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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(MARK ONE)

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

For the quarterly period ended May 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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2222 N. 111th Street, Omaha, Nebraska

 

68164

(Address of principal executive offices)

 

(Zip Code)

 

402‑829-6800

(Registrant's telephone number, including area code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No 

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

    

(Do not check if smaller reporting company)

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 

As of June 22, 2018, 10,757,318 shares of the registrant’s common stock were outstanding.

 

- 1 -


Table of Contents

 

Lindsay Corporation

INDEX FORM 10-Q

 

 

 

 

 

Page

 

 

 

 

 

Part I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

ITEM 1 – Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Earnings for the three and nine months ended May 31, 2018 and May 31, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended May 31, 2018 and May 31, 2017

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of May 31, 2018, May 31, 2017, and August 31, 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2018 and May 31, 2017

 

6

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

 

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

 

 

 

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk

 

24

 

 

 

 

 

 

 

ITEM 4 – Controls and Procedures

 

24

 

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

ITEM 1 – Legal Proceedings

 

25

 

 

 

 

 

 

 

ITEM 1A – Risk Factors

 

25

 

 

 

 

 

 

 

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

 

 

 

 

 

 

ITEM 3 – Defaults Upon Senior Securities

 

25

 

 

 

 

 

 

 

ITEM 4 – Mine Safety Disclosures

 

25

 

 

 

 

 

 

 

ITEM 5 – Other Information

 

25

 

 

 

 

 

 

 

ITEM 6 – Exhibits

 

26

 

 

 

 

 

SIGNATURES

 

27

 

- 2 -


Table of Contents

 

Part I – FINANCIAL INFORMATION

ITEM 1 - Financial Statements

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

 

 

Three months ended

 

 

Nine months ended

 

($ and shares in thousands, except per share amounts)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Operating revenues

 

$

169,571

 

 

$

151,533

 

 

$

424,436

 

 

$

386,048

 

Cost of operating revenues

 

 

118,093

 

 

 

105,627

 

 

 

305,245

 

 

 

278,827

 

Gross profit

 

 

51,478

 

 

 

45,906

 

 

 

119,191

 

 

 

107,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expense

 

 

10,842

 

 

 

10,451

 

 

 

31,087

 

 

 

30,565

 

General and administrative expense

 

 

17,974

 

 

 

13,693

 

 

 

44,203

 

 

 

35,278

 

Engineering and research expense

 

 

3,960

 

 

 

4,348

 

 

 

11,932

 

 

 

12,707

 

Total operating expenses

 

 

32,776

 

 

 

28,492

 

 

 

87,222

 

 

 

78,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

18,702

 

 

 

17,414

 

 

 

31,969

 

 

 

28,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,226

)

 

 

(1,156

)

 

 

(3,502

)

 

 

(3,566

)

Interest income

 

 

540

 

 

 

545

 

 

 

1,171

 

 

 

881

 

Other (expense) income, net

 

 

(571

)

 

 

(606

)

 

 

(1,725

)

 

 

(818

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

17,445

 

 

 

16,197

 

 

 

27,913

 

 

 

25,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

7,066

 

 

 

5,245

 

 

 

12,614

 

 

 

8,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

10,379

 

 

$

10,952

 

 

$

15,299

 

 

$

16,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.96

 

 

$

1.03

 

 

$

1.43

 

 

$

1.58

 

Diluted

 

$

0.96

 

 

$

1.02

 

 

$

1.42

 

 

$

1.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,757

 

 

 

10,677

 

 

 

10,735

 

 

 

10,657

 

Diluted

 

 

10,785

 

 

 

10,705

 

 

 

10,763

 

 

 

10,682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.30

 

 

$

0.29

 

 

$

0.90

 

 

$

0.87

 

 

See accompanying notes to condensed consolidated financial statements.

- 3 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three months ended

 

 

Nine months ended

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Net earnings

 

$

10,379

 

 

$

10,952

 

 

$

15,299

 

 

$

16,837

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustment, net of tax

 

 

40

 

 

 

38

 

 

 

109

 

 

 

113

 

Foreign currency translation adjustment, net of hedging activities and tax

 

 

(3,705

)

 

 

(476

)

 

 

(2,925

)

 

 

37

 

Total other comprehensive (loss) income, net of tax expense

    (benefit) of $347, ($722), $74 and ($69), respectively

 

 

(3,665

)

 

 

(438

)

 

 

(2,816

)

 

 

150

 

Total comprehensive income

 

$

6,714

 

 

$

10,514

 

 

$

12,483

 

 

$

16,987

 

 

See accompanying notes to condensed consolidated financial statements.

- 4 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

($ and shares in thousands, except par values)

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,779

 

 

$

113,212

 

 

$

121,620

 

Receivables, net of allowance of $4,143, $7,473, and $7,447,

   respectively

 

 

92,135

 

 

 

86,772

 

 

 

73,850

 

Inventories, net

 

 

82,635

 

 

 

88,601

 

 

 

86,155

 

Prepaid expenses

 

 

4,132

 

 

 

4,944

 

 

 

4,384

 

Assets held-for-sale

 

 

51,516

 

 

 

 

 

 

 

Other current assets

 

 

8,209

 

 

 

11,877

 

 

 

6,925

 

Total current assets

 

 

350,406

 

 

 

305,406

 

 

 

292,934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment:

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

172,438

 

 

 

187,890

 

 

 

189,140

 

Less accumulated depreciation

 

 

(112,554

)

 

 

(113,481

)

 

 

(114,642

)

Property, plant, and equipment, net

 

 

59,884

 

 

 

74,409

 

 

 

74,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles, net

 

 

28,656

 

 

 

43,874

 

 

 

42,808

 

Goodwill

 

 

64,723

 

 

 

76,843

 

 

 

77,131

 

Deferred income tax assets

 

 

4,581

 

 

 

6,027

 

 

 

5,311

 

Other noncurrent assets

 

 

11,978

 

 

 

4,728

 

 

 

13,350

 

Total assets

 

$

520,228

 

 

$

511,287

 

 

$

506,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,281

 

 

$

40,256

 

 

$

36,717

 

Current portion of long-term debt

 

 

204

 

 

 

200

 

 

 

201

 

Liabilities held-for-sale

 

 

14,275

 

 

 

 

 

 

 

Other current liabilities

 

 

53,911

 

 

 

62,501

 

 

 

55,119

 

Total current liabilities

 

 

98,671

 

 

 

102,957

 

 

 

92,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension benefits liabilities

 

 

6,080

 

 

 

6,628

 

 

 

6,295

 

Long-term debt

 

 

116,622

 

 

 

116,826

 

 

 

116,775

 

Deferred income tax liabilities

 

 

1,117

 

 

 

1,111

 

 

 

1,191

 

Other noncurrent liabilities

 

 

20,229

 

 

 

20,060

 

 

 

19,679

 

Total liabilities

 

 

242,719

 

 

 

247,582

 

 

 

235,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock of $1 par value -

 

 

 

 

 

 

 

 

 

 

 

 

Authorized 2,000 shares; no shares issued and outstanding

 

 

 

 

 

 

 

 

 

Common stock of $1 par value - authorized 25,000 shares;

   18,841, 18,773, and 18,780 shares issued, respectively

 

 

18,841

 

 

 

18,773

 

 

 

18,780

 

Capital in excess of stated value

 

 

67,587

 

 

 

61,709

 

 

 

63,006

 

Retained earnings

 

 

483,243

 

 

 

474,483

 

 

 

477,615

 

Less treasury stock - at cost, 8,083, 8,083, and 8,083 shares,

   respectively

 

 

(277,238

)

 

 

(277,238

)

 

 

(277,238

)

Accumulated other comprehensive loss, net

 

 

(14,924

)

 

 

(14,022

)

 

 

(12,108

)

Total shareholders' equity

 

 

277,509

 

 

 

263,705

 

 

 

270,055

 

Total liabilities and shareholders' equity

 

$

520,228

 

 

$

511,287

 

 

$

506,032

 

 

See accompanying notes to condensed consolidated financial statements.

