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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 February 28, 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 March 19, 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 six months ended February 28, 2018 and February 28, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended February 28, 2018 and February 28, 2017

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of February 28, 2018, February 28, 2017, and August 31, 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2018 and February 28, 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

 

23

 

 

 

 

 

 

 

ITEM 4 – Controls and Procedures

 

23

 

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

ITEM 1 – Legal Proceedings

 

24

 

 

 

 

 

 

 

ITEM 1A – Risk Factors

 

24

 

 

 

 

 

 

 

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

 

24

 

 

 

 

 

 

 

ITEM 3 – Defaults Upon Senior Securities

 

24

 

 

 

 

 

 

 

ITEM 4 – Mine Safety Disclosures

 

24

 

 

 

 

 

 

 

ITEM 5 – Other Information

 

24

 

 

 

 

 

 

 

ITEM 6 – Exhibits

 

25

 

 

 

 

 

SIGNATURES

 

26

 

- 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

 

 

Six months ended

 

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

 

February 28,

2018

 

 

February 28,

2017

 

 

February 28,

2018

 

 

February 28,

2017

 

Operating revenues

 

$

130,339

 

 

$

124,125

 

 

$

254,865

 

 

$

234,515

 

Cost of operating revenues

 

 

95,023

 

 

 

91,184

 

 

 

187,152

 

 

 

173,200

 

Gross profit

 

 

35,316

 

 

 

32,941

 

 

 

67,713

 

 

 

61,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expense

 

 

10,020

 

 

 

10,132

 

 

 

20,245

 

 

 

20,114

 

General and administrative expense

 

 

14,311

 

 

 

10,230

 

 

 

26,229

 

 

 

21,585

 

Engineering and research expense

 

 

3,919

 

 

 

4,057

 

 

 

7,972

 

 

 

8,359

 

Total operating expenses

 

 

28,250

 

 

 

24,419

 

 

 

54,446

 

 

 

50,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

7,066

 

 

 

8,522

 

 

 

13,267

 

 

 

11,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,095

)

 

 

(1,201

)

 

 

(2,331

)

 

 

(2,410

)

Interest income

 

 

311

 

 

 

171

 

 

 

686

 

 

 

336

 

Other (expense) income, net

 

 

(606

)

 

 

144

 

 

 

(1,154

)

 

 

(212

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

5,676

 

 

 

7,636

 

 

 

10,468

 

 

 

8,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

3,941

 

 

 

2,624

 

 

 

5,548

 

 

 

3,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,735

 

 

$

5,012

 

 

$

4,920

 

 

$

5,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.47

 

 

$

0.46

 

 

$

0.55

 

Diluted

 

$

0.16

 

 

$

0.47

 

 

$

0.46

 

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,743

 

 

 

10,657

 

 

 

10,724

 

 

 

10,647

 

Diluted

 

 

10,765

 

 

 

10,674

 

 

 

10,752

 

 

 

10,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.30

 

 

$

0.29

 

 

$

0.60

 

 

$

0.58

 

 

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

 

 

Six months ended

 

($ in thousands)

 

February 28,

2018

 

 

February 28,

2017

 

 

February 28,

2018

 

 

February 28,

2017

 

Net earnings

 

$

1,735

 

 

$

5,012

 

 

$

4,920

 

 

$

5,885

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustment, net of tax

 

 

37

 

 

 

38

 

 

 

69

 

 

 

75

 

Foreign currency translation adjustment, net of hedging activities and tax

 

 

1,814

 

 

 

1,947

 

 

 

780

 

 

 

513

 

Total other comprehensive income, net of tax (benefit)

   expense of ($306), $87, ($274) and $653, respectively

 

 

1,851

 

 

 

1,985

 

 

 

849

 

 

 

588

 

Total comprehensive income

 

$

3,586

 

 

$

6,997

 

 

$

5,769

 

 

$

6,473

 

 

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)

 

February 28,

2018

 

 

February 28,

2017

 

 

August 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

102,211

 

 

$

102,825

 

 

$

121,620

 

Receivables, net of allowance of $7,736, $7,473, and $7,447,

   respectively

 

 

96,738

 

 

 

78,828

 

 

 

73,850

 

Inventories, net

 

 

102,975

 

 

 

82,847

 

 

 

86,155

 

Prepaid expenses

 

 

5,339

 

 

 

5,208

 

 

 

4,384

 

Other current assets

 

 

6,092

 

 

 

15,968

 

 

 

6,925

 

Total current assets

 

 

313,355

 

 

 

285,676

 

 

 

