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EX-32 - EX-32 - LINDSAY CORPlnn-ex32_9.htm
EX-31.2 - EX-31.2 - LINDSAY CORPlnn-ex312_11.htm
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EX-24 - EX-24 - LINDSAY CORPlnn-ex24_7.htm
EX-23 - EX-23 - LINDSAY CORPlnn-ex23_6.htm
EX-21 - EX-21 - LINDSAY CORPlnn-ex21_8.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  

 

FORM 10‑K

(MARK ONE) 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2018  

or 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-13419 

Lindsay Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47‑0554096

 

 

(State or other jurisdiction of

 

(I.R.S. Employer

 

 

incorporation or organization)

 

Identification No.)

 

 

 

 

 

 

 

2222 North 111th Street, Omaha, Nebraska

 

68164

 

 

(Address of principal executive offices)

 

(Zip Code)

 

 

402‑829-6800

Registrant’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Name of each exchange on which registered

 

 

Common Stock, $1.00 par value

 

New York Stock Exchange, Inc. (Symbol LNN)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, (as defined in Rule 405 of the Securities Act).     Yes   No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes   No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes   No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:  

 

Large accelerated filer

    

 

Accelerated filer

    

Non‑accelerated filer

    

 

Smaller reporting company

    

Emerging growth company

    

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  

The aggregate market value of Common Stock of the registrant, all of which is voting, held by non‑affiliates based on the closing sales price on the New York Stock Exchange, Inc. on February 28, 2018 was $936,720,708. 

As of October 15, 2018, 10,757,318 shares of the registrant’s Common Stock were outstanding. 

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement pertaining to the Registrant’s 2018 annual stockholders' meeting to be filed hereafter are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

Page(s)

Part I

 

 

 

 

Item 1.

Business

3

 

 

 

 

 

Item 1A.

Risk Factors

12

 

 

 

 

 

Item 1B.

Unresolved Staff Comments

16

 

 

 

 

 

Item 2.

Properties

16

 

 

 

 

 

Item 3.

Legal Proceedings

17

 

 

 

 

 

Item 4.

Mine Safety Disclosures

17

 

 

 

 

Part II

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

 

 

 

 

 

Item 6.

Selected Financial Data

20

 

 

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

30

 

 

 

 

 

Item 8.

Financial Statements and Supplementary Data

30

 

 

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

60

 

 

 

 

 

Item 9A.

Controls and Procedures

60

 

 

 

 

 

Item 9B.

Other Information

63

 

 

 

 

Part III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

64

 

 

 

 

 

Item 11.

Executive Compensation

64

 

 

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

64

 

 

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

65

 

 

 

 

 

Item 14.

Principal Accounting Fees and Services

65

 

 

 

 

Part IV

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

66

 

 

 

 

 

Item 16.

Form 10-K Summary

69

 

 

 

 

SIGNATURES

 

70

 

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PART I

ITEM 1 — Business 

INTRODUCTION 

Lindsay Corporation, along with its subsidiaries (collectively called “Lindsay” or the “Company”), is a global leader in providing a variety of proprietary water management and road infrastructure products and services.  The Company has been involved in the manufacture and distribution of agricultural irrigation equipment since 1955 and has grown from a regional company to an international water efficiency solutions and highway infrastructure firm with worldwide sales and distribution.  Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska.  The Company has operations which are categorized into two major reporting segments, Irrigation and Infrastructure.

Irrigation Segment – The Company’s irrigation segment includes the manufacture and marketing of center pivot, lateral move, and hose reel irrigation systems which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor.  The irrigation segment also manufactures and markets repair and replacement parts for its irrigation systems and controls.  The Company continues to strengthen irrigation product offerings through innovative technology such as Global Positioning System (“GPS”) positioning and guidance, variable rate irrigation, wireless irrigation management, irrigation scheduling, machine-to-machine (“M2M”) communication technology solutions and smartphone applications.  The Company’s primary domestic irrigation manufacturing facilities are located in Lindsay, Nebraska and Olathe, Kansas.  Internationally, the Company has production operations in Brazil, France, China, Turkey, and South Africa, as well as distribution and sales operations in the Netherlands, Australia, and New Zealand.  The Company also exports equipment from the U.S. to other international markets.

Infrastructure Segment – The Company’s infrastructure segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, road marking and road safety equipment, large diameter steel tubing, and railroad signals and structures.  The infrastructure segment also provides outsourced manufacturing and production services.  The principal infrastructure manufacturing facilities are located in Rio Vista, California; Milan, Italy; and Lindsay, Nebraska. 

PRODUCTS BY SEGMENT 

IRRIGATION SEGMENT 

Products - The Company manufactures and markets its center pivot, lateral move irrigation systems, and irrigation controls in the U.S. and internationally under its Zimmatic® brand.  The Company also manufactures and markets hose reel travelers under the Perrot and Greenfield® brands.  The Company also produces or markets chemical injection systems, variable rate irrigation systems, flow meters, weather stations, soil moisture sensors, and remote monitoring and control systems which it sells under its GrowSmart® brand.  In addition to whole systems, the Company manufactures and markets repair and replacement parts for its irrigation systems and controls.  Furthermore, the Company designs and manufactures innovative M2M communication technology solutions, data acquisition and management systems, and custom electronic equipment for critical applications under its Elecsys brand.

The Company’s irrigation systems are primarily of the standard center pivot type, with a small portion of its products consisting of the lateral move type.  Both are automatic move systems consisting of sprinklers mounted on a water carrying pipeline which is supported approximately 11 feet off the ground by a truss system suspended between moving towers. 

A standard center pivot in the U.S. is typically seven spans and approximately 1,300 feet long and is designed to circle within a quarter‑section of land, which comprises 160 acres, wherein it irrigates approximately 125 to 130 acres.  A center pivot or lateral move system can also be custom designed and can irrigate from 25 to 600+ acres.

A center pivot system represents a significant investment to a farmer.  In a dry land conversion to center pivot irrigation, approximately one‑half of the investment is for the pivot itself, and the remainder is attributable to installation of additional equipment such as wells, pumps, underground water pipes, electrical supply, and a concrete pad upon which the pivot is anchored.  The Company’s center pivot and lateral move irrigation systems can be enhanced with a family of integrated proprietary products such as GPS monitoring and other automated controls. 

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The Company also manufactures and distributes hose reel travelers.  Hose reel travelers are typically deployed in smaller or irregular fields and usually are easy to operate, easy to move from field to field, and a smaller investment than a typical standard center pivot.   

The Company also markets proprietary remote monitoring and automation technology that works on any brand of electronic pivot and drip irrigation systems and is sold on a subscription basis under the FieldNET® product name.  FieldNET® technology enables growers to remotely monitor and operate irrigation equipment, saving time, and reducing water and energy consumption.  The technology uses cellular or radio frequency communication systems to remotely acquire data relating to various conditions in an irrigated field, including operational status of the irrigation system, position of the irrigation system, water usage, weather and soil conditions, and similar data.  The system can remotely control the irrigation system, altering the speed to vary water application amounts, and controlling pump station and diesel generator operation.  Data management and control is achieved using applications running on various personal computer or mobile devices connected to the internet.  

The Company also markets patented technology under the FieldNET Advisorproduct name which delivers information that helps farmers decide precisely when, where and how much to irrigate.  This technology combines more than 40 years of crop and irrigation science with FieldNET’s cloud computing capabilities, remote sensing functionality and machine learning to provide farmers with field-specific and crop-specific irrigation recommendations.

Other Types of Irrigation – Center pivot and lateral move irrigation systems compete with three other types of irrigation: flood, drip, and other mechanical devices such as hose reel travelers and solid set sprinklers.  The bulk of worldwide irrigation is accomplished by traditional flood irrigation.  Flood irrigation is accomplished by either flooding an entire field, or by providing a water source (ditches or a pipe) along the side of a field, which is planed and slopes slightly away from the water source.  The water is released to the crop rows through gates in the ditch or pipe, or through siphon tubes arching over the ditch wall into some of the crop rows.  It runs down through the crop row until it reaches the far end of the row, at which time the water source is moved and another set of rows are flooded.  Disadvantages or limitations of flood irrigation include that it cannot be used to irrigate uneven, hilly, or rolling terrain, it can be wasteful or inefficient and coverage can become inconsistently applied.  In “drip” or “low flow” irrigation, perforated plastic pipe or tape is installed on the ground or buried underground at the root level.  Several other types of mechanical devices, such as hose reel travelers, irrigate the remaining irrigated acres. 

Center pivot, lateral move, and hose reel traveler irrigation offer significant advantages when compared with other types of irrigation.  It requires less labor and monitoring; can be used on sandy ground, which, due to poor water retention ability, must have water applied frequently; can be used on uneven ground, thereby allowing previously unsuitable land to be brought into production; can be used for the application of fertilizers, insecticides, herbicides, or other chemicals (termed “fertigation” or “chemigation”); and conserves water and chemicals through precise control of the amount and timing of the application.  

Markets ‑ Water is an essential and critical requirement for crop production, and the extent, regularity, and frequency of water application can be a critical factor in crop quality and yield.  The fundamental factors which govern the demand for center pivot and lateral move systems are essentially the same in both the U.S. and international markets.  Demand for center pivot and lateral move systems is determined by whether the value of the increased crop production and cost savings attributable to center pivot or lateral move irrigation exceeds any increased costs associated with purchasing, installing, and operating the equipment.  Thus, the decision to purchase a center pivot or lateral move system, in part, reflects the profitability of agricultural production, which is determined primarily by the prices of agricultural commodities and the costs of other farming inputs.

The current demand for center pivot systems has three sources: conversion to center pivot systems from less water-efficient, more labor-intensive types of irrigation; replacement of older center pivot systems, which are beyond their useful lives or are technologically obsolete; and conversion of dry land farming to irrigated farming.  Demand for center pivots and lateral move irrigation equipment also depends upon the need for the particular operational characteristics and advantages of such systems in relation to alternative types of irrigation, primarily flood.  More efficient use of the basic natural resources of land, water, and energy helps drive demand for center pivot and lateral move irrigation equipment.  An increasing global population not only increases demand for agricultural output, but also places additional and competing demands on land, water, and energy.  The Company expects demand for center pivots and lateral move systems to continue to increase relative to other irrigation methods because center pivot and lateral move systems are preferred where the soil is sandy; the terrain is not flat; the land area to be irrigated is sizeable; there is a shortage of reliable labor; water supply is restricted and conservation is preferred or critical; and/or fertigation or chemigation will be utilized. 

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United States Market – In the United States, the Company sells its branded irrigation systems, including Zimmatic®, to over 200 independent dealers, who resell to their customer, the farmer.  Dealers assess their customers’ requirements, design the most efficient solution, assemble and erect the system in the field, and provide additional system components, primarily relating to water supply (wells, pumps, pipes) and electrical supply (on-site generation or hook-up to power lines).  Lindsay dealers generally are established local agribusinesses, many of which also deal in related products, such as well drilling and water pump equipment, farm implements, grain handling and storage systems, and farm structures.   

