NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
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, 2019.
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.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. The effective date of ASU No. 2016-13 will be the first quarter of the Company’s fiscal 2021 with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements and related disclosures.
Recent Accounting Guidance Adopted
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a lease liability for most leases and disclose key information about leasing arrangements. The new guidance became effective for the Company in the first quarter of fiscal 2020. The Company implemented Accounting Standards Codification (“ASC”) 842 and recorded a right of use asset and lease liability of $26.2 million and $29.5 million, respectively, upon adoption of the standard on the first day of fiscal 2020.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which modifies the financial reporting of hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU No. 2017-12 became effective in the first quarter of the Company’s fiscal 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
- 9 -
Table of Contents
Note 2 – Revenue Recognition
Disaggregation of Revenue
A breakout by segment of revenue recognized over time versus at a point in time for the three and nine months ended May 31, 2020 and May 31, 2019 is as follows:
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
May 31, 2020
|
|
|
May 31, 2019
|
|
($ in thousands)
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
Point in time
|
|
$
|
83,128
|
|
|
$
|
24,499
|
|
|
$
|
107,627
|
|
|
$
|
89,442
|
|
|
$
|
19,429
|
|
|
$
|
108,871
|
|
Over time
|
|
|
10,395
|
|
|
|
2,621
|
|
|
|
13,016
|
|
|
|
9,176
|
|
|
|
1,589
|
|
|
|
10,765
|
|
Revenue from the contracts with customers
|
|
|
93,523
|
|
|
|
27,120
|
|
|
|
120,643
|
|
|
|
98,618
|
|
|
|
21,018
|
|
|
|
119,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
|
|
—
|
|
|
|
2,463
|
|
|
|
2,463
|
|
|
|
—
|
|
|
|
1,418
|
|
|
|
1,418
|
|
Total operating revenues
|
|
$
|
93,523
|
|
|
$
|
29,583
|
|
|
$
|
123,106
|
|
|
$
|
98,618
|
|
|
$
|
22,436
|
|
|
$
|
121,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
Nine months ended
|
|
|
|
May 31, 2020
|
|
|
May 31, 2019
|
|
($ in thousands)
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
Point in time
|
|
$
|
229,529
|
|
|
$
|
64,257
|
|
|
$
|
293,786
|
|
|
$
|
256,466
|
|
|
$
|
51,593
|
|
|
$
|
308,059
|
|
Over time
|
|
|
38,419
|
|
|
|
7,306
|
|
|
|
45,725
|
|
|
|
25,528
|
|
|
|
4,372
|
|
|
|
29,900
|
|
Revenue from the contracts with customers
|
|
|
267,948
|
|
|
|
71,563
|
|
|
|
339,511
|
|
|
|
281,994
|
|
|
|
55,965
|
|
|
|
337,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
|
|
—
|
|
|
|
6,776
|
|
|
|
6,776
|
|
|
|
—
|
|
|
|
4,228
|
|
|
|
4,228
|
|
Total operating revenues
|
|
$
|
267,948
|
|
|
$
|
78,339
|
|
|
$
|
346,287
|
|
|
$
|
281,994
|
|
|
$
|
60,193
|
|
|
$
|
342,187
|
|
Further disaggregation of revenue is disclosed in the Note 16 – Industry Segment Information.
For contracts with an initial length longer than twelve months, the unsatisfied performance obligations were $6.1 million at May 31, 2020.
Contract Balances
Contract assets arise when recorded revenue for a contract exceeds the amounts billed under the terms of such contract. Contract liabilities arise when billed amounts exceed revenue recorded. Amounts are billable to customers upon various measures of performance, including achievement of certain milestones and completion of specified units of completion of the contract. At May 31, 2020, May 31, 2019, and August 31, 2019, contract assets amounted to $0.8 million, $1.4 million, and $1.3 million, respectively. These amounts are included within other current assets on the condensed consolidated balance sheet.
