NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description of Business and Significant Accounting Policies
Lindsay Corporation, along with its subsidiaries (collectively called Lindsay or the Company), is a global leader in providing a
variety of proprietary water management and road infrastructure products and services. The Company has been involved in the manufacture and distribution of agricultural irrigation equipment since 1955 and has grown from a regional company to an
international water efficiency solutions and highway infrastructure firm with worldwide sales and distribution. Lindsay, a Delaware corporation, maintains its corporate offices in Omaha, Nebraska. The Company has operations which are categorized
into two major reporting segments.
Irrigation Segment
The Companys irrigation segment includes the manufacture and marketing
of center pivot, lateral move, and hose reel irrigation systems which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor. The irrigation segment also manufactures and
markets repair and replacement parts for its irrigation systems and controls. In addition, the irrigation segment also designs and manufactures water pumping stations and controls for the agriculture, golf, landscape and municipal markets and
filtration solutions for groundwater, agriculture, industrial and heat transfer markets. The Company continues to strengthen irrigation product offerings through innovative technology such as Global Positioning System (GPS) positioning
and guidance, variable rate irrigation, wireless irrigation management, machine-to-machine (M2M) communication technology solutions and smartphone applications. The Companys domestic irrigation manufacturing facilities are located
in Lindsay, Nebraska; Hartland, Wisconsin; Olathe, Kansas and Fresno, California. Internationally, the Company has production operations in Brazil, France, China, Turkey and South Africa as well as distribution and sales operations in the
Netherlands, Australia and New Zealand. The Company also exports equipment from the U.S. to other international markets.
Infrastructure Segment
The Companys infrastructure segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, road marking and road safety equipment, large diameter steel tubing, and
railroad signals and structures. The infrastructure segment also provides outsourced manufacturing and production services. The principal infrastructure manufacturing facilities are located in Rio Vista, California; Milan, Italy; and Omaha,
Nebraska.
Notes to the consolidated financial statements describe various elements of the financial statements and the accounting policies, estimates,
and assumptions applied by management. While actual results could differ from those estimated at the time of preparation of the consolidated financial statements, management believes that the accounting policies, assumptions, and estimates applied
promote the representational faithfulness, verifiability, neutrality, and transparency of the accounting information included in the consolidated financial statements. The significant accounting policies of the Company are as follows:
Principles of Consolidation
The consolidated
financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions are eliminated in consolidation.
Reclassifications
Certain reclassifications have
been made to prior financial statements to conform to the current-year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
38
Revenue Recognition
The Companys basic criteria necessary for revenue recognition are: 1) evidence of a sales arrangement exists, 2) delivery of goods has occurred, 3) the
sales price to the buyer is fixed or determinable, and 4) collectability is reasonably assured. The Company recognizes revenue when these criteria have been met and when title and risk of loss transfers to the customer. The Company generally has no
post-delivery obligations to its independent dealers other than standard warranties. Revenues and gross profits on intercompany sales are eliminated in consolidation. Revenues from the sale of the Companys products are recognized based on the
delivery terms in the sales contract. If an arrangement involves multiple deliverables, revenues from the arrangement are allocated to the separate units of accounting based on their relative selling price.
The Company offers a subscription-based service for wireless management and recognizes subscription revenue on a straight-line basis over the contract term.
The Company leases certain infrastructure property held for lease to customers such as moveable concrete barriers and Road Zipper
Systems
. Revenues for the lease of infrastructure property held for lease are recognized on a straight-line basis over the lease term.
The costs related to revenues are recognized in the same period in which the specific revenues are recorded. Shipping and handling fees billed to
customers are reported in revenue. Shipping and handling costs incurred by the Company are included in cost of sales. Customer rebates, cash discounts and other sales incentives are recorded as a reduction of revenues at the time of the original
sale. Estimates used in the recognition of operating revenues and cost of operating revenues include, but are not limited to, estimates for product warranties, product rebates, cash discounts and fair value of separate units of accounting on
multiple deliverables.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values on the date of
grant. The Company uses the straight-line amortization method over the vesting period of the awards. The Company has historically issued shares upon exercise of stock options or vesting of restricted stock units or performance stock units from new
stock issuances.
The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Companys Consolidated
Statement of Operations over the periods during which the employee or director is required to perform a service in exchange for the award.
The Company
uses the Black-Scholes option-pricing model (Black-Scholes model) as its valuation method for stock option awards. Under the Black-Scholes model, the fair value of stock option awards on the date of grant is estimated using an
option-pricing model that is affected by the Companys stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Companys expected stock price
volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Restricted stock, restricted stock units, performance shares and performance stock units issued under the 2015 Long-Term Incentive Plan will
have a grant-date fair value equal to the fair market value of the underlying stock on the grant date less present value of expected dividends.
Warranty Costs
The Companys provision for
product warranty reflects managements best estimate of probable liability under its product warranties. At the time a sale is recognized, the company records the estimated future warranty costs. The Company generally determines its total
future warranty liability by applying historical claims rate experience to the amount of equipment that has been sold and is still within the warranty period. In addition, the Company records provisions for known warranty claims. This provision is
periodically adjusted to reflect actual experience.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
39
Receivables and Allowances
Trade receivables are reported on the balance sheet net of any doubtful accounts. Losses are recognized when it is probable that an asset has been impaired and
the amount of the loss can be reasonably estimated. In estimating probable losses, the Company reviews specific accounts that are significant and past due, in bankruptcy or otherwise identified as at risk for potential credit loss. Collectability of
these specific accounts are assessed based on facts and circumstances of that customer, and an allowance for credit losses is established based on the probability of default. In assessing the likelihood of collection of receivable, the Company
considers (for example) the Companys history of collections, the current status of discussions and repayment plans, collateral received, and other evidence and information regarding collection or default risk that is available in the market
place. The allowance for credit losses attributable to the remaining accounts is established using probabilities of default and an estimate of associated losses based upon the aging of receivable balances, collection experience, economic condition
and credit risk quality.
As the Companys international business has grown, the exposure to potential losses in international markets has also
increased. These exposures can be difficult to estimate, particularly in areas of political instability or with governments with which the Company has limited experience or where there is a lack of transparency as to the current credit condition of
governmental units. The Companys allowance for all doubtful accounts related to outstanding receivables decreased to $8.3 million at August 31, 2016 from $9.7 million at August 31, 2015. The Companys evaluation of the adequacy of the
allowance for credit losses is based on facts and circumstances available to the Company at the date the consolidated financial statements are issued and considers any significant changes in circumstances occurring through the date that the
financial statements are issued.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in,
first-out
(LIFO) method, the first-in, first-out (FIFO) method, or the weighted average cost method for inventory depending on the operations at each specific location. At all locations, the
Company reserves for obsolete, slow moving, and excess inventory by estimating the net realizable value based on the potential future use of such inventory.
Property, Plant, and Equipment
Property, plant,
equipment, and capitalized assets held for lease are stated at cost. The Company capitalizes major expenditures and charges to operating expenses the cost of current maintenance and repairs. Provisions for depreciation and amortization have been
computed principally on the straight-line method for property, plant, and equipment. Rates used for depreciation are based principally on the following expected lives: buildings -- 15 to 30 years; equipment -- 3 to 7 years; leased barrier transfer
machines -- 8 to 10 years; leased barriers -- 12 years; other
--
2 to 20 years and leasehold improvements shorter of the economic life or term of the lease. All of the Companys
long-lived
asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the
carrying amount of the asset group, an impairment loss is recognized based upon the difference between the fair value of the asset and its carrying value. No impairments were recorded during the fiscal years ended August 31, 2016, 2015, and 2014.
The cost and accumulated depreciation relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of disposition. The resulting gain or loss is included in operating income in the consolidated
statements of operations.
Valuation of Goodwill and Identifiable Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Acquired intangible assets are
recognized separately from goodwill. Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually at August 31 and whenever triggering events or changes in circumstances indicate its carrying value may
not be recoverable. Assessment of the potential impairment of goodwill and identifiable intangible assets is an integral part of the Companys normal ongoing review of operations. Testing for potential impairment of these assets is
significantly dependent on numerous assumptions and reflects managements best estimates at a particular point in time. The dynamic economic environments in which the Companys businesses operate and key economic and business assumptions
related to projected selling prices, market growth, inflation rates and operating expense ratios, can significantly
40
affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential
impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.