International Market – The Company sells center pivot and lateral move irrigation systems throughout the world.  International sales accounted for approximately 33 percent and 39 percent of the Company’s total irrigation segment revenues in fiscal 2018 and 2017, respectively.  The Company sells direct to consumers, as well as through an international dealer network, and has production and sales operations in Brazil, France, China, Turkey, and South Africa, as well as distribution and sales operations in the Netherlands, Australia, and New Zealand serving the key South American, European, Chinese, African, Russian, Ukrainian, Middle East, Australian, and New Zealand markets.  The Company also exports irrigation equipment from the U.S. to international markets.  

The Company’s international markets differ with respect to the need for irrigation, the ability to pay, demand, customer type, government support of agriculture, marketing and sales methods, equipment requirements, and the difficulty of on-site erection.  The Company’s industry position is such that it believes that it will likely be considered as a potential supplier for most major international agricultural development projects utilizing center pivot or lateral move irrigation systems.   

Competition – Four manufacturers control a substantial majority of the U.S. center pivot irrigation system industry.  The international irrigation market includes participation and competition by the leading U.S. manufacturers, as well as various regional manufacturers.  The Company competes in certain product lines with several manufacturers, some of whom may have greater financial resources than the Company.  The Company competes by continuously improving its products through ongoing research and development activities.  The Company continues to strengthen irrigation product offerings through innovative technology such as GPS positioning and guidance, variable rate irrigation, wireless irrigation management, and smartphone applications, as well as through the acquisition of products and services that allow the Company to provide a more comprehensive solution to growers’ needs.  The Company’s engineering and research expenses related to irrigation totaled approximately $10.8 million, $11.1 million, and $11.6 million for fiscal 2018, 2017, and 2016, respectively. Competition also occurs in areas of price and seasonal programs, product quality, durability, controls, product characteristics, retention and reputation of local dealers, customer service, and, at certain times of the year, the availability of systems and their delivery time.  On balance, the Company believes it competes favorably with respect to these factors.  

INFRASTRUCTURE SEGMENT 

Products The Company’s Quickchange® Moveable Barrier system, commonly known as the Road Zipper System®, is composed of three parts:  1) T-shaped concrete and steel barriers that are connected to form a continuous wall; 2) a Barrier Transfer Machine (“BTM”) capable of moving the barrier laterally across the pavement; and 3) the variable length barriers necessary for accommodating curves.  A barrier element is approximately 32 inches high, 12-24 inches wide, 3 feet long, and weighs 1,500 pounds.  The barrier elements are interconnected by heavy duty steel hinges to form a continuous barrier.  The BTM employs an inverted S-shaped conveyor mechanism that lifts the barrier, moving it laterally before setting it back on the roadway surface. 

In permanent applications, the Road Zipper System® increases capacity and reduces congestion by varying the number of directional traffic lanes to match the traffic demand, and promotes safety by maintaining the physical separation of opposing lanes of traffic.  Roadways with fixed medians have a set number of lanes in each direction and cannot be adjusted to traffic demands that may change over the course of a day, or to capacity reductions caused by traffic incidents or road repair and maintenance.  Applications include high-volume highways where expansion may not be feasible due to lack of additional right-of-way, environmental concerns, or insufficient funding.  The Road Zipper System® is particularly useful in busy commuter corridors and at choke points such as bridges and tunnels.  Road Zipper Systems® can also be deployed at roadway or roadside construction sites to accelerate construction, improve traffic flow, and safeguard work crews and motorists by positively separating the work area and traffic.  Examples of types of work completed with the help of a Road Zipper System® include highway reconstruction, paving and resurfacing, road widening, median and shoulder construction, and repairs to tunnels and bridges.   

The Company offers a variety of equipment lease options for Road Zipper Systems® and BTM equipment used in construction applications.  The leases extend for periods of one month or more for equipment already existing in the Company’s lease fleet.  Longer lease periods may be required for specialty equipment that must be built for specific

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projects.  Sales for a highway safety or road improvement project range from $2.0 to $20.0 million, making them significant capital investments. 

Crash Cushions and End Terminals – The Company offers a complete line of redirective and non-redirective crash cushions which are used to enhance highway safety at locations such as toll booths, freeway off-ramps, medians and roadside barrier ends, bridge supports, utility poles, and other fixed roadway hazards.  The Company’s primary crash cushion products cover a full range of lengths, widths, speed capacities, and application accessories and include the following brand names:  TAU®; Universal TAU-II®; TAU-II-R; TAU-B_NR; ABSORB 350®; and Walt.  In addition to these products the Company also offers guardrail end terminal products such as the X-Tension® and X-Lite® systems.  The crash cushions and end terminal products compete with other vendors in the world market.  These systems are generally sold through a distribution channel that is domiciled in particular geographic areas.  

Specialty BarriersThe Company also offers specialty barrier products such as the SAB, ArmorGuard, PaveGuard, and DR46 portable barrier and/or barrier gate systems.  These products offer portability and flexibility in setting up and modifying barriers in work areas and provide quick-opening, high-containment gates for use in median or roadside barriers.  The gates are generally used to create openings in barrier walls of various types for both construction and incident management purposes.  The DR46 is an energy-absorbing barrier that can help protect motorcyclists from impacting guardrail posts which is an area of focus by departments of transportation and government regulators for reducing the amount and severity of injuries. 

Road Marking and Road Safety Equipment – The Company also offers preformed tape and a line of road safety accessory products.  The preformed tape is used primarily in temporary applications such as markings for work zones, street crossings, and road center lines or boundaries.  The road safety equipment consists of mostly plastic and rubber products used for delineation, slowing traffic, and signaling.  The Company also manages an ISO 17025 certified testing  laboratory that performs full-scale impact testing of highway safety products in accordance with the National Cooperative Highway Research Program (“NCHRP”) Report 350, the Manual for Assessing Safety Hardware (“MASH”), and the European Norms (“EN1317 Norms”) for these types of products.  The NCHRP Report 350 and MASH guidelines are procedures required by the U.S. Department of Transportation Federal Highway Administration (“FHWA”) for the safety performance evaluation of highway features.  The EN1317 Norms are being used to qualify roadway safety products for the European markets. 

Other Products – The Company’s Diversified Manufacturing, Rail and Tubing business manufactures and markets railroad signals and structures, and large diameter steel tubing, and provides outsourced manufacturing and production services for other companies.  The Company’s customer base includes large industrial companies and railroads.  Customers benefit from the Company’s design and engineering capabilities as well as the Company’s ability to provide a wide spectrum of manufacturing services, including welding, machining, painting, forming, galvanizing, and assembling hydraulic, electrical, and mechanical components. 

Markets – The Company’s primary infrastructure market includes moveable concrete barriers, delineation systems, crash cushions, and similar protective equipment.  The U.S. roadway infrastructure market includes projects such as new roadway construction, bridges, tunnels, maintenance and resurfacing, and development of technologies for relief of roadway congestion.  Much of the U.S. highway infrastructure market is driven by government (federal and state) spending programs.  For example, the U.S. government funds highway and road improvements through the Federal Highway Trust Fund Program.  This program provides funding to improve the nation’s roadway system.  Matching funding from the various states may be required as a condition of federal funding.  In the long term, the Company believes that the federal program provides a solid platform for growth in the U.S. market, as it is generally acknowledged that additional funding will be required for infrastructure development and maintenance in the future. 

The global market for the Company’s infrastructure products continues to be driven by population growth and the need for improved road safety.  International sales accounted for approximately 59 percent and 45 percent of the Company’s total infrastructure segment revenues in fiscal 2018 and 2017, respectively.  The international market is very different from country to country.  The standardization in performance requirements and acceptance criteria for highway safety devices adopted by the European Committee for Standardization is expected to lead to greater uniformity and a larger installation program.  Prevention programs put in place in various countries to lower highway traffic fatalities may also lead to greater demand.  The Company distributes infrastructure products in Europe, South America, the Middle East, Australia and Asia.  The Company expects to continue expanding in international markets as populations grow and markets become more established.

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Competition – The Company competes in certain product lines with several manufacturers, some of whom may have greater financial resources than the Company.  The Company competes by continuously improving its products through ongoing research and development activities.  The Company’s engineering and research expenses related to infrastructure products totaled approximately $5.3 million, $6.0 million, and $4.3 million for fiscal 2018, 2017, and 2016, respectively. The Company competes with certain products and companies in its crash cushion business, but has limited competition in its moveable barrier line, as there is not another moveable barrier product today comparable to the Road Zipper System®.  However, the Company’s barrier product does compete with traditional “safety-shaped” concrete barriers and other safety barriers.

Distribution Methods and Channels – The Company has dedicated production and sales operations in the United States and Italy.  Sales efforts consist of both direct sales and sales programs managed by its network of distributors and third-party representatives.  The sales teams have responsibility for new business development and assisting distributors and dealers in soliciting large projects and new customers.  The distributor and dealer networks have exclusive territories and are responsible for developing sales and providing service, including product maintenance, repair, and installation.  The typical dealer sells an array of safety supplies, road signs, crash cushions, delineation equipment, and other highway products.  Customers include departments of transportation, municipal transportation road agencies, roadway contractors, subcontractors, distributors, and dealers.  Due to the project nature of the roadway construction and congestion management markets, the Company’s customer base changes from year to year.  Due to the limited life of projects, it is rare that a single customer will account for a significant amount of revenues in consecutive years.  The customer base also varies depending on the type of product sold.  The Company’s moveable barrier products are typically sold to transportation agencies or the contractors or suppliers serving those agencies.  In contrast, distributors account for a majority of crash cushion sales since those products have lower price points and tend to have shorter lead times.

GENERAL 

Certain information generally applicable to both of the Company’s reportable segments is set forth below. 

The following table describes the Company’s total revenues for the past three fiscal years.  United States export revenue is included in International, based on the region of destination.

 

 

 

For the years ended August 31,

 

($ in millions)

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

Revenues

 

 

total

 

 

Revenues

 

 

total

 

 

Revenues

 

 

total

 

United States

 

$

321.7

 

 

 

59

 

 

$

297.3

 

 

 

57

 

 

$

321.6

 

 

 

62

 

International

 

 

226.0

 

 

 

41

 

 

 

220.7

 

 

 

43

 

 

 

194.9

 

 

 

38

 

Total revenues

 

$

547.7

 

 

 

100

 

 

$

518.0

 

 

 

100

 

 

$

516.4

 

 

 

100

 

SEASONALITY 

Irrigation equipment sales are seasonal by nature.  Farmers generally order systems to be delivered and installed before the growing season.  Shipments to customers located in Northern Hemisphere countries usually peak during the Company’s second and third fiscal quarters for the spring planting period.  Sales of infrastructure products are traditionally higher during prime road construction seasons and lower in the winter.  The primary construction season for Northern Hemisphere countries generally corresponds with the Company’s third and fourth fiscal quarters.  