Contract liabilities include advance payments from customers and billings in excess of delivery of performance obligations. At May 31, 2020, May 31, 2019, and August 31, 2019, contract liabilities amounted to $16.9 million, $13.1 million, and $18.4 million, respectively. Contract liabilities are included within other current liabilities on the condensed consolidated balance sheets. During the Company’s nine months ended May 31, 2020 and 2019, the Company recognized $13.5 million and $0.8 million of revenue that were included in the liabilities as of August 31, 2019 and 2018, respectively. The revenue recognized was due to applying advance payments received for the performance obligations completed during the quarter.
Note 3 – Acquisitions and Divestitures
Net Irrigate, LLC
On April 8, 2020, the Company completed the acquisition of the membership interests of Net Irrigate, LLC (“Net Irrigate”). Net Irrigate is an agriculture technology company based in Indiana that provides remote monitoring services for irrigation customers. The purchase price of $4.5 million consisted of (i) $3.0 million, net of cash acquired, paid in cash at closing and financed from the Company’s cash on hand, (ii) $0.3 million of cash to be paid within ninety days of closing, and (iii) an earn-out payment, initially valued at $1.2 million, based on active customers one year subsequent to the closing date. The fair value of the earn-out payment was calculated using the weighted average probability for each potential outcome and has a maximum potential payout of $1.5 million.
- 10 -
Table of Contents
The Company’s allocation of purchase price consists of goodwill of $3.2 million and various other assets and liabilities amounting to $1.3 million. The allocation of purchase price is considered preliminary, largely with the respect to the valuation of certain acquired intangible assets.
Divestitures and held-for-sale
The Company completed the divestiture of its Company-owned irrigation dealership during the first quarter of fiscal 2019 and recorded a loss on sale of $0.3 million included in general and administrative expense on the condensed consolidated statement of operations for the nine months ended May 31, 2019. The Company received a note of $5.6 million as proceeds for this sale. This is included as a noncash investing activity on the condensed consolidated statement of cash flows for the nine months ended May 31, 2019.
Additionally, during the fourth quarter of fiscal 2018, the Company closed one of its infrastructure manufacturing facilities in North America and consolidated its operations with an irrigation manufacturing facility. In the second quarter of fiscal 2020, the company sold the building for net proceeds of $3.9 million, resulting in a gain of $1.2 million. The gain on sale is included in cost of goods sold on the condensed consolidated statement of earnings for the nine months ended May 31, 2020. The building was included within the caption “Assets held-for-sale” for $2.7 million in the condensed consolidated balance sheet as of May 31, 2019 and August 31, 2019.
Note 4 – Net Earnings per Share
Basic earnings per share is calculated on the basis of weighted average outstanding common shares. Diluted earnings per share is calculated on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, restricted stock unit awards and other dilutive securities. When a period results in a net loss, the impact of outstanding stock awards is excluded from the diluted loss per share calculation as the inclusion would have an anti-dilutive effect.
The following table shows the computation of basic and diluted net earnings per share for the three and nine months ended May 31, 2020 and May 31, 2019:
|
|
Three months ended
|
|
|
Nine months ended
|
|
($ and shares in thousands, except per share amounts)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
10,094
|
|
|
$
|
2,897
|
|
|
$
|
23,955
|
|
|
$
|
669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
10,835
|
|
|
|
10,786
|
|
|
|
10,818
|
|
|
|
10,779
|
|
Diluted effect of stock awards
|
|
|
42
|
|
|
|
28
|
|
|
|
36
|
|
|
|
28
|
|
Weighted average shares outstanding assuming
dilution
|
|
|
10,877
|
|
|
|
10,814
|
|
|
|
10,854
|
|
|
|
10,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
$
|
0.93
|
|
|
$
|
0.27
|
|
|
$
|
2.21
|
|
|
$
|
0.06
|
|
Diluted net earnings per share
|
|
$
|
0.93
|
|
|
$
|
0.27
|
|
|
$
|
2.21
|
|
|
$
|
0.06
|
|
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,
2020
|
|
|
May 31,
2019
|
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
Restricted stock units
|
|
|
3
|
|
|
|
—
|
|
|
|
9
|
|
|
|
11
|
|
Stock options
|
|
|
115
|
|
|
|
88
|
|
|
|
42
|
|
|
|
66
|
|
Performance stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
3
|
|
- 11 -
Table of Contents
Note 5 – Income Taxes
The Company recorded income tax expense of $2.2 million and $0.3 million for the three months ended May 31, 2020 and 2019, respectively, and recorded income tax expense of $6.4 million and income tax benefit of $0.8 million for the nine months ended May 31, 2020 and 2019, respectively.