- 5 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine months ended

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net earnings

 

$

15,299

 

 

$

16,837

 

Adjustments to reconcile net earnings to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,851

 

 

 

12,337

 

Loss on businesses held-for-sale

 

 

6,023

 

 

 

 

Provision for uncollectible accounts receivable

 

 

(2,407

)

 

 

(408

)

Deferred income taxes

 

 

(687

)

 

 

(1,383

)

Share-based compensation expense

 

 

2,942

 

 

 

2,798

 

Other, net

 

 

473

 

 

 

226

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(29,826

)

 

 

(5,737

)

Inventories

 

 

(8,247

)

 

 

(13,217

)

Prepaid expenses and other current assets

 

 

(971

)

 

 

3,255

 

Accounts payable

 

 

1,901

 

 

 

8,182

 

Other current liabilities

 

 

10,058

 

 

 

4,734

 

Other noncurrent assets and liabilities

 

 

766

 

 

 

(3,158

)

Net cash provided by operating activities

 

 

8,175

 

 

 

24,466

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(6,920

)

 

 

(6,219

)

Proceeds from settlement of net investment hedges

 

 

101

 

 

 

2,054

 

Payments for settlement of net investment hedges

 

 

(3,089

)

 

 

(948

)

Other investing activities, net

 

 

241

 

 

 

137

 

Net cash used in investing activities

 

 

(9,667

)

 

 

(4,976

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

2,788

 

 

 

2,455

 

Common stock withheld for payroll tax obligations

 

 

(833

)

 

 

(635

)

Principal payments on long-term debt

 

 

(150

)

 

 

(147

)

Dividends paid

 

 

(9,671

)

 

 

(9,280

)

Net cash used in financing activities

 

 

(7,866

)

 

 

(7,607

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(483

)

 

 

83

 

Net change in cash and cash equivalents

 

 

(9,841

)

 

 

11,966

 

Cash and cash equivalents, beginning of period

 

 

121,620

 

 

 

101,246

 

Cash and cash equivalents, end of period

 

$

111,779

 

 

$

113,212

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Income taxes paid

 

$

6,087

 

 

$

8,772

 

Interest paid

 

$

2,358

 

 

$

2,423

 

 

See accompanying notes to condensed consolidated financial statements.

- 6 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Condensed Consolidated Financial Statements

The condensed consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and do not include all of the disclosures normally required by U.S. generally accepted accounting principles (“U.S. GAAP”) as contained in Lindsay Corporation’s (the “Company”) Annual Report on Form 10-K.  Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

In the opinion of management, the condensed consolidated financial statements of the Company reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented.  The results for interim periods are not necessarily indicative of trends or results expected by the Company for a full year.  The condensed consolidated financial statements were prepared using U.S. GAAP. These principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates.  Certain reclassifications have been made to prior financial statements and notes to conform to the current year presentation.

Note 2 – New Accounting Pronouncements

 

Recent Accounting Guidance Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The standard provides a single model for revenue arising from contracts with customers and supersedes current revenue recognition guidance. The ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of goods or services. The ASU will replace existing revenue recognition guidance in U.S. GAAP and becomes effective in the first quarter of the Company’s fiscal 2019. Early adoption is permitted only in fiscal 2018. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.  

The Company is continuing to evaluate the impact of the ASU on the Company’s operations, accounting policies, internal control over financial reporting, consolidated financial statements, and disclosures. The Company has identified that the key changes in the ASU that could potentially impact the Company’s revenue recognition relates to the allocation of contract revenues between various products and services, the timing of when those revenues are recognized, and the deferral of incremental costs to obtain a contract. Based on the current status of the evaluation, the adoption of the standard is not expected to have a material effect on the amounts or timing of revenue recognition.  The Company expects to adopt the new standard using the modified retrospective approach effective September 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires a lessee to recognize assets and liabilities arising from an operating lease on the balance sheet. Additionally, companies are permitted to make an accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less.  The effective date of ASU No. 2016-02 will be the first quarter of the Company’s fiscal 2020 with early adoption permitted. The Company is currently in the assessment phase and is evaluating the effect that adopting this standard will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an entity's defined benefit pension and post-retirement plans. ASU 2017-07 is effective in the first quarter of the Company’s fiscal 2019 with early adoption permitted. The Company does not believe this ASU will have a material impact on the consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which modifies the financial reporting of hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective in the first quarter of the Company’s fiscal 2020 with early adoption permitted. The Company does not believe the adoption of this ASU will have a material impact on the consolidated financial statements.

- 7 -


Table of Contents

 

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides entities with the option to eliminate the stranded tax effects associated with the change in tax rates under the U.S. Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) through a reclassification of the stranded tax effects from accumulated other comprehensive income (“AOCI”) to retained earnings. The amount of the reclassification would be calculated on the basis of the difference between the historical and newly enacted tax rates for deferred tax liabilities and assets related to items within AOCI. ASU 2018-02 is effective in the first quarter of the Company’s fiscal 2020 with early adoption permitted. Companies should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate from U.S. Tax Reform is recognized. The Company does not believe the adoption of this ASU will have a material impact on the consolidated financial statements.

Recent Accounting Guidance Adopted

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which provides guidance on accounting for the impacts of U.S. Tax Reform.  SAB 118 directs companies to consider the impact of U.S. Tax Reform as provisional when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting under Accounting Standards Codification (“ASC”) Topic 740, Income Taxes.  The Company has not yet completed its accounting for the tax effects of the U.S. Tax Reform; however it has made a reasonable, but provisional, estimate of the effects as more fully explained in Note 6 to the condensed consolidated financial statements.  

Note 3 – Net Earnings per Share

Basic earnings per share is calculated on the basis of weighted average outstanding common shares.  Diluted earnings per share is calculated on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, restricted stock unit awards and other dilutive securities.  

