Attached files

file filename
EX-32.1 - EX-32.1 - LINDSAY CORPlnn-20170531xex32_1.htm
EX-31.2 - EX-31.2 - LINDSAY CORPlnn-20170531xex31_2.htm
EX-31.1 - EX-31.1 - LINDSAY CORPlnn-20170531xex31_1.htm





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, 2017



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 26, 2017, 10,689,648 shares of the registrant’s common stock were outstanding.



 



 


 

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, 2017 and May 31, 2016



Condensed Consolidated Statements of Comprehensive Income 
for the three and nine months ended May 31, 2017 and May 31, 2016



Condensed Consolidated Balance Sheets 
as of May 31, 2017, May 31, 2016, and August 31, 2016    



Condensed Consolidated Statements of Cash Flows 
for the nine months ended May 31, 2017  and May 31, 2016



Notes to the Condensed Consolidated Financial Statements



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

15 



ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk

22 



ITEM 4 – Controls and Procedures

22 

Part II – OTHER INFORMATION

 



ITEM 1 – Legal Proceedings

22 



ITEM 1A – Risk Factors

22 



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

23 



ITEM 3 – Defaults Upon Senior Securities

23 



ITEM 4 – Mine Safety Disclosures

23 



ITEM 5 – Other Information

23 



ITEM 6 – Exhibits

24 

SIGNATURES

25 



-  2  -


 

Part I – FINANCIAL INFORMATION



ITEM 1 - Financial Statements

    



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Lindsay Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Nine months ended



 

May 31,

 

May 31,

 

May 31,

 

May 31,

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

 

2017

 

2016

 

2017

 

2016

Operating revenues

 

$

151,533 

 

$

141,319 

 

$

386,048 

 

$

383,514 

Cost of operating revenues

 

 

105,627 

 

 

99,511 

 

 

278,827 

 

 

274,847 

Gross profit

 

 

45,906 

 

 

41,808 

 

 

107,221 

 

 

108,667 



 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling expense

 

 

10,451 

 

 

10,606 

 

 

30,565 

 

 

30,961 

General and administrative expense

 

 

13,693 

 

 

11,882 

 

 

35,278 

 

 

43,925 

Engineering and research expense

 

 

4,348 

 

 

3,995 

 

 

12,707 

 

 

11,402 

Total operating expenses

 

 

28,492 

 

 

26,483 

 

 

78,550 

 

 

86,288 



 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

17,414 

 

 

15,325 

 

 

28,671 

 

 

22,379 



 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,156)

 

 

(1,179)

 

 

(3,566)

 

 

(3,576)

Interest income

 

 

545 

 

 

127 

 

 

881 

 

 

520 

Other expense, net

 

 

(606)

 

 

(208)

 

 

(818)

 

 

(1,055)



 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

16,197 

 

 

14,065 

 

 

25,168 

 

 

18,268 



   

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

5,245 

 

 

4,421 

 

 

8,331 

 

 

5,809 



 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

10,952 

 

$

9,644 

 

$

16,837 

 

$

12,459 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

    Basic

 

$

1.03 

 

$

0.90 

 

$

1.58 

 

$

1.13 

    Diluted

 

$

1.02 

 

$

0.90 

 

$

1.58 

 

$

1.13 



 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

    Basic

 

 

10,677 

 

 

10,709 

 

 

10,657 

 

 

10,997 

    Diluted

 

 

10,705 

 

 

10,732 

 

 

10,682 

 

 

11,019 



 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.29 

 

$

0.28 

 

$

0.87 

 

$

0.84 



 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

-  3  -


 

          



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Lindsay Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Nine months ended



 

May 31,

 

May 31,

 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

 

2017

 

2016

Net earnings

 

$

10,952 

 

$

9,644 

 

$

16,837 

 

$

12,459 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustment, net of tax

 

 

38 

 

 

33 

 

 

113 

 

 

71 

Unrealized loss on cash flow hedges, net of tax

 

 

 —

 

 

76 

 

 

 —

 

 

 —

Foreign currency translation adjustment, net of
   hedging activities and tax

 