It is the Company’s policy to report income tax expense for interim periods using an estimated annual effective income tax rate. The estimated annual effective income tax rate was 23.6 percent and 42.6 percent for the nine months ended May 31, 2020 and 2019, respectively. The decrease in the estimated annual effective income tax rate from May 2019 to May 2020 relates primarily to the change in earnings mix between U.S. and foreign operations. A larger percentage of earnings for the nine months ended May 31, 2019 was generated in foreign jurisdictions taxed at a higher statutory rate than the 21 percent U.S. federal tax rate. The tax effects of significant or unusual items are not considered in the estimated annual effective income tax rate. The tax effects of such discrete events are recognized in the interim period in which the events occur. The impact of such events within income tax expense amounted to a net benefit of $0.3 million and $0.8 million for the nine months ended May 31, 2020 and 2019, respectively.
The United States enacted significant tax reform into law on December 22, 2017 by enacting the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”). U.S. Tax Reform made complex and broad changes to the U.S. tax laws. U.S. Tax Reform established new income tax provisions that will affect the Company’s fiscal year 2020, including, but not limited to, establishing a new minimum tax on global intangible low-taxed income (“GILTI”). The Company has elected to account for GILTI as a period cost, the effect of which is reflected in the estimated annual effective tax rate of 23.6 percent for the nine months ended May 31, 2020.
Note 6 – Inventories
Inventories consisted of the following as of May 31, 2020, May 31, 2019, and August 31, 2019:
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
August 31,
2019
|
|
Raw materials and supplies
|
|
$
|
50,820
|
|
|
$
|
44,742
|
|
|
$
|
49,047
|
|
Work in process
|
|
|
7,819
|
|
|
|
6,917
|
|
|
|
4,514
|
|
Finished goods and purchased parts, net
|
|
|
59,496
|
|
|
|
47,659
|
|
|
|
46,812
|
|
Total inventory value before LIFO adjustment
|
|
|
118,135
|
|
|
|
99,318
|
|
|
|
100,373
|
|
Less adjustment to LIFO value
|
|
|
(4,834
|
)
|
|
|
(8,227
|
)
|
|
|
(8,086
|
)
|
Inventories, net
|
|
$
|
113,301
|
|
|
$
|
91,091
|
|
|
$
|
92,287
|
|
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,
2020
|
|
|
May 31,
2019
|
|
|
August 31,
2019
|
|
Series A Senior Notes
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
Revolving Credit Facility
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Elecsys Series 2006A Bonds
|
|
|
1,397
|
|
|
|
1,622
|
|
|
|
1,571
|
|
Total debt
|
|
|
116,397
|
|
|
|
116,622
|
|
|
|
116,571
|
|
Less current portion
|
|
|
(195
|
)
|
|
|
(208
|
)
|
|
|
(209
|
)
|
Less unamortized debt issuance costs
|
|
|
(479
|
)
|
|
|
(529
|
)
|
|
|
(516
|
)
|
Total long-term debt
|
|
$
|
115,723
|
|
|
$
|
115,885
|
|
|
$
|
115,846
|
|
Principal payments on the debt are due as follows:
Due within
|
|
$ in thousands
|
|
1 year
|
|
$
|
195
|
|
2 years
|
|
|
216
|
|
3 years
|
|
|
220
|
|
4 years
|
|
|
225
|
|
5 years
|
|
|
229
|
|
Thereafter
|
|
|
115,312
|
|
|
|
$
|
116,397
|
|
- 12 -
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 ratings. Fair values of derivative instruments are as follows:
($ in thousands)
|
|
Balance sheet
location
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
August 31,
2019
|
|
Derivatives designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
$
|
533
|
|
|
$
|
1,073
|
|
Foreign currency forward contracts
|
|
Other current liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total derivatives designated as hedging
instruments
|
|
|
|
$
|
—
|
|
|
$
|
533
|
|
|
$
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
Other current assets
|
|
$
|
909
|
|
|
$
|
1
|
|
|
$
|
39
|
|
Foreign currency forward contracts
|
|
Other current liabilities
|
|
|
(528
|
)
|
|
|
(22
|
)
|
|
|
—
|
|
Total derivatives not designated as
hedging instruments
|
|
|
|
$
|
381
|
|
|
$
|
(21
|
)
|
|
$
|
39
|
|
Accumulated other comprehensive income included realized and unrealized after-tax gains of $7.3 million, $6.3 million, and $7.0 million at May 31, 2020, May 31, 2019, and August 31, 2019, respectively, related to derivative contracts designated as hedging instruments.