The following table shows the computation of basic and diluted net earnings per share for the three and nine months ended May 31, 2018 and May 31, 2017:

 

 

 

Three months ended

 

 

Nine months ended

 

($ and shares in thousands, except per share amounts)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

10,379

 

 

$

10,952

 

 

$

15,299

 

 

$

16,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

10,757

 

 

 

10,677

 

 

 

10,735

 

 

 

10,657

 

Diluted effect of stock awards

 

 

28

 

 

 

28

 

 

 

28

 

 

 

25

 

Weighted average shares outstanding assuming

   dilution

 

 

10,785

 

 

 

10,705

 

 

 

10,763

 

 

 

10,682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share

 

$

0.96

 

 

$

1.03

 

 

$

1.43

 

 

$

1.58

 

Diluted net earnings per share

 

$

0.96

 

 

$

1.02

 

 

$

1.42

 

 

$

1.58

 

 

Certain stock options and restricted stock units were excluded from the computation of diluted net earnings per share because their effect would have been anti-dilutive.  Performance stock units are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied.  In addition, the following table shows the securities excluded from the computation of earnings per share because their effect would have been anti-dilutive:

 

 

 

Three months ended

 

 

Nine months ended

 

(Units and options in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Restricted stock units

 

 

1

 

 

 

 

 

 

24

 

 

 

14

 

Stock options

 

 

58

 

 

 

101

 

 

 

75

 

 

 

123

 

 

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Note 4 – Inventories

Inventories consisted of the following as of May 31, 2018, May 31, 2017, and August 31, 2017:

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

Raw materials and supplies

 

$

39,320

 

 

$

32,960

 

 

$

31,158

 

Work in process

 

 

7,898

 

 

 

7,849

 

 

 

7,113

 

Finished goods and purchased parts

 

 

41,454

 

 

 

53,469

 

 

 

52,382

 

Total inventory value before LIFO adjustment

 

 

88,672

 

 

 

94,278

 

 

 

90,653

 

Less adjustment to LIFO value

 

 

(6,037

)

 

 

(5,677

)

 

 

(4,498

)

Inventories, net

 

$

82,635

 

 

$

88,601

 

 

$

86,155

 

 

Note 5 – Assets and Liabilities Held-For-Sale

 

During the third quarter of fiscal 2018, the Company completed a portfolio review of business investments and has committed to a plan of divestiture of its filtration and pump systems businesses as well as a Company-owned irrigation dealership, all of which are reported in the Irrigation segment.  The Company has determined that the divestiture of these businesses does not meet the criteria for discontinued operations presentation as the commitment to divest these businesses does not represent a strategic shift that will have a major effect on its operations and financial results.  As a result of this classification, the assets and liabilities of these businesses are separately presented within the captions “Assets held-for-sale” and “Liabilities held-for-sale” in the condensed consolidated balance sheet as of May 31, 2018.  Assets and liabilities held-for-sale are recorded at their estimated selling price less costs to sell.  The Company has estimated that value for certain of these businesses to be less than their existing carrying value and has recorded an expense of $6.0 million included in general and administrative expense on the condensed consolidated statement of earnings in the fiscal quarter ended May 31, 2018.  Subsequent to the end of the fiscal quarter, the Company entered into a definitive agreement to sell its filtration and pump systems businesses with an anticipated closing date in the fourth fiscal quarter.  The Company expects the sale of the Company-owned irrigation dealership to close before the end of the current calendar year.

 

The carrying amounts of the major classes of assets and liabilities that were classified as held-for-sale at May 31, 2018, are as follows:

($ in thousands)

 

May 31,

2018

 

Receivables, net of allowance of $547

 

$

12,212

 

Inventories, net

 

 

11,210

 

Prepaid expenses

 

 

178

 

Other current assets

 

 

55

 

Property, plant, and equipment, net

 

 

10,693

 

Intangibles, net

 

 

10,827

 

Goodwill

 

 

6,341

 

Total assets

 

 

51,516

 

 

 

 

 

 

Accounts payable

 

 

7,522

 

Other current liabilities

 

 

6,243

 

Other noncurrent liabilities

 

 

510

 

Total liabilities

 

 

14,275

 

 

 

 

 

 

Net assets

 

$

37,241

 

 

Note 6 – Income Taxes

The Company recorded income tax expense of $7.1 million and $5.2 million for the three months ended May 31, 2018 and May 31, 2017, respectively.  The Company recorded income tax expense of $12.6 million and $8.3 million for the nine months ended May 31, 2018 and May 31, 2017, respectively.  The effective income tax rate was 28.5 percent and 33.1 percent for the fiscal year-to-date periods ended May 31, 2018 and May 31, 2017, respectively.  The Company also recorded $4.7 million of discrete income tax expense for the fiscal year-to-date period ended May 31, 2018 as discussed further below.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation through U.S. Tax Reform which significantly revised the U.S. corporate income tax structure by, among other things, lowering the U.S. corporate income

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tax rate, repealing certain deductions, and changing the way foreign earnings are taxed. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law is enacted. As such, the Company’s estimated annual effective income tax rate for the current fiscal year includes the impact of the reduction of the U.S. corporate income tax rate from 35% to 21% beginning January 1, 2018. As an August fiscal year end filer, the lower corporate income tax rate will be phased in resulting in a blended U.S. corporate income tax rate of 25.7% for the fiscal year ending August 31, 2018 (effectively the four months of September through December 2017 at 35% and the eight months of January through August 2018 at 21%).

Income tax expense for the three and nine months ended May 31, 2018 includes discrete items related to the impact of U.S. Tax Reform as required by ASC Topic 740. These include a one-time mandatory deemed repatriation transition tax on previously untaxed accumulated and current earnings and profits of the Company’s foreign subsidiaries. The Company made a reasonable estimate and recorded a provisional deemed repatriation transition tax obligation of $1.8 million. The Company continues to gather information to more precisely compute the amount of the deemed repatriation transition tax.

The Company also remeasured or revalued its deferred income tax assets and liabilities during its fiscal 2018 second quarter, resulting in a provisional deferred income tax expense of $0.8 million, and an additional $0.4 million in its fiscal 2018 third quarter. This provisional amount incorporates assumptions and estimates made based upon the Company’s current interpretations of U.S. Tax Reform and may change as the Company receives additional implementation guidance, and as data becomes available allowing for a more accurate scheduling of the deferred income tax assets and liabilities.  

The Company’s collective provisional estimates of $3.0 million of incremental income tax expense recorded during the second and third quarters of fiscal 2018 represents all known and estimable impacts of U.S. Tax Reform, and may change as the Company receives additional clarification and implementation guidance, and as data becomes available. The accounting is expected to be finalized by the end of fiscal 2018.

Certain other provisions included in U.S. Tax Reform have later effective dates for fiscal year filers and may have an impact on the Company’s future estimated annual effective income tax rate. Other future adjustments to income tax expense may include the impact of actions the Company may take as a result of U.S. Tax Reform.

The tax effects of discrete items related to U.S. Tax Reform as described above, in addition to tax impacts of $1.7 million related to a non-deductible carrying value adjustment on businesses held-for-sale, were recognized in the interim periods in which the events occurred for the three and nine months ended May 31, 2018.  The Company recorded no material discrete items for the three and nine months ended May 31, 2017.