 

(476)

 

 

1,804 

 

 

37 

 

 

(269)

Total other comprehensive (loss) income, net of tax  
 (benefit) expense of ($722), ($138), ($69), and $253
 respectively

 

 

(438)

 

 

1,913 

 

 

150 

 

 

(198)

Total comprehensive income

 

$

10,514 

 

$

11,557 

 

$

16,987 

 

$

12,261 



 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

-  4  -


 

              



 

 

 

 

 

 

 

 

 

Lindsay Corporation and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



 

 

 

 

 

 

 



 

May 31,

 

May 31,

 

August 31,

($ and shares in thousands, except par values)

 

2017

 

2016

 

2016

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 Cash and cash equivalents

 

$

113,212 

 

$

91,498 

 

$

101,246 

 Restricted cash

 

 

 —

 

 

2,029 

 

 

2,030 

 Receivables, net of allowance of $7,524, $7,979, and $8,312, respectively

 

 

86,772 

 

 

81,915 

 

 

80,610 

 Inventories, net

 

 

88,601 

 

 

82,845 

 

 

74,750 

 Prepaid expenses

 

 

4,944 

 

 

4,068 

 

 

3,671 

 Other current assets

 

 

11,877 

 

 

14,373 

 

 

14,468 

Total current assets

 

 

305,406 

 

 

276,728 

 

 

276,775 



 

 

 

 

 

 

 

 

 

Property, plant, and equipment:

 

 

 

 

 

 

 

 

 

 Cost

 

 

187,890 

 

 

184,740 

 

 

182,696 

 Less accumulated depreciation

 

 

(113,481)

 

 

(105,580)

 

 

(105,069)

Property, plant, and equipment, net

 

 

74,409 

 

 

79,160 

 

 

77,627 



 

 

 

 

 

 

 

 

 

Intangibles, net

 

 

43,874 

 

 

48,367 

 

 

47,200 

Goodwill

 

 

76,843 

 

 

76,778 

 

 

76,803 

Deferred income tax assets

 

 

6,027 

 

 

3,473 

 

 

4,225 

Other noncurrent assets

 

 

4,728 

 

 

5,054 

 

 

4,885 

Total assets

 

$

511,287 

 

$

489,560 

 

$

487,515 



 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 Accounts payable

 

$

40,256 

 

$

40,805 

 

$

32,268 

 Current portion of long-term debt

 

 

200 

 

 

196 

 

 

197 

 Other current liabilities

 

 

62,501 

 

 

55,651 

 

 

55,395 

Total current liabilities

 

 

102,957 

 

 

96,652 

 

 

87,860 



 

 

 

 

 

 

 

 

 

Pension benefits liabilities

 

 

6,628 

 

 

6,362 

 

 

6,869 

Long-term debt

 

 

116,826 

 

 

117,025 

 

 

116,976 

Deferred income tax liabilities

 

 

1,111 

 

 

1,278 

 

 

1,223 

Other noncurrent liabilities

 

 

20,060 

 

 

23,307 

 

 

23,020 

Total liabilities

 

 

247,582 

 

 

244,624 

 

 

235,948 



 

 

 

 

 

 

 

 

 

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;

 

 

 

 

 

 

 

 

 

18,773, 18,713, and 18,713 shares issued, respectively

 

 

18,773 

 

 

18,713 

 

 

18,713 

Capital in excess of stated value

 

 

61,709 

 

 

56,766 

 

 

57,338 

Retained earnings

 

 

474,483 

 

 

462,201 

 

 

466,926 

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

 

 

(14,022)

 

 

(15,506)

 

 

(14,172)

Total shareholders' equity

 

 

263,705 

 

 

244,936 

 

 

251,567 

Total liabilities and shareholders' equity

 

$

511,287 

 

$

489,560 

 

$

487,515 



 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

-  5  -


 

     



 

 

 

 

 

 

Lindsay Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



 

 

 



 

Nine months ended



 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

  Net earnings

 

$

16,837 

 

$

12,459 

  Adjustments to reconcile net earnings to net cash
   provided by operating activities:

 

 

 