Net Investment Hedging Relationships
The amount of gain recognized in other comprehensive income is as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
Foreign currency forward contracts, net of tax
expense of $63, $182, $123 and $368, respectively
|
|
$
|
101
|
|
|
$
|
682
|
|
|
$
|
304
|
|
|
$
|
1,324
|
|
For the three months ended May 31, 2020 and 2019, the Company settled foreign currency forward contracts resulting in an after-tax net gain of $0.3 million and $0.6 million, respectively, which was included in other comprehensive income as part of a currency translation adjustment. For the nine months ended May 31, 2020 and May 31, 2019, the Company settled foreign currency forward contracts resulting in an after-tax net gain of $1.1 million and $1.5 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment. There were no amounts recorded in the condensed consolidated statements of operations related to ineffectiveness of foreign currency forward contracts related to net investment hedges for the three and nine months ended May 31, 2020 and May 31, 2019.
At May 31, 2020, the Company had no foreign currency forward contracts qualifying as a hedge of a net investment in foreign operations. However, at May 31, 2019, and August 31, 2019, the Company had outstanding foreign currency forward contracts to sell a notional amount of 32.7 million Euro, on each date, at fixed prices to settle during the next fiscal quarter. Additionally, at May 31, 2019, the Company had an outstanding foreign currency forward contract to sell a notional amount of 43.0 million South African Rand at a fixed price settled during the next fiscal quarter. These foreign currency forward contracts qualify as hedges of a net investment in foreign operations.
- 13 -
Table of Contents
Derivatives Not Designated as Hedging Instruments
The Company generally does not elect hedge accounting treatment for derivative contracts related to future settlements of foreign denominated intercompany receivables and payables. If the Company does not elect hedge accounting treatment for a derivative, the Company carries the derivative at its fair value in the condensed consolidated balance sheets and recognizes any subsequent changes in its fair value during a period through earnings in the condensed consolidated statements of operations. At May 31, 2020, May 31, 2019 and August 31, 2019, the Company had notional value of $8.5 million, $1.9 million, and $1.8 million, respectively, of U.S. dollar equivalent of foreign currency forward contracts outstanding that are not designated as hedging instruments.
Additionally, during the third quarter of fiscal 2020, the Company entered into a foreign exchange option contract with a notional amount of 15 million British Pounds to mitigate the risk related to a revenue contract and related costs denominated in British Pounds over an approximate six-month period. The contract is not speculative and was not designated as a hedging instrument. Gains and losses on this contract are recorded within cost of goods sold in the condensed consolidated statement of operations.
Note 9 – Leases
The Company, as lessee, has operating leases primarily for office space, manufacturing facilities, equipment, and vehicles. The Company determines if a contract is or contains a lease at the inception of the contract based on whether the contract conveys the right to control the use of an identified asset over a period of time in exchange for consideration.
The Company elected, for all classes of underlying assets, to not separate lease and non-lease components and instead will treat the lease agreement as a single lease component for all asset classes. The Company additionally elected practical expedients to not reassess whether existing contracts are or contain leases, the classification of any existing leases, accounting for initial direct costs for any existing leases, and hindsight in determining the lease term and in assessing impairment of the right-of-use (“ROU”) asset.
Short-term operating leases, which have an initial expected term of twelve months or less, are not recorded on the condensed consolidated balance sheet. Such fixed lease payments are recognized within the condensed consolidated statement of earnings on a straight-line basis over the lease term. Any variable payments associated with short-term operating leases are recognized within the condensed consolidated statement of earnings as they are incurred. The Company did not recognize any expense for such leases during the three and nine months ended May 31, 2020.