CUSTOMERS  

The Company is not dependent upon a single customer or upon a limited number of customers for a material part of either segment’s business.  The loss of any one customer would not have a material adverse effect on the Company’s financial condition, results of operations, or cash flow. 

ORDER BACKLOG  

As of August 31, 2018, the Company had an order backlog of $50.0 million compared with $51.8 million at August 31, 2017.  The Company’s backlog can fluctuate from period to period due to the seasonality, cyclicality, timing, and execution of contracts.  Backlog typically represents long-term projects as well as short lead-time orders, therefore it is generally not a good indication of the next quarter’s revenues.

RAW MATERIALS AND COMPONENTS 

Raw materials used by the Company include coil steel, angle steel, plate steel, zinc, tires, gearboxes, concrete, rebar, fasteners, and electrical and hydraulic components (motors, switches, cable, valves, hose, and stators).  The

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Company has, on occasion, faced shortages of certain such materials.  The Company believes it currently has ready access from assorted domestic and foreign suppliers to adequate supplies of raw materials and components. 

CAPITAL EXPENDITURES 

Capital expenditures for fiscal 2018, 2017, and 2016 were $11.1 million, $8.9 million, and $11.5 million, respectively.  Capital expenditures for fiscal 2019 are estimated to be approximately $15.0 million to $20.0 million, including equipment replacement, productivity improvements and new product development. The Company’s management does maintain flexibility to modify the amount and timing of some of the planned expenditures in response to economic conditions.

PATENTS, TRADEMARKS, AND LICENSES 

Lindsay’s Zimmatic®, Greenfield®, GrowSmart®, Perrot, Road Zipper System®, Quickchange® Moveable Barrier, ABSORB 350®, FieldNET®, FieldNET Advisor, TAU®, Universal TAU-II®, TAU-II-R, TAU-B_NR, X-Tension®, X-Lite® CableGuard, TESI, SAB, ArmorGuard, PaveGuard, DR46, U-MAD, and other trademarks are registered or applied for in the major markets in which the Company sells its products.  In addition, the Company owns multiple patents dealing with cellular communication techniques, cathodic protection measurement methods, and data compression and transmission.  Lindsay follows a policy of applying for patents on all significant patentable inventions in markets deemed appropriate.  Although the Company believes it is important to follow a patent protection policy, Lindsay’s business is not dependent, to any material extent, on any single patent or group of patents. 

EMPLOYEES 

The number of persons employed by the Company and its wholly-owned subsidiaries at the fiscal years ended 2018, 2017, and 2016 was 1,412, 1,410, and 1,366, respectively.  None of the Company’s U.S. employees are represented by a union.  Certain of the Company’s non-U.S. employees are unionized due to local governmental regulations. 

ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS 

The Company is subject to numerous laws and regulations that govern environmental and occupational health and safety matters.  The Company believes that its operations are substantially in compliance with all such applicable laws and regulations, and that it holds all necessary permits in each jurisdiction in which its facilities are located.  Environmental and health and safety regulations are subject to change and interpretation.  In some cases, compliance with applicable regulations or standards may require the Company to make additional capital and operational expenditures.  The Company, however, is not currently aware of any material expenditures required to comply with such regulations, other than information related to the environmental remediation activities described in Note 14, Commitments and Contingencies, to the Company’s consolidated financial statements.  The Company accrues for the anticipated cost of investigation and remediation when the obligation is probable and can be reasonably estimated.  Any revisions to these estimates could be material to the operating results of any fiscal quarter or fiscal year, however the Company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition.

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FINANCIAL INFORMATION ABOUT FOREIGN AND U.S. OPERATIONS  

The Company’s primary production facilities are located in the United States.  The Company has smaller production and sales operations in Brazil, France, Italy, China, Turkey, and South Africa, as well as distribution and sales operations in the Netherlands, Australia, and New Zealand.  Where the Company exports products from the United States to international markets, the Company generally ships against prepayment, an irrevocable letter of credit confirmed by a U.S. bank or another secured means of payment, or with credit insurance from a third party.  For sales within both U.S. and foreign jurisdictions, prepayments or other forms of security may be required before credit is granted, however most local sales are made based on payment terms after a full credit review has been performed.  Most of the Company’s financial transactions are in U.S. dollars, although some export sales and sales from the Company’s foreign subsidiaries are conducted in other currencies. Approximately 23 percent of total consolidated Company sales were conducted in currencies other than the U.S. dollar in fiscal 2018 and 2017.  To reduce the uncertainty of foreign currency exchange rate movements on these sales and purchase commitments conducted in local currencies, the Company monitors its risk of foreign currency fluctuations and, at times, may enter into forward exchange or option contracts for transactions denominated in a currency other than U.S. dollars.

In addition to the transactional foreign currency exposures mentioned above, the Company also has translation exposure resulting from translating the financial statements of its international subsidiaries into U.S. dollars.  In order to reduce this translation exposure, the Company, at times, utilizes foreign currency forward contracts to hedge its net investment exposure in its foreign operations.  For information on the Company’s foreign currency risks, see Item 7A of Part II of this report.

INFORMATION AVAILABLE ON THE LINDSAY WEBSITE 

The Company makes available free of charge on its website homepage, under the tab “Investor Relations – SEC Filings”, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.  The Company’s internet address is http://www.lindsay.com; however, information posted on its website is not part of this Annual Report on Form 10-K.  The following documents are also posted on the Company’s website homepage, under the tabs “Investor Relations – Governance – Committees” and “Investor Relations – Governance – Ethics”:  

Audit Committee Charter 

Compensation Committee Charter 

Corporate Governance and Nominating Committee Charter 

Code of Business Conduct and Ethics 

Corporate Governance Principles 

Code of Ethical Conduct 

Employee Complaint Procedures for Accounting and Auditing Matters 

Special Toll-Free Hotline Number and E-mail Address for Making Confidential or Anonymous Complaints 

These documents are also available in print to any stockholder upon request, by sending a letter addressed to the Secretary of the Company.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers and significant employees of the Company, their ages, positions and business experience are set forth below.  All executive officers of the Company are appointed by the Board of Directors annually and have employment agreements.  There are no family relationships between any director or executive officer.  There are no arrangements or understandings between any executive officer and any other person pursuant to which they were selected as an officer.

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Age

 

 

Position

Timothy L. Hassinger

 

 

56

 

 

President and Chief Executive Officer

Eric R. Arneson*

 

 

44

 

 

Vice President, General Counsel and Secretary

Brian L. Ketcham

 

 

57

 

 

Vice President and Chief Financial Officer

J. Scott Marion

 

 

50

 

 

President – Infrastructure

Gregory G. Oswald*

 

 

54

 

 

Vice President – Global Operations

Kelly M. Staup*

 

 

46

 

 

Vice President – Human Resources

Eric J. Talmadge*

 

 

55

 

 

Chief Information Officer

Randy A. Wood

 

 

46

 

 

President – Irrigation

Lori L. Zarkowski*

 

 

43

 

 

Chief Accounting Officer

 

*

The employee is not an executive officer of the Registrant. 

Mr. Timothy L. Hassinger is the President and Chief Executive Officer of the Company, a position he has held since October 2017. Mr. Hassinger has also been a director of the Company since October 2017 and he is the only executive officer of the Company serving on the Board of Directors. Prior to joining the Company, Mr. Hassinger served as President and Chief Executive Officer of Dow AgroSciences, an Indianapolis-based subsidiary of The Dow Chemical Company. During his 33-year career at Dow AgroSciences, Mr. Hassinger held a series of senior leadership positions across a variety of domestic and international business units. Prior to becoming President and Chief Executive Officer of Dow AgroSciences in May 2014, he served as its Global Commercial Leader from February 2013 to April 2014 and as Vice President for its Crop Protection Global Business Unit from August 2009 to April 2014. Previously, he served as Vice President for the Dow AgroSciences business in the Europe, Latin America, and Pacific regions from 2007 to 2009. In 2005, he moved to Shanghai, where he served as Regional Commercial Unit Leader for Greater China. Mr. Hassinger currently serves on the Board of Directors of AGDATA.

Mr. Eric R. Arneson is Vice President, General Counsel and Secretary of the Company and has held such positions since April 2008, when he joined the Company.  Prior to that time and since January 1999, Mr. Arneson practiced law with the law firm of Kutak Rock LLP, and was most recently a partner of the firm. 

Mr. Brian L. Ketcham is Vice President and Chief Financial Officer of the Company, and has held such positions since April 2016. Prior to joining Lindsay and since 2001, Mr. Ketcham served in various finance roles at Valmont Industries, Inc., most recently as Vice President and Group Controller of the Engineered Support Structures segment. Prior to joining Valmont, Mr. Ketcham held various positions with Consolidated Container Company LLC and KPMG LLP.

Mr. J. Scott Marion is President – Infrastructure Division, a position he has held with the Company since May 2016. Between April 2011 and May 2016, Mr. Marion served as Vice President and General Manager – Americas and APAC (Infrastructure). From January 2005 to April 2011, Mr. Marion served in several management positions at Pentair. Prior to 2005, Mr. Marion spent 14 years with General Electric in a variety of sales and managerial capacities.

Mr. Gregory G. Oswald is Vice President – Global Operations, a position he has held with the Company since January 2018. From June 2008 to January 2018, Mr. Oswald served as Vice President – Manufacturing. Prior to joining the Company, Mr. Oswald served as the Traction Global Lean Manager at Dana Corporation from 1998 through 2007. Mr. Oswald has obtained a Master Black Belt and is certified in Lean Manufacturing through Dana University.

Ms. Kelly M. Staup is Vice President – Human Resources, a position she has held with the Company since January 2018. From November 2016 to January 2018, Ms. Staup served as Director – Human Resources. From June 2011 to November 2016, Ms. Staup served as Organization Development and Recruiting Manager. Prior to joining Lindsay, Ms. Staup was an Associate Vice President of SkillStorm from August 2008 to June 2011 and previously served in managerial roles at Ajilon and Digital People.

Mr. Eric J. Talmadge is Vice President and Chief Information Officer of the Company and has served as Chief Information Officer since December 2012, when he joined the Company. Prior to joining the Company, Mr. Talmadge served as Chief Information Officer of Crete Carrier Corporation from 2008 to December 2012. Prior to joining Crete Carrier Corporation, Mr. Talmadge served in a variety of information technology roles with SiTEL, Lozier Corporation, the University of Missouri, and the United States Air Force.

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Mr. Randy A. Wood is President – Agricultural Irrigation Division of the Company and has held such position since May 2016. Between October 2013 and May 2016, Mr. Wood served as President – International Irrigation of the Company. Between February 2012 and October 2013, Mr. Wood served as Vice President – Americas / ANZ Sales and Marketing. Previously he was Vice President – North America Irrigation Sales of the Company and held such position from March 2008, when he joined the Company. Prior to March 2008, Mr. Wood spent 11 years with Case Corporation / CNH Global including roles as the Senior Director of Marketing, Case IH Tractors, and Senior Director of Sales and Marketing, Parts and Service.