 

 

 

     Depreciation and amortization

 

 

12,337 

 

 

12,771 

     Provision for uncollectible accounts receivable

 

 

(408)

 

 

(1,161)

     Deferred income taxes

 

 

(1,383)

 

 

(4,737)

     Share-based compensation expense

 

 

2,798 

 

 

2,440 

     Other, net

 

 

226 

 

 

755 

  Changes in assets and liabilities:

 

 

 

 

 

 

     Receivables

 

 

(5,737)

 

 

(6,704)

     Inventories

 

 

(13,217)

 

 

(7,732)

     Prepaid expenses and other current assets

 

 

3,255 

 

 

(1,425)

     Accounts payable

 

 

8,182 

 

 

1,452 

     Other current liabilities

 

 

4,734 

 

 

(205)

     Other noncurrent assets and liabilities

   

 

(3,158)

 

 

12,389 

  Net cash provided by operating activities

 

 

24,466 

 

 

20,302 



 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

  Purchases of property, plant, and equipment

 

 

(6,219)

 

 

(10,073)

  Proceeds from settlement of net investment hedges

 

 

2,054 

 

 

2,317 

  Payments for settlement of net investment hedges

 

 

(948)

 

 

(2,719)

  Other investing activities, net

 

 

137 

 

 

1,118 

  Net cash used in investing activities

 

 

(4,976)

 

 

(9,357)



 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

  Proceeds from exercise of stock options

 

 

2,455 

 

 

113 

  Common stock withheld for payroll tax withholdings

 

 

(635)

 

 

(712)

  Principal payments on long-term debt

 

 

(147)

 

 

(144)

  Repurchase of common shares

 

 

 —

 

 

(48,335)

  Dividends paid

 

 

(9,280)

 

 

(9,161)

  Net cash used in financing activities

 

 

(7,607)

 

 

(58,239)

 

 

 

 

 

 

 

  Effect of exchange rate changes on cash and cash equivalents

 

 

83 

 

 

(301)

  Net change in cash and cash equivalents

 

 

11,966 

 

 

(47,595)

  Cash and cash equivalents, beginning of period

 

 

101,246 

 

 

139,093 

  Cash and cash equivalents, end of period

 

$

113,212 

 

$

91,498 



 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

Income taxes paid

 

$

8,772 

 

$

13,608 

Interest paid

 

$

2,423 

 

$

2,413 



 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

-  6  -


 

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 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, 2016.



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



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 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 currently in the assessment phase, reviewing a representative sample of contracts, holding discussions with key stakeholders, and cataloging potential impacts on the Company’s operations, accounting policies, internal control over financial reporting, and financial statements. 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. The Company is continuing to evaluate the impact of the ASU on the consolidated statements of earnings, financial position, and financial statement disclosures, as well as the adoption method.



In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. The standard requires an entity to classify all deferred tax assets and liabilities as noncurrent. In addition, companies will no longer allocate valuation allowances between current and noncurrent because all deferred tax assets will be classified as noncurrent.  The guidance allows companies to apply the update either on a retrospective or prospective basis. The Company has early adopted this ASU during the first quarter of fiscal 2017 on a retrospective basis.  Accordingly, the Company reclassified current deferred tax assets and liabilities to non-current on its May 31, 2016 and August 31, 2016 condensed consolidated balance sheets, which increased net non-current deferred tax assets by $2.4 million and $3.3 million, respectively, and decreased non-current deferred tax liabilities by $12.1 million and $12.0 million, respectively.

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 fiscal 2020 with early adoption permitted. The Company is currently evaluating the effect that adopting this standard will have on its consolidated financial statements.



