Lindsay Corporation — FY2020 Form 10-K
Business context and reporting period. Lindsay manufactures agricultural irrigation systems and technology, and roadway infrastructure products including movable barriers, crash cushions and road-safety equipment. This annual report covers the fiscal year ended August 31, 2020; it also reports unaudited fourth-quarter results. Fiscal 2020 was affected by COVID-19, though the company said its facilities generally remained open as essential businesses.
Financial performance and position
- Revenue: $474.7 million, up 7% from $444.1 million. Irrigation revenue declined 2% to $343.5 million; Infrastructure revenue rose 42% to $131.2 million.
- Profit and margins: Gross profit was $152.5 million, with a 32.1% gross margin versus 25.8%. Operating income was $54.2 million and operating margin 11.4%, compared with $6.1 million and 1.4%. Net earnings were $38.6 million, or $3.56 per diluted share, versus $2.2 million, or $0.20 per share.
- Segment operating results: Irrigation operating income rose 35% to $40.2 million, with an 11.7% margin. Infrastructure operating income rose 164% to $43.8 million, with a 33.4% margin.
- Cash flow: Operating cash flow was $46.0 million, versus $3.8 million. Investing activities used $38.5 million, including $21.4 million of capital expenditures; financing activities used $13.4 million, primarily for dividends.
- Liquidity and debt: Cash and marketable securities totaled $140.9 million, versus $127.2 million; working capital was $245.5 million. Total debt was approximately $116.3 million, including $115.0 million of senior notes. The $50 million revolving facility was undrawn, and the company reported compliance with its debt covenants.
- Returns and backlog: Dividends paid were $13.6 million, or $1.26 per share. No shares were repurchased during the year; $63.7 million remained available under the repurchase authorization. Backlog was $58.7 million, compared with $55.4 million a year earlier, but the company cautions it is not a reliable indicator of subsequent revenue.
Changes versus the prior comparable period
- Infrastructure growth, including approximately $27 million from a U.K. project, more than offset lower irrigation revenue. Irrigation international revenue fell 6%, substantially due to currency translation; excluding that effect, it increased slightly.
- Gross profit benefited from a more profitable sales mix and margin-improvement initiatives, and included a $1.2 million gain on a building sale.
- The sharp earnings increase is not a like-for-like comparison: fiscal 2019 included $15.1 million of Foundation for Growth costs and a $2.7 million valuation adjustment for foreign indirect tax credits. Those items did not recur in fiscal 2020. Excluding those nonrecurring costs, operating expenses increased 2% year over year.
- COVID-19-related shipment and project delays reduced fiscal 2020 revenue by approximately $8 million. Additional employee-related costs were mostly offset by lower travel and other expenses, with a negligible reported net-earnings impact.
Outlook, risks and contingencies
- Guidance: The filing does not provide earnings or revenue guidance. Fiscal 2021 capital expenditures were estimated at $15 million to $20 million, with timing and amount subject to adjustment. Management said available cash, investments, projected operating cash flow and credit capacity were expected to cover planned needs and dividends.
- Market outlook: Management cited long-term demand drivers including food production, water conservation and road safety, but highlighted uncertain agricultural commodity prices, farm income, weather, currencies and international project timing. Infrastructure demand depends significantly on government transportation funding; the FAST Act had expired and Congress approved a one-year extension.
- COVID-19: The future effects on demand, operations, supply chains and cash flows remained uncertain and could not be reasonably estimated by the company.
- Environmental remediation: The company recorded a $16.1 million liability for contamination at its Lindsay, Nebraska site, including a $1.0 million increase in fiscal 2020. The proposed plan had not been approved by regulators; changes to the plan, costs or schedule could materially affect quarterly or annual operating results.
- Product litigation and investigation: The company is defending lawsuits involving its X-Lite end terminal, including a Missouri transportation commission lawsuit seeking damages and other relief. The company reported no accrual because it did not consider a loss probable and could not estimate a loss range. A Department of Justice and U.S. Attorney investigation into potential False Claims Act violations was ongoing; the company could not estimate a potential loss or outcome.
- Other risks: Key exposures include agricultural cycles and weather, public infrastructure funding, tariffs and foreign exchange, raw-material supply and pricing, product liability, regulatory certification standards, and cybersecurity. The company said its internal controls were effective and the previously reported weakness concerning foreign indirect tax credits had been remediated.
Important facts for investors to verify
- Whether Infrastructure’s exceptional growth and margins are sustainable after the large U.K. project, and how irrigation demand develops.
- How much of the reported earnings improvement reflects durable operating gains versus the nonrecurrence of fiscal 2019 charges and the fiscal 2020 building-sale gain.
- Regulatory decisions and potential changes in the $16.1 million remediation estimate.
- Developments, insurance coverage and possible financial exposure related to X-Lite lawsuits and the federal investigation.
- Whether COVID-19, agricultural conditions, highway funding and supply costs alter revenue, cash flow or planned capital spending.