292,934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment:

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

192,898

 

 

 

185,714

 

 

 

189,140

 

Less accumulated depreciation

 

 

(120,220

)

 

 

(110,082

)

 

 

(114,642

)

Property, plant, and equipment, net

 

 

72,678

 

 

 

75,632

 

 

 

74,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles, net

 

 

40,677

 

 

 

44,890

 

 

 

42,808

 

Goodwill

 

 

77,296

 

 

 

76,577

 

 

 

77,131

 

Deferred income tax assets

 

 

5,773

 

 

 

3,094

 

 

 

5,311

 

Other noncurrent assets

 

 

12,575

 

 

 

4,747

 

 

 

13,350

 

Total assets

 

$

522,354

 

 

$

490,616

 

 

$

506,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

46,599

 

 

$

44,254

 

 

$

36,717

 

Current portion of long-term debt

 

 

203

 

 

 

199

 

 

 

201

 

Other current liabilities

 

 

57,720

 

 

 

46,350

 

 

 

55,119

 

Total current liabilities

 

 

104,522

 

 

 

90,803

 

 

 

92,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension benefits liabilities

 

 

6,152

 

 

 

6,708

 

 

 

6,295

 

Long-term debt

 

 

116,673

 

 

 

116,876

 

 

 

116,775

 

Deferred income tax liabilities

 

 

1,179

 

 

 

1,678

 

 

 

1,191

 

Other noncurrent liabilities

 

 

20,768

 

 

 

20,995

 

 

 

19,679

 

Total liabilities

 

 

249,294

 

 

 

237,060

 

 

 

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, 18,746, and 18,780 shares issued, respectively

 

 

18,841

 

 

 

18,746

 

 

 

18,780

 

Capital in excess of stated value

 

 

66,625

 

 

 

59,002

 

 

 

63,006

 

Retained earnings

 

 

476,091

 

 

 

466,630

 

 

 

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

 

 

(11,259

)

 

 

(13,584

)

 

 

(12,108

)

Total shareholders' equity

 

 

273,060

 

 

 

253,556

 

 

 

270,055

 

Total liabilities and shareholders' equity

 

$

522,354

 

 

$

490,616

 

 

$

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)

 

 

 

Six months ended

 

($ in thousands)

 

February 28,

2018

 

 

February 28,

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net earnings

 

$

4,920

 

 

$

5,885

 

Adjustments to reconcile net earnings to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,599

 

 

 

8,120

 

Provision for uncollectible accounts receivable

 

 

228

 

 

 

(609

)

Deferred income taxes

 

 

(931

)

 

 

1,707

 

Share-based compensation expense

 

 

1,887

 

 

 

1,815

 

Other, net

 

 

45

 

 

 

(594

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(23,084

)

 

 

2,710

 

Inventories

 

 

(15,239

)

 

 

(7,368

)

Prepaid expenses and other current assets

 

 

(1,731

)

 

 

3,375

 

Accounts payable

 

 

9,728

 

 

 

11,926

 

Other current liabilities

 

 

5,313

 

 

 

(14,122

)

Other noncurrent assets and liabilities

 

 

1,368

 

 

 

(2,123

)

Net cash (used in) provided by operating activities

 

 

(8,897

)

 

 

10,722

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(4,715

)

 

 

(4,194

)

Proceeds from settlement of net investment hedges

 

 

101

 

 

 

2,054

 

Payments for settlement of net investment hedges

 

 

(1,967

)

 

 

(482

)

Other investing activities, net

 

 

137

 

 

 

136

 

Net cash used in investing activities

 

 

(6,444

)

 

 

(2,486

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

2,788

 

 

 

647

 

Common stock withheld for payroll tax obligations

 

 

(833

)

 

 

(635

)

Principal payments on long-term debt

 

 

(100

)

 

 

(98

)

Dividends paid

 

 

(6,444

)

 

 

(6,181

)

Net cash used in financing activities

 

 

(4,589

)

 

 

(6,267

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

521

 

 

 

(390

)

Net change in cash and cash equivalents

 

 

(19,409

)

 

 

1,579

 

Cash and cash equivalents, beginning of period

 

 

121,620

 

 

 

101,246

 

Cash and cash equivalents, end of period

 

$

102,211

 

 

$

102,825

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Income taxes paid

 

$

2,141

 

 

$

7,233

 

Interest paid

 

$

2,301

 

 

$

2,383

 

 

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 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 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 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 improves 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 U.S. Tax Reform through a reclassification of the stranded tax effects from accumulated other comprehensive income to retained earnings. 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 (“U.S. Tax Reform”), 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 4 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 six months ended February 28, 2018 and February 28, 2017:

