LINDSAY CORPORATION Concerning Forward-Looking Statements
This Annual Report on Form 10-K, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect expectations for future Company performance. In addition, forward-looking statements may be made orally or in press releases, conferences, reports, on the Company's web site, or otherwise, in the future by or on behalf of the Company. When used by or on behalf of the Company, the words "expect," "anticipate," "estimate," "believe," "intend," "will," "plan," "predict," "project," "outlook," "could," "may," "should," and similar expressions generally identify forward-looking statements. For these statements throughout the Annual Report on Form 10-K, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The entire sections entitled "Financial Overview and Outlook" and "Risk Factors" should be considered forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the "Risk Factors" section contained in Item 1A. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results or conditions, which may not occur as anticipated. Actual results or conditions could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. The risks and uncertainties described herein are not exclusive and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, may emerge from time to time. Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
Company Overview
The Company manufactures and markets center pivot, lateral move, and hose reel
irrigation systems. The Company also produces and markets irrigation controls,
chemical injection systems, remote monitoring and irrigation scheduling
systems. These products are used by farmers to increase or stabilize crop
production while conserving water, energy, and labor. Through its acquisitions
and third-party commercial arrangements, the Company has been able to enhance
its capabilities in providing innovative, turn-key solutions to customers
through the integration of designs, controls, and pump stations. The Company
sells its irrigation products primarily to a world-wide independent dealer
network,
For the business overall, the global, long-term drivers of population growth,
water conservation and environmental sustainability, the need for increased food
production, and the need for safer, more efficient transportation solutions
remain positive. Key factors which impact demand for the Company's irrigation
products include total worldwide agricultural crop production, the profitability
of agricultural crop production, agricultural commodity prices, net farm income,
availability of financing for farmers, governmental policies regarding the
agricultural sector, water and energy conservation policies, the regularity of
rainfall, regional climate conditions, and foreign currency exchange rates. A
key factor which impacts demand for the Company's infrastructure products is the
amount of spending authorized by governments to improve road and highway
systems. Much of the
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The Company continues to have an ongoing, structured, acquisition process that it expects to generate additional growth opportunities throughout the world and add to its irrigation and infrastructure capabilities. The Company is committed to achieving earnings growth by global market expansion, improvements in margins, and strategic acquisitions.
COVID-19 Impact
In
The ultimate impact of COVID-19 on the Company's business, results of operations, or cash flows remains uncertain and depends on numerous evolving factors that the Company may not be able to accurately predict or effectively respond to, including, without limitation: the duration and scope of the outbreak; actions taken by governments, businesses, and individuals in response to the outbreak; the effect on economic activity and actions taken in response; the effect on customers and their demand for the Company's products and services; and the Company's ability to manufacture, sell, and service its products, including without limitation as a result of supply chain challenges, facility closures, social distancing, restrictions on travel, fear or anxiety by the populace, and shelter-in-place orders. As such, the financial impact of COVID-19 on the Company's business, results of operations, or cash flows cannot be reasonably estimated at this time.
New Accounting Standards Issued But Not Yet Adopted
See Note 2, New Accounting Pronouncements, to the Company's consolidated financial statements for information regarding recently issued accounting pronouncements.
Critical Accounting Policies and Estimates
In preparing the consolidated financial statements in conformity with
Environmental Remediation Liabilities
The Company's accounting policy on environmental remediation is critical because
it requires significant judgments and estimates by management, involves changing
regulations and approaches to remediation plans, and any revisions could be
material to the operating results of any fiscal quarter or fiscal year. The
Company is subject to an array of environmental laws and regulations relating to
the protection of the environment. In particular, the Company committed to
remediate environmental contamination of the groundwater at, and land adjacent,
to its
Environmental remediation liabilities include costs directly associated with site investigation and clean up, such as materials, external contractor costs, and incremental internal costs directly related to the remedy. Estimates used to
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record environmental remediation liabilities are based on the Company's best estimate of probable future costs based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental engineers or other service providers. The Company records the environmental remediation liabilities that represent the points in the range of estimates that are most probable, or the minimum amount when no amount within the range is a better estimate than any other amount. Portions of the long-term liability that are fixed and reliably determinable are discounted at a risk-free rate.