Ms. Lori L. Zarkowski is Chief Accounting Officer of the Company, and has held such position since August 2011. Ms. Zarkowski joined Lindsay in June 2007 as Corporate Reporting Manager and was promoted to Corporate Controller in April 2008. Prior to joining the Company and since 1997, Ms. Zarkowski was most recently an Audit Senior Manager with Deloitte & Touche LLP.

 

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ITEM 1A — Risk Factors

The following are certain of the more significant risks that may affect the Company’s business, financial condition and results of operations.  

The Company’s irrigation revenues are highly dependent on the agricultural industry and weather conditions.  The Company’s irrigation revenues are cyclical and highly dependent upon the need for irrigated agricultural crop production which, in turn, depends upon many factors, including total worldwide 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, and regional climate conditions. As farm income decreases, farmers may postpone capital expenditures or seek less expensive irrigation alternatives.  

Weather conditions, particularly leading up to the planting and early growing season, can significantly affect the purchasing decisions of consumers of irrigation equipment.  Natural calamities such as regional floods, hurricanes or other storms, and droughts can have significant effects on seasonal irrigation demand.  Drought conditions, which generally affect irrigation equipment demand positively over the long term, can adversely affect demand if water sources become unavailable or if governments impose water restriction policies to reduce overall water availability.

Changing worldwide demand for food and different types of biofuel could have an effect on the price of agricultural commodities and consequently the demand for irrigation equipment.  Changing worldwide demand for farm outputs to meet the world’s growing food and biofuel demands, driven in part by government policies and an expanding global population, are likely to result in fluctuating agricultural commodity prices, which affect demand for irrigation equipment. The primary benefit of many of the Company’s irrigation products is to increase grain yields and the resulting revenue for farmers.  As grain prices decline, the breakeven point of incremental production is more difficult to achieve, reducing or eliminating the profit and return on investment from the purchase of the Company’s products.  As a result, changes in grain prices can significantly affect the Company’s sales levels.

A decline in oil prices or changes in government policies regarding biofuels could also negatively affect the biofuels market and/or reduce government revenues of oil-producing countries that purchase or subsidize the purchase of irrigation equipment.  Biofuels production is a significant source of grain demand in the U.S. and certain international markets.  While ethanol production levels are currently mandated within the U.S., potential mandate changes or price declines for ethanol could reduce the demand for grains.  In addition, a number of ethanol producers in the U.S. are cooperatives partially owned by farmers.  Reduced profit of ethanol production could reduce income for farmers which could, in turn, reduce the demand for irrigation equipment.  

The Company’s international sales are highly dependent on foreign market conditions and subject the Company to additional risk, restrictions, and compliance obligations.  International revenues are primarily generated from Australia, New Zealand, Canada, Europe, Mexico, the Middle East, Africa, China, Russia, Ukraine, and Central and South America.  In addition to risks relating to general economic and potential instability in these countries, a number of countries are particularly susceptible to disruption from changing socioeconomic conditions as well as terrorism, sanctions, war and similar incidents.  The collectability of receivables can also be difficult to estimate, particularly in areas of political instability or with governments with which the Company has limited experience or where there is a lack of transparency as to the current credit condition. 

The Company’s international sales efforts and profit margins are affected by international trade barriers, including governmental policies on tariffs, taxes, import or export licensing requirements and trade sanctions.  For example, certain of the components required for the manufacture of the Company’s products have been or may be impacted by new or recently proposed tariffs.

In addition, the Company’s international sales efforts must also comply with anti-corruption laws like the U.S. Foreign Corrupt Practices Act. These anti-corruption laws generally prohibit companies and their intermediaries (including, in the Company’s case, dealers and sales representatives) from making improper payments or providing anything of value to improperly influence government officials or certain private individuals for the purpose of obtaining or retaining a business advantage.  As part of the Company’s irrigation and infrastructure sales efforts, the Company promotes and sells products to governmental entities and state-owned or state-backed business enterprises, the employees and representatives of which may be considered government officials for purposes of the U.S. Foreign Corrupt Practices Act.  Further, some of the countries in which the Company does business lack fully developed legal systems and are perceived to have elevated levels of corruption.  Although the Company has

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compliance and training programs in place designed to reduce the likelihood of potential violations of such laws, violations of these laws or other compliance requirements could occur and result in criminal or civil sanctions and have an adverse effect on the Company’s reputation, business, financial condition and results of operations.

The Company’s international sales and profit margins are subject to currency exchange risk. Most of the Company’s international sales involve some level of export from the U.S., either of components or completed products.  Policies and geopolitical events affecting exchange rates could adversely affect the international flow of agricultural and other commodities, which can cause a corresponding downturn in the demand for agricultural equipment in many areas of the world.  Further, any strengthening of the U.S. dollar or any other currency of a country in which the Company manufactures its products (e.g. the Euro, the Brazilian real, the South African rand, the Turkish lira, and the Chinese renminbi) and/or any weakening of local currencies can increase the cost of the Company’s products in its foreign markets.  Irrespective of any effect on the overall demand for agricultural equipment, the effect of these changes can make the Company’s products less competitive relative to local producing competitors and, in extreme cases, can result in the Company’s products not being cost-effective for customers.  As a result, the Company’s international sales and profit margins could decline.  

The Company’s profitability may be negatively affected by changes in the availability and price of certain parts, components, and raw materials.  The Company requires access to various parts, components, and raw materials at competitive prices in order to manufacture its products. Changes in the availability and price of these parts, components, and raw materials (including steel and zinc), which have changed significantly and rapidly at times and are affected by factors like demand, tariffs, and freight costs, can significantly increase the costs of production.  Due to price competition in the market for irrigation equipment and certain infrastructure products, the Company may not be able to recoup increases in these costs through price increases for its products, which would result in reduced profitability.  Whether increased operating costs can be passed through to the customer depends on a number of factors, including farm income and the price of competing products.  Further, the Company relies on a limited number of suppliers for certain raw materials, parts and components in the manufacturing process.  Disruptions or delays in supply or significant price increases from these suppliers could adversely affect the Company’s operations and profitability.  Such disruptions, terminations or cost increases could result in cost inefficiencies, delayed sales or reduced sales.

The Company’s infrastructure revenues are highly dependent on government funding of transportation projects and subject to compliance with government regulations.  The demand for the Company’s infrastructure products depends to a large degree on the amount of government spending authorized to improve road and highway systems.  For example, the U.S. government funds highway and road improvements through the Federal Highway Trust Fund Program and matching funding from states may be required as a condition of federal funding.  If highway funding is reduced or delayed, it may reduce demand for the Company’s infrastructure products.

In addition, the Company’s infrastructure products are required to meet certain standards as outlined by the various governments worldwide.  The Federal Highway Administration (“FHWA”) continues to implement Manual for Assessing Safety Hardware (“MASH”) standards which update and supersede National Cooperative Highway Research Program (“NCHRP”) Report 350 standards for evaluating new road safety hardware devices.  In addition, state departments of transportation have the ability to require compliance with MASH standards prior to FHWA mandating such practices.  While infrastructure products previously accepted under NCHRP Report 350 criteria are not required to be retested under MASH standards, they will no longer be eligible for federal reimbursement as the MASH standards are implemented by FHWA and the states.  The Company is incurring, and will continue to incur, research and development and testing expense to comply with MASH standards. Any reevaluation of the Company’s infrastructure products’ compliance with applicable standards, the implementation of new standards, and/or any delay in the Company’s development of additional infrastructure products that comply with new standards could have a significant adverse effect on the Company’s competitive position and on sales and profitability from its infrastructure product line.  

Compliance with applicable environmental and health and safety regulations or standards may require additional capital and operational expenditures.  The Company is subject to numerous laws and regulations which govern environmental and occupational health and safety matters.  The Company believes that its operations are substantially in compliance with all such applicable laws and regulations and that it holds all necessary permits in each jurisdiction in which its facilities are located.  Environmental and health and safety regulations are subject to change and interpretation.  Compliance with applicable regulations or standards may require the Company to make additional capital and operational expenditures.   

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The Company’s Lindsay, Nebraska site was added to the list of priority superfund sites of the U.S. Environmental Protection Agency (the “EPA”) in 1989.  The Company and its environmental consultants have developed a remedial alternative work plan, under which the Company continues to work with the EPA to define and implement steps to better contain and remediate the remaining contamination.  Although the Company has accrued reasonably estimable costs associated with remediation of the site, the estimate of costs and their timing could change as a result of a number of factors, including (1) input from the EPA and the Nebraska Department of Environmental Quality on the proposed remediation plan and any changes which they may subsequently require, (2) refinement of cost estimates and length of time required to complete remediation and post-remediation operations and maintenance, (3) effectiveness of the technology chosen in remediation of the site as well as changes in technology that may become available in the future, and (4) unforeseen circumstances existing at the site. As a result of these factors, the actual amount of costs incurred by the Company in connection with the remediation of contamination of its Lindsay, Nebraska site could exceed the amounts accrued for this expense at the end of fiscal 2018. The Company’s ongoing remediation activities at its Lindsay, Nebraska facility are described in Note 14, Commitments and Contingencies, to the Company’s consolidated financial statements.

The Company is exposed to risks from legal proceedings.  From time to time, the Company may be involved in various legal proceedings and other various claims that arise in the ordinary course of its business, which may include commercial, employment, product liability, tort, and other litigation.  Current and future litigation, governmental proceedings and investigations, audits, indemnification claims or other claims that the Company faces may result in substantial costs and expenses and significantly divert the attention of its management regardless of the outcome.  In addition, these matters could lead to increased costs or interruptions of its normal business operations.  Litigation, governmental proceedings and investigations, audits, indemnification claims or other claims involve uncertainties and the eventual outcome of any such matter could adversely affect the Company’s business, results of operations or cash flows. For a summary of the Company’s infrastructure products litigation, see Note 14, Commitments and Contingencies, to the Company’s consolidated financial statements.

The frequency and magnitude of liability claims and the related expenses could lower profitability and increase business risk.  The nature of the Company’s business subjects the Company to potential liability for claims alleging property damage and personal injury or death arising from the use of or exposure to its products, especially infrastructure products that are installed along roadways. While the Company’s liability insurance coverage is consistent with commercial norms in the industries in which the Company operates, an unusually large liability claim or a string of claims could potentially exceed the Company’s available insurance coverage. In addition, the availability of, and the Company’s ability to collect on, insurance coverage can be subject to factors beyond the Company’s control.  For example, any accident, incident, or lawsuit involving the Company, its products specifically, or the industries in which the Company operates generally, even if the Company is fully insured, contractually indemnified, or not held to be liable, could significantly affect the cost and availability of insurance to the Company in the future.