Many of the Company’s leases contain renewal or extension options. The Company includes all renewal or extension periods that it is reasonably certain to exercise at lease commencement within the measurement of the ROU asset and lease liability.
The Company’s lease portfolio consists of operating leases which are included in operating lease ROU assets and operating lease liabilities in the condensed consolidated balance sheet. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To calculate the present value of future lease payments, the Company uses an incremental borrowing rate that estimates a collateralized rate based on the expected term of the lease.
Lease cost and other information related to the Company’s operating leases are as follows:
($ in thousands)
|
|
Three months ended May 31, 2020
|
|
|
Nine months ended May 31, 2020
|
|
Operating lease cost (cost resulting from lease payments)
|
|
|
1,502
|
|
|
|
4,412
|
|
Variable lease cost (cost excluded from lease payments)
|
|
|
112
|
|
|
|
312
|
|
Total lease cost
|
|
$
|
1,614
|
|
|
$
|
4,724
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases
|
|
|
1,178
|
|
|
|
3,997
|
|
Weighted average lease term - operating leases
|
|
9.2 years
|
|
|
9.2 years
|
|
Weighted average discount rate - operating leases
|
|
|
3.2
|
%
|
|
|
3.2
|
%
|
- 14 -
Table of Contents
Supplemental balance sheet information related to operating leases as of the third quarter of 2020 is as follows:
($ in thousands)
|
|
Classification
|
|
May 31,
2020
|
|
Operating lease ROU assets
|
|
Operating lease right-of-use assets
|
|
$
|
27,663
|
|
|
|
|
|
|
|
|
Operating lease short-term liabilities
|
|
Other current liabilities
|
|
|
5,046
|
|
Operating lease long-term liabilities
|
|
Operating lease liabilities
|
|
|
26,333
|
|
Total lease liabilities
|
|
|
|
$
|
31,379
|
|
The minimum lease payments under operating leases expiring subsequent to May 31, 2020 are as follows:
Fiscal year ending
|
|
$ in thousands
|
|
2020
|
|
$
|
1,748
|
|
2021
|
|
|
5,798
|
|
2022
|
|
|
5,465
|
|
2023
|
|
|
3,771
|
|
2024
|
|
|
3,397
|
|
Thereafter
|
|
|
16,784
|
|
Total lease payments
|
|
|
36,963
|
|
Less: interest
|
|
|
5,584
|
|
Present value of lease liabilities
|
|
$
|
31,379
|
|
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2019 and under the previous lease accounting standard, future minimum lease payments under operating leases with an initial or remaining term in excess of one year at August 31, 2019 would have been as follows:
Fiscal year ending
|
|
$ in thousands
|
|
2020
|
|
$
|
6,065
|
|
2021
|
|
|
5,266
|
|
2022
|
|
|
4,771
|
|
2023
|
|
|
3,414
|
|
2024
|
|
|
3,107
|
|
Thereafter
|
|
|
20,119
|
|
Total lease payments
|
|
$
|
42,742
|
|
Note 10 – Fair Value Measurements
The following table presents the Company’s financial assets and liabilities measured at fair value, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 31, 2020, May 31, 2019, and August 31, 2019. There were no transfers between any levels for the periods presented.
- 15 -
Table of Contents
|
|
May 31, 2020
|
|
($ in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
102,474
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
102,474
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
—
|
|
|
|
14,554
|
|
|
|
—
|
|
|
|
14,554
|
|
U.S. treasury securities
|
|
|
—
|
|
|
|
4,458
|
|
|
|
—
|
|
|
|
4,458
|
|
Derivative assets
|
|
|
—
|
|
|
|
909
|
|
|
|
—
|
|
|
|
909
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
(528
|
)
|
|
|
—
|
|
|
|
(528
|
)
|
Earn-out liability
|
|
|
—
|
|
|
|
—
|
|
|
|
1,195
|
|
|
|
1,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019
|
|
($ in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
110,839
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,839
|
|
Derivative assets
|
|
|
—
|
|
|
|
534
|
|
|
|
—
|
|
|
|
534
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2019
|
|
($ in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
127,204
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
127,204
|
|
Derivative assets
|
|
|
—
|
|
|
|
1,112
|
|
|
|
—
|
|
|
|
1,112
|
|
The Company’s investment in marketable securities consists of United States treasury bonds and investment grade corporate bonds. The marketable securities are classified as available-for-sale and are carried at fair value with the change in unrealized gains and losses reported as a separate component on the condensed consolidated statements of comprehensive income (loss) until realized. The Company determines fair value using data points that are observable, such as quoted prices and interest rates. The amortized cost of the investments approximates fair value. Investment income is recorded within other (expense) income on the condensed consolidated statements of operations. As of May 31, 2020, approximately 67% of the Company’s marketable securities investments mature within one year and 33% mature within one to three years.
