Lindsay Corporation (LNN) — FY2012 Form 10-K
Business and reporting period. Lindsay manufactures agricultural irrigation equipment and road-infrastructure products. Its two reporting segments are Irrigation and Infrastructure. The fiscal year ended August 31, 2012; the filing also reports fourth-quarter results for the three months ended that date. Figures below are U.S. dollars.
Financial performance and position
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $551.3 million | $478.9 million |
| Gross profit / margin | $148.5 million / 26.9% | $129.8 million / 27.1% |
| Operating income / margin | $65.5 million / 11.9% | $56.6 million / 11.8% |
| Net earnings / net margin | $43.3 million / 7.9% | $36.8 million / 7.7% |
| Diluted earnings per share | $3.38 | $2.90 |
| Operating cash flow | $52.4 million | $43.1 million |
| Capital expenditures | $9.9 million | $8.4 million |
- Revenue increased 15.1% and net earnings increased 17.6% year over year. Gross margin edged down 0.2 percentage point; operating margin improved 0.1 point.
- Segments: Irrigation revenue rose 28.5% to $475.3 million, with segment operating income of $80.3 million and a 16.9% margin. Infrastructure revenue fell 30.3% to $76.0 million; segment operating loss was $11,000, compared with $11.9 million operating income in FY2011.
- Fourth quarter: Revenue was $127.8 million versus $116.1 million a year earlier; net earnings were $8.8 million versus $5.9 million; diluted EPS was $0.68 versus $0.46.
- Liquidity and debt: Cash and cash equivalents were $143.4 million, net working capital was $218.4 million, and total assets were $415.5 million at year-end. Interest-bearing debt was $4.3 million, all current and scheduled for repayment by June 2013. The company had no borrowings under its $30 million revolving credit agreement and reported compliance with its loan covenants.
- Cash dividends were $0.385 per share for FY2012, up from $0.345. No shares were repurchased under the plan during the year.
Changes and management commentary
- Irrigation revenue grew by $105.4 million, supported by stronger U.S. and international demand. U.S. irrigation system unit sales rose 28%; management cited favorable farm economics and commodity prices. International irrigation revenue increased 19%.
- Infrastructure revenue declined by $33.0 million, primarily because of fewer Quickchange moveable-barrier (QMB) system sales amid project delays and funding constraints. Lower sales of higher-margin QMB systems reduced infrastructure gross margin.
- Operating expenses rose $9.8 million. The increase included $5.9 million of additional environmental remediation expense; personnel, acquired-business costs, and sales and marketing also contributed. The company reported that operating margin excluding environmental accruals improved to 13.2% from 12.1%.
- Backlog was $57.1 million at August 31, 2012, versus $46.0 million a year earlier. Management cautions that backlog fluctuates with seasonality, contract timing, and project execution.
Outlook, risks, and contingencies
- Management said strong farm incomes and commodity prices could support irrigation demand in FY2013, while noting that demand can vary significantly with farm income, weather, financing, and agricultural policy. It identified international markets as an important longer-term growth opportunity.
- Management expected infrastructure sales growth and profit improvement in 2013, while describing government-funded spending as challenging. It said the two-year U.S. highway bill through 2014 offered some near-term support but constrained long-term project planning.
- Planned FY2013 capital expenditures were approximately $15–$20 million, excluding possible expansion of the leased barrier and barrier-transfer-machine fleet; management retained flexibility to adjust timing and amount.
- Environmental contingency: The company’s Lindsay, Nebraska site is on the EPA Superfund priority list. The investigation and remedial planning remain incomplete, and EPA approval of possible action plans was pending. The company recorded $7.2 million of additional remediation expense in FY2012; the year-end recorded liability was $7.6 million. Management warned that future costs could significantly exceed the accrued amount and could materially affect a quarter or year’s results, but did not expect a material adverse effect on liquidity or financial condition.
- Other key risks include agricultural and weather cycles, reduced or delayed public infrastructure funding, steel and other input-cost increases, supplier disruptions, international and foreign-exchange exposure, and access to credit. The filing estimated that a 10% adverse currency move could reduce operating income by less than $1 million; the estimated impact on fair value of net-investment hedges was approximately $3.3 million.
Important facts for investors to verify
- Whether irrigation demand and farm economics remain strong, and whether FY2013 performance supports management’s outlook.
- Whether delayed QMB projects resume, and whether infrastructure revenue and segment profitability recover as expected.
- How EPA remediation findings and approved plans affect the site liability and future expense beyond the $7.6 million accrued.
- Whether planned capital spending, debt repayment, working-capital needs, and dividend payments are supported by operating cash flow.
- How input-cost volatility, supplier availability, currency movements, and public funding decisions affect margins and demand.
Assurance: KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of August 31, 2012.