly, can you characterize your strategy in managing the balance sheet? Lindsay has a burgeoning amount of cash on the balance sheet, and I was just wondering if you could review that?

Well, I think, again, I would point to primary use of cash is going to be supporting organic growth opportunities in which we see some significant opportunities still to continue to invest in this business for the long-term global growth that exist. In addition to that, we have an ongoing acquisition process that has many possibilities in terms of different candidates and types of businesses that can be added. We also have dividend and other things. But in terms of managing that cash balance, I'd say I'd look at it from a perspective that we manage the business as if we don't have this big cash reserve in the sense of trying to be efficient and things like working capital use. However, we don't let that get in the way of growth opportunities that we see in front of us. But we'll continue to try and operate LEAN and at the same time, we do seek these opportunities for using this cash, which we believe we have in front of us.

Your next question comes from Joe Mondillo from Sidoti & Company. Joseph Mondillo - Sidoti & Company, LLC: Just got 2 follow-up questions, 2 questions that have been asked already. The first one is related to the challenging Texas conditions that you spoke of earlier. Just wondering if you could give a little more color in terms of how close are we to seeing some of those Texas-like conditions in elsewhere, the heart of the corn belt or elsewhere where you guys compete?

Well, as far as Texas is concerned, it is a pretty severe drought situation, and farmers are definitely impacted in terms of their ability to have the water to grow crops. I think it is pushing in a new level of efficiency in the Texas market in terms of more innovative solutions and applications of technologies to grow crops, which is on the one hand, difficult; on the other hand, it's positive to see in more drought-stricken, drought-related areas like Texas and many other parts of the world had to do that at certain time. Now the second part the question really is, how close are we in other parts of the United States in terms of seeing those similar conditions, and I think we're a long ways off. I wouldn't say that it is impossible to perceive that, but I think where we're sitting right now is not anywhere close to that today. We are seeing dry weather conditions that can affect current crop and yield, but it's not anywhere to the point of being able to -- or being at a level that shuts off the water available for irrigating today. It's a very small regional basis, sorry. Joseph Mondillo - Sidoti & Company, LLC: Okay. And then the second question, just in terms of the orders, your orders for the quarter were down 2% year-over-year. Just wondering, is that mostly in infrastructure? Why that is? Maybe is that also due to the strong orders that you saw in the second quarter just being pulled forward?

I don't know the specific in terms of how much of it was Infrastructure versus how much of it was Irrigation. But I would say, in the level of magnitude that we saw in the third quarter in terms of irrigation activity, I would consider that 2% to not be very significant or material and also keeping in mind that our irrigation markets were down slightly. And again, some of this has to do with the delay in some of the China revenues that we still anticipate to happen.

Your next question comes from David Rose from Wedbush Securities.

I have a remaining question. First of all, can you quantify the impact in China for us?

I can't. I would -- we really don't break out any of the markets for competitive reasons very specifically. I would say that it's -- certainly, we'd be in the top, say, 3 or 4 of our international markets.

I meant in terms of the order being pushed out, can you tell us maybe what percent of sales it impacted?

No, I really can't. I would just say that it is significant to our revenue in China, but it is not -- I really can't break out the total amount.

Okay, no, I understand. And then, again, on the international side, I understood there was some changes within Argentina from the dealers. Was that disruptive for you at all in the quarter? And maybe you can talk a little more about what's going on in the other regions?

Well, in terms of Argentina, we've appointed a new dealer, I believe it's 2 new dealers, I wouldn't call that disruptive, I would call it progress for us in Argentina because we were really in a difficult spot, and we remained in a difficult position in that specific market due to distribution changes that took place a long time ago. So that's been a tough market for us. But the rest of the markets in that region are really very good for us. Argentina has just been one that's been a bit of a problem. I also think that there's some new restrictions that are very difficult from a standpoint of importing goods into Argentina that are very difficult for anyone to compete. So it's a pretty tough market?

And were you impacted negatively at all in the Middle East this period?

Negatively in the Middle East? No.

No, okay. So you're still seeing growth in Middle East?

Well, we still see some very good growth opportunities. I think that we have seen revenue growth in the past in markets like Egypt, which I think Egypt is disruptive at this point, and I don't anticipate anything in the very near future, but I still believe there's good growth opportunities in Egypt and throughout the Middle East.

Okay, great. And I appreciate the color on the international side. And then on the mix side, domestically, you had indicated some of the margin mix attributable to international versus domestic. Within domestic, I got the impression as we talked to dealers that there's a bit more on the parts side in terms of mix shift. Is that fair? And how does that affect your margins going forward?

We're seeing a significant part mix shift that would really drive any major change in domestic margins. I believe that earlier in the year, in the spring, we did see strong part sales, which wasn't a huge surprise as the machines were starting up. But I wouldn't say that we've seen a significant mix shift in a few parts revenue in any way.

Okay. And then lastly, going back to the balance sheet and the cash you have on hand. Last, very closing comments you have at the last quarter, you highlighted the acquisitions and the sense I got were fairly close. That is very high in your list. You seem to backed away from that a bit on this call in terms of how close they are in terms of priority of cash. Is it because of the challenges on the price which sellers are expecting in the market? Did you lose out on anything? Maybe you can provide us a little bit more color on the acquisition opportunities.

Yes. I think you're reading probably a little more into it than certainly I intended. It's -- I said I may have been a little more optimistic with some potential acquisition candidates that were on the table or that I was visiting in the near-term, let's say, on the last call. Not that we've lost anything because we really haven't. It's more -- there's a varying levels of activity in terms of our acquisition process, and it will at times be pretty intense with a lot of visits and discussions and times when it's a little quieter. It's probably a little quieter right now than it was at the end of the previous quarter, which could be part of the reasons for that. But it doesn't change my optimism or view in terms of acquisition opportunities.