There were no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis for the nine months ended May 31, 2020 or May 31, 2019.
Note 11 – Commitments and Contingencies
In the ordinary course of its business operations, the Company enters into arrangements that obligate it to make future payments under contracts such as lease agreements. Additionally, the Company is involved, from time to time, in commercial litigation, employment disputes, administrative proceedings, business disputes and other legal proceedings. The Company has established accruals for certain proceedings where those proceedings present loss contingencies that are both probable and reasonably estimable at the time of determination. The Company believes that any such currently-pending proceedings are either covered by insurance or would not have a material effect on the business or its consolidated financial statements if decided in a manner that is unfavorable to the Company. Such proceedings are exclusive of environmental remediation matters which are discussed separately below.
Infrastructure Products
The Company is currently defending a number of product liability lawsuits arising out of vehicle collisions with highway barriers incorporating the Company’s X-Lite® end terminal. Despite the September 2017 reversal of a sizable judgment against a competitor, the Company expects that the significant attention brought to the infrastructure products industry by the original judgment may lead to additional lawsuits being filed against the Company and others in the industry.
The Company, certain of its subsidiaries, and certain third parties which originally designed the X-Lite end terminal have also been named in a lawsuit filed on June 9, 2020 in the Circuit Court of Cole County, Missouri by Missouri Highways and Transportation Commission (“MHTC”). MHTC alleges, among other things, that the X-Lite end terminal was defectively designed and failed to perform as designed, intended, and advertised, leading to MHTC’s removal and replacement of X-Lite end terminals from Missouri’s roadways. MHTC alleges strict liability (defective design and failure to warn), negligence, breach of express warranties, breach of implied warranties (merchantability and fitness for a particular purpose), fraud, and public nuisance. MHTC seeks compensatory damages, interest, attorneys’ fees, and punitive damages.
The Company believes it has meritorious factual and legal defenses to each of the lawsuits discussed above and is prepared to vigorously defend its interests. Based on the information currently available to the Company, the Company does not
- 16 -
Table of Contents
believe that a loss is probable in any of these lawsuits; therefore, no accrual has been included in the Company’s condensed consolidated financial statements. While it is possible that a loss may be incurred, the Company is unable to estimate a range of potential loss due to the complexity and current status of these lawsuits. However, the Company maintains insurance coverage to mitigate the impact of adverse exposures in these lawsuits and does not expect that these lawsuits will have a material adverse effect on its business or its consolidated financial statements.
In June 2019, the Company was informed by letter that the Department of Justice, Civil Division and U.S. Attorney’s Office for the Northern District of New York, with the assistance of the Department of Transportation, Office of Inspector General, are conducting an investigation of the Company relating to the Company’s X-Lite end terminal and potential violations of the federal civil False Claims Act. Depending on the outcome of this matter, there could be a material adverse effect on the Company’s business or its consolidated financial statements. Given the current posture of the matter, the Company is unable to estimate a range of potential loss, if any, or to express an opinion regarding the ultimate outcome.
Environmental Remediation
The Company has committed to a preliminary plan to remediate environmental contamination of the groundwater at and adjacent to its Lindsay, Nebraska facility (the “site”) as a result of discussions with the U.S. Environmental Protection Agency (the “EPA”) and the Nebraska Department of Environmental Quality (the “NDEQ”) during the third quarter of fiscal 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 the final quarter of fiscal 2020 or the first quarter of fiscal 2021.