In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.  The standard provides guidance for employee share-based compensation payments, including the income tax consequences, classification of awards as either equity or liabilities and the classification on the statement of cash flows.  The Company elected to early adopt this ASU as of the beginning of fiscal 2017.  For the first quarter of fiscal 2017, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the quarter. The result of the adoption of ASU 2016-09 was

-  7  -


 

immaterial to the financial statements.  Additionally, as required by the new guidance, when calculating diluted earnings per share, excess tax benefits were excluded from the calculation of assumed proceeds since such amounts are recognized in the income statement.  ASU 2016-09 also allows an entity to elect, as an accounting policy, either to estimate the number of forfeited awards or to account for forfeitures as they occur.  The Company has elected to account for forfeitures as they occur.  This change did not have a material impact on estimated expense.  The Company elected to present the cash flow statement on a retrospective transition method and prior periods have been adjusted to present the excess tax benefits as part of cash flows from operating activities. This resulted in an increase in cash flows from operating activities and a decrease in cash flows from financing activities of $0.1 million in fiscal 2016.

 

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, 2017 and May 31, 2016:





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Nine months ended



 

May 31,

 

May 31,

 

May 31,

 

May 31,

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

 

2017

 

2016

 

2017

 

2016

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

    Net earnings

 

$

10,952 

 

$

9,644 

 

$

16,837 

 

$

12,459 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

    Weighted average shares outstanding

 

 

10,677 

 

 

10,709 

 

 

10,657 

 

 

10,997 

    Diluted effect of stock awards

 

 

28 

 

 

23 

 

 

25 

 

 

22 

    Weighted average shares outstanding
        assuming dilution

 

 

10,705 

 

 

10,732 

 

 

10,682 

 

 

11,019 



 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share

 

$

1.03 

 

$

0.90 

 

$

1.58 

 

$

1.13 

Diluted net earnings per share

 

$

1.02 

 

$

0.90 

 

$

1.58 

 

$

1.13 



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



 

May 31,

 

May 31,

 

May 31,

 

May 31,

(Units and options in thousands)

 

2017

 

2016

 

2017

 

2016

Restricted stock units

 

 —

 

 

14 

 

Stock options

 

101 

 

104 

 

123 

 

84 

 

Note 4 – Income Taxes



It is the Company’s policy to report income tax expense for interim periods using an estimated annual effective income tax rate. However, the tax effects of significant or unusual items are not considered in the estimated annual effective income tax rate. The tax effects of such discrete events are recognized in the interim period in which the events occur. The Company recorded no material discrete items for the three and nine months ended May 31, 2017 and May 31, 2016.



The Company recorded income tax expense of $5.2 million and $4.4 million for the three months ended May 31, 2017 and May 31, 2016, respectively.  The Company recorded income tax expense of $8.3 million and $5.8 million for the nine months ended May 31, 2017 and May 31, 2016, respectively.    The estimated annual effective income tax rate was 33.1 percent and 31.8 percent for the fiscal year-to-date periods ended May 31, 2017 and May 31, 2016, respectively. The increase in the estimated annual effective income tax rate from May 2016 to May 2017 primarily relates to the change in earnings mix among domestic and foreign tax jurisdictions.

 

-  8  -


 

Note 5 – Inventories



Inventories consisted of the following as of May 31, 2017,  May 31, 2016, and August 31, 2016:

















 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

May 31,

 

May 31,

 

August 31,

($ in thousands)

 

2017

 

2016

 

2016

Raw materials and supplies

 

$

32,960 

 

$

25,903 

 

$

26,599 

Work in process

 

 

7,849 

 

 

7,730 

 

 

5,742 

Finished goods and purchased parts

 

 

53,469 

 

 

53,731 

 

 

47,805 

Total inventory value before LIFO adjustment

 

 

94,278 

 

 

87,364 

 

 

80,146 

Less adjustment to LIFO value

 

 

(5,677)

 

 

(4,519)

 

 

(5,396)

Inventories, net

 

$

88,601 

 

$

82,845 

 

$

74,750 



 

 

 

 

 

 

 

 

 





Note 6 – Long-Term Debt



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





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

May 31,

 

May 31,

 

August 31,

($ in thousands)

 

2017

 

2016

 

2016

Series A Senior Notes

 

$

115,000 

 

$

115,000 

 

$

115,000 

Revolving Credit Facility

 

 

 —

 

 

 —

 

 

 —

Elecsys Series 2006A Bonds

 

 

2,026 

 

 

2,221 

 

 

2,173 

Total debt

 

