Lindsay Corporation — FY2013 Form 10-K
Business context and reporting period. Lindsay manufactures agricultural irrigation equipment and highway infrastructure products. This annual report covers the fiscal year ended August 31, 2013; the filing also reports fourth-quarter results. Irrigation accounted for 91% of FY2013 revenue. The company acquired Claude Laval Corporation, maker of LAKOS filtration products, on August 16, 2013, for approximately $29.0 million in cash.
Financial results and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $690.8 million | $551.3 million |
| Gross profit / margin | $194.8 million / 28.2% | $148.5 million / 26.9% |
| Operating income / margin | $107.1 million / 15.5% | $65.5 million / 11.9% |
| Net earnings | $70.6 million | $43.3 million |
| Diluted EPS | $5.47 | $3.38 |
| Cash from operations | $57.5 million | $52.4 million |
| Capital expenditures | $11.1 million | $9.9 million |
| Cash and cash equivalents at year-end | $151.9 million | $143.4 million |
| Interest-bearing debt at year-end | None | $4.3 million |
Segments and fourth quarter. Irrigation revenue rose 31.7% to $626.0 million, with segment operating income of $125.4 million versus $80.3 million. Infrastructure revenue fell 14.6% to $64.9 million; the segment recorded an $0.8 million operating loss versus near break-even a year earlier. Fourth-quarter revenue was $148.4 million versus $127.8 million; net earnings were $10.4 million versus $8.8 million, and diluted EPS was $0.81 versus $0.68.
Liquidity and capital allocation. Net working capital was $266.7 million, up from $218.4 million. Investing activities used $41.1 million, including the $29.0 million acquisition. The company had no balance outstanding on its $30 million revolving credit facility, extended through February 2016, and reported compliance with its covenants. FY2013 dividends were $0.475 per share; no shares were repurchased.
Material changes versus the prior period
- Revenue increased 25.3%; net earnings rose 63.1%. Irrigation sales growth and improved irrigation margins drove the gains.
- U.S. and international irrigation revenue increased 26% and 41%, respectively. The company recorded $33.4 million of revenue from an Iraq irrigation contract.
- Infrastructure revenue declined 15%, reflecting lower sales across product lines, constrained government funding, and project delays.
- FY2012 included a $7.2 million environmental remediation accrual, which reduced that year’s diluted EPS by $0.37; no incremental remediation expense was recorded in FY2013.
- International revenue represented 38% of total revenue, compared with 36% in FY2012.
Outlook, risks, contingencies, and unusual items
- Management expected FY2014 capital expenditures of approximately $20–25 million, primarily for capacity expansion and productivity improvements; timing and amounts could be adjusted.
- Management said irrigation demand for 2014 and beyond was unclear. Lower commodity prices and anticipated expiration of the Section 179 tax deduction could temper farmer investment, partly offset by high farm income and strong balance sheets.
- Management did not anticipate a strong turnaround in government infrastructure spending in FY2014. Infrastructure revenue and profit remain volatile because of project timing and relatively fixed costs. Backlog was $66.5 million at year-end versus $57.1 million a year earlier, including $4.7 million carried over from the Iraq order.
- The Lindsay, Nebraska site remains subject to EPA remediation. The recorded liability was $6.9 million; further investigation and possible revisions to the plan could produce material charges, but management did not expect additional expense to materially affect liquidity or financial condition. Costs for areas not yet investigated could not be reasonably estimated and were not accrued.
- Key exposures include agricultural income, commodity prices and weather; government infrastructure funding; steel, zinc and other input costs; supplier disruption; international political, trade and currency risks; and execution and returns on acquisitions. Management estimated that a 10% adverse currency move could reduce operating income by less than $1 million, based on FY2013 results.
- The company held $26.2 million of cash at foreign subsidiaries considered indefinitely reinvested. Repayment of those funds to the U.S. would result in taxes.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether irrigation demand and margins can remain strong as farm commodity prices and farmer investment sentiment change.
- Whether infrastructure projects, government funding, and segment profitability recover, and how much backlog converts to revenue.
- The final purchase accounting and operating contribution of Claude Laval/LAKOS, including the preliminary $7.3 million goodwill allocation.
- EPA remediation developments, any required changes to the remediation plan, and potential costs beyond the $6.9 million accrued liability.
- Execution and financing of planned FY2014 capital spending, alongside working-capital needs and continued dividend payments.