The current estimated aggregate accrued cost of this remediation plan of $15.4 million is based on consideration of several remediation options that would use different technologies, each of which the Company believes could be successful in meeting the long-term regulatory requirements of the site. The Company accrues the anticipated cost of investigation and remediation when the obligation is probable and can be reasonably estimated. While the Company believes the current accrual is a good faith estimate of the long-term cost of remediation at this site based on the preliminary analysis available at the time of this filing, the estimate of costs and their timing could change as a result of a number of factors, including (1) EPA and NDEQ input on the proposed remediation plan and any changes which they may subsequently require, (2) refinement of cost estimates and length of time required to complete remediation and post-remediation operations and maintenance, (3) effectiveness of the technology chosen in remediation of the site as well as changes in technology that may be available in the future, and (4) unforeseen circumstances existing at the site. As a result of these factors, the actual amount of costs incurred by the Company in connection with the remediation of contamination of its Lindsay, Nebraska site could exceed the amounts accrued for this expense at this time. While any revisions could be material to the operating results of any fiscal quarter or fiscal year, the Company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition. The following table summarizes the undiscounted environmental remediation liability classifications included in the condensed consolidated balance sheets as of May 31, 2020, May 31, 2019, and August 31, 2019:
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
August 31,
2019
|
|
Other current liabilities
|
|
$
|
1,182
|
|
|
$
|
1,243
|
|
|
$
|
1,243
|
|
Other noncurrent liabilities
|
|
|
14,257
|
|
|
|
14,871
|
|
|
|
14,674
|
|
Total environmental remediation liabilities
|
|
$
|
15,439
|
|
|
$
|
16,114
|
|
|
$
|
15,917
|
|
Note 12 – Warranties
The following table provides the changes in the Company’s product warranties:
|
|
Three months ended
|
|
|
Nine months ended
|
|
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
Product warranty accrual balance, beginning of period
|
|
$
|
8,990
|
|
|
$
|
7,971
|
|
|
$
|
8,960
|
|
|
$
|
7,109
|
|
Liabilities accrued for warranties during the period
|
|
|
2,744
|
|
|
|
2,642
|
|
|
|
6,360
|
|
|
|
5,472
|
|
Warranty claims paid during the period
|
|
|
(2,031
|
)
|
|
|
(1,954
|
)
|
|
|
(5,617
|
)
|
|
|
(4,260
|
)
|
Changes in estimates
|
|
|
110
|
|
|
|
44
|
|
|
|
110
|
|
|
|
382
|
|
Product warranty accrual balance, end of period
|
|
$
|
9,813
|
|
|
$
|
8,703
|
|
|
$
|
9,813
|
|
|
$
|
8,703
|
|
Note 13 – Share-Based Compensation
The Company’s current share-based compensation plans, approved by the stockholders of the Company, provides for awards of stock options, restricted shares, restricted stock units (“RSUs”), stock appreciation rights, performance shares,
- 17 -
Table of Contents
and performance stock units (“PSUs”) to employees and non-employee directors of the Company. The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. Share-based compensation expense was $1.5 million and $0.8 million for the three months ended May 31, 2020 and 2019, respectively. Share-based compensation expense was $4.1 million and $3.2 million for the nine months ended May 31, 2020 and 2019, respectively.
Note 14 – Other Current Liabilities
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
August 31,
2019
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
17,072
|
|
|
$
|
13,490
|
|
|
$
|
13,960
|
|
Contract liabilities
|
|
|
16,029
|
|
|
|
11,683
|
|
|
|
14,763
|
|
Warranties
|
|
|
9,813
|
|
|
|
8,703
|
|
|
|
8,960
|
|
Tax related liabilities
|
|
|
6,733
|
|
|
|
2,087
|
|
|
|
1,469
|
|
Operating lease liabilities
|
|
|
5,046
|
|
|
|
—
|
|
|
|
—
|
|
Deferred revenue - lease
|
|
|
3,526
|
|
|
|
214
|
|
|
|
2,985
|
|
Dealer related liabilities
|
|
|
3,505
|
|
|
|
3,679
|
|
|
|
3,246
|
|
Accrued insurance
|
|
|
1,462
|
|
|
|
1,594
|
|
|
|
1,482
|
|
Accrued environmental liabilities
|
|
|
1,182
|
|
|
|
1,243
|
|
|
|
1,243
|
|
Other
|
|
|
7,344
|
|
|
|
6,409
|
|
|
|
4,380
|
|
Total other current liabilities
|
|
$
|
71,712
|
|
|
$
|
49,102
|
|
|
$
|
52,488
|
|
Note 15 – Share Repurchases
There were no shares repurchased during the three and nine months ended May 31, 2020 and May 31, 2019 under the Company’s share repurchase program. The remaining amount available under the repurchase program was $63.7 million as of May 31, 2020.