If any of the Company’s third-party insurers fail, cancel, or refuse coverage, or otherwise are unable to provide the Company with adequate insurance coverage, then the Company’s overall risk exposure and operational expenses would increase and the management of the Company’s business operations would be disrupted.

Further, as insurance policies expire, increased premiums for renewed or new coverage, if such coverage can be secured, may increase the Company’s insurance expense and/or require that the Company increase its self-insured retention or deductibles. The Company maintains primary coverage and excess coverage policies. If the number of claims or the dollar amounts of any such claims rise in any policy year, the Company could suffer additional costs associated with accessing its excess coverage policies. Also, an increase in the loss amounts attributable to such claims could expose the Company to uninsured damages if the Company was unable or elected not to insure against certain claims because of increased premiums or other reasons.

The Company’s infrastructure products are installed along roadways in inherently dangerous applications.  Accidents involving the Company’s infrastructure products could reduce demand for such products and expose the Company to significant damages and reputational harm.  The Company is currently defending a number of product liability lawsuits involving the Company’s X-Lite® end terminal.  While the Company’s infrastructure products are designed to meet all applicable standards in effect in the markets in which such products are offered, the risk of product liability claims and associated adverse publicity is inherent in the development, manufacturing, marketing, and sale of such products, including end terminals and crash cushions that are ultimately installed along roadways.  In addition to this inherent risk, a sizable judgment against a competitor (which was reversed on appeal)

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brought significant attention to the infrastructure products industry and may be a factor leading to additional lawsuits being filed against the Company and others in the industry.  

An actual or perceived issue with the Company’s infrastructure products can lead to a decline in demand for such products, the removal of such products from qualified products lists used by government customers in their purchasing decisions, product recalls, adverse publicity, claims or litigation, and/or the diversion of management’s attention, which could materially and adversely affect the Company’s reputation, business, financial condition, and results of operations.  While infrastructure product selection, assembly, installation, operation, repair, and maintenance are the responsibilities of dealers, distributors, customers, and/or state departments of transportation, the Company may nevertheless also be subjected to claims or litigation in connection with a third party’s alleged failure to satisfactorily discharge such responsibilities, including but not limited to claims associated with personal injuries, property damage, and death. Likewise, improper assembly, installation, operation, repair, or maintenance of the Company’s infrastructure products may cause such infrastructure products to fail to meet certain performance standards, which could lead to similar consequences as an actual or perceived issue with the infrastructure products themselves.  Although the Company currently maintains insurance against product-related claims or litigation, the Company could be exposed to significant losses arising from claims involving infrastructure products if the Company’s insurance does not cover all associated liabilities or if coverage in the future becomes unobtainable on commercially reasonable terms.

The Company may not realize targeted performance improvements from the Foundation for Growth initiative. Foundation for Growth is a focused performance improvement initiative by the Company that includes setting strategic direction, defining priorities, and improving overall operating performance.  As previously announced, a key financial objective is to achieve operating margin performance of 11 percent to 12 percent in fiscal 2020 exclusive of market changes.  While costs associated with the Foundation for Growth initiative are expected to be recovered through improved operating income in fiscal 2020, it is possible the Company may not realize these anticipated performance improvements.  

The initiative requires a substantial amount of management and operational resources.  Elements of this initiative require the Company to modify the way that it conducts and structures its operations, such as the recent portfolio review that led to the divestment of the Company’s pump and filtration businesses and a Company-owned water resource consulting firm.  Management must successfully implement the administrative and operational changes essential to achieve the targeted performance improvements of this initiative and, in limited respects, the Company’s tactics to achieve these improvements, revenue gains, and cost savings continue to be in development and are subject to change as future circumstances may dictate.  These and related demands on the Company’s resources could divert the attention of management from other business issues, adversely affect the Company’s existing business relationships with suppliers, dealers and distributors, and impact employee morale.  The Company’s future success is partly dependent upon successfully executing, and realizing performance improvements, revenue gains, cost savings and other benefits from, this initiative.  Any failure to fully implement the Foundation for Growth initiative or to realize the projected benefits of initiative-related divestitures could have an adverse effect on the Company’s reputation, business, financial condition and results of operations.

Changes in interest rates could reduce demand for the Company’s products. In a number of markets, including the U.S., the Company has seen interest rates rise after years of historically low rates.  It is expected that global rates will continue to increase as the economy continues to improve. Rising interest rates could have a dampening effect on overall economic activity and/or the financial condition of the Company’s customers, either or both of which could negatively affect customer demand for the Company’s products and customers’ ability to repay obligations to the Company.  An increase in interest rates could also make it more difficult for customers to cost-effectively fund the purchase of new equipment, which could adversely affect the Company’s sales.

The Company’s consolidated financial results are reported in U.S. dollars while certain assets and other reported items are denominated in the currencies of other countries, creating currency translation risk. The reporting currency for the Company’s consolidated financial statements is the U.S. dollar.  Certain of the Company’s assets, liabilities, expenses and revenues are denominated in other countries’ currencies.  Those assets, liabilities, expenses and revenues are translated into U.S. dollars at the applicable exchange rates to prepare the Company’s consolidated financial statements.  Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in the Company’s consolidated financial statements.  Substantial fluctuations in the value of the U.S. dollar compared to other currencies could have a significant effect on the Company’s results. 

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Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with its operations and could compromise the Company’s and its customers’ and suppliers’ information, exposing the Company to liability that could cause its business and reputation to suffer.  In the ordinary course of business, the Company relies upon information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business functions, including supply chain, manufacturing, distribution, invoicing and collection of payments.  The Company uses information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements.  Additionally, the Company collects and stores sensitive data, including intellectual property, proprietary business information and the proprietary business information of customers and suppliers, as well as personally identifiable information of customers and employees, in data centers and on information technology networks.  The secure operation of these networks and the processing and maintenance of this information is critical to the Company’s business operations and strategy.  Despite security measures and business continuity plans, the Company’s information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to, among other reasons, attacks by hackers or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events.  The occurrence of any of these events could compromise the Company’s networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.  Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage the Company’s reputation, which could adversely affect the Company’s business. 

ITEM 1B — Unresolved Staff Comments 

None. 

ITEM 2 — Properties 

The Company’s facilities are well-maintained, in good operating condition, and suitable for present purposes.  These facilities, together with both short-term and long-term planned capital expenditures, are expected to meet the Company’s manufacturing needs in the foreseeable future.  The Company does not anticipate any difficulty in retaining occupancy of any leased facilities, either by renewing leases prior to expiration or by replacing them with equivalent leased facilities.  The following are the Company’s significant properties.  

 

Segment

 

Geographic

location (s)

 

Own/

lease

 

Lease

expiration

 

Square

feet

 

 

Property description

Corporate

 

Omaha, Nebraska

 

Lease

 

2019

 

 

30,000

 

 

Corporate headquarters

Irrigation

 

Lindsay, Nebraska

 

Own

 

N/A

 

 

300,000

 

 

Principal U.S. manufacturing plant consists of eight separate buildings located on 122 acres

Irrigation

 

Corlu, Turkey

 

Lease

 

2025

 

 

283,000

 

 

Manufacturing plant for irrigation products

Irrigation

 

Tianjin, China

 

Lease

 

2022

 

 

163,000

 

 

Manufacturing plant for irrigation products

Irrigation

 

La Chapelle, France

 

Own

 

N/A

 

 

72,000

 

 

Manufacturing plant for irrigation products

Irrigation

 

Bellville, South Africa

 

Lease

 

2024

 

 

71,000

 

 

Manufacturing plant for irrigation products

Irrigation

 

Mogi Mirim, Sao Paulo, Brazil

 

Own

 

N/A

 

 

67,000

 

 

Manufacturing plant for irrigation products

Irrigation

 

Olathe, Kansas

 

Own

 

N/A

 

 

60,000

 

 

Manufacturing plant for machine-to-machine products

Infrastructure

 

Omaha, Nebraska (1)

 

Own

 

N/A

 

 

83,000

 

 

Manufacturing plant for infrastructure products

Infrastructure

 

Milan, Italy

 

Own

 

N/A

 

 

45,000

 

 

Manufacturing plant for infrastructure products

Infrastructure

 

Rio Vista, California

 

Own

 

N/A

 

 

30,000

 

 

Manufacturing plant for infrastructure products

 

(1)

Property is held-for-sale at August 31, 2018.

 

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ITEM 3 — Legal Proceedings 

In the ordinary course of its business operations, the Company is involved, from time to time, in commercial litigation, product liability litigation, tort litigation, employment disputes, administrative proceedings, business disputes, and other legal proceedings.  No such current proceedings, individually or in the aggregate, are expected to have a material effect on the business or financial condition of the Company, other than the specific environmental remediation matters which are disclosed as part of Note 14, Commitments and Contingencies, to the Company’s consolidated financial statements.  Any revisions to the estimates accrued for environmental remediation could be material to the operating results of any fiscal quarter or fiscal year, however the Company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition.

For a summary of the Company’s infrastructure products litigation, see Note 14, Commitments and Contingencies, to the Company’s consolidated financial statements.

ITEM 4 — Mine Safety Disclosures  

Not applicable. 

 

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PART II 

ITEM 5 — Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 

Holders

Lindsay Common Stock trades on the New York Stock Exchange, Inc. (“NYSE”) under the ticker symbol LNN.  As of October 15, 2018, there were approximately 165 stockholders of record. 

Price Range of Common Stock

The following table sets forth for the periods indicated the range of the high and low stock prices and dividends paid per share: 

 

 

 

Fiscal 2018 Stock Price

 

 

Fiscal 2017 Stock Price

 

 

 

High

 

 

Low

 

 

Dividends

 

 

High

 

 

Low

 

 

Dividends

 

First Quarter

 

$

96.22

 

 

$

83.97

 

 

$

0.30

 

 

$

85.68

 

 

$

69.11

 

 

$

0.29

 

Second Quarter

 

$

95.49

 

 

$

85.00

 

 

$

0.30

 

 

$

89.98

 

 

$

72.85

 

 

$

0.29

 

Third Quarter

 

$

103.03

 

 

$

83.57

 

 

$

0.30

 

 

$

89.57

 

 

$

79.01

 

 

$

0.29

 

Fourth Quarter

 

$

102.77

 

 

$

88.22

 

 

$

0.31

 

 

$

95.04

 

 

$

83.63

 

 

$

0.30

 

Year

 

$

103.03

 

 

$

83.57

 

 

$

1.21

 

 

$

95.04

 

 

$

69.11

 

 

$

1.17

 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchases

The Company’s Board of Directors authorized a share repurchase program of up to $250.0 million of common stock with no expiration date.  Under the program, shares may be repurchased in privately negotiated and/or open market transactions as well as under formalized trading plans in accordance with the guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.  There were no shares repurchased during the twelve months ended August 31, 2018 and 2017.  During the twelve months ended August 31, 2016, the Company repurchased 688,790 shares of common stock for an aggregate purchase price of $48.3 million.  The remaining amount available under the repurchase program was $63.7 million as of August 31, 2018.  