 

 

Note 7 – Long-Term Debt

The following table sets forth the outstanding principal balances of the Company’s long-term debt as of the dates shown:

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

Series A Senior Notes

 

$

115,000

 

 

$

115,000

 

 

$

115,000

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

Elecsys Series 2006A Bonds

 

 

1,826

 

 

 

2,026

 

 

 

1,976

 

Total debt

 

 

116,826

 

 

 

117,026

 

 

 

116,976

 

Less current portion

 

 

(204

)

 

 

(200

)

 

 

(201

)

Total long-term debt

 

$

116,622

 

 

$

116,826

 

 

$

116,775

 

 

Principal payments on the debt are due as follows:

 

Due within

 

$ in thousands

 

1 year

 

$

204

 

2 years

 

 

208

 

3 years

 

 

212

 

4 years

 

 

216

 

5 years

 

 

220

 

Thereafter

 

 

115,766

 

 

 

$

116,826

 

 

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Note 8 – Financial Derivatives

The Company uses certain financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates.  The Company uses these derivative instruments to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative purposes.  The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with counterparties that have investment grade credit ratings.  Fair values of derivative instruments are as follows:

 

($ in thousands)

 

Balance sheet

location

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

Derivatives designated as hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current assets

 

$

2,149

 

 

$

 

 

$

 

Foreign currency forward contracts

 

Other current liabilities

 

 

(49

)

 

 

(2,109

)

 

 

(1,633

)

Total derivatives designated as hedging

    instruments

 

 

 

$

2,100

 

 

$

(2,109

)

 

$

(1,633

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current assets

 

$

92

 

 

$

71

 

 

$

9

 

Foreign currency forward contracts

 

Other current liabilities

 

 

(11

)

 

 

(3

)

 

 

(114

)

Total derivatives not designated as

   hedging instruments

 

 

 

$

81

 

 

$

68

 

 

$

(105

)

 

Accumulated other comprehensive income included realized and unrealized after-tax gains of $4.4 million, $5.1 million, and $3.9 million at May 31, 2018, May 31, 2017, and August 31, 2017, respectively, related to derivative contracts designated as hedging instruments.

Net Investment Hedging Relationships

The amount of gain (loss) recognized in other comprehensive income is as follows:

 

 

 

Three months ended

 

 

Nine months ended

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Foreign currency forward contracts, net of tax expense

   (benefit) of $544, ($744), $271, and ($181)

 

$

1,404

 

 

$

(1,213

)

 

$

480

 

 

$

(477

)

 

For the three months ended May 31, 2018 and May 31, 2017, the Company settled foreign currency forward contracts resulting in an after-tax net loss of $0.8 million and $0.3 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment.  For the nine months ended May 31, 2018 and May 31, 2017, the Company settled foreign currency forward contracts resulting in an after-tax net loss of $2.1 million and an after-tax net gain of $0.6 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment. There were no amounts recorded in the condensed consolidated statements of earnings related to ineffectiveness of foreign currency forward contracts related to net investment hedges for the three and nine months ended May 31, 2018 and May 31, 2017.

At May 31, 2018, May 31, 2017, and August 31, 2017, the Company had outstanding foreign currency forward contracts to sell a notional amount of 32.8 million Euro, 32.9 million Euro, and 32.8 million Euro, respectively, at fixed prices to settle during the next fiscal quarter. At May 31, 2018, May 31, 2017, and August 31, 2017, the Company had an outstanding foreign currency forward contract to sell a notional amount of 43.0 million South African Rand at fixed prices to settle during the next fiscal quarter.  The Company’s foreign currency forward contracts qualify as hedges of a net investment in foreign operations.

Derivatives Not Designated as Hedging Instruments

The Company generally does not elect hedge accounting treatment for derivative contracts related to future settlements of foreign denominated intercompany receivables and payables.  If the Company does not elect hedge accounting treatment for a derivative, the Company carries the derivative at its fair value in the condensed consolidated balance sheets and recognizes any subsequent changes in its fair value during a period through earnings in the condensed consolidated

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statements of earnings.  At May 31, 2018, May 31, 2017, and August 31, 2017, the Company had notional value of $5.9 million, $3.1 million, and $5.0 million, respectively, of U.S. dollar equivalent of foreign currency forward contracts outstanding that are not designated as hedging instruments.

Note 9 – Fair Value Measurements

The following table presents the Company’s financial assets and liabilities measured at fair value, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 31, 2018, May 31, 2017, and August 31, 2017, respectively. There were no transfers between any levels for the periods presented.

 

 

 

May 31, 2018

 

($ in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

111,779

 

 

$

 

 

$

 

 

$

111,779

 

Derivative assets

 

 

 

 

 

2,241

 

 

 

 

 

 

2,241

 

Derivative liabilities

 

 

 

 

 

(60

)

 

 

 

 

 

(60

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2017

 

($ in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

113,212

 

 

$

 

 

$

 

 

$

113,212

 

Derivative assets

 

 

 

 

 

71

 

 

 

 

 

$

71

 

Derivative liabilities

 

 

 

 

 

(2,112

)

 

 

 

 

$

(2,112

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2017

 

($ in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

121,620

 

 

$

 

 

$

 

 

$

121,620

 

Derivative assets

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Derivative liabilities

 

 

 

 

 

(1,747

)

 

 

 

 

 

(1,747

)

 

 

There were no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis for the three and nine months ended May 31, 2018 or May 31, 2017.

Note 10 – Commitments and Contingencies

In the ordinary course of its business operations, the Company enters into arrangements that obligate it to make future payments under contracts such as lease agreements. Additionally, the Company is involved, from time to time, in commercial litigation, employment disputes, administrative proceedings, business disputes and other legal proceedings.  The Company has established accruals for certain proceedings where those proceedings present loss contingencies that are both probable and reasonably estimable at the time of determination. The Company believes that any such currently-pending proceedings are either covered by insurance or would not have a material effect on the business or its consolidated financial statements if decided in a manner that is unfavorable to the Company. Such proceedings are exclusive of environmental remediation matters which are discussed separately below.

Infrastructure Products Litigation

The Company is currently defending a number of product liability lawsuits arising out of vehicle collisions with highway barriers incorporating the Company’s X-Lite® end terminal.  Despite the September 2017 reversal of a sizable judgment against a competitor, the Company expects that the significant attention brought to the infrastructure products industry by the original judgment may lead to additional lawsuits being filed against the Company and others in the industry. 

The Company intends to vigorously defend each of these allegations.  The Company maintains insurance to mitigate the impact of adverse judgment exposures in the current product liability cases.  Based on the information currently available to the Company, the Company does not believe that a loss is probable in any of these lawsuits; therefore, no accrual has been included in the Company’s condensed consolidated financial statements.  While it is possible that a loss may be incurred, the Company is unable to estimate a range of potential loss due to the complexity and current status of these lawsuits.

Environmental Remediation

In 1992, the Company entered into a consent decree with the U.S. Environmental Protection Agency (the “EPA”) in which the Company committed to remediate environmental contamination of the groundwater that was discovered from 1982 through 1990 at and adjacent to its Lindsay, Nebraska facility (the “site”).  The site was added to the EPA’s list of priority superfund sites in 1989.  Between 1993 and 1995, remediation plans for the site were approved by the EPA and fully implemented by the Company.  Since 1998, the primary remaining contamination at the site has been the presence of

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volatile organic compounds in the soil and groundwater.  To date, the remediation process has consisted primarily of drilling wells into the aquifer and pumping water to the surface to allow these contaminants to be removed by aeration.