In
testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50 percent) that the
estimated fair value of a reporting unit is less than its carrying amount. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators include deterioration in general economic conditions,
adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. If the Company elects to
perform a qualitative assessment and determines that an impairment is more likely than not, the Company is then required to perform a quantitative impairment test, otherwise no further analysis is required. The Company also may elect not to perform
the qualitative assessment and, instead, proceed directly to the quantitative impairment test. In fiscal 2016, in conjunction with the Companys annual review for impairment, the Company performed a qualitative analysis of goodwill for each of
the Companys reporting units, which are the same as its operating segments, and did not identify any potential impairment.
In assessing other
intangible assets not subject to amortization for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that
the fair value of such an intangible asset is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then the Company is not
required to perform any additional tests for assessing intangible assets for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, the Company is then required to perform a quantitative
impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that
excess. In fiscal 2016, the Company performed a qualitative analysis of other intangible assets not subject to amortization and concluded there were no indicators of impairment.
Income Taxes
Income taxes are accounted for
utilizing the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and
their respective tax bases. These expected future tax consequences are measured based on currently enacted tax rates. The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the period that includes the
enactment date. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Companys evaluation of the adequacy
of any potential allowance is based on facts and circumstances available to the Company at the date the consolidated financial statements are issued and considers any significant changes in circumstances occurring through the date that the financial
statements are issued.
Net Earnings per Share
Basic net earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted net earnings per share is
computed using the weighted average number of common shares outstanding plus dilutive potential common shares outstanding during the period.
Employee
stock options, non-vested shares and similar equity instruments granted by the Company are treated as potential common share equivalents outstanding in computing diluted net earnings per share. The Companys diluted common shares outstanding
reported in each period includes the dilutive effect of restricted stock units, in-the-money options, and performance stock units for which threshold performance conditions have been satisfied and is calculated based on the average share price for
each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the
41
amount of compensation cost for future service that the Company has not yet recognized, and the amount of excess tax benefits that would be recorded in additional paid-in-capital when exercised
are assumed to be used to repurchase shares.
Derivative Instruments and Hedging Activities
The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates and foreign currency exchange rates. All derivative
instruments are recorded on the balance sheet at their respective fair values. The Company uses these derivative instruments only to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative
purposes. On the date a derivative contract is entered into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation.
The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivative that is used in the hedging transaction
is effective. For those instruments that are designated as a cash flow hedge and meet certain documentary and analytical requirements to qualify for hedge accounting treatment, changes in the fair value for the effective portion are reported in
other comprehensive income (OCI), net of related income tax effects, and are reclassified to the income statement when the effects of the item being hedged are recognized in the income statement. Changes in fair value of derivative
instruments that qualify as hedges of a net investment in foreign operations are recorded as a component of accumulated currency translation adjustment in accumulated other comprehensive income (AOCI), net of related income tax effects.
Changes in the fair value of undesignated hedges are recognized currently in earnings. All changes in derivative fair values due to ineffectiveness are recognized currently in income.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash
flows of the hedged item, the derivative expires or is sold, terminated, or exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. In situations in which the Company does not elect
hedge accounting or hedge accounting is discontinued and the derivative is retained, the Company carries or continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value through
earnings. 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 high-quality
counterparties. As of August 31, 2016, the Companys derivative counterparty had investment grade credit ratings.
Fair Value
Measurements
The Companys disclosure of the fair value of assets and liabilities is based on a three-level hierarchy for fair value
measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
|
|
|
Level 1 inputs to valuation techniques are quoted prices in active markets for identical assets or liabilities
|
|
|
|
Level 2 inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
|
|
|
|
Level 3 inputs to the valuation techniques are unobservable for the assets or liabilities
|
Treasury Stock
When the Company repurchases its
outstanding stock, it records the repurchased shares at cost as a reduction to shareholders equity. The weighted average cost method is utilized for share re-issuances. The difference between the cost and the re-issuance price is charged or
credited to a capital in excess of stated value treasury stock account to the extent that there is a sufficient balance to absorb the charge. If the treasury stock is sold for
42
an amount less than its cost and there is not a sufficient balance in the capital in excess of stated value treasury stock account, the excess is charged to retained earnings.
Contingencies
The Companys accounting for
contingencies covers a variety of business activities including contingencies for legal exposures and environmental exposures. The Company accrues these contingencies when its assessments indicate that it is probable that a liability has been
incurred and an amount can be reasonably estimated. The Companys estimates are based on currently available facts and its estimates of the ultimate outcome or resolution. Actual results may differ from the Companys estimates resulting in
an impact, positive or negative, on earnings.
Environmental Remediation Liabilities
Environmental remediation liabilities include costs directly associated with site investigation and clean up, such as materials, external contractor costs and
incremental internal costs directly related to the remedy. The Company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated. Estimates used to record environmental remediation
liabilities are based on the Companys best estimate of probable future costs based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental
engineers or other service providers. The Company records the undiscounted environmental remediation liabilities that represent the points in the range of estimates that are most probable or the minimum amount when no amount within the range is a
better estimate than any other amount.
Translation of Foreign Currency
The Companys portion of the assets and liabilities related to foreign investments are translated into U.S. dollars at the exchange rates in effect at the
balance sheet date. Revenue and expenses are translated at the average rates of exchange prevailing during the year. Unrealized gains or losses are reflected within common shareholders equity as accumulated other comprehensive income or loss.
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 evaluating the impact the adoption will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method, nor has it determined the effect of the standard on its ongoing financial
reporting.
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 does not expect this standard to have a material impact on its consolidated financial statements. The Company plans to adopt this standard in
first quarter of fiscal 2017.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The standard replaces the current
codification topic 840 with updated guidance on accounting for leases and requires a lessee to recognize assets and liabilities arising from an operating lease on the balance sheet. Previous U.S. GAAP did not require lease assets and liabilities to
be recognized for most leases. Furthermore, companies are permitted to make an
43
accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be
initially measured at the present value of the lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. 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 No. 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 ASU requires all excess tax benefits and tax deficiencies
to be recognized as income tax benefits or expense in the income statement and to be classified along with other income tax cash flows as an operating activity on the statement of cash flows. The effective date of ASU No. 2016-09 will be the first
quarter of fiscal 2018 with early adoption permitted, and the standard will be adopted on a prospective basis. The Company is currently evaluating the effect that adopting this new standard will have on its consolidated financial statements.
Note 3 - Acquisitions
In connection with business
acquisitions, the Company records the estimated fair value of the identifiable assets acquired, liabilities assumed, goodwill, and any non-controlling interest in the acquired, all determined as of the date of acquisition. The Company incurred $1.8
million of acquisition and integration expenses in fiscal 2015, which were included in general and administrative expenses on the consolidated statement of operations.
Elecsys Corporation
On January 22, 2015, the Company
completed a merger in which Elecsys Corporation, a provider of machine-to-machine (M2M) technology solutions and custom electronic systems (formerly NASDAQ: ESYS) (Elecsys), was merged with a wholly-owned subsidiary of the
Company. The Company paid $17.50 per share of Elecsys common stock outstanding (including cashing out of Elecsys equity compensation awards) for total merger cash consideration of $67.2 million, net of cash acquired of $3.4 million.
The Elecsys business capabilities will facilitate the Companys development of efficient solutions for irrigation and other water uses as well as
adjacent product lines and technologies. As part of the integration of Elecsys with the Companys irrigation business, the Company closed the Digitec manufacturing facility in Milford, Nebraska and consolidated the electronics manufacturing
operations with Elecsys.