Dividends

The Company paid a total of $13.0 million and $12.5 million in dividends during fiscal 2018 and 2017, respectively.  The Company currently expects that cash dividends comparable to those paid historically will continue to be paid in the future, although there can be no assurance as to the payment of future dividends as such payment depends on results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any potential indebtedness the Company may incur, restrictions imposed by applicable law, tax considerations, and other factors that the Board of Directors deems relevant.  

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Company Stock Performance

The following graph compares the cumulative five-year total return attained by stockholders on the Company’s Common Stock relative to the cumulative total returns of the S&P SmallCap 600 Index and the S&P SmallCap 600 Construction, Farm Machinery and Heavy Truck Index for the five-year period ended August 31, 2018.  An investment of $100 (with the reinvestment of all dividends) is assumed to have been made in the Company’s Common Stock and in each of the indexes on August 31, 2013 and the graph shows its relative performance through August 31, 2018.

 

 

 

 

8/13

 

 

8/14

 

 

8/15

 

 

8/16

 

 

8/17

 

 

8/18

 

Lindsay Corporation

 

 

100.00

 

 

 

103.45

 

 

 

102.72

 

 

 

98.54

 

 

 

120.25

 

 

 

134.80

 

S&P SmallCap 600 Index

 

 

100.00

 

 

 

118.70

 

 

 

120.84

 

 

 

136.86

 

 

 

154.80

 

 

 

205.05

 

S&P SmallCap 600 Construction, Farm

   Machinery and Heavy Truck Index

 

 

100.00

 

 

 

158.87

 

 

 

130.61

 

 

 

144.67

 

 

 

181.74

 

 

 

206.99

 

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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Table of Contents

 

ITEM 6 — Selected Financial Data 

 

 

($ in millions and shares in thousands,

 

For the years ended August 31,

 

except per share and employee amounts)

 

2018 (1)

 

 

2017

 

 

2016 (2)

 

 

2015 (3)

 

 

2014

 

Operating data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

547.7

 

 

$

518.0

 

 

$

516.4

 

 

$

560.2

 

 

$

617.9

 

Gross profit

 

$

151.5

 

 

$

145.0

 

 

$

148.6

 

 

$

156.3

 

 

$

171.0

 

Gross margin

 

 

27.7

%

 

 

28.0

%

 

 

28.8

%

 

 

27.9

%

 

 

27.7

%

Operating expenses

 

$

112.9

 

 

$

104.8

 

 

$

114.2

 

 

$

105.6

 

 

$

92.6

 

Operating income

 

$

38.6

 

 

$

40.2

 

 

$

34.4

 

 

$

50.7

 

 

$

78.4

 

Operating margin

 

 

7.0

%

 

 

7.8

%

 

 

6.7

%

 

 

9.0

%

 

 

12.7

%

Effective tax rate

 

 

40.1

%

 

 

35.1

%

 

 

30.8

%

 

 

43.7

%

 

 

34.5

%

Net earnings

 

$

20.3

 

 

$

23.2

 

 

$

20.3

 

 

$

26.3

 

 

$

51.5

 

Net margin

 

 

3.7

%

 

 

4.5

%

 

 

3.9

%

 

 

4.7

%

 

 

8.3

%

Per share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net earnings per share

 

$

1.88

 

 

$

2.17

 

 

$

1.85

 

 

$

2.22

 

 

$

4.00

 

Cash dividends per share

 

$

1.21

 

 

$

1.17

 

 

$

1.13

 

 

$

1.09

 

 

$

0.92

 

Financial position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

251.0

 

 

$

200.9

 

 

$

204.2

 

 

$

227.1

 

 

$

257.7

 

Property, plant, and equipment, net

 

$

57.2

 

 

$

74.5

 

 

$

77.6

 

 

$

78.7

 

 

$

72.5

 

Total assets

 

$

500.3

 

 

$

506.0

 

 

$

487.5

 

 

$

522.6

 

 

$

515.5

 

Long-term debt, including current installments

 

$

116.8

 

 

$

117.0

 

 

$

117.2

 

 

$

117.4

 

 

$

 

Total shareholders' equity

 

$

276.9

 

 

$

270.1

 

 

$

251.6

 

 

$

288.6

 

 

$

382.6

 

Invested capital (4)

 

$

393.6

 

 

$

387.1

 

 

$

368.8

 

 

$

406.0

 

 

$

382.6

 

Cash flow data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

$

33.9

 

 

$

39.4

 

 

$

33.1

 

 

$

48.7

 

 

$

91.8

 

Net cash flows from investing activities

 

$

18.1

 

 

$

(10.0

)

 

$

(9.9

)

 

$

(79.6

)

 

$

(18.5

)

Net cash flows from financing activities

 

$

(11.3

)

 

$

(10.3

)

 

$

(61.4

)

 

$

3.9

 

 

$

(53.6

)

Financial measures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on invested capital (5)

 

 

5.9

%

 

 

6.9

%

 

 

6.1

%

 

 

7.2

%

 

 

13.5

%

Return on beginning shareholders' equity (6)

 

 

7.5

%

 

 

9.2

%

 

 

7.0

%

 

 

6.9

%

 

 

13.5

%

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares

 

 

10,772

 

 

 

10,694

 

 

 

10,930

 

 

 

11,855

 

 

 

12,882

 

Number of employees

 

 

1,412

 

 

 

1,410

 

 

 

1,366

 

 

 

1,324

 

 

 

1,202

 

 

(1)

Fiscal 2018 operating expenses include costs of $9.7 million ($8.8 million after-tax, or $0.82 per diluted share) in connection with the Foundation for Growth initiative.  The amount includes a net loss from business divestitures of $4.1 million with the remainder representing severance costs, plant closing costs, and professional consulting fees.  Net earnings also includes tax expense of $2.5 million ($0.23 per diluted share) related to the impact of the U.S. Tax Reform.

(2)

Fiscal 2016 operating expenses include an increase in an environmental remediation reserve of $13.0 million.

(3)

Fiscal 2015 includes operating results of Elecsys Corporation acquired in the second quarter of fiscal 2015.  Operating expenses include an increase in bad debt expense of $5.0 million and an increase in an environmental remediation reserve of $1.5 million.

(4)

Defined as current and long-term debt plus shareholders’ equity.

(5)

Defined as operating income (after tax) divided by the average of beginning and ending invested capital.

(6)

Defined as net earnings divided by beginning-of-period shareholders' equity.

 

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Table of Contents

 

ITEM 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations 

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, who resell to their customers, the farmers.  The Company’s primary production facilities are located in the United States.  The Company has smaller production and sales operations in Brazil, France, China, Turkey, and South Africa, as well as distribution and sales operations in the Netherlands, Australia, and New Zealand.  The Company also manufactures and markets, through distributors and direct sales to customers, various infrastructure products, including moveable barriers for traffic lane management, crash cushions, preformed reflective pavement tapes, and other road safety devices, through its production facilities in the United States and Italy, and has produced road safety products in irrigation manufacturing facilities in China and Brazil.  In addition, the Company’s infrastructure segment produces large diameter steel tubing, and railroad signals and structures, and provides outsourced manufacturing and production services for other companies. 

For the business overall, the global, long-term drivers of water conservation, population growth, increasing importance of biofuels, 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 U.S. highway infrastructure market is driven by government spending programs.  For example, the U.S. government funds highway and road improvements through the Federal Highway Trust Fund Program.  This program provides funding to improve the nation’s roadway system.  In December 2015, the U.S. government enacted a five-year, $305 billion highway-funding bill to fund highway and bridge projects, the first long-term national transportation spending bill in a decade.  Matching funding from the various states may be required as a condition of federal funding. 

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Table of Contents

 

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.  Since 2001, the Company has utilized acquisitions and greenfield efforts to expand its product lines and add to its operations in France, Italy, Brazil, South Africa, the Netherlands, Australia, New Zealand, China, and Turkey.  The addition of those operations has allowed the Company to strengthen its market position in those regions.

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 U.S. generally accepted accounting principles (“GAAP”), management must make a variety of decisions which impact the reported amounts and the related disclosures.  Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates.  In reaching such decisions, management applies judgment based on its understanding and analysis of the relevant facts and circumstances.  Certain of the Company’s accounting policies are critical, as these policies are most important to the presentation of the Company’s consolidated results of operations and financial condition.  They require the greatest use of judgments and estimates by management based on the Company’s historical experience and management’s knowledge and understanding of current facts and circumstances.  Management periodically re-evaluates and adjusts the estimates that are used as circumstances change.  Following are the accounting policies management considers critical to the Company’s consolidated results of operations and financial condition: 

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 Lindsay, Nebraska facility (the “site”) with the EPA.  The Company and its environmental consultants have developed a remedial alternative work plan, under which the Company continues to work with the EPA to define and implement steps to better contain and remediate the remaining contamination.  

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 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 undiscounted 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.

During the second quarter of fiscal 2016, the Company completed its testing for a feasibility study which clarified the extent of contamination, including the identification of a source of contamination near the manufacturing building that was not part of the area for which reserves were previously established.  The Company, together with its third-party environmental experts, participated in a preliminary meeting with the EPA and the Nebraska Department of Environmental Quality (the “NDEQ”) during the third quarter of fiscal 2016 to review remediation alternatives and proposed plans for the site and submitted its remedial alternatives evaluation report to the EPA in August 2016.  The proposed remediation plan is preliminary and has not been approved by the EPA or the NDEQ. Based on guidance from third-party environmental experts and the preliminary discussions held with the EPA, the Company anticipates that a definitive plan will not be agreed upon until fiscal 2019 or later.

The Company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated.  Although the Company has accrued reasonably estimable costs associated with remediation of the site, additional testing, environmental monitoring, and remediation could be required in the future as part of the Company’s ongoing discussions with the EPA regarding the development and implementation of the remedial action plans.  While any revisions could be material to the operating results of any fiscal quarter or fiscal year, the Company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition.  

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Table of Contents

 

Financial Overview and Outlook

Operating revenues in fiscal 2018 were $547.7 million, a six percent increase compared to $518.0 million in the prior year.  Irrigation segment revenues increased five percent to $439.9 million and infrastructure segment revenues increased eight percent to $107.8 million.  Net earnings for fiscal 2018 were $20.3 million or $1.88 per diluted share compared with $23.2 million or $2.17 per diluted share in the prior year.  Net earnings for fiscal 2018 were reduced by tax expense of $2.5 million, or $0.23 per diluted share, due to the enactment of significant tax reform in the United States (“U.S. Tax Reform”) and by after-tax costs of $8.8 million, or $0.82 per diluted share, related to the Company’s Foundation for Growth initiative.  