In fiscal 2012, the Company undertook an investigation to assess further potential site remediation and containment actions.  In connection with the receipt of preliminary results of this investigation and other evaluations, the Company estimated that it would incur $7.2 million in remediation of source area contamination and operating costs and accrued that undiscounted amount.  In addition to this source area, the Company determined that volatile organic compounds also existed under one of the manufacturing buildings on the site.  Due to the location, the Company had not yet determined the extent of these compounds or the extent to which they were contributing to groundwater contamination.  Based on the uncertainty of the remediation actions that might be required with respect to this affected area, the Company believed that meaningful estimates of costs or range of costs could not be made and accordingly were not accrued at that time.

In December 2014, the EPA requested that the Company prepare a feasibility study related to the site, including the area covered by the building, which resulted in a revision to the Company’s remediation timeline.  In the first quarter of fiscal 2015, the Company accrued $1.5 million of incremental operating costs to reflect its updated timeline.  

The Company began soil and groundwater testing in preparation for developing this feasibility study during the first quarter of fiscal 2016. During the second quarter of fiscal 2016, the Company completed its testing 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, with the assistance of third-party environmental experts, developed and evaluated remediation alternatives, a proposed remediation plan, and estimated costs.  Based on these estimates of future remediation and operating costs, the Company accrued an additional $13.0 million in the second quarter of fiscal 2016 and included the related expenses in general and administrative expenses in the condensed consolidated statements of earnings.  

The current estimated aggregate accrued cost of $16.8 million is based on consideration of several remediation options that would use different technologies, each of which the Company believes could be successful in meeting the long-term regulatory requirements of the site. The Company participated in a 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 further discussions with the EPA and the NDEQ, the Company anticipates that a definitive plan will not be agreed upon until later in fiscal 2018 or beyond.

The Company accrues the anticipated cost of investigation and remediation when the obligation is probable and can be reasonably estimated. Costs are charged against the accrual in the period in which they are paid. While the Company believes the current accrual is a good faith estimate of the long-term cost of remediation at this site based on the preliminary analysis currently available, the estimate of costs and their timing could change as a result of a number of factors, including (1) EPA and NDEQ input 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 vary from the amounts currently accrued for this expense.  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.

The following table summarizes the undiscounted environmental remediation liability classifications included in the balance sheet as of May 31, 2018, May 31, 2017, and August 31, 2017:

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

Other current liabilities

 

$

1,281

 

 

$

2,134

 

 

$

2,095

 

Other noncurrent liabilities

 

 

15,513

 

 

 

16,161

 

 

 

15,937

 

Total environmental remediation liabilities

 

$

16,794

 

 

$

18,295

 

 

$

18,032

 

 

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Note 11 – Warranties

The following table provides the changes in the Company’s product warranties:

 

 

 

Three months ended

 

 

Nine months ended

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Product warranty accrual balance, beginning of period

 

$

7,548

 

 

$

6,938

 

 

$

8,411

 

 

$

7,443

 

Liabilities accrued for warranties during the period

 

 

1,483

 

 

 

2,364

 

 

 

3,586

 

 

 

4,225

 

Warranty claims paid during the period

 

 

(1,177

)

 

 

(1,893

)

 

 

(4,111

)

 

 

(4,514

)

Changes in estimates

 

 

153

 

 

 

186

 

 

 

121

 

 

 

441

 

Transfers to liabilities held-for-sale

 

 

(872

)

 

 

 

 

 

(872

)

 

 

 

Product warranty accrual balance, end of period

 

$

7,135

 

 

$

7,595

 

 

$

7,135

 

 

$

7,595

 

 

Note 12 – Share-Based Compensation

The Company’s current share-based compensation plans, approved by the stockholders of the Company, provides for awards of stock options, restricted shares, restricted stock units, stock appreciation rights, performance shares, and performance stock units to employees and non-employee directors of the Company.  The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. Share-based compensation expense was $1.0 million and $1.0 million for the three months ended May 31, 2018 and May 31, 2017, respectively.  Share-based compensation expense was $2.9 million and $2.8 million for the nine months ended May 31, 2018 and May 31, 2017, respectively.  

 

 

Note 13 – Other Current Liabilities

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

Other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

$

17,258

 

 

$

18,832

 

 

$

18,926

 

Deferred revenues

 

 

9,701

 

 

 

8,854

 

 

 

6,166

 

Warranties

 

 

7,135

 

 

 

7,595

 

 

 

8,411

 

Tax related liabilities

 

 

5,174

 

 

 

3,330

 

 

 

2,813

 

Dealer related liabilities

 

 

3,237

 

 

 

5,112

 

 

 

3,500

 

Customer deposits

 

 

1,767

 

 

 

5,392

 

 

 

4,096

 

Accrued environmental liabilities

 

 

1,281

 

 

 

2,134

 

 

 

2,095

 

Other

 

 

8,358

 

 

 

11,252

 

 

 

9,112

 

Total other current liabilities

 

$

53,911

 

 

$

62,501

 

 

$

55,119

 

 

Note 14 – Share Repurchases

There were no shares repurchased during the three and nine months ended May 31, 2018 and May 31, 2017 under the Company’s share repurchase program. The remaining amount available under the repurchase program was $63.7 million as of May 31, 2018.

 

Note 15 – Industry Segment Information

The Company manages its business activities in two reportable segments: irrigation and infrastructure.  The Company evaluates the performance of its reportable segments based on segment sales, gross profit and operating income, with operating income for segment purposes excluding unallocated corporate general and administrative expenses, interest income, interest expense, other income and expenses and income taxes.  Operating income for segment purposes includes general and administrative expenses, selling expenses, engineering and research expenses and other overhead charges directly attributable to the segment.  There are no inter-segment sales included in the amounts disclosed. The Company had no single customer who represented 10 percent or more of its total revenues during the three and nine months ended May 31, 2018 and May 31, 2017.

Irrigation - This reporting segment includes the manufacture and marketing of center pivot, lateral move, and hose reel irrigation systems as well as various water pumping stations, controls, filtration solutions and machine-to-machine technology.  The irrigation reporting segment consists of three operating segments that have similar economic

- 14 -


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characteristics and meet the aggregation criteria, including similar products, production processes, type or class of customer and methods for distribution.

Infrastructure – This reporting segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, and road marking and road safety equipment; the manufacture and sale of large diameter steel tubing and railroad signals and structures; and the provision of outsourced manufacturing and production services.  The infrastructure reporting segment consists of one operating segment.