 

117,026 

 

 

117,221 

 

 

117,173 

Less current portion

 

 

(200)

 

 

(196)

 

 

(197)

Total long-term debt

 

$

116,826 

 

$

117,025 

 

$

116,976 



 

 

 

 

 

 

 

 

 



Principal payments on the debt are due as follows:





 

 

 

Due within

 

$ in thousands

1 year

 

$

200 

2 years

 

 

204 

3 years

 

 

208 

4 years

 

 

212 

5 years

 

 

216 

Thereafter

 

 

115,986 



 

$

117,026 



 

 

 



-  9  -


 

Note 7 – 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:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Balance sheet

 

May 31,

 

May 31,

 

August 31,

($ in thousands)

 

location

 

2017

 

2016

 

2016

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency forward contracts

 

Other current assets

 

$

 —

 

$

858 

 

$

40 

   Foreign currency forward contracts

 

Other current liabilities

 

 

(2,109)

 

 

(136)

 

 

(385)

Total derivatives designated as hedging
instruments

 

 

 

$

(2,109)

 

$

722 

 

$

(345)



 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency forward contracts

 

Other current assets

 

$

71 

 

$

16 

 

$

33 

   Foreign currency forward contracts

 

Other current liabilities

 

 

(3)

 

 

(50)

 

 

(210)

Total derivatives not designated as hedging
instruments

 

 

 

$

68 

 

$

(34)

 

$

(177)



 

 

 

 

 

 

 

 

 

 

 



Accumulated other comprehensive income included realized and unrealized after-tax gains of $5.1 million, $5.9 million, and $5.6 million at May 31, 2017, May 31, 2016, and August 31, 2016, respectively, related to derivative contracts designated as hedging instruments.



Net Investment Hedging Relationships

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





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Nine months ended



 

May 31,

 

May 31,

 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

 

2017

 

2016

Foreign currency forward contracts, net of tax

   (benefit) expense of ($744), ($260),

   ($181), and $149

 

$

(1,213)

 

$

(448)

 

$

(477)

 

$

450 



For the three months ended May 31, 2017 and May 31, 2016, the Company settled foreign currency forward contracts resulting in an after-tax net loss of $0.3 million and $1.4 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment.  For the nine months ended May 31, 2017 and May 31, 2016, the Company settled foreign currency forward contracts resulting in an after-tax net gain of $0.6 million and an after-tax net loss of $0.2 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, 2017 and May 31, 2016.  



At May 31, 2017,  May 31, 2016, and August 31, 2016,  the Company had outstanding foreign currency forward contracts to sell 32.9 million Euro, 28.5 million Euro,  and 32.6 million Euro, respectively, at fixed prices to settle during the next fiscal quarter. At May 31, 2017,  May 31, 2016, and August 31, 2016, the Company had an outstanding foreign currency forward contract to sell 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 statements of earnings.  At May 31, 2017,  May 31, 2016,  and August 31, 2016, the Company had $3.1 million, $8.4 million, and $8.2 million, respectively, of U.S. dollar equivalent of foreign currency forward contracts outstanding that are not designated as hedging instruments.

-  10  -


 

 

Note 8 – 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, 2017,  May 31, 2016, and August 31, 2016, respectively. There were no transfers between any levels for the periods presented.





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

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)



 

 

 

 

 

 

 

 

 

 

 

 



 

May 31, 2016

($ in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Cash and cash equivalents

 

$

91,498 

 

$

 —

 

$

 —

 

$

91,498 

Derivative assets

 

 

 —

 

 

874 

 

 

 —

 

 

874 

Derivative liabilities

 

 

 —

 

 

(186)

 

 

 —

 

 

(186)



 

 

 

 

 

 

 

 

 

 

 

 



 

August 31, 2016

($ in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Cash and cash equivalents

 

$

101,246 

 

$

 —

 

$

 —

 

$

101,246 

Derivative assets

 

 

 —

 

 

73 

 

 

 —

 

 

73 

Derivative liabilities

 

 

 —

 

 

(595)

 

 

 —

 

 

(595)



 

 

 

 

 

 

 

 

 

 

 

 

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, 2017 or May 31, 2016.