 

Foundation for Growth is a focused performance improvement initiative that includes setting strategic direction, defining priorities, and improving overall operating performance.  A key financial objective is to achieve operating margin performance of 11 percent to 12 percent in fiscal 2020 exclusive of market changes.

 

During fiscal 2018, in connection with a portfolio review of business investments, the Company committed to a plan of divestiture of its pump and filtration businesses, a Company-owned irrigation dealership and a Company-owned water resource consulting firm, all of which are reported in the irrigation segment.  The combined revenues from these businesses were approximately $80 million in fiscal 2018.  The Company completed the divestiture of its pump and filtration businesses and the Company-owned water resource consulting firm during the fourth quarter of fiscal 2018, recognizing a loss on disposal of $4.1 million.  The investment in the Company-owned dealership is classified as held-for-sale in the August 31, 2018 consolidated balance sheet.  In addition, during the fourth quarter of fiscal 2018, the Company closed one of its infrastructure manufacturing facilities in North America and consolidated it with an existing irrigation manufacturing facility.  

 

Results for fiscal 2018 include pre-tax costs of $9.7 million in connection with the Foundation for Growth initiative, including the loss from business divestitures along with severance costs, plant closing costs and professional consulting fees.  These costs, and additional future costs anticipated in connection with this initiative, are expected to be recovered through improved operating income in fiscal 2020.

The Company’s irrigation revenues are highly dependent upon the need for irrigated agricultural crop production, which, in turn, depends upon many factors, including the following primary drivers:

 

Agricultural commodity prices - As of August 2018, corn prices have increased approximately two percent and soybean prices have decreased approximately eleven percent from August 2017.  Commodity prices, although somewhat improved over the prior year, continue to be substantially lower than the peak prices in 2013.

 

Net farm income - As of August 2018, the U.S. Department of Agriculture (the “USDA”) estimated U.S. 2018 net farm income to be $65.7 billion, down 13 percent from the USDA’s final U.S. 2017 net farm income of $75.5 billion.  

 

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 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 Act of 2014 provides a degree of certainty to growers by adopting a five-year farm bill. This law continued many of the existing programs, including 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. These incentives could benefit equipment sales in the future.  

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Table of Contents

 

 

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.  In July 2018, the EPA proposed to maintain the 2019 ethanol production target levels at the same levels as the 2018 requirements.

 

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.

After a four-year cyclical downturn in our U.S. irrigation business, the market reached a level of stabilization during the first half of fiscal 2018 which, along with general economic optimism, contributed to improved grower sentiment towards investment in irrigation equipment.  However, this improved sentiment was tempered over the last several months of fiscal 2018 by uncertainty regarding the outcome of U.S. steel tariffs and trade negotiations with other countries.  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.  

The infrastructure business has continued to generate growth and profitability improvement in an environment of constrained government spending.  In December 2015, the U.S. government enacted a five-year, $305 billion highway-funding bill to fund highway and bridge projects, the first long-term national transportation spending bill in a decade.  In addition, the FHWA has changed highway safety product certification requirements. The change has required additional research and development spending and could have an impact on the competitive positioning of the Company’s highway safety products.  In spite of government spending uncertainty, opportunities exist for market expansion in each of the infrastructure product lines. Demand for the Company’s transportation safety products continues to be driven by population growth and the need for improved road safety.  

As of August 31, 2018, the Company had an order backlog of $50.0 million compared with $51.8 million at August 31, 2017.  The Company’s backlog can fluctuate from period to period due to the seasonality, cyclicality, timing, and execution of contracts.  Backlog typically represents long-term projects as well as short lead-time orders; therefore, it is generally not a good indication of the revenues to be realized in succeeding quarters.

Steel prices in the U.S. have increased dramatically over the last several months of fiscal 2018, primarily as a result of tariffs that have been placed on imported steel.  In addition, freight costs in the U.S. have increased due to a general trucking shortage.  The Company has generally been able to pass through raw material and other cost increases to its customers and intends to continue to do so, however a sustained increase in steel prices or freight costs could impact customer sentiment for investment or result in additional pressure on operating margins.

The global drivers for the Company’s markets of population growth, expanded food production and efficient water use and infrastructure expansion support the Company’s long-term growth goals.  The most significant opportunities for growth over the next several years are in international markets, where irrigation use is significantly less developed, and demand is driven primarily by food security, water scarcity and population growth.

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Table of Contents

 

Results of Operations 

The following “Fiscal 2018 Compared to Fiscal 2017” and the “Fiscal 2017 Compared to Fiscal 2016” sections present 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. 

Fiscal 2018 Compared to Fiscal 2017

The following table provides highlights for fiscal 2018 compared with fiscal 2017:

 

 

 

For the years ended

 

 

Percent

 

 

 

August 31,

 

 

increase

 

($ in thousands)

 

2018

 

 

2017

 

 

(decrease)

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

547,705

 

 

$

517,985

 

 

6%

 

Cost of operating revenues

 

$

396,243

 

 

$

372,973

 

 

6%

 

Gross profit

 

$

151,462

 

 

$

145,012

 

 

4%

 

Gross margin

 

 

27.7

%

 

 

28.0

%

 

 

 

 

Operating expenses (1)

 

$

112,899

 

 

$

104,811

 

 

8%

 

Operating income

 

$

38,563

 

 

$

40,201

 

 

-4%

 

Operating margin

 

 

7.0

%

 

 

7.8

%

 

 

 

 

Other (expense) income, net

 

$

(4,710

)

 

$

(4,486

)

 

5%

 

Income tax expense

 

$

13,576

 

 

$

12,536

 

 

8%

 

Effective income tax rate

 

 

40.1

%

 

 

35.1

%

 

 

 

 

Net earnings

 

$

20,277

 

 

$

23,179

 

 

-13%

 

Irrigation segment (2)

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

439,858

 

 

$

418,041

 

 

5%

 

Operating income

 

$

41,933

 

 

$

42,774

 

 

-2%

 

Operating margin

 

 

9.5

%

 

 

10.2

%

 

 

 

 

Infrastructure segment (2)

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

107,847

 

 

$

99,944

 

 

8%

 

Operating income

 

$

23,857

 

 

$

20,131

 

 

19%

 

Operating margin

 

 

22.1

%

 

 

20.1

%

 

 

 

 

 

 

(1)

Includes corporate general and administrative expenses of $27.2 million and $22.7 million for fiscal 2018 and fiscal 2017, respectively.  

 

(2)

See Note 17 for further details regarding segments.

 

Revenues 

Operating revenues in fiscal 2018 increased by $29.7 million, or six percent, to $547.7 million compared with $518.0 million in fiscal 2017.  Irrigation segment revenues increased $21.8 million, or five percent, and infrastructure revenues increased $7.9 million, or eight percent, compared to the prior fiscal year for each.  The irrigation segment provided 80 percent of Company revenue in fiscal 2018 as compared to 81 percent in fiscal 2017.

North America irrigation revenues in fiscal 2018 increased by 16 percent to $294.6 million from $254.2 million in fiscal 2017.  The increase resulted primarily from improved market demand increasing irrigation system unit sales volume as well as from higher average selling prices.    

International irrigation revenues in fiscal 2018 decreased by 11 percent to $145.2 million from $163.8 million in fiscal 2017.  The decrease resulted primarily from a lower level of project activity in developing markets compared to the prior fiscal year, as well as from a market disruption in Brazil. Market activity in Brazil was disrupted in the third and fourth quarters of fiscal 2018 due to a country-wide trucking strike, changes in government-subsidized equipment financing rates, and general uncertainty leading up to October federal elections.  The impact of foreign currency translation rates compared to the prior fiscal year was insignificant.  

Infrastructure segment revenues in fiscal 2018 of $107.8 million increased $7.9 million or eight percent from $99.9 million in fiscal 2017.  The increase resulted primarily from higher Road Zipper System® sales, driven by two large projects, compared to the prior fiscal year.    

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Gross Profit 

Gross profit was $151.5 million for fiscal 2018, an increase of $6.5 million, or four percent, compared to $145.0 million in fiscal 2017.  The increase in gross profit resulted from higher revenues while gross margin of 27.7% was slightly lower than the prior fiscal year. Improved gross margin in the infrastructure segment was offset by slightly lower gross margin in the irrigation segment.  Infrastructure gross margin improved due to a higher proportion of revenue from Road Zipper System® sales, which resulted in an improved margin mix.  In the irrigation segment, a higher mix of revenue from the North America market, which produces higher gross margin, was offset by the impact of incremental LIFO inventory valuation expense and lower overhead cost absorption resulting from lower international sales volume.

Operating Expenses

The Company’s operating expenses of $112.9 million for fiscal 2018 increased $8.1 million, or eight percent, compared to fiscal 2017 operating expenses of $104.8 million.  The increase included costs of $9.7 million in connection with the Company’s Foundation for Growth initiative, of which $4.1 million represents a net loss from business divestitures with the remainder representing severance costs, plant closing costs and professional consulting fees.  These costs were partially offset by the net recovery of $2.5 million in previously reserved accounts receivable.  Operating expenses were 20.6 percent of sales for fiscal 2018 compared to 20.2 percent of sales for fiscal 2017. 

Income Taxes 

The Company recorded income tax expense of $13.5 million and $12.5 million for fiscal 2018 and fiscal 2017, respectively.  The effective income tax rate increased to 40.1 percent in fiscal 2018 compared to 35.1 percent in fiscal 2017.  Tax expense for fiscal 2018 includes $2.5 million of incremental expense resulting from the enactment of U.S. Tax Reform, as more fully explained in Note 6 to the consolidated financial statements, and $1.8 million for tax impacts related to business divestitures.  Excluding the impact of these items, the effective tax rate for fiscal 2018 was 27.4 percent, reflecting the lower statutory federal tax rate resulting from U.S. Tax Reform.

Net Earnings 

Net earnings for fiscal 2018 were $20.3 million, or $1.88 per diluted share, compared to $23.2 million, or $2.17 per diluted share, for fiscal 2017.  

Fiscal 2017 Compared to Fiscal 2016

The following table provides highlights for fiscal 2017 compared with fiscal 2016: 

 

 

For the years ended

 

 

Percent

 

 

 

August 31,

 

 

increase

 

($ in thousands)

 

2017

 

 

2016

 

 

(decrease)

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

517,985

 

 

$

516,411

 

 

 

0

%

Cost of operating revenues

 

$

372,973

 

 

$

367,798

 

 

 

1

%

Gross profit

 

$

145,012

 

 

$

148,613

 

 

 

(2

)%

Gross margin

 

 

28.0

%

 

 

28.8

%

 

 

 

 

Operating expenses (1)

 

$

104,811

 

 

$

114,238

 

 

 

-8

%

Operating income

 

$

40,201

 

 

$

34,375

 

 

 

17

%

Operating margin

 

 

7.8

%

 

 

6.7

%

 

 

 

 

Other (expense) income, net

 

$

(4,486

)

 

$

(5,087

)

 

 

-12

%

Income tax expense

 

$

12,536

 

 

$

9,021

 

 

 

39

%

Effective income tax rate

 

 

35.1

%

 

 

30.8

%

 

 

 

 

Net earnings

 

$

23,179

 

 

$

20,267

 

 

 

14

%

Irrigation segment (2)

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

418,041

 

 

$

421,641

 

 

 

(1

)%

Operating income

 

$

42,774

 

 

$

49,232

 

 

 

(13

)%

Operating margin

 

 

10.2

%

 

 

11.7

%

 

 

 

 

Infrastructure segment (2)

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

99,944

 

 

$

94,770

 

 

 

5

%

Operating income

 

$

20,131

 

 

$

18,535

 

 

 

9

%

Operating margin

 

 

20.1

%

 

 

19.6

%

 

 

 

 

 

 

(1)

Includes corporate general and administrative expenses of $22.7 million and $33.4 million for fiscal 2017 and fiscal 2016, respectively.