 

 

 

Three months ended

 

 

Nine months ended

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

May 31,

2018

 

 

May 31,

2017

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation

 

$

128,421

 

 

$

120,040

 

 

$

343,639

 

 

$

316,102

 

Infrastructure

 

 

41,150

 

 

 

31,493

 

 

 

80,797

 

 

 

69,946

 

Total operating revenues

 

$

169,571

 

 

$

151,533

 

 

$

424,436

 

 

$

386,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation

 

$

11,718

 

 

$

16,508

 

 

$

31,502

 

 

$

32,961

 

Infrastructure

 

 

14,248

 

 

 

8,016

 

 

 

20,058

 

 

 

12,588

 

Corporate

 

 

(7,264

)

 

 

(7,110

)

 

 

(19,591

)

 

 

(16,878

)

Total operating income

 

 

18,702

 

 

 

17,414

 

 

 

31,969

 

 

 

28,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(1,257

)

 

 

(1,217

)

 

 

(4,056

)

 

 

(3,503

)

Earnings before income taxes

 

$

17,445

 

 

$

16,197

 

 

$

27,913

 

 

$

25,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation

 

$

1,950

 

 

$

1,625

 

 

$

5,985

 

 

$

4,371

 

Infrastructure

 

 

252

 

 

 

131

 

 

 

716

 

 

 

1,235

 

Corporate

 

 

3

 

 

 

269

 

 

 

219

 

 

 

613

 

 

 

$

2,205

 

 

$

2,025

 

 

$

6,920

 

 

$

6,219

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation

 

$

2,974

 

 

$

3,011

 

 

$

9,047

 

 

$

8,714

 

Infrastructure

 

 

1,153

 

 

 

1,111

 

 

 

3,435

 

 

 

3,330

 

Corporate

 

 

125

 

 

 

95

 

 

 

369

 

 

 

293

 

 

 

$

4,252

 

 

$

4,217

 

 

$

12,851

 

 

$

12,337

 

 

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

August 31,

2017

 

Total assets:

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation

 

$

326,058

 

 

$

343,722

 

 

$

337,446

 

Infrastructure

 

 

88,616

 

 

 

84,327

 

 

 

80,187

 

Corporate

 

 

105,554

 

 

 

83,238

 

 

 

88,399

 

 

 

$

520,228

 

 

$

511,287

 

 

$

506,032

 

 

 

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ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations

Concerning Forward‑Looking Statements

This Quarterly Report on Form 10-Q 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 information concerning possible or assumed future results of operations and planned financing of the Company.  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” or similar expressions generally identify forward-looking statements.  The entire section entitled “Executive Overview and Outlook” should be considered forward-looking statements.  For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the year ended August 31, 2017.  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 and in the Company’s other public filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended August 31, 2017, as well as other risks and uncertainties not now anticipated.  The risks and uncertainties described herein and in the Company’s other public filings 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.

Accounting Policies

In preparing the Company’s condensed consolidated financial statements in conformity with U.S. GAAP, management must make a variety of decisions which impact the reported amounts and the related disclosures.  These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates.  In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and the Company’s historical experience.  

The Company’s accounting policies that are most important to the presentation of its results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as its critical accounting policies.  See discussion of the Company’s critical accounting policies under Item 7 in the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended August 31, 2017.  Management periodically re-evaluates and adjusts its critical accounting policies as circumstances change.  There were no changes in the Company’s critical accounting policies during the three and nine months ended May 31, 2018.

New Accounting Pronouncements

See Note 2 – New Accounting Pronouncements to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Executive Overview and Outlook

Operating revenues for the three months ended May 31, 2018 were $169.6 million, an increase of 12 percent compared to $151.5 million for the three months ended May 31, 2017.  Irrigation segment revenues increased seven percent to $128.4 million and infrastructure segment revenues increased 31 percent to $41.2 million.  Net earnings for the three months ended May 31, 2018 were $10.4 million, or $0.96 per diluted share, compared to net earnings of $11.0 million, or $1.02 per diluted share, for the three months ended May 31, 2017.  Net earnings for the three months ended May 31, 2018 were reduced by after-tax costs of $7.5 million, or $0.70 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.  

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During the three months ended May 31, 2018, in connection with a portfolio review of business investments, the Company committed to a plan of divestiture of its pump and filtration businesses as well as a Company-owned irrigation dealership.  The investments are classified as held-for-sale in the May 31, 2018 condensed consolidated balance sheet.  The combined revenues from these businesses are approximately $70 million annually.  The divestitures are expected to reduce future revenues and to have a positive impact on operating margins.  In addition to these business divestitures, the Company announced plans to close one of its infrastructure manufacturing facilities prior to the end of the calendar year.  

Results for the three months ended May 31, 2018 include pre-tax costs of $7.6 million in connection with the Foundation for Growth initiative, of which $6.0 million represents an adjustment to the carrying value of businesses held-for-sale with the remainder representing severance 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 May 2018, corn prices have increased approximately nine percent and soybean prices have increased approximately thirteen percent from May 2017.  Commodity prices, although somewhat improved over the prior year, continue to be substantially lower than the peak prices reached in 2013.    

 

Net farm incomeThe U.S. Department of Agriculture (the “USDA”) report from February 2018 estimated U.S. 2018 net farm income to be $59.5 billion, down seven percent from the USDA’s estimated U.S. 2017 net farm income of $63.8 billion.  If the USDA’s estimate proves accurate, net farm income in 2018 would be at its lowest level since 2009.

 

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 governmental laws and regulations can affect the Company’s business, including:

 

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.

 

The Tax Cuts and Jobs Act (“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.  

 

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 November 2017, the U.S. Environmental Protection Agency issued Renewable Fuels Standard volume requirements for 2018 that maintain volume requirements similar to 2017 levels.

 

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 in which the Company 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, indications are that the market has reached a level of stabilization which, along with general economic optimism, has contributed to improved grower sentiment towards investment in irrigation equipment.  More recently however, this improved sentiment is being tempered by uncertainty

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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 Federal Highway Administration 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.

The backlog of unshipped orders at May 31, 2018 was $55.8 million compared with $70.1 million at May 31, 2017, with higher overall backlogs in the infrastructure segment and lower overall backlogs in the irrigation segment.  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, and therefore is generally not a good indication of the next fiscal quarter’s revenues.

Steel prices in the U.S. have increased dramatically over the last several months, primarily as a result of tariffs that have been placed on imported steel.  In addition, freight costs in the U.S. have recently 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, 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 less developed and demand is driven primarily by food security, water scarcity and population growth.

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Results of Operations

 

For the Three Months ended May 31, 2018 compared to the Three Months ended May 31, 2017

 

The following section presents an analysis of the Company’s operating results displayed in the condensed consolidated statements of earnings for the three months ended May 31, 2018 and May 31, 2017.  It should be read together with the industry segment information in Note 15 to the condensed consolidated financial statements:

 

 

 

Three months ended

 

 

Percent

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

Increase

(Decrease)

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

169,571

 

 

$

151,533

 

 

12%

 

Gross profit

 

$

51,478

 

 

$

45,906

 

 

12%

 

Gross margin

 

 

30.4

%

 

 

30.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (1)

 

$

32,776

 

 

$

28,492

 

 

15%

 

Operating income

 

$

18,702

 

 

$

17,414

 

 

7%

 

Operating margin

 

 

11.0

%

 

 

11.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense), net

 

$

(1,257

)

 

$

(1,217

)

 

3%

 

Income tax expense

 

$

7,066

 

 

$

5,245

 

 

35%

 

Overall income tax rate

 

 

40.5

%

 

 

32.4

%

 

 

 

 

Net earnings

 

$

10,379

 

 

$

10,952

 

 

-5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation Equipment Segment

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating revenues

 

$

128,421

 

 

$

120,040

 

 

7%

 

Segment operating income

 

$

11,718

 

 

$

16,508

 

 

-29%

 

Segment operating margin

 

 

9.1

%

 

 

13.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Infrastructure Products Segment

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating revenues

 

$

41,150

 

 

$

31,493

 

 

31%

 

Segment operating income

 

$

14,248

 

 

$

8,016

 

 

78%

 

Segment operating margin

 

 

34.6

%

 

 

25.5

%

 

 

 

 

 

(1)

Includes $7.3 million and $7.1 million of corporate expenses for the three months ended May 31, 2018 and May 31, 2017, respectively.  