The Company accrues the anticipated cost of environmental remediation when the
obligation is probable and can be reasonably estimated. While the plan has not
formally been approved by the
Financial Overview and Outlook
Operating revenues in fiscal 2020 were
Prior year net earnings were reduced by after-tax costs of
The global drivers for the Company's irrigation segment are population growth and the attendant need for expanded food production and efficient water use. The need for irrigated agricultural crop production, which depends upon many factors, including the following primary drivers:
• Agricultural commodity prices - During fiscal 2020, agricultural commodity
prices declined significantly because of impacts caused by the global
coronavirus pandemic. The pandemic resulted in the shutdown of economies
globally, a significant increase in unemployment, the disruption of food
supply systems and consumption patterns, and the reduction in gasoline
consumption and demand for ethanol. Under the U.S. -China Phase 1 trade
deal signed January 15, 2020 , China has pledged to increase purchases of
U.S. agricultural products by $32 billion over two years, to an average
annual total of $40 billion compared to the 2017 baseline of $24
billion . Commodity prices have recovered by August 2020 due to lower yield
expectations in the U.S. as well as increased exports to China , with corn
prices approximately five percent lower and soybean prices approximately
seven percent higher compared to August 2019 .
• Net farm income - As of September 2020 , the U.S. Department of Agriculture
(the "USDA") estimated U.S. 2020 net farm income to be $102.7 billion , an
increase of 22.7 percent from the USDA's final U.S. 2019 net farm income
of $83.7 billion . This increase is projected to come primarily from higher
Federal government direct farm program payments through the expansion of
the Coronavirus Food Assistance Program ("CFAP"). CFAP was designed to
provide direct assistance to farmers affected by price declines and market
disruptions caused by the coronavirus pandemic.
• Weather conditions - Demand for irrigation equipment is often positively
affected by storm damage and prolonged periods of drought conditions as
producers look for ways to reduce the risk of low crop
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production and crop failures. Conversely, demand for irrigation equipment
can be negatively affected during periods of more predictable or excessive
natural precipitation.
• Governmental policies - A number of government laws and regulations can
impact the Company's business, including:
o The Agricultural Improvement Act of 2018 (the "2018 Farm Bill") was
signed into law in December 2018 and continued many of the programs
that were in previous federal farm bills that are designed to
provide a degree of certainty to growers. The programs include
funding for the Environmental Quality Incentives Program, which
provides financial assistance to farmers to implement conservation
practices, and is frequently used to assist in the purchase of
center pivot irrigation systems.
o U.S. Tax Reform enacted in December 2017 increased the benefit of
certain tax incentives, such as the Section 179 income tax deduction
and Section 168 bonus depreciation, which are intended to encourage
equipment purchases by allowing the entire cost of equipment to be
treated as an expense in the year of purchase rather than amortized
over its useful life.
o Biofuel production continues to be a major demand driver for
irrigated corn, sugar cane and soybeans as these crops are used in
high volumes to produce ethanol and biodiesel. On December 19,
2019 , the U.S. Environmental Protection Agency finalized Renewable
Fuels Standard (RFS) volume requirements for 2020 that slightly
increased volumes of conventional biofuels as well as volumes for
advanced and cellulosic biofuels. Demand for biofuels has been
negatively impacted in 2020 by reduced driving and fuel consumption
caused by the coronavirus pandemic.
o Many international markets are affected by government policies such
as subsidies and other agriculturally related incentives. While
these policies can have a significant effect on individual markets,
they typically do not have a material effect on the consolidated
results of the Company.
• Currency -The value of the U.S. dollar fluctuates in relation to the value
of currencies in a number of countries to which the Company exports
products and maintains local operations. The strengthening of the dollar
increases the cost in the local currency of the products exported from the
U.S. into these countries and, therefore, could negatively affect the
Company's international sales and margins. In addition, the U.S. dollar
value of sales made in any affected foreign currencies will decline as the
value of the dollar rises in relation to these other currencies.
International markets remain active with opportunities for further development and expansion, however regional political and economic factors, currency conditions and other factors can create a challenging environment. Additionally, international results are heavily dependent upon project sales which tend to fluctuate and can be difficult to forecast accurately.
In the infrastructure segment, demand for the Company's transportation safety
products continues to be driven by population growth and the need for improved
road safety, but is largely dependent on government spending for road
construction. In
As of
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Results of Operations
The following "Fiscal 2020 Compared to Fiscal 2019" section presents an analysis
of the Company's consolidated operating results displayed in the Consolidated
Statements of Earnings and should be read together with the information in Note
17, Industry Segment Information, to the consolidated financial statements. A
discussion regarding our financial condition and results of operations for
fiscal 2019 compared to fiscal 2018 can be found in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 of Part II
of our Annual Report on Form 10-K for the fiscal year ended
Fiscal 2020 Compared to Fiscal 2019
The following table provides highlights for fiscal 2020 compared with fiscal
2019:
For the years ended Percent
August 31, increase
($ in thousands) 2020 2019 (decrease)
Consolidated
Operating revenues $ 474,692 $ 444,072 7%
Cost of operating revenues $ 322,149 $ 329,464 -2%
Gross profit $ 152,543 $ 114,608 33%
Gross margin 32.1 % 25.8 %
Operating expenses (1) $ 98,341 $ 108,493 -9%
Operating income $ 54,202 $ 6,115 786%
Operating margin 11.4 % 1.4 %
Other expense $ (5,359 ) $ (4,008 ) 34%
Income tax expense (benefit) $ 10,214 $ (65 ) -15814%
Effective income tax rate 20.9 % -3.1 %
Net earnings $ 38,629 $ 2,172 1678%
Irrigation segment (2)
Operating revenues $ 343,529 $ 351,498 -2%
Operating income $ 40,214 $ 29,804 35%
Operating margin 11.7 % 8.5 %
Infrastructure segment (2)
Operating revenues $ 131,163 $ 92,574 42%
Operating income $ 43,771 $ 16,599 164%
Operating margin 33.4 % 17.9 %
(1) Includes corporate general and administrative expenses of $29.8 million for
fiscal 2020.