44
The following table summarizes the merger consideration paid for Elecsys and the final allocation of fair value
of the assets acquired and liabilities assumed at the acquisition date.
|
|
|
|
|
($ in thousands)
|
|
Amount
|
|
Cash and cash equivalents
|
|
$
|
3,401
|
|
Receivables
|
|
|
2,006
|
|
Inventories
|
|
|
8,467
|
|
Other current assets
|
|
|
1,527
|
|
Property and equipment
|
|
|
6,457
|
|
Intangible assets
|
|
|
24,490
|
|
Goodwill
|
|
|
39,986
|
|
Other long-term assets
|
|
|
41
|
|
Accounts payable and accrued liabilities
|
|
|
(2,862)
|
|
Current and long-term debt
|
|
|
(2,478)
|
|
Other long-term liabilities
|
|
|
(10,458)
|
|
|
|
|
|
|
Total cash consideration
|
|
|
70,577
|
|
Less cash acquired
|
|
|
(3,401)
|
|
|
|
|
|
|
Total cash consideration, net of cash acquired
|
|
|
67,176
|
|
Add current and long-term debt assumed
|
|
|
2,478
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
69,654
|
|
|
|
|
|
|
The acquired intangible assets include amortizable intangible assets of $17.1 million and indefinite-lived intangible assets
of $7.4 million related to tradenames. The amortizable intangible assets have a weighted average useful life of approximately 11.5 years. The following table summarizes the identifiable intangible assets at fair value.
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Weighted
average
useful life in
years
|
|
|
Fair value of
identifiable
asset
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
10.9
|
|
|
$
|
11,820
|
|
Tradenames
|
|
|
N/A
|
|
|
|
7,430
|
|
Developed technology (proprietary)
|
|
|
14.7
|
|
|
|
4,420
|
|
Non-compete agreements
|
|
|
4.5
|
|
|
|
430
|
|
Backlog
|
|
|
0.4
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
11.5
|
|
|
$
|
24,490
|
|
|
|
|
|
|
|
|
|
|
Goodwill related to the acquisition of Elecsys primarily relates to intangible assets that do not qualify for separate
recognition, including the experience and knowledge of Elecsys management, its assembled workforce, and its intellectual capital and specialization with M2M communication technology solutions, data acquisition and management systems, and custom
electronic equipment. Goodwill recorded in connection with this acquisition is included in the irrigation reporting segment and is non-deductible for income tax purposes. Pro forma information related to this acquisition was not included because the
impact on the Companys consolidated financial statements was not considered to be material.
SPF Water Engineering, LLC
On July 20, 2015, the Company completed the acquisition of SPF Water Engineering, LLC (SPF) based in Boise, Idaho. SPF is a full-service water
resource consulting firm offering water supply studies, well design and construction, water and wastewater system design, water rights consulting and more. The Company paid $2.5 million, which was financed with cash on hand, for total purchase
consideration of $2.4 million net of cash
45
acquired of $0.1 million. The allocation of the purchase price for SPF was finalized in the first quarter of fiscal 2016 with no changes from the preliminary amounts reported in the
Companys Annual Report on Form 10-K as of August 31, 2015.
The total purchase price for SPF has been allocated to the tangible and intangible
assets acquired and liabilities assumed based on fair value assessments. The Companys allocation of purchase price for this acquisition consisted of current assets of $0.7 million, fixed assets of $0.1 million, finite-lived intangible assets
of $1.0 million, goodwill of $0.9 million and current liabilities of $0.2 million. Goodwill resulting from this acquisition is largely attributable to the existing workforce and historical and projected profitability of the acquired business. The
goodwill associated with SPF is included in the goodwill of the Companys irrigation segment. Pro forma information related to this acquisition was not included because the impact on the Companys consolidated financial statements was not
considered to be material.
Note 4 Net Earnings Per Share
The following table shows the computation of basic and diluted net earnings per share for fiscal 2016, 2015, and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ and shares in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
20,267
|
|
|
$
|
26,309
|
|
|
$
|
51,512
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
10,906
|
|
|
|
11,818
|
|
|
|
12,832
|
|
Diluted effect of stock equivalents
|
|
|
24
|
|
|
|
37
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding assuming dilution
|
|
|
10,930
|
|
|
|
11,855
|
|
|
|
12,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
$
|
1.86
|
|
|
$
|
2.23
|
|
|
$
|
4.01
|
|
Diluted net earnings per share
|
|
$
|
1.85
|
|
|
$
|
2.22
|
|
|
$
|
4.00
|
|
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. The following table shows the securities
excluded from the computation of earnings per share because their effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
(Units and options in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Restricted stock units
|
|
|
5
|
|
|
|
3
|
|
|
|
3
|
|
Stock options
|
|
|
89
|
|
|
|
50
|
|
|
|
44
|
|
Note 5 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is included in the accompanying consolidated balance sheets in the shareholders equity section, and consists of the
following components:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Defined benefit pension plan, net of tax benefit of $1,648 and $1,540
|
|
$
|
(2,781)
|
|
|
$
|
(2,523)
|
|
Foreign currency translation, net of hedging activities, net of tax expense of $3,287 and
$3,154
|
|
|
(11,391)
|
|
|
|
(12,785)
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(14,172)
|
|
|
$
|
(15,308)
|
|
|
|
|
|
|
|
|
|
|
46
The following is a roll-forward of the balances in accumulated other comprehensive income (loss), net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Defined
benefit
pension plan
adjustment
|
|
|
Foreign
currency
translation
adjustment
|
|
|
Accumulated
other
comprehensive
loss
|
|
Balance at August 31, 2014
|
|
$
|
(2,497)
|
|
|
$
|
296
|
|
|
$
|
(2,201)
|
|
Current-period change
|
|
|
(26)
|
|
|
|
(13,081)
|
|
|
|
(13,107)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2015
|
|
|
(2,523)
|
|
|
|
(12,785)
|
|
|
|
(15,308)
|
|
Current-period change
|
|
|
(258)
|
|
|
|
1,394
|
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2016
|
|
$
|
(2,781)
|
|
|
$
|
(11,391)
|
|
|
$
|
(14,172)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Income Taxes
For financial reporting purposes earnings (losses) before income taxes include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
17,805
|
|
|
$
|
49,668
|
|
|
$
|
70,066
|
|
Foreign
|
|
|
11,483
|
|
|
|
(2,917)
|
|
|
|
8,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,288
|
|
|
$
|
46,751
|
|
|
$
|
78,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the income tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10,570
|
|
|
$
|
15,908
|
|
|
$
|
29,015
|
|
State
|
|
|
976
|
|
|
|
1,426
|
|
|
|
2,176
|
|
Foreign
|
|
|
3,230
|
|
|
|
2,830
|
|
|
|
4,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
14,776
|
|
|
|
20,164
|
|
|
|
35,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(5,456)
|
|
|
|
(406)
|
|
|
|
(6,936)
|
|
State
|
|
|
(268)
|
|
|
|
45
|
|
|
|
(346)
|
|
Foreign
|
|
|
(31)
|
|
|
|
639
|
|
|
|
(913)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(5,755)
|
|
|
|
278
|
|
|
|
(8,195)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
9,021
|
|
|
$
|
20,442
|
|
|
$
|
27,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Total income tax provision resulted in effective tax rates differing from that of the statutory United States
federal income tax rates. The reasons for these differences are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
U.S. statutory rate
|
|
$
|
10,251
|
|
|
|
35.0
|
|
|
$
|
16,363
|
|
|
|
35.0
|
|
|
$
|
27,529
|
|
|
|
35.0
|
|
State and local taxes, net of federal tax
benefit
|
|
|
350
|
|
|
|
1.2
|
|
|
|
911
|
|
|
|
1.9
|
|
|
|
1,067
|
|
|
|
1.4
|
|
Foreign tax rate differences
|
|
|
(377)
|
|
|
|
(1.3)
|
|
|
|
1,311
|
|
|
|
2.8
|
|
|
|
(116)
|
|
|
|
(0.1)
|
|
Domestic production activities deduction
|
|
|
(960)
|
|
|
|
(3.3)
|
|
|
|
(1,548)
|
|
|
|
(3.3)
|
|
|
|
(2,170)
|
|
|
|
(2.8)
|
|
Deferred tax asset valuation allowance
|
|
|
|
|
|
|
|
|
|
|
2,949
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(243)
|
|
|
|
(0.8)
|
|
|
|
456
|
|
|
|
1.0
|
|
|
|
833
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
$
|
9,021
|
|
|
|
30.8
|
|
|
$
|
20,442
|
|
|
|
43.7
|
|
|
$
|
27,143
|
|
|
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
1,501
|
|
|
$
|
1,411
|
|
Net operating loss carry forwards
|
|
|
1,174
|
|
|
|
1,703
|
|
Defined benefit pension plan
|
|
|
2,917
|
|
|
|
2,754
|
|
Share-based compensation
|
|
|
1,839
|
|
|
|
1,814
|
|
State tax credits
|
|
|
|
|
|
|
87
|
|
Inventory
|
|
|
1,758
|
|
|
|
1,883
|
|
Warranty
|
|
|
2,708
|
|
|
|
2,672
|
|
Vacation
|
|
|
356
|
|
|
|
181
|
|
Accrued expenses and allowances
|
|
|
16,289
|
|
|
|
12,135
|
|
Other
|
|
|
378
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
28,920
|
|
|
|
25,167
|
|
Valuation allowance
|
|
|
(2,825)
|
|
|
|
(2,949)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
26,095
|
|
|
$
|
22,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(16,426)
|
|
|
|
(17,514)
|
|
Property, plant, and equipment
|
|
|
(6,605)
|
|
|
|
(6,687)
|
|
Inventory
|
|
|
(63)
|
|
|
|
(83)
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(23,094)
|
|
|
|
(24,284)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
3,001
|
|
|
$
|
(2,066)
|
|
|
|
|
|
|
|
|
|
|
In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Because the Company has a recent
48
history of generating cumulative losses in a certain foreign tax jurisdiction, management did not consider projections of future taxable income as persuasive evidence for the recoverability of
deferred tax assets in that jurisdiction. Therefore, the Company recorded a valuation allowance of $2.9 million as of August 31, 2015. The Company did not record an additional allowance in fiscal 2016.