 

Revenues

Operating revenues for the three months ended May 31, 2018 increased 12 percent to $169.6 million from $151.5 million for the three months ended May 31, 2017, as irrigation revenues increased $8.4 million and infrastructure revenues increased $9.7 million.  The irrigation segment provided 76 percent of the Company’s revenue during the three months ended May 31, 2018 as compared to 79 percent for the three months ended May 31, 2017.

 

North America irrigation revenues for the three months ended May 31, 2018 of $87.4 million increased $8.6 million, or 11 percent, from $78.8 million for the three months ended May 31, 2017.  The increase in North American irrigation revenues is due primarily to an increase in irrigation equipment unit volume and higher average selling prices compared to the prior year period.

 

International irrigation revenues for the three months ended May 31, 2018 of $41.0 million decreased by $0.3 million, or one percent, from $41.3 million for the three months ended May 31, 2017.  Higher project activity in developing markets was offset by lower activity levels in Brazil.  The impact of foreign currency translation rates compared to the same prior year period was insignificant.

 

Infrastructure segment revenues for the three months ended May 31, 2018 of $41.2 million increased $9.7 million, or 31 percent, from $31.5 million for the three months ended May 31, 2017.  The increase was driven by higher Road Zipper System® sales from large orders that had been in the backlog at the end of the previous quarter.

 

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Gross Profit

Gross profit for the three months ended May 31, 2018 of $51.5 million increased 12 percent from $45.9 million for the three months ended May 31, 2017.  The increase in gross profit resulted primarily from higher revenues as gross margin increased slightly to 30.4 percent for the three months ended May 31, 2018 from 30.3 percent for the three months ended May 31, 2017.  Improved gross margin in the infrastructure segment was offset by lower gross margin in the irrigation segment.  Infrastructure margin improved due to higher revenue from Road Zipper System® sales which resulted in an improved margin mix and cost leverage.  Higher freight costs pressured North America irrigation margins, while international margins were negatively impacted by a lower margin mix from project orders.

 

Operating Expenses

Operating expenses of $32.8 million for the three months ended May 31, 2018 increased by $4.3 million over operating expenses in the three months ended May 31, 2017.  The increase included costs of $7.6 million in connection with the Company’s Foundation for Growth initiative, of which $6.0 million represents an adjustment to the carrying value of businesses held-for-sale with the remainder representing severance costs and professional consulting fees.  The increase was partially offset by the net recovery of $2.5 million in previously reserved accounts receivable.  Operating expenses were 19.3 percent of sales for the three months ended May 31, 2018 compared to 18.8 percent of sales for the three months ended May 31, 2017.

 

Income Taxes

The Company recorded income tax expense of $7.1 million and $5.2 million for the three months ended May 31, 2018 and May 31, 2017, respectively.  The overall income tax rate was 40.5 percent and 32.4 percent for the three months ended May 31, 2018 and May 31, 2017, respectively.  The increase in tax expense for the three months ended May 31, 2018 includes $1.7 million for tax impacts related to assets and liabilities held-for-sale and $0.4 million of incremental expense resulting from the enactment of U.S. Tax Reform, as more fully explained in Note 6 to the condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 20 -


Table of Contents

 

For the Nine Months ended May 31, 2018 compared to the Nine Months ended May 31, 2017

The following section presents an analysis of the Company’s operating results displayed in the condensed consolidated statements of earnings for the nine months ended May 31, 2018 and May 31, 2017.  It should be read together with the industry segment information in Note 15 to the condensed consolidated financial statements:

 

 

 

Nine months ended

 

 

Percent

 

($ in thousands)

 

May 31,

2018

 

 

May 31,

2017

 

 

Increase

(Decrease)

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

424,436

 

 

$

386,048

 

 

10%

 

Gross profit

 

$

119,191

 

 

$

107,221

 

 

11%

 

Gross margin

 

 

28.1

%

 

 

27.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (1)

 

$

87,222

 

 

$

78,550

 

 

11%

 

Operating income

 

$

31,969

 

 

$

28,671

 

 

12%

 

Operating margin

 

 

7.5

%

 

 

7.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense), net

 

$

(4,056

)

 

$

(3,503

)

 

16%

 

Income tax expense

 

$

12,614

 

 

$

8,331

 

 

51%

 

Overall income tax rate

 

 

45.2

%

 

 

33.1

%

 

 

 

 

Net earnings

 

$

15,299

 

 

$

16,837

 

 

-9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irrigation Equipment Segment

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating revenues

 

$

343,639

 

 

$

316,102

 

 

9%

 

Segment operating income

 

$

31,502

 

 

$

32,961

 

 

-4%

 

Segment operating margin

 

 

9.2

%

 

 

10.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Infrastructure Products Segment

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating revenues

 

$

80,797

 

 

$

69,946

 

 

16%

 

Segment operating income

 

$

20,058

 

 

$

12,588

 

 

59%

 

Segment operating margin

 

 

24.8

%

 

 

18.0

%

 

 

 

 

 

(1)

Includes $19.6 million and $16.9 million of corporate expenses for the nine months ended May 31, 2018 and May 31, 2017, respectively.  

 

Revenues

Operating revenues for the nine months ended May 31, 2018 increased 10 percent to $424.4 million from $386.0 million for the nine months ended May 31, 2017, as irrigation revenues increased $27.5 million and infrastructure revenues increased by $10.9 million.  The irrigation segment provided 81 percent of the Company’s revenue during the nine months ended May 31, 2018 as compared to 82 percent for the nine months ended May 31, 2017.  

 

North America irrigation revenues for the nine months ended May 31, 2018 of $234.0 million increased $38.4 million or 20 percent from $195.6 million for the nine months ended May 31, 2017. The increase in North American irrigation revenues is due primarily to an increase in irrigation equipment unit volume compared to the prior year period.  

  

International irrigation revenues for the nine months ended May 31, 2018 of $109.6 million decreased $10.9 million or nine percent from $120.5 million for the nine months ended May 31, 2017.  The decrease is primarily the result of lower project activity in developing markets and lower activity levels in Brazil.  The impact of foreign currency translation rates compared to the same prior year period was insignificant.

 

Infrastructure segment revenues for the nine months ended May 31, 2018 of $80.8 million increased $10.9 million or 16 percent from $69.9 million for the nine months ended May 31, 2017.  The increase resulted primarily from higher Road Zipper System® sales compared with the prior year.

