Lindsay Corporation — FY2015 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended August 31, 2015 (including fourth-quarter results). Lindsay makes agricultural irrigation and water-management products and road-safety and infrastructure products. Irrigation is the larger of its two segments; 37% of consolidated revenue came from international markets.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $560.2 million | $617.9 million |
| Gross profit / margin | $156.3 million / 27.9% | $171.0 million / 27.7% |
| Operating income / margin | $50.7 million / 9.0% | $78.4 million / 12.7% |
| Net earnings | $26.3 million | $51.5 million |
| Diluted earnings per share | $2.22 | $4.00 |
| Cash from operations | $48.7 million | $91.8 million |
| Capital expenditures | $15.2 million | $17.7 million |
| Cash and cash equivalents at year-end | $139.1 million | $171.8 million |
| Long-term debt, including current portion | $117.4 million | None reported |
Net working capital was $227.1 million, down from $257.7 million. The company reported total assets of $536.5 million and shareholders’ equity of $288.6 million. It had $44.4 million available under its $50 million revolving credit facility after standby letters of credit; no revolver borrowings were outstanding. The $115 million senior notes mature in 2030 and carry a 3.82% annual rate.
Material changes versus the prior year
- Revenue fell 9%, principally as irrigation sales declined 16% to $451.2 million. Irrigation segment operating income declined 45% to $50.8 million, with margin falling to 11.3% from 17.0%.
- Infrastructure revenue rose 40% to $109.0 million and segment operating income increased to $20.0 million from $3.5 million, supported by Road Zipper and road-safety sales, improved product mix and operating leverage.
- Operating expenses increased 14% to $105.6 million. Items cited included $6.4 million of Elecsys operating expenses, $5.0 million of bad-debt expense, $1.8 million of acquisition and integration costs, and a $1.5 million increase in estimated environmental expenses.
- The effective tax rate rose to 43.7% from 34.5%, including a $2.9 million valuation allowance against foreign deferred tax assets. Other reported expense included a $2.9 million reserve against foreign income tax assets.
- Operating cash flow decreased $43.1 million. Investing cash use increased to $79.6 million, chiefly reflecting the Elecsys acquisition. Lindsay issued $115 million of senior notes and repurchased 1.20 million shares for $96.9 million; dividends paid were $12.8 million.
- Elecsys was acquired in January 2015 for $67.2 million net of cash acquired; SPF Water Engineering was acquired in July for $2.4 million net of cash acquired.
Outlook, risks and unusual items
- Management said the identified market factors did not indicate a significant change in irrigation demand in FY2016, while noting conditions could change before the 2016 selling season. It expected no significant change in infrastructure demand in FY2016. These statements are forward-looking, not firm guidance.
- FY2016 capital expenditures were estimated at $15 million to $20 million, mainly for manufacturing capacity and productivity improvements, with timing subject to economic conditions. Management expected historically comparable cash dividends to continue but gave no assurance.
- Irrigation demand is exposed to farm income, crop and grain prices, weather, financing, water availability and government policy. Management cited lower farm income, low commodity prices, a stronger U.S. dollar, reduced storm-related replacement demand and regional conflicts as pressures on sales.
- Infrastructure demand depends partly on public highway funding. The filing describes the July 2015 $8 billion temporary U.S. highway-funding measure and continued uncertainty absent a long-term bill. Proposed MASH highway-safety standards may require additional research, testing and expense and could affect competitive positioning.
- International credit and collection risk increased: the company reported $6.9 million of delinquent China receivables and Iraq contract receivables of $2.7 million, plus a $2.0 million performance bond. Iraq installation work on a $39 million contract had been suspended indefinitely pending improvement in the political environment; no loss accrual was recorded for potential claims on unfinished services.
- The Lindsay, Nebraska site remains subject to EPA remediation. Accrued remediation liabilities were $7.5 million at year-end; additional testing and remediation may be required, and costs for some potentially affected areas could not be reasonably estimated. Management did not expect additional expenses to materially affect liquidity or financial condition.
- Fourth-quarter FY2015 included a $5.0 million bad-debt reserve and a $2.9 million foreign tax-asset reserve; the quarter recorded a net loss of $3.2 million, or $0.28 per diluted share.
Most important facts for investors to verify
- Whether irrigation demand and segment profitability stabilize as farm income, commodity prices, weather and currency conditions evolve.
- Recoverability of the China and Iraq receivables, the adequacy of the increased doubtful-account allowance, and the status of the Iraq contract and performance bond.
- EPA remediation developments, including the planned 2016 site investigation and the effect of any revised plan on future expense.
- Infrastructure order conversion, public funding continuity and the timing and cost of MASH compliance.
- Acquisition integration and returns from Elecsys and SPF, alongside the effects of repurchases, dividends and new long-term debt on capital allocation and liquidity.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Elecsys was excluded from management’s and the auditor’s internal-control assessment for FY2015.