The Company does not intend to repatriate earnings of its foreign subsidiaries and accordingly, has not provided a U.S. deferred income tax liability on these
undistributed earnings that are indefinitely reinvested. The Company would recognize a deferred income tax liability if the Company were to determine that such earnings are no longer indefinitely reinvested. At August 31, 2016, undistributed
earnings of the Companys foreign subsidiaries amounted to approximately $34.6 million. Determination of the estimated amount of unrecognized deferred tax liability on these undistributed earnings is not practicable.
The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount
recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. Unrecognized tax benefits are tax benefits claimed in the Companys tax returns that do not meet these recognition
and measurement standards.
A reconciliation of changes in pre-tax unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Unrecognized tax benefits at September 1
|
|
$
|
3,836
|
|
|
$
|
3,611
|
|
Increases for positions taken in current year
|
|
|
33
|
|
|
|
57
|
|
Increases for positions taken in prior years
|
|
|
153
|
|
|
|
547
|
|
Reduction resulting from lapse of applicable statute of limitations
|
|
|
(299)
|
|
|
|
(122)
|
|
Decreases for positions taken in prior years
|
|
|
|
|
|
|
(257)
|
|
Decreases for settlements with tax authorities
|
|
|
(2,463)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at August 31
|
|
$
|
1,260
|
|
|
$
|
3,836
|
|
|
|
|
|
|
|
|
|
|
The net amount of unrecognized tax benefits at August 31, 2016 and 2015 that, if recognized, would impact the Companys
effective tax rate was $1.3 million and $1.5 million, respectively. Recognition of these tax benefits would have a favorable impact on the Companys effective tax rate. The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in income tax expense. Total accrued pre-tax liabilities for interest and penalties included in the unrecognized tax benefits liability were $0.8 million and $1.2 million for the years ended August 31, 2016 and 2015,
respectively.
While it is expected that the amount of unrecognized tax benefits will change in the next twelve months as a result of the expiration of
statutes of limitations, the Company does not expect this change to have a significant impact on its results of operations or financial position.
The
Company files income tax returns in the United States and in state, local, and foreign jurisdictions. The Company is no longer subject to examination by tax authorities in most jurisdictions for years prior to 2013. During fiscal 2016, the U.S.
Internal Revenue Service completed its audit for fiscal 2011.
49
Note 7 - Inventories
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Raw materials and supplies
|
|
$
|
26,599
|
|
|
$
|
29,427
|
|
Work in process
|
|
|
5,742
|
|
|
|
7,318
|
|
Finished goods and purchased parts
|
|
|
47,805
|
|
|
|
44,269
|
|
|
|
|
|
|
|
|
|
|
Total inventory value before LIFO adjustment
|
|
|
80,146
|
|
|
|
81,014
|
|
Less adjustment to LIFO value
|
|
|
(5,396)
|
|
|
|
(6,084)
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
74,750
|
|
|
$
|
74,930
|
|
|
|
|
|
|
|
|
|
|
Note 8 Property, Plant, and Equipment
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Operating property, plant, and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
4,817
|
|
|
$
|
4,721
|
|
Buildings
|
|
|
48,417
|
|
|
|
44,032
|
|
Machinery and equipment
|
|
|
73,185
|
|
|
|
70,605
|
|
Furniture and fixtures
|
|
|
24,787
|
|
|
|
29,649
|
|
Construction in progress
|
|
|
8,316
|
|
|
|
9,135
|
|
|
|
|
|
|
|
|
|
|
Total operating property, plant, and equipment
|
|
|
159,522
|
|
|
|
158,142
|
|
Accumulated depreciation
|
|
|
(90,210)
|
|
|
|
(88,750)
|
|
|
|
|
|
|
|
|
|
|
Total operating property, plant, and equipment, net
|
|
$
|
69,312
|
|
|
$
|
69,392
|
|
|
|
|
Property held for lease:
|
|
|
|
|
|
|
|
|
Machines
|
|
|
6,868
|
|
|
|
5,769
|
|
Barriers
|
|
|
16,306
|
|
|
|
17,687
|
|
|
|
|
|
|
|
|
|
|
Total property held for lease
|
|
$
|
23,174
|
|
|
$
|
23,456
|
|
Accumulated depreciation
|
|
|
(14,859)
|
|
|
|
(14,192)
|
|
|
|
|
|
|
|
|
|
|
Total property held for lease, net
|
|
$
|
8,315
|
|
|
$
|
9,264
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
$
|
77,627
|
|
|
$
|
78,656
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $12.2 million, $11.7 million, and $10.8 million for fiscal 2016, 2015, and 2014, respectively.
Note 9 Goodwill and Other Intangible Assets
The
carrying amount of goodwill by reportable segment for the year ended August 31, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
Balance as of August 31, 2014
|
|
$
|
20,293
|
|
|
$
|
16,728
|
|
|
$
|
37,021
|
|
Acquisition of Elecsys
|
|
|
39,986
|
|
|
|
|
|
|
|
39,986
|
|
Acquisition of SPF
|
|
|
893
|
|
|
|
|
|
|
|
893
|
|
Foreign currency translation
|
|
|
(267)
|
|
|
|
(832)
|
|
|
|
(1,099)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2015
|
|
$
|
60,905
|
|
|
$
|
15,896
|
|
|
$
|
76,801
|
|
Foreign currency translation
|
|
|
37
|
|
|
|
(35)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2016
|
|
$
|
60,942
|
|
|
$
|
15,861
|
|
|
$
|
76,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
The components of the Companys identifiable intangible assets at August 31, 2016 and 2015 are included in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2016
|
|
|
2015
|
|
($ in thousands)
|
|
Weighted
average
years
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Weighted
average
years
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and developed technology
|
|
|
6.1
|
|
|
$
|
33,732
|
|
|
$
|
(18,893)
|
|
|
|
7.3
|
|
|
$
|
33,741
|
|
|
$
|
(16,473)
|
|
Customer relationships
|
|
|
6.0
|
|
|
|
19,952
|
|
|
|
(8,747)
|
|
|
|
8.0
|
|
|
|
19,958
|
|
|
|
(6,884)
|
|
Non-compete agreements
|
|
|
2.2
|
|
|
|
2,350
|
|
|
|
(1,450)
|
|
|
|
5.8
|
|
|
|
2,343
|
|
|
|
(1,044)
|
|
Other
|
|
|
9.5
|
|
|
|
239
|
|
|
|
(97)
|
|
|
|
0.3
|
|
|
|
1,010
|
|
|
|
(852)
|
|
Unamortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
N/A
|
|
|
|
20,114
|
|
|
|
|
|
|
|
N/A
|
|
|
|
20,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5.7
|
|
|
$
|
76,387
|
|
|
$
|
(29,187)
|
|
|
|
6.7
|
|
|
$
|
77,173
|
|
|
$
|
(25,253)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for amortizable intangible assets was $4.7 million, $4.7 million, and $4.0 million for fiscal 2016, 2015,
and 2014, respectively.