 

Gross Profit

Gross profit for the nine months ended May 31, 2018 of $119.1 million increased 11 percent from $107.2 million for the nine months ended May 31, 2017.  The increase in gross profit resulted from higher revenues and an increase in gross margin to 28.1 percent for the nine months ended May 31, 2018 from 27.8 percent for the nine months ended May 31, 2017.  Improved gross margin in the infrastructure segment was partially offset by slightly lower gross margin in the irrigation segment.  Infrastructure margin improved due to a higher proportion of revenue from Road Zipper System® sales

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which resulted in an improved margin mix. In the irrigation segment, improved volume leverage from higher irrigation system sales in North America was offset by lower international irrigation sales and changes in the regional mix of sales.  

 

Operating Expenses

The Company’s operating expenses of $87.2 million for the nine months ended May 31, 2018 increased by $8.7 million over operating expenses for the nine months ended May 31, 2017.  The increase included costs of $9.9 million in connection with the Company’s Foundation for Growth initiative, of which $6.0 million represents an adjustment to the carrying value of businesses held-for-sale with the remainder representing severance costs and professional consulting fees. The increase 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 the nine months ended May 31, 2018 compared to 20.3 percent of sales for the nine months ended May 31, 2017.

 

Income Taxes

The Company recorded income tax expense of $12.6 million and $8.3 million for the nine months ended May 31, 2018 and May 31, 2017, respectively.  The overall income tax rate was 45.2 percent and 33.1 percent for the nine months ended May 31, 2018 and May 31, 2017, respectively.  Tax expense for the nine months ended May 31, 2018 includes $1.7 million for tax impacts related to assets and liabilities held-for-sale and $3.0 million of incremental expense resulting from the enactment of U.S. Tax Reform, as more fully explained in Note 6 to the condensed consolidated financial statements.

Liquidity and Capital Resources

The Company's cash and cash equivalents totaled $111.8 million at May 31, 2018 compared with $113.2 million at May 31, 2017 and $121.6 million at August 31, 2017.  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 its credit arrangements 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 working capital needs, planned capital expenditures and dividends.  The Company may require additional borrowings to fund potential acquisitions in the future.

The Company’s total cash and cash equivalents held by foreign subsidiaries were approximately $27.1 million, $23.5 million, and $23.5 million as of May 31, 2018, May 31, 2017, and August 31, 2017, respectively.  The Company considers earnings in foreign subsidiaries to be permanently 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 mandatory deemed repatriation transition tax of $1.8 million as more fully explained in Note 6 to the condensed 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 $251.7 million at May 31, 2018, as compared with $202.4 million at May 31, 2017 and $200.9 million at August 31, 2017. The net working capital amount at May 31, 2018 includes $27.4 million of net assets held-for-sale which were previously classified as noncurrent.  Cash provided by operations totaled $8.2 million during the nine months ended May 31, 2018, a decrease of $16.3 million compared to cash provided by operations of $24.5 million during the nine months ended May 31, 2017.  This decrease was primarily due to increased working capital to support higher sales.

Cash flows used in investing activities totaled $9.7 million during the nine months ended May 31, 2018 compared to $5.0 million used in investing activities during the nine months ended May 31, 2017.  The increase is primarily attributable to an increase in capital spending and changes in hedging activity.  Capital spending was $6.9 million in the first nine months of fiscal 2018 compared to capital spending of $6.2 million in the same period of the prior fiscal year.

Cash flows used in financing activities totaled $7.9 million during the nine months ended May 31, 2018 compared to cash flows used in financing activities of $7.6 million during the nine months ended May 31, 2017.  The increase in cash used in financing activities was primarily due to an increase in dividends paid in fiscal 2018 compared to the prior fiscal year.

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. Under the Company’s capital allocation plan, the priorities for uses of cash include:

 

Investment in organic growth including capital expenditures and expansion of international markets,

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

 

Synergistic acquisitions that provide attractive returns to stockholders, and

 

Opportunistic share repurchases taking into account cyclical and seasonal fluctuations.

Capital Expenditures

Capital expenditures for fiscal 2018 are expected to be between $8.0 million and $10.0 million, including equipment replacement and productivity improvements.  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 the third quarter of fiscal 2018, the Company paid a quarterly cash dividend of $0.30 per common share, or $3.2 million, to stockholders as compared to $0.29 per common share, or $3.1 million, in the third quarter of 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 three and nine months ended May 31, 2018 and May 31, 2017, respectively. The remaining amount available under the repurchase program was $63.7 million as of May 31, 2018.  

Long-Term Borrowing Facilities

Series A, Senior Notes.  On February 19, 2015, the Company issued $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 intends to use the proceeds of the sale of the Senior Notes for general corporate purposes, including acquisitions and dividends.

Revolving Credit Facility. On February 18, 2015, the Company entered into a $50.0 million unsecured Amended and Restated Revolving Credit Facility (the “Revolving Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). On May 31, 2017, the Company and Wells Fargo entered into an amendment to the Revolving Credit Facility which, among other things, extended the termination date of the agreement from February 18, 2018 to May 31, 2020.  The Company intends to use borrowings under the Revolving Credit Facility for working capital purposes and to fund acquisitions. At May 31, 2018 and May 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 May 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 (2.88 percent at May 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 May 31, 2018, May 31, 2017, 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.

Elecsys 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 May 31, 2018).  This rate was adjusted on September 1, 2016 in accordance with the terms of

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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.

Contractual Obligations and Commercial Commitments

There have been no material changes in the Company’s contractual obligations and commercial commitments as described in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the Company’s quantitative and qualitative disclosures about market risk previously disclosed in the Company’s most recent Annual Report on Form 10-K.  See discussion of the Company’s quantitative and qualitative disclosures about market risk under Part II, Item 7A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

ITEM 4 – Controls and Procedures

The Company carried out an evaluation under the supervision and the participation of the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e).  Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of May 31, 2018.

Additionally, the CEO and CFO determined that there has not been any change to the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – OTHER INFORMATION

ITEM 1 – Legal Proceedings

See the disclosure in Note 10 – Commitments and Contingencies to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, which disclosure is hereby incorporated herein by reference.

ITEM 1A – Risk Factors

There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussion of the Company’s risk factors under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3 – Defaults Upon Senior Securities

None.

ITEM 4 – Mine Safety Disclosures

Not applicable.

ITEM 5 – Other Information

None.

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ITEM 6 – Exhibits

 

Exhibit

 

 

No.

 

Description

 

 

 

3.1

 

Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on December 14, 2006.

 

 

 

3.2

 

Amended and Restated ByLaws of the Company, effective May 2, 2014, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 5, 2014.

 

 

 

4.1

 

Specimen Form of Common Stock Certificate, incorporated by reference to Exhibit 4(a) of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006.

 

 

 

10.1*

 

Employment Agreement, dated May 25, 2018, by and between the Company and J. Scott Marion.†

 

 

 

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.

 

 

 

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.

 

 

 

32.1*

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.

 

 

 

101*

 

Interactive Data Files.

 

† Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 6 of Part II of Form 10-Q.

* Filed herein. 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 29th day of June 2018.

 

 

 

 

LINDSAY CORPORATION

 

 

 

 

 

By:

 

/s/ BRIAN L. KETCHAM

 

Name:

 

Brian L. Ketcham

 

Title:

 

Vice President and Chief Financial Officer

 

 

 

(on behalf of the registrant and as principal financial officer)

 

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