(2) See Note 19 Industry Segment Information, to the consolidated financial
statements, for further details regarding segments.
Revenues
Operating revenues in fiscal 2020 were
International irrigation revenues in fiscal 2020 decreased by
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Infrastructure segment revenues in fiscal 2020 increased by
Gross Profit
Gross profit was
Operating Expenses
The Company's operating expenses of
Income Taxes
The Company recorded income tax expense of
Net Earnings
Net earnings for fiscal 2020 were
Liquidity and Capital Resources
The Company's cash, cash equivalents, and marketable securities totaled
The Company's total cash and cash equivalents held by foreign subsidiaries
amounted to
Net working capital was
Cash flows used in investing activities totaled
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Cash flows used in financing activities totaled
Capital Allocation Plan
The Company's capital allocation plan is to continue investing in revenue and earnings growth, combined with a defined process for enhancing returns to stockholders. Priorities for the use of cash under the Company's capital allocation plan include:
• Investment in organic growth including capital expenditures,
• Dividends to stockholders, along with expectations to increase dividends
over time,
• Synergistic acquisitions that provide attractive returns to stockholders, and
• Opportunistic share repurchases taking into account cyclical and seasonal
fluctuations.
Capital Expenditures
In fiscal 2021, the Company expects capital expenditures of approximately
Dividends
In fiscal 2020, the Company paid cash dividends of
Share Repurchases
The Company's Board of Directors authorized a share repurchase program of up to
Long-Term Borrowing Facilities
Senior Notes. The Company has outstanding
Revolving Credit Facility. The Company has outstanding a
Borrowings under the Revolving Credit Facility have equal priority with borrowings under the Company's Senior Notes. Each of the credit arrangements described above include certain covenants relating primarily to the Company's financial condition. These financial covenants include a funded debt to EBITDA leverage ratio and an interest coverage ratio. In the event that the loan documents for the Revolving Credit Facility were to require the Company to comply with any financial covenant that is not already included or is more restrictive than what is
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already included in the arrangement governing the Senior Notes, then such
covenant shall be deemed incorporated by reference into the Senior Notes for the
benefit of the holders of the Senior Notes. Upon the occurrence of any event of
default of these covenants, including a change in control of the Company, all
amounts outstanding thereunder may be declared to be immediately due and
payable. At
Series 2006A Bonds.
Inflation
The Company is subject to the effects of changing prices. During fiscal 2020, the Company experienced pricing volatility for purchases of certain commodities, in particular steel and zinc products used in the production of its products. While the cost outlook for commodities used in the production of the Company's products is not certain, management believes it can manage these inflationary pressures by introducing appropriate sales price adjustments and by actively pursuing internal cost reduction efforts, while further refining the Company's inventory and raw materials risk management system. However, competitive market pressures may affect the Company's ability to pass price adjustments along to its customers.
Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements
In the normal course of business, the Company enters into contracts and commitments which obligate the Company to make future payments. The Company uses off-balance sheet arrangements, such as leases accounted for as operating leases, standby letters of credit and performance bonds, where sound business principles warrant their use. The table below sets forth the Company's significant future obligations by time period.
($ in thousands) Less than 2-3 4-5 More than Contractual obligations (1) Total 1 year years years 5 years Operating lease obligations$ 42,742 $ 6,065 $ 10,037 $ 6,521 $ 20,119 Pension benefit obligations 6,903 521 1,017 977 4,388 Long-term debt 116,344 195 438 456 115,255 Interest 41,818 4,418 8,823 8,805 19,772 Total$ 207,807 $ 11,199 $ 20,315 $ 16,759 $ 159,534
(1) Total liabilities for unrecognized tax benefits as of
$1.4 million and are excluded from the table above. Unrecognized tax benefits are classified on the Company's consolidated balance sheets within other noncurrent liabilities.
The Company does not have any additional off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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