Attached files

file filename
EX-32.1 - EX-32.1 - LINDSAY CORPlnn-ex321_8.htm
EX-31.2 - EX-31.2 - LINDSAY CORPlnn-ex312_9.htm
EX-31.1 - EX-31.1 - LINDSAY CORPlnn-ex311_7.htm
EX-10.1 - EX-10.1 - LINDSAY CORPlnn-ex101_117.htm

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

 

 

- 8 -


Table of Contents

 

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

- 9 -


Table of Contents

 

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

 

 

- 10 -


Table of Contents

 

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 rat