Future estimated amortization of intangible assets for the next five years is as follows:
|
|
|
|
|
Fiscal years
|
|
$ in thousands
|
|
2017
|
|
$
|
4,450
|
|
2018
|
|
|
4,200
|
|
2019
|
|
|
3,549
|
|
2020
|
|
|
3,142
|
|
2021
|
|
|
2,421
|
|
Thereafter
|
|
|
9,324
|
|
|
|
|
|
|
|
|
$
|
27,086
|
|
|
|
|
|
|
The Company updated its impairment evaluation of goodwill and intangible assets with indefinite useful lives at August 31,
2016. No impairment losses were indicated as a result of the annual impairment testing for fiscal 2016, 2015, and 2014.
Note 10 Other Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
19,044
|
|
|
$
|
16,168
|
|
Deferred revenues
|
|
|
7,594
|
|
|
|
6,146
|
|
Warranties
|
|
|
7,443
|
|
|
|
7,271
|
|
Dealer related liabilities
|
|
|
4,978
|
|
|
|
5,328
|
|
Tax related liabilities
|
|
|
4,210
|
|
|
|
8,435
|
|
Customer deposits
|
|
|
3,399
|
|
|
|
3,161
|
|
Other
|
|
|
8,737
|
|
|
|
9,596
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
55,405
|
|
|
$
|
56,105
|
|
|
|
|
|
|
|
|
|
|
51
Note 11 Credit Arrangements
Senior Notes
. On February 19, 2015, the Company issued $115.0 million in aggregate principal amount of Senior Notes, Series A (the
Senior Notes). The entire principal of the Senior Notes is due and payable on February 19, 2030. Interest on the Senior Notes is payable semi-annually at a fixed annual rate of 3.82 percent and borrowings under the Senior Notes are
unsecured. The Company intends to use the proceeds of the sale of the Senior Notes for general corporate purposes, including acquisitions and dividends.
Revolving Credit Facility
.
On February 18, 2015, the Company entered into a $50 million unsecured Amended and Restated Revolving
Credit Facility (the Revolving Credit Facility) with Wells Fargo Bank, National Association. The Revolving Credit Facility replaces a previous revolving credit facility from the same lender originally entered into on January 24,
2008 and last amended on January 22, 2014. The Company intends to use borrowings under the Revolving Credit Facility for working capital purposes and to fund acquisitions. At August 31, 2016 and August 31, 2015, the Company had no outstanding
borrowings under the Revolving Credit Facility. The amount of borrowings available at any time under the Revolving Credit Facility is reduced by the amount of standby letters of credit then outstanding. At August 31, 2016, the Company had the
ability to borrow up to $43.9 million under this facility, after consideration of outstanding standby letters of credit of $6.1 million. Borrowings under the Revolving Credit Facility bear interest at a variable rate equal to LIBOR plus 90 basis
points (1.42 percent at August 31, 2016), subject to adjustment as set forth in the loan documents for the Revolving Credit Facility. Interest is paid on a monthly to quarterly basis depending on loan type. The Company also pays an annual commitment
fee of 0.25 percent on the unused portion of the Revolving Credit Facility. Borrowings under the Revolving Credit Facility have equal priority with borrowings under the Companys Senior Notes. Unpaid principal and interest on the Revolving
Credit Facility is due by February 18, 2018.
Each of the credit arrangements described above include certain covenants relating primarily to the
Companys financial condition. These financial covenants include a funded debt to EBITDA leverage ratio and an interest coverage ratio. Upon the occurrence of any event of default of these covenants, including a change in control of the
Company, all amounts outstanding thereunder may be declared to be immediately due and payable. At August 31, 2016 and August 31, 2015, the Company was in compliance with all financial loan covenants contained in its credit arrangements in place as
of each of those dates.
Series 2006A Bonds
. Elecsys International Corporation, a wholly owned subsidiary of the Company, has outstanding
$2.2 million in principal amount of industrial revenue bonds that were issued in 2006 (the Series 2006A Bonds). Principal and interest on the Series 2006A Bonds are payable monthly through maturity on September 1, 2026. The interest rate
is adjustable based on the yield of the 5-year United States Treasury Notes, plus 0.45 percent (1.64 percent as of August 31, 2016). The obligations under the Series 2006A Bonds are secured by a first priority security interest in certain real
estate.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Senior Notes
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
Revolving Credit Facility
|
|
|
|
|
|
|
|
|
Series 2006A Bonds
|
|
|
2,173
|
|
|
|
2,366
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
117,173
|
|
|
|
117,366
|
|
Less current portion
|
|
|
(197)
|
|
|
|
(193)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
116,976
|
|
|
$
|
117,173
|
|
|
|
|
|
|
|
|
|
|
52
Principal payments due on the debt are as follows:
|
|
|
|
|
Due within
|
|
$ in thousands
|
|
1 year
|
|
$
|
197
|
|
2 years
|
|
|
201
|
|
3 years
|
|
|
205
|
|
4 years
|
|
|
209
|
|
5 years
|
|
|
213
|
|
Thereafter
|
|
|
116,148
|
|
|
|
|
|
|
|
|
$
|
117,173
|
|
|
|
|
|
|
Note 12 Financial Derivatives
Fair values of derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
Balance sheet location
|
|
2016
|
|
|
2015
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other current assets
|
|
$
|
40
|
|
|
$
|
217
|
|
Foreign currency forward contracts
|
|
Other current liabilities
|
|
|
(385)
|
|
|
|
(352)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
(345)
|
|
|
$
|
(135)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other current assets
|
|
$
|
33
|
|
|
$
|
495
|
|
Foreign currency forward contracts
|
|
Other current liabilities
|
|
|
(210)
|
|
|
|
(61)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
(177)
|
|
|
$
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income included realized and unrealized after-tax gains of $5.6 million, $5.4 million, and
$2.0 million at August 31, 2016, 2015, and 2014, respectively, related to derivative contracts designated as hedging instruments.
Net Investment
Hedging Relationships
The amount of loss recognized in OCI on derivatives is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Foreign currency forward contracts, net of tax expense of $52, $2,083, and $16
|
|
$
|
(204)
|
|
|
$
|
(3,420)
|
|
|
$
|
(53)
|
|
During fiscal 2016, 2015, and 2014, the Company settled Euro foreign currency forward contracts resulting in after-tax net
gains (losses) of $0.3 million, $3.8 million, and ($0.5 million), respectively, which were included in OCI as part of a currency translation adjustment. There were no amounts recorded in the consolidated statement of operations related to
ineffectiveness of Euro foreign currency forward contracts for the years ended August 31, 2016, 2015, and 2014.
At August 31, 2016 and 2015, the Company
had outstanding Euro foreign currency forward contracts to sell 32.6 million Euro and 29.1 million Euro, respectively, at fixed prices to settle during the next fiscal quarter. At August 31, 2016 and 2015, the Company also 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 Companys foreign currency forward contracts qualify as hedges of a net investment in foreign operations.
53
Derivatives Not Designated as Hedging Instruments
In order to reduce exposures related to changes in foreign currency exchange rates, the Company, at times, may enter into forward exchange or option contracts
for transactions denominated in a currency other than the functional currency for certain of the Companys operations. This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory, sales of
finished goods, and future settlement of foreign denominated assets and liabilities. The Company may choose whether or not to designate these contracts as hedges. For those contracts not designated, changes in fair value are recognized currently in
the income statement. At August 31, 2016 and 2015, the Company had $8.2 million and $9.5 million, respectively, of U.S. dollar equivalent of foreign currency forward contracts outstanding.