Note 9 – 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 based on an assessment of probability of loss.  The Company believes that any potential loss in excess of the amounts accrued would not have a material effect on the business or its consolidated financial statements.  Such proceedings are exclusive of environmental remediation matters which are discussed separately below.



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 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. 



-  11  -


 

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 $18.3 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 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 further discussions with the EPA and the NDEQ, the Company anticipates that a definitive plan will not be agreed upon until fiscal 2018 or beyond.

The Company accrues the anticipated cost of investigation and remediation when the obligation is probable and can be reasonably estimated. 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 exceed 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, 2017,  May 31, 2016, and August 31, 2016:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

May 31,

 

May 31,

 

August 31,

($ in thousands)

 

2017

 

2016

 

2016

Other current liabilities

 

$

2,134 

 

$

980 

 

$

722 

Other noncurrent liabilities

 

 

16,161 

 

 

18,571 

 

 

18,255 

Total environmental remediation liabilities

 

$

18,295 

 

$

19,551 

 

$

18,977 



 

 

 

 

 

 

 

 

 





-  12  -


 

Note 10 – Warranties 



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





 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended



 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

Product warranty accrual balance, beginning of period

 

$

6,938 

 

$

6,431 

Liabilities accrued for warranties during the period

 

 

2,364 

 

 

1,372 

Warranty claims paid during the period

 

 

(1,893)

 

 

(1,267)

Changes in estimates

 

 

186 

 

 

(78)

Product warranty accrual balance, end of period

 

$

7,595 

 

$

6,458 



 

 

 

 

 

 



 

Nine months ended



 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

Product warranty accrual balance, beginning of period

 

$

7,443 

 

$

7,271 

Liabilities accrued for warranties during the period

 

 

4,225 

 

 

3,676 

Warranty claims paid during the period

 

 

(4,514)

 

 

(3,853)

Changes in estimates

 

 

441 

 

 

(636)

Product warranty accrual balance, end of period

 

$

7,595 

 

$

6,458 



 

 

 

 

 

 

 

Note 11 – 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 $0.9 million for the three months ended May 31, 2017 and May 31, 2016, respectively.  Share-based compensation expense was $2.8 million and $2.4 million for the nine months ended May 31, 2017 and May 31, 2016, respectively.

  

Note 12 – Other Current Liabilities









 

 

 

 

 

 

 

 

 



 

May 31,

 

May 31,

 

August 31,

($ in thousands)

 

2017

 

2016

 

2016

Other current liabilities:

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

$

18,832 

 

$

17,468 

 

$

19,044 

Deferred revenues

 

 

8,854 

 

 

6,876 

 

 

7,594 

Warranties

 

 

7,595 

 

 

6,458 

 

 

7,443 

Customer deposits

 

 

5,392 

 

 

5,497 

 

 

3,399 

Tax related liabilities

 

 

5,112 

 

 

5,286 

 

 

4,200 

Dealer related liabilities

 

 

3,330 

 

 

4,656 

 

 

4,978 

Accrued environmental liabilities

 

 

2,134 

 

 

980 

 

 

722 

Other

 

 

11,252 

 

 

8,430 

 

 

8,015 

Total other current liabilities

 

$

62,501 

 

$

55,651 

 

$

55,395 

 

Note 13 – Share Repurchases



In accordance with its share repurchase program, during the three and nine months ended May 31, 2016, the Company repurchased 219,578 shares and 688,790 shares, respectively, of common stock for an aggregate purchase price of $16.1 million and $48.3 million, respectively.  There were no share repurchases during the three and nine months ended May 31, 2017.  The remaining amount available under the repurchase program was $63.7 million as of May 31, 2017. 





Note 14 – 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,

-  13  -


 

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, 2017 and May 31, 2016.  



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 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



 

May 31,

 

May 31,

 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

 

2017

 

2016

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

    Irrigation

 

$

120,040 

 

$

117,325 

 

$

316,102 

 

$

321,733 

    Infrastructure

 

 

31,493