Note 16 – Industry Segment Information
The Company manages its business activities in two reportable segments: irrigation and infrastructure. The Company evaluates the performance of its reportable segments based on segment sales, gross profit and operating income, with operating income for segment purposes excluding unallocated corporate general and administrative expenses, interest income, interest expense, other income and expenses and income taxes. Operating income for segment purposes includes general and administrative expenses, selling expenses, engineering and research expenses and other overhead charges directly attributable to the segment. There are no inter-segment sales included in the amounts disclosed. The Company had no single customer who represented 10 percent or more of its total revenues during the three or nine months ended May 31, 2020 and 2019.
Irrigation - This reporting segment includes the manufacture and marketing of center pivot, lateral move, and hose reel irrigation systems, as well as various innovative technology solutions such as GPS positioning and guidance, variable rate irrigation, remote irrigation management and scheduling technology, irrigation consulting and design and industrial “internet of things”, or IoT, solutions. The irrigation reporting segment consists of one operating segment.
- 18 -
Table of Contents
Infrastructure – This reporting segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, and road marking and road safety equipment; the manufacturing and selling of large diameter steel tubing and railroad signals and structures; and providing outsourced manufacturing and production services. The infrastructure reporting segment consists of one operating segment.
|
|
Three months ended
|
|
|
Nine months ended
|
|
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
60,917
|
|
|
$
|
62,974
|
|
|
$
|
179,197
|
|
|
$
|
177,118
|
|
International
|
|
|
32,606
|
|
|
|
35,644
|
|
|
|
88,751
|
|
|
|
104,876
|
|
Irrigation total
|
|
|
93,523
|
|
|
|
98,618
|
|
|
|
267,948
|
|
|
|
281,994
|
|
Infrastructure
|
|
|
29,583
|
|
|
|
22,436
|
|
|
|
78,339
|
|
|
|
60,193
|
|
Total operating revenues
|
|
$
|
123,106
|
|
|
$
|
121,054
|
|
|
$
|
346,287
|
|
|
$
|
342,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
15,014
|
|
|
$
|
11,037
|
|
|
$
|
34,385
|
|
|
$
|
26,341
|
|
Infrastructure
|
|
|
8,560
|
|
|
|
3,537
|
|
|
|
23,686
|
|
|
|
7,259
|
|
Corporate
|
|
|
(7,746
|
)
|
|
|
(10,099
|
)
|
|
|
(21,325
|
)
|
|
|
(31,545
|
)
|
Total operating income
|
|
|
15,828
|
|
|
|
4,475
|
|
|
|
36,746
|
|
|
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense, net
|
|
|
(3,563
|
)
|
|
|
(1,246
|
)
|
|
|
(6,359
|
)
|
|
|
(2,213
|
)
|
Earnings (loss) before income taxes
|
|
$
|
12,265
|
|
|
$
|
3,229
|
|
|
$
|
30,387
|
|
|
$
|
(158
|
)
|
($ in thousands)
|
|
May 31,
2020
|
|
|
May 31,
2019
|
|
|
August 31,
2019
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
313,216
|
|
|
$
|
306,714
|
|
|
$
|
292,202
|
|
Infrastructure
|
|
|
105,832
|
|
|
|
80,971
|
|
|
|
85,848
|
|
Corporate
|
|
|
138,438
|
|
|
|
118,237
|
|
|
|
122,264
|
|
|
|
$
|
557,486
|
|
|
$
|
505,922
|
|
|
$
|
500,314
|
|
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Table of Contents