Note 13 Fair Value Measurements
The following
table presents the Companys financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements fall, as of August 31, 2016 and 2015, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2016
|
|
($ 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)
|
|
|
|
|
|
August 31, 2015
|
|
($ in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
139,093
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
139,093
|
|
Derivative assets
|
|
|
|
|
|
|
712
|
|
|
|
|
|
|
|
712
|
|
Derivative liabilities
|
|
|
|
|
|
|
(413)
|
|
|
|
|
|
|
|
(413)
|
|
The carrying value of long-term debt (including current portion) was $117.2 million and $117.4 million at August 31, 2016 and
2015, respectively. The fair value of this debt was estimated to be $116.5 million and $114.9 million as of August 31, 2016 and 2015, based on current market rates as of the respective year-ends.
Note 14 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 EPAs 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
54
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.
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 Companys remediation timeline. In the first quarter of fiscal 2015, the Company accrued $1.5 million of incremental operating costs to reflect its updated timeline.
The Company began soil and groundwater testing in preparation for developing this feasibility study during the first quarter of fiscal 2016. During the second
quarter of fiscal 2016, the Company completed its testing which clarified the extent of contamination, including the identification of a source of contamination near the manufacturing building that was not part of the area for which reserves were
previously established. The Company, with the assistance of third-party environmental experts, developed and evaluated remediation alternatives, a proposed remediation plan, and estimated costs. Based on these estimates of future remediation and
operating costs, the Company accrued an additional $13.0 million in the second quarter of fiscal 2016 and included the related expenses in general and administrative expenses in the consolidated statement of operations.
The current estimated aggregate accrued cost of $19.0 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 the preliminary discussions with the EPA, the Company anticipates that a definitive plan will not be agreed upon until fiscal
2017 or later.
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 preliminary analysis available at this time, 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 be available in the future, and (4) unforeseen circumstances existing at the site.
As a result of these factors, the actual amount of costs incurred by the Company in connection with the remediation of contamination of its Lindsay, Nebraska site could exceed the amounts accrued for this expense at this time. 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 August 31, 2016 and
2015:
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
August 31,
|
|
Balance sheet location
|
|
2016
|
|
|
2015
|
|
Other current liabilities
|
|
$
|
722
|
|
|
$
|
1,431
|
|
Other noncurrent liabilities
|
|
|
18,255
|
|
|
|
6,100
|
|
|
|
|
|
|
|
|
|
|
Total environmental remediation liabilities
|
|
$
|
18,977
|
|
|
$
|
7,531
|
|
|
|
|
|
|
|
|
|
|
55
Leases
The
Company leases land, buildings, machinery, equipment, and computer equipment under various non-cancelable operating lease agreements. At August 31, 2016, future minimum lease payments under non-cancelable operating leases were as follows:
|
|
|
|
|
Fiscal years
|
|
$ in thousands
|
|
2017
|
|
$
|
3,921
|
|
2018
|
|
|
3,069
|
|
2019
|
|
|
2,483
|
|
2020
|
|
|
1,780
|
|
2021
|
|
|
1,662
|
|
Thereafter
|
|
|
4,371
|
|
|
|
|
|
|
|
|
$
|
17,286
|
|
|
|
|
|
|
Lease expense was $5.0 million, $4.5 million, and $4.0 million for fiscal 2016, 2015, and 2014, respectively.
Note 15 Retirement Plans
The Company has defined
contribution
profit-sharing
plans covering substantially all of its full-time U.S. employees. Participants may voluntarily contribute a percentage of compensation, but not in excess of the maximum allowed
under the Internal Revenue Code. The plans provide for a matching contribution by the Company. The Companys total contributions charged to expense under the plans were $1.5 million, $1.2 million, and $1.2 million for the years ended August 31,
2016, 2015, and 2014, respectively.
A supplementary
non-qualified,
non-funded
retirement plan for six former executives is also maintained. Plan benefits are based on the executives average total compensation during the three highest compensation years of employment.
This unfunded supplemental retirement plan is not subject to the minimum funding requirements of ERISA. The Company has purchased life insurance policies on certain former executives named in this supplemental retirement plan to provide funding for
this liability.
As of August 31, 2016 and 2015, the funded status of the supplemental retirement plan was recorded in the consolidated balance sheets.
The Company utilizes an August 31 measurement date for plan obligations related to the supplemental retirement plan. As this is an unfunded retirement plan, the funded status is equal to the benefit obligation.
The funded status of the plan and the net amount recognized in the accompanying balance sheets as of August 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
7,126
|
|
|
$
|
7,157
|
|
Interest cost
|
|
|
281
|
|
|
|
275
|
|
Actuarial loss
|
|
|
576
|
|
|
|
251
|
|
Benefits paid
|
|
|
(557)
|
|
|
|
(557)
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
7,426
|
|
|
$
|
7,126
|
|
|
|
|
|
|
|
|
|
|
56
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Other current liabilities
|
|
$
|
557
|
|
|
$
|
557
|
|
Pension benefit liabilities
|
|
|
6,869
|
|
|
|
6,569
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
7,426
|
|
|
$
|
7,126
|
|
|
|
|
|
|
|
|
|
|
The before-tax amounts recognized in accumulated other comprehensive loss consists of:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Net actuarial loss
|
|
$
|
(4,429)
|
|
|
$
|
(4,063)
|
|
For the years ended August 31, 2016 and 2015, the Company assumed a discount rate of 3.30 percent and 4.10 percent,
respectively, for the determination of the liability. The assumptions used to determine benefit obligations and costs are selected based on current and expected market conditions. The discount rate is based on a hypothetical portfolio of long-term
corporate bonds with cash flows approximating the timing of expected benefit payments.
For the years ended August 31, 2016, 2015, and 2014, the Company
assumed a discount rate of 4.10 percent, 4.00 percent, and 4.75 percent, respectively, for the determination of the net periodic benefit cost. The components of the net periodic benefit cost for the supplemental retirement plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest cost
|
|
$
|
281
|
|
|
$
|
275
|
|
|
$
|
314
|
|
Net amortization and deferral
|
|
|
209
|
|
|
|
209
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
490
|
|
|
$
|
484
|
|
|
$
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated actuarial loss for the supplemental retirement plan that will be amortized, on a pre-tax basis, from accumulated
other comprehensive loss into net periodic benefit cost during fiscal 2017 will be $0.2 million.
The Companys future annual contributions to the
supplemental retirement plan will be equal to expected net benefit payments since the plan is unfunded. The following net benefit payments are expected to be paid:
|
|
|
|
|
Fiscal years
|
|
$ in thousands
|
|
2017
|
|
$
|
557
|
|
2018
|
|
|
540
|
|
2019
|
|
|
534
|
|
2020
|
|
|
527
|
|
2021
|
|
|
519
|
|
Thereafter
|
|
|
4,749
|
|
|
|
|
|
|
|
|
$
|
7,426
|
|
|
|
|
|
|
Note 16 - Warranties
Product Warranties
The Company generally warrants its
products against certain manufacturing and other defects. These product warranties are provided for specific periods and/or usage of the product. The accrued product warranty costs are for a combination of specifically identified items and other
incurred, but not identified, items based primarily on historical experience of actual warranty claims. This reserve is classified within other current liabilities.
57
The following tables provide the changes in the Companys product warranties:
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Product warranty accrual balance, beginning of period
|
|
$
|
7,271
|
|
|
$
|
9,331
|
|
Liabilities accrued for warranties during the period
|
|
|
5,912
|
|
|
|
4,223
|
|
Warranty claims paid during the period
|
|
|
(5,244)
|
|
|
|
(4,856)
|
|
Changes in estimates
|
|
|
(496)
|
|
|
|
(1,427)
|
|
|
|
|
|
|
|
|
|
|
Product warranty accrual balance, end of period
|
|
$
|
7,443
|
|
|
$
|
7,271
|
|
|
|
|
|
|
|
|
|
|
Warranty costs were $5.4 million, $2.8 million, and $6.4 million for fiscal 2016, 2015, and 2014, respectively.
Note 17 Industry Segment Information
The Company
manages its business activities in two reportable segments: Irrigation and Infrastructure. The accounting policies of the two reportable segments are the same as those described in Note 1, Description of Business and Significant Accounting Policies.