Okay. So with all those cash on the balance sheet, clearly that's a priority. You indicated you have to run the business as if you don't have the cash but shareholders will get the cash. Is there anything that could preclude you from an extraordinary dividend, increasing the dividend? And can you provide us some thoughts on that?

No, I think all options are on the table. And I'd say that we certainly don't have to run the business as if we don't have the cash. It's more of an operating method so that we don't get sloppy with this. We really try to run LEAN and manage the business in the most efficient way possible, which I'm sure shareholders want us to. At the same time, we won't restrict that from the standpoint that if we need additional inventory in order to meet demand that we see in front of us, we'll do that or any other investments that's required. But all options are on the table, and I wouldn't rule out any, and we will continue to evaluate all options. Finding acquisitions is not a priority from the standpoint of we must do it. What we believe we have are opportunities to add in additional pieces that create some significant shareholder value that will create value that shareholders really couldn't get by buying out, say, a business or piece of business on their own. That continues to be part of the mission. It certainly wouldn't put it in category of a rush to do a deal because there's too many deals that, unfortunately, don't create value. So that's not the goal. The goal is to find the deals that really create some significant shareholder value.

Your next question comes from Jeff Beach from Stifel, Nicolaus. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: Most of my questions have been answered. I have a couple. One, you cited -- discussed the Golden Gate Bridge project. Is there any other large projects that have come up on the horizon that you're monitoring that you could cite?

Well, there's really not. There are other projects that we are certainly tracking, many on our list and many that we have meetings on. I'm citing the Golden Gate Bridge one because it is more public. They've had public studies that have been done, environmental impacts on the Golden Gate Bridge and now they've gone as far as to put out this announcement in terms of the progress of the project itself, which is the only reason I feel confident in doing that. I'm reluctant always to discuss projects or potential projects that have not been disclosed publicly because we've had incidences of talking about a project and then have people call that agency whether it was a bridge authority, or whatever it was and be inquiring about the status of the project and things, and it really drives them crazy. So from a customer respect standpoint, I won't get into specifics on pending projects unless we either released to do that or it's already public. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: All right. Second, on your LEAN and then you mentioned spending might go up next year related to somewhat to productivity. Do you expect going forward over the next year to realize as much productivity and cost savings as you've been realizing over the last year or 2, which seems to be visible in your results.

I would expect our organization to keep driving those improvements that are visible in the results. The challenge in what we've seen in the last year is the productivity improvement become a little bit more visible as the volume is ramping up and the fact that we've been able to do it with fewer people and be able to manage that using LEAN and to LEAN out basically most of the process in the operations. So that's where we've seen improvement. We will continue to see it. We have significant opportunities in our international operations to implement LEAN and see those improvements as well. I am reluctant to project anything in terms of what that will look like going forward in terms of the level of magnitude. We prefer to do it and show it in the results. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Lastly, have you talked about the environmental impact of the expenses looking out past 2012?

We really haven't. I assume you're referring to the environmental reserve that was established, the accrual we made? I will let Jim comment on that in terms of the accrual and what that represents.

Yes, we haven't commented on it other than to say we have put the accrual on the books that we think is appropriate based on what we know today and what we expect to, we think, incur looking out. It is obviously a situation where there's a lot of different factors, and that can change over time and so there's always a possibility those numbers can change. But for now, we have accrued what we think is necessary in order to remediate a good part of it in some ongoing costs.

Your next question comes from the line of Schon Williams from BB&T Capital Markets. Christopher Schon Williams - BB&T Capital Markets, Research Division: Just a quick follow-up. I know the EPA normally does a field test somewhere in the kind of May, June time frame. Has that occurred yet?

I'm not sure specifically what you're referring to on this, Schon. But we have had ongoing actions with the EPA regarding a 5-year plan, a multi-year plan, a multiple-year plan, and they've been directly involved in defining things like what testing we should be doing in the future. It also incorporated doing some field testing or testing at various wells to determine the size of plume, location and things like that. So I think that testing has been ongoing throughout the process. Christopher Schon Williams - BB&T Capital Markets, Research Division: So you're not aware of whether they've been physically on site in the last few months?

I'm not aware if they've been physically on site in the last couple months, no.

I would say that they -- there hasn't been anything outside of their normal process, and there is an ongoing process and monitoring and updating before them, as Rick called out.

They've been very involved.

Right. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay. And then to switch gears a little bit, you did note some better pricing you're seeing in the infrastructure side of the business versus last year. I was a little surprised to see that kind of given the weak demand environment. Can you talk a little more about what product line that was? And then what's driving that pricing?

I would describe that as a combination of some strategic pricing based on specific product groups where we felt that we had some opportunities in terms of where competition may have been priced. We -- I would also describe it as in our operation in Italy, which was the Snoline product line, we felt that we have product groups that was underpriced to the market, and we needed to step those up so that was put in place. And in addition, we've established appropriate pricing discipline with the right levels of sign offs on deviations from pricing trends that are put in place in the infrastructure piece of business. And those controls, as well as the pricing changes that have been implemented have made a difference.

There are no further questions at this time. I will now turn the conference back over to Mr. Rick Parod for closing comments.

For our business overall, the global long-term drivers of water conservation, population growth, increasing importance of biofuels and the need for safer, more efficient transportation solutions remain 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'd like to thank you for your questions and participation in this call.

Thank you. That concludes today's conference. You may now disconnect.