 

 

 

Three months ended

 

 

Six months ended

 

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

 

February 28,

2018

 

 

February 28,

2017

 

 

February 28,

2018

 

 

February 28,

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,735

 

 

$

5,012

 

 

$

4,920

 

 

$

5,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

10,743

 

 

 

10,657

 

 

 

10,724

 

 

 

10,647

 

Diluted effect of stock awards

 

 

22

 

 

 

17

 

 

 

28

 

 

 

23

 

Weighted average shares outstanding assuming

   dilution

 

 

10,765

 

 

 

10,674

 

 

 

10,752

 

 

 

10,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share

 

$

0.16

 

 

$

0.47

 

 

$

0.46

 

 

$

0.55

 

Diluted net earnings per share

 

$

0.16

 

 

$

0.47

 

 

$

0.46

 

 

$

0.55

 

 

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

 

 

Six months ended

 

(Units and options in thousands)

 

February 28,

2018

 

 

February 28,

2017

 

 

February 28,

2018

 

 

February 28,

2017

 

Restricted stock units

 

 

6

 

 

 

7

 

 

 

72

 

 

 

20

 

Stock options

 

 

64

 

 

 

119

 

 

 

167

 

 

 

133

 

 

Note 4 – Income Taxes

The Company recorded income tax expense of $3.9 million and $2.6 million for the three months ended February 28, 2018 and February 28, 2017, respectively.  The Company recorded income tax expense of $5.5 million and $3.1 million for the six months ended February 28, 2018 and February 28, 2017, respectively.  The overall income tax rate was 53.0 percent and 34.4 percent for the fiscal year-to-date periods ended February 28, 2018 and February 28, 2017, respectively.

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Table of Contents

 

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 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 six months ended February 28, 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. 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 clarification and 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 $2.6 million of incremental income tax expense recorded during the second quarter 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, such as U.S. Tax Reform, were recognized in the interim period in which the events occurred for the three and six months ended February 28, 2018. The Company recorded no material discrete items for the three and six months ended February 28, 2017.

Note 5 – Inventories

Inventories consisted of the following as of February 28, 2018, February 28, 2017, and August 31, 2017:

 

($ in thousands)

 

February 28,

2018

 

 

February 28,

2017

 

 

August 31,

2017

 

Raw materials and supplies

 

$

38,716

 

 

$

27,368

 

 

$

31,158

 

Work in process

 

 

9,371

 

 

 

7,570

 

 

 

7,113

 

Finished goods and purchased parts

 

 

60,925

 

 

 

53,587

 

 

 

52,382

 

Total inventory value before LIFO adjustment

 

 

109,012

 

 

 

88,525

 

 

 

90,653

 

Less adjustment to LIFO value

 

 

(6,037

)

 

 

(5,678

)

 

 

(4,498

)

Inventories, net

 

$

102,975

 

 

$

82,847

 

 

$

86,155

 

 

 

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:

 

($ in thousands)

 

February 28,

2018

 

 

February 28,

2017

 

 

August 31,

2017

 

Series A Senior Notes

 

$

115,000

 

 

$

115,000

 

 

$

115,000

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

Elecsys Series 2006A Bonds

 

 

1,876

 

 

 

2,075

 

 

 

1,976

 

Total debt

 

 

116,876

 

 

 

117,075

 

 

 

116,976

 

Less current portion

 

 

(203

)

 

 

(199

)

 

 

(201

)

Total long-term debt

 

$

116,673

 

 

$

116,876

 

 

$

116,775

 

 

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Principal payments on the debt are due as follows:

 

Due within

 

$ in thousands

 

1 year

 

$

203

 

2 years

 

 

207

 

3 years

 

 

211

 

4 years

 

 

215

 

5 years

 

 

219

 

Thereafter

 

 

115,821

 

 

 

$

116,876

 

 

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:

 

($ in thousands)

 

Balance sheet

location

 

February 28,

2018

 

 

February 28,

2017

 

 

August 31,

2017

 

Derivatives designated as hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current assets

 

$

 

 

$

 

 

$

 

Foreign currency forward contracts

 

Other current liabilities

 

 

(965

)

 

 

(619

)

 

 

(1,633

)

Total derivatives designated as hedging

    instruments

 

 

 

$

(965

)

 

$

(619

)

 

$

(1,633

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current assets

 

$

19

 

 

$

 

 

$

9

 

Foreign currency forward contracts

 

Other current liabilities