The Company evaluates the performance of its reportable segments based on segment sales, gross profit, and operating income, with operating income for segment purposes excluding unallocated corporate general and administrative expenses, interest
income, interest expense, other income and expenses, and income taxes. Operating income for segment purposes does include 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.
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 M2M 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 manufacturing and selling of large diameter steel tubing and railroad signals and structures; and providing outsourced manufacturing and production services. The infrastructure reporting segment consists of one operating
segment.
The Company has no single major customer representing 10 percent or more of its total revenues during fiscal 2016, 2015, or 2014.
58
Summarized financial information concerning the Companys reportable segments is shown in the following
tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
421,641
|
|
|
$
|
451,205
|
|
|
$
|
539,943
|
|
Infrastructure
|
|
|
94,770
|
|
|
|
108,976
|
|
|
|
77,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
516,411
|
|
|
$
|
560,181
|
|
|
$
|
617,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
49,232
|
|
|
$
|
52,065
|
|
|
$
|
91,697
|
|
Infrastructure
|
|
|
18,535
|
|
|
|
20,249
|
|
|
|
3,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
67,767
|
|
|
|
72,314
|
|
|
|
95,208
|
|
|
|
|
|
Unallocated general and administrative expenses
|
|
|
(33,392)
|
|
|
|
(21,619)
|
|
|
|
(16,850)
|
|
Interest and other income (expense), net
|
|
|
(5,087)
|
|
|
|
(3,944)
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$
|
29,288
|
|
|
$
|
46,751
|
|
|
$
|
78,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
8,375
|
|
|
$
|
12,406
|
|
|
$
|
14,778
|
|
Infrastructure
|
|
|
2,977
|
|
|
|
2,671
|
|
|
|
2,181
|
|
Corporate
|
|
|
144
|
|
|
|
167
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,496
|
|
|
$
|
15,244
|
|
|
$
|
17,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
11,774
|
|
|
$
|
11,000
|
|
|
$
|
9,125
|
|
Infrastructure
|
|
|
4,648
|
|
|
|
4,966
|
|
|
|
5,299
|
|
Corporate
|
|
|
459
|
|
|
|
446
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,881
|
|
|
$
|
16,412
|
|
|
$
|
14,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
341,972
|
|
|
$
|
328,036
|
|
|
$
|
280,031
|
|
Infrastructure
|
|
|
83,531
|
|
|
|
81,494
|
|
|
|
96,488
|
|
Corporate
|
|
|
74,061
|
|
|
|
126,938
|
|
|
|
150,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
499,565
|
|
|
$
|
536,468
|
|
|
$
|
526,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized financial information concerning the Companys geographical areas is shown in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Revenues
|
|
|
% of
total
|
|
|
Revenues
|
|
|
% of
total
|
|
|
Revenues
|
|
|
% of
total
|
|
United States
|
|
$
|
321,554
|
|
|
|
62
|
|
|
$
|
350,290
|
|
|
|
63
|
|
|
$
|
377,652
|
|
|
|
61
|
|
International
|
|
|
194,857
|
|
|
|
38
|
|
|
|
209,891
|
|
|
|
37
|
|
|
|
240,281
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
516,411
|
|
|
|
100
|
|
|
$
|
560,181
|
|
|
|
100
|
|
|
$
|
617,933
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Long-lived
tangible assets
|
|
|
% of
total
|
|
|
Long-lived
tangible assets
|
|
|
% of
total
|
|
|
Long-lived
tangible assets
|
|
|
% of
total
|
|
United States
|
|
$
|
58,098
|
|
|
|
75
|
|
|
$
|
61,332
|
|
|
|
78
|
|
|
$
|
55,378
|
|
|
|
76
|
|
International
|
|
|
19,529
|
|
|
|
25
|
|
|
|
17,324
|
|
|
|
22
|
|
|
|
17,079
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
77,627
|
|
|
|
100
|
|
|
$
|
78,656
|
|
|
|
100
|
|
|
$
|
72,457
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18 Share-Based Compensation
Share-Based Compensation Program
Share-based
compensation is designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share grants are based on competitive practices, operating results
of the Company, and individual performance. As of August 31, 2016, the Companys share-based compensation plan was the 2015 Long-Term Incentive Plan (the 2015 Plan). The 2015 Plan was approved by the shareholders of the Company, and
became effective on January 26, 2015, and replaced the Companys 2010 Long Term Incentive Plan. At August 31, 2016, the Company had share-based awards outstanding under its 2010 and 2015 Long-Term Incentive Plans.
The 2015 Plan 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 maximum number of shares as to which stock awards may be granted under the 2015 Plan is 626,968 shares, exclusive of any forfeitures from the 2010 Long Term Incentive Plan. At
August 31, 2016, 555,034 shares of common stock (including forfeitures from prior plans) remained available for issuance under the 2015 Plan. All stock awards will be counted against the 2015 Plan in a 1 to 1 ratio. If options, restricted stock
units or performance stock units awarded under the 2010 Plan terminate without being fully vested or exercised, those shares will be available again for grant under the 2015 Plan. The 2015 Plan also limits the total awards that may be made to any
individual.
Share-Based Compensation Information
The
following table summarizes share-based compensation expense for fiscal 2016, 2015, and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Share-based compensation expense included in cost of operating revenues
|
|
$
|
207
|
|
|
$
|
161
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
140
|
|
|
|
121
|
|
|
|
135
|
|
Sales and marketing
|
|
|
455
|
|
|
|
523
|
|
|
|
570
|
|
General and administrative
|
|
|
2,258
|
|
|
|
2,527
|
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in operating expenses
|
|
|
2,853
|
|
|
|
3,171
|
|
|
|
4,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
|
3,060
|
|
|
|
3,332
|
|
|
|
4,207
|
|
Tax benefit
|
|
|
(1,138)
|
|
|
|
(1,240)
|
|
|
|
(1,594)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense, net of tax
|
|
$
|
1,922
|
|
|
$
|
2,092
|
|
|
$
|
2,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2016, there was $4.1 million pre-tax of total unrecognized compensation cost related to non-vested
share-based compensation arrangements which is expected to be recognized over a weighted average period of 2.0 years.
Stock Options
Stock
option awards have an exercise price equal to the closing price on the date of grant, expire no later than ten years from the date of grant and vest over a four-year period at 25 percent per year. The
60
fair value of stock option awards is estimated using the Black-Scholes option pricing model. The table below shows the annual weighted average assumptions used for valuation purposes.
|
|
|
|
|
|
|
|
|
|
|
Grant year
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
Risk-free interest rate
|
|
|
1.8%
|
|
|
|
2.0%
|
|
Dividend yield
|
|
|
1.7%
|
|
|
|
1.3%
|
|
Expected life (years)
|
|
|
7
|
|
|
|
7
|
|
Volatility
|
|
|
46.3%
|
|
|
|
53.6%
|
|
Weighted average grant-date fair value of options granted
|
|
$
|
27.88
|
|
|
$
|
40.66
|
|
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend yield is calculated
as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and volatility is based on the historical volatility of the Companys
stock price over the expected life of the option.
The following table summarizes information about stock options outstanding as of and for the years
ended August 31, 2016, 2015, and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
stock options
|
|
|
Average
exercise price
|
|
|
Average
remaining
contractual
term (years)
|
|
|
Aggregate
intrinsic value
(thousands)
|
|
Stock options outstanding at August 31, 2014
|
|
|
86,623
|
|
|
$
|
63.80
|
|
|
|
7.3
|
|
|
$
|
1,211
|
|
Granted
|
|
|
25,332
|
|
|
$
|
83.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,859)
|
|
|
$
|
39.99
|
|
|
|
|
|
|
$
|
425
|
|
Forfeited / cancelled
|
|
|
(5,720)
|
|
|
$
|
76.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at August 31, 2015
|
|
|
96,376
|
|
|
$
|
70.65
|
|
|
|
7.3
|
|
|
$
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
39,999
|
|
|
$
|
67.68
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,456)
|
|
|
$
|
25.47
|
|
|
|
|
|
|
$
|
181
|
|
Forfeited / cancelled
|
|
|
(4,633)
|
|
|
$
|
72.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at August 31, 2016
|
|
|
127,286
|
|
|
$
|
71.24
|
|
|
|
7.4
|
|
|
$
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 31, 2014
|
|
|
30,130
|
|
|
$
|
49.55
|
|
|
|
5.3
|
|
|
$
|
851
|
|
Exercisable at August 31, 2015
|
|
|
39,449
|
|
|
$
|
61.47
|
|
|
|
6.1
|
|
|
$
|
583
|
|
Exercisable at August 31, 2016
|
|
|
57,250
|
|
|
$
|
68.57
|
|
|
|
6.1
|
|
|
$
|
362
|
|
There were 23,164, 19,178, and 13,793 outstanding stock options that vested during fiscal 2016, 2015, and 2014, respectively.