 

(2)

See Note 17 for further details regarding segments.

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Revenues 

Operating revenues in fiscal 2017 were $518.0 million, a slight increase compared with $516.4 million in fiscal 2016.  The increase is attributable to a $5.1 million increase in infrastructure segment revenues and a $3.6 million decrease in irrigation segment revenues.  The irrigation segment provided 81 percent of Company revenue in fiscal 2017 as compared to 82 percent in fiscal 2016.

 

North America irrigation revenues in fiscal 2017 of $254.2 million decreased $21.8 million or eight percent from $276.0 million in fiscal 2016.  The decrease resulted from a decline in irrigation system unit sales volume reflecting lower market demand as well as a decline in revenue from other irrigation product lines, including filtration and pump systems.  The impact of lower irrigation system unit sales volume was partially offset by higher average selling prices from passing through higher raw material costs.  

 

International irrigation revenues in fiscal 2017 of $163.8 million increased $18.2 million or 13 percent from $145.6 million in fiscal 2016.  A notable recovery of market demand in Brazil and increased project activity in Africa and the Commonwealth of Independent States region were partially offset by lower revenues in other international markets.  Changes in foreign currency translation rates compared to the prior year resulted in an increase in international irrigation revenues of approximately three percent for fiscal 2017.  

 

Infrastructure segment revenues in fiscal 2017 of $99.9 million increased $5.1 million or five percent from $94.8 million in fiscal 2016.  The increase resulted from higher Road Zipper System® sales and lease revenue and higher sales of road safety products in international markets.  Sales of road safety products in the U.S. declined modestly compared to the prior year.

 

Gross Profit 

Gross profit was $145.0 million for fiscal 2017, a decrease of $3.6 million, or two percent, compared to fiscal 2016.  The decrease in gross profit resulted from lower irrigation sales and a decline in gross margin to 28.0 percent for fiscal 2017 from 28.8 percent for fiscal 2016.  Comparable year-to-year gross margin in the infrastructure segment was offset by lower gross margin in the irrigation segment.  Irrigation gross margin declined primarily due to lower overhead cost absorption, as a result of lower domestic unit sales volume, and a higher mix of revenue from international markets which produce lower gross margins.

 

Operating Expenses

The Company’s operating expenses of $104.8 million for fiscal 2017 decreased $9.4 million compared to fiscal 2016 operating expenses of $114.2 million.  The reduction in operating expenses in the current year is due to $13.0 million of environmental remediation expenses in the prior year that did not repeat in fiscal 2017, offset in part by higher product development and testing costs and professional fees in the current year.   Operating expenses were 20.2 percent of sales for fiscal 2017 compared to 22.1 percent of sales for fiscal 2016.  The Company’s operating income increased to $40.2 million in fiscal 2017 compared to $34.4 million during fiscal 2016.  Operating margin was 7.8 percent for fiscal 2017 as compared to 6.7 percent for fiscal 2016.  

 

Income Taxes 

The Company recorded income tax expense of $12.5 million and $9.0 million for fiscal 2017 and fiscal 2016, respectively.  The effective income tax rate increased to 35.1 percent in fiscal 2017 compared to 30.8 percent in fiscal 2016.  The increase in the annual effective income tax rate is primarily due to the impact of differences between book and tax treatment of certain items and proportionately higher earnings from U.S. operations in the current year with tax rates higher than in foreign jurisdictions.

 

Net Earnings 

Net earnings for fiscal 2017 were $23.2 million, or $2.17 per diluted share, compared to $20.3 million, or $1.85 per diluted share, for fiscal 2016.  

 

Liquidity and Capital Resources 

The Company’s cash and cash equivalents totaled $160.8 million at August 31, 2018 compared with $121.6 million at August 31, 2017.  A portion of this increase resulted from the sale of certain businesses in fiscal 2018.  The Company requires cash for financing its receivables and inventories, paying operating expenses and capital expenditures, and for dividends and share repurchases.  The Company meets its liquidity needs and finances its capital expenditures from its available cash and funds provided by operations along with borrowings under the credit arrangements that are described below.  The Company believes its current cash resources, projected operating cash flow, and remaining capacity under its continuing bank lines of credit are sufficient to cover all of its expected

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working capital needs, planned capital expenditures and dividends.  The Company’s Capital Allocation Plan outlined below could require the Company to incur additional debt depending on the size and timing of share repurchases and potential acquisitions.

The Company’s total cash and cash equivalents held by foreign subsidiaries was approximately $32.6 million and $23.5 million as of August 31, 2018 and 2017, respectively.  The Company considers earnings of foreign subsidiaries to be indefinitely reinvested, and would need to accrue and pay incremental state, local, and foreign taxes if such earnings were repatriated to the United States.  These incremental taxes would be in addition to the one-time deemed repatriation tax of $1.7 million as more fully explained in Note 6 to the consolidated financial statements.  The Company does not intend to repatriate the funds, and does not expect these funds to have a significant impact on the Company’s overall liquidity.

Net working capital was $251.0 million at August 31, 2018 as compared with $200.9 million at August 31, 2017.  Cash flows provided by operations totaled $33.9 million during the year ended August 31, 2018 compared to $39.4 million provided by operations during the same prior year period.  Cash provided by operations decreased by $5.5 million compared to the prior year period primarily as a result of a $2.9 million decrease in net earnings and normal fluctuations in the changes between assets and liabilities.

Cash flows provided by investing activities totaled $18.1 million during the year ended August 31, 2018 compared to cash flows used in investing activities of $10.0 million during the same prior year period.  Capital spending was $11.1 million in fiscal 2018 compared to prior year capital spending of $8.9 million. The $28.1 million increase in cash provided by investing activities was primarily due to the sale of certain businesses in fiscal 2018.

Cash flows used in financing activities totaled $11.3 million during the year ended August 31, 2018 compared to cash flows used in financing activities of $10.3 million during the same prior year period.  

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 and expansion of international markets,

 

Dividends to stockholders, along with expectations to increase dividends on an annual basis,

 

Synergistic acquisitions that leverage core capabilities and provide attractive returns to stockholders, and

 

Opportunistic share repurchases taking into account cyclical and seasonal fluctuations.  

Capital Expenditures and Expansion of International Markets

In fiscal 2019, the Company expects capital expenditures of approximately $15.0 million to $20.0 million, including equipment replacement, productivity improvements and new product development. The Company’s management does maintain flexibility to modify the amount and timing of some of the planned expenditures in response to economic conditions.

Dividends

In fiscal 2018, the Company paid cash dividends of $1.21 per common share or $13.0 million to stockholders as compared to $1.17 per common share or $12.5 million to stockholders in fiscal 2017.

Share Repurchases

The Company’s Board of Directors authorized a share repurchase program of up to $250.0 million of common stock with no expiration date.  Under the program, shares may be repurchased in privately negotiated and/or open market transactions as well as under formalized trading plans in accordance with the guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.  There were no shares repurchased during the twelve months ended August 31, 2018 and 2017.  During the twelve months ended August 31, 2016, the Company repurchased 688,790 shares of common stock for an aggregate purchase price of $48.3 million.  The remaining amount available under the repurchase program was $63.7 million as of August 31, 2018.  

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Table of Contents

 

Long-Term Borrowing Facilities

Senior Notes.  The Company has outstanding $115.0 million in aggregate principal amount of Senior Notes, Series A (the “Senior Notes”).  The entire principal of the Senior Notes is due and payable on February 19, 2030.  Interest on the Senior Notes is payable semi-annually at a fixed annual rate of 3.82 percent and borrowings under the Senior Notes are unsecured.  The Company used the proceeds of the sale of the Senior Notes for general corporate purposes, including acquisitions and dividends.

Revolving Credit Facility. The Company has outstanding a $50.0 million unsecured Amended and Restated Revolving Credit Facility (the “Revolving Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) expiring May 31, 2020.  The Company intends to use borrowings under the Revolving Credit Facility for working capital purposes and to fund acquisitions. At August 31, 2018 and August 31, 2017, the Company had no outstanding borrowings under the Revolving Credit Facility.  The amount of borrowings available at any time under the Revolving Credit Facility is reduced by the amount of standby letters of credit issued by Wells Fargo then outstanding.  At August 31, 2018, the Company had the ability to borrow up to $44.6 million under the Revolving Credit Facility, after consideration of outstanding standby letters of credit of $5.4 million. Borrowings under the Revolving Credit Facility bear interest at a variable rate equal to LIBOR plus 90 basis points (3.01 percent at August 31, 2018), subject to adjustment as set forth in the loan documents for the Revolving Credit Facility.  Interest is paid on a monthly to quarterly basis depending on loan type.  The Company also pays an annual commitment fee of 0.25 percent on the unused portion of the Revolving Credit Facility.

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.  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 August 31, 2018 and August 31, 2017, the Company was in compliance with all financial loan covenants contained in its credit arrangements in place as of each of those dates.

Series 2006A Bonds.  Elecsys International Corporation, a wholly owned subsidiary of the Company, has outstanding $1.8 million in principal amount of industrial revenue bonds that were issued in 2006 (the “Series 2006A Bonds”).  Principal and interest on the Series 2006A Bonds are payable monthly through maturity on September 1, 2026.  The interest rate is adjustable every five years based on the yield of the 5-year United States Treasury Notes, plus 0.45 percent (1.92 percent as of August 31, 2018).  This rate was adjusted on September 1, 2016 in accordance with the terms of the bonds, and the adjusted rate will be in force until September 1, 2021.  The obligations under the Series 2006A Bonds are secured by a first priority security interest in certain real estate.

Inflation  

The Company is subject to the effects of changing prices.  During fiscal 2018, the Company realized pricing volatility for purchases of certain commodities, in particular steel and zinc products used in the production of its products, as well as increased freight costs.  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.   

 

 

 

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($ in thousands)

 

 

 

 

 

Less than

 

 

2-3

 

 

4-5

 

 

More than

 

Contractual obligations (1)

 

Total

 

 

1 year