Additional information regarding stock option exercises is summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Intrinsic value of stock options exercised
|
|
$
|
181
|
|
|
$
|
425
|
|
|
$
|
853
|
|
Cash received from stock option exercises
|
|
$
|
113
|
|
|
$
|
394
|
|
|
$
|
455
|
|
Tax benefit realized from stock option exercises
|
|
$
|
67
|
|
|
$
|
158
|
|
|
$
|
317
|
|
Aggregate grant-date fair value of stock options vested
|
|
$
|
37.70
|
|
|
$
|
36.71
|
|
|
$
|
34.89
|
|
Restricted stock units -
The restricted stock units have a grant-date fair value equal to the fair market value of the
underlying stock on the grant date less present value of expected dividends. The restricted stock units granted to employees vest over a three-year period at approximately 33 percent per year. The restricted stock units granted to non-employee
directors generally vest over a nine-month period.
61
The following table summarizes information about restricted stock units as of and for the years ended August 31,
2016, 2015, and 2014:
|
|
|
|
|
|
|
|
|
|
|
Number of
restricted
stock units
|
|
|
Weighted
average grant-
date fair value
|
|
Restricted stock units outstanding at August 31, 2014
|
|
|
59,153
|
|
|
$
|
73.04
|
|
Granted
|
|
|
34,291
|
|
|
|
80.94
|
|
Vested
|
|
|
(32,349)
|
|
|
|
72.28
|
|
Forfeited / Cancelled
|
|
|
(4,123)
|
|
|
|
77.55
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at August 31, 2015
|
|
|
56,972
|
|
|
$
|
78.54
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
48,022
|
|
|
|
64.36
|
|
Vested
|
|
|
(30,634)
|
|
|
|
78.68
|
|
Forfeited / Cancelled
|
|
|
(7,306)
|
|
|
|
70.41
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at August 31, 2016
|
|
|
67,054
|
|
|
$
|
69.11
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units are generally settled with the issuance of shares with the exception of certain restricted stock units
awarded to internationally-based employees that are settled in cash. At August 31, 2016, 2015, and 2014, outstanding restricted stock units included 6,155, 5,504, and 5,289 units, respectively, that will be settled in cash. The fair value of
restricted stock units that vested during the period was $2.4 million and $2.3 million for each of the years ended August 31, 2016 and 2015, respectively.
Performance stock units -
The performance stock units have a grant-date fair value equal to the fair market value of the underlying stock on the grant
date less present value of expected dividends. The performance stock units granted to employees cliff vest after a three-year period and a specified number of shares of common stock will be awarded under the terms of the performance stock units, if
performance measures relating to revenue growth and a return on net assets are achieved.
The table below summarizes the status of the Companys
performance stock units as of and for the year ended August 31, 2016, 2015, and 2014:
|
|
|
|
|
|
|
|
|
|
|
Number of
performance
stock units
|
|
|
Weighted
average grant-
date fair value
|
|
Performance stock units outstanding at August 31, 2014
|
|
|
40,752
|
|
|
$
|
67.81
|
|
Granted
|
|
|
12,328
|
|
|
|
80.33
|
|
Vested
|
|
|
(15,786)
|
|
|
|
57.09
|
|
Forfeited / cancelled
|
|
|
(3,438)
|
|
|
|
76.44
|
|
|
|
|
|
|
|
|
|
|
Performance stock units outstanding at August 31, 2015
|
|
|
33,856
|
|
|
$
|
76.50
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
16,466
|
|
|
|
64.37
|
|
Vested
|
|
|
(7,665)
|
|
|
|
74.31
|
|
Forfeited / cancelled
|
|
|
(4,509)
|
|
|
|
72.28
|
|
|
|
|
|
|
|
|
|
|
Performance stock units outstanding at August 31, 2016
|
|
|
38,148
|
|
|
$
|
72.20
|
|
|
|
|
|
|
|
|
|
|
In connection with the performance stock units, the performance goals are based upon revenue growth and a return on net assets
during the performance period. The awards actually earned will range from zero to two hundred percent of the targeted number of performance stock units and will be paid in shares of common stock. Shares earned will be distributed upon vesting on the
first day of November following the end of the three-year performance period. The Company is accruing compensation expense based on the estimated number of shares expected to be issued utilizing the most current information available to the Company
at the date of the financial statements. If defined performance goals are not met, no compensation cost will be recognized and any
62
previously recognized compensation expense will be reversed. In fiscal 2016 and fiscal 2015, performance stock units that vested represented 7,665 and 27,473, respectively, of actual shares of
common stock issued. The fair value of performance stock units that vested during the period was $0.6 million and $1.6 million for the years ended August 31, 2016 and 2015, respectively.
Note 19 Share Repurchases
On January 3, 2014,
the Company announced that its Board of Directors authorized a share repurchase program of up to $150.0 million of common stock through January 2, 2016. On July 22, 2015, the Company announced that its Board of Directors increased its outstanding
share repurchase authorization by $100.0 million with no expiration. Under the program, shares may be repurchased in privately negotiated and/or open market transactions as well as under formalized trading plans in accordance with the guidelines
specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. During the twelve months ended August 31, 2016, the Company repurchased 688,790 shares for an aggregate purchase price of $48.3 million. During the twelve months ended
August 31, 2015, the Company repurchased 1,198,089 shares of common stock for an aggregate purchase price of $96.9 million. The remaining amount available under the repurchase program was $63.7 million as of August 31, 2016.
Note 20 Quarterly Results of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands, except per share amounts)
|
|
First
Quarter
|
|
|
Second
Quarter
(1)
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
(2)
|
|
Year ended August 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
121,622
|
|
|
$
|
120,573
|
|
|
$
|
141,319
|
|
|
$
|
132,897
|
|
Cost of operating revenues
|
|
$
|
87,208
|
|
|
$
|
88,128
|
|
|
$
|
99,511
|
|
|
$
|
92,951
|
|
Earnings (loss) before income taxes
|
|
$
|
10,396
|
|
|
$
|
(6,193)
|
|
|
$
|
14,065
|
|
|
$
|
11,020
|
|
Net earnings (loss)
|
|
$
|
6,944
|
|
|
$
|
(4,129)
|
|
|
$
|
9,644
|
|
|
$
|
7,808
|
|
Diluted net earnings (loss) per share
|
|
$
|
0.62
|
|
|
$
|
(0.37)
|
|
|
$
|
0.90
|
|
|
$
|
0.73
|
|
|
|
|
|
|
Year ended August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
134,845
|
|
|
$
|
141,089
|
|
|
$
|
160,707
|
|
|
$
|
123,540
|
|
Cost of operating revenues
|
|
$
|
97,931
|
|
|
$
|
101,533
|
|
|
$
|
114,321
|
|
|
$
|
90,075
|
|
Earnings before income taxes
|
|
$
|
11,661
|
|
|
$
|
14,138
|
|
|
$
|
20,423
|
|
|
$
|
529
|
|
Net earnings (loss)
|
|
$
|
7,568
|
|
|
$
|
8,995
|
|
|
$
|
12,927
|
|
|
$
|
(3,181)
|
|
Diluted net earnings (loss) per share
|
|
$
|
0.62
|
|
|
$
|
0.75
|
|
|
$
|
1.10
|
|
|
$
|
(0.28)
|
|
(1)
The second quarter 2016 results were affected by an environmental
charge reducing net earnings by $8.5 million.
(2)
The fourth quarter 2015 results were affected by a
bad debt reserve of $5.0 million on accounts receivable and a reserve of $2.9 million against foreign deferred income tax assets.
63