Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13419
Lindsay Corporation
(Exact name of registrant as specified in its charter)
Delaware
47-0554096
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
18135 Burke Street, Suite 100, Omaha, Nebraska
68022
(Address of principal executive offices)
(Zip Code)
402‑829-6800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.00 par value
LNN
New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non‑accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 2, 2021, 10,906,590 shares of the registrant’s common stock were outstanding.
INDEX FORM 10-Q
Page
Part I – FINANCIAL INFORMATION
3
ITEM 1 – Financial Statements
Condensed Consolidated Statements of Earnings for the three and six months ended February 28, 2021 and February 29, 2020
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended February 28, 2021 and February 29, 2020
4
Condensed Consolidated Balance Sheets as of February 28, 2021, February 29, 2020, and August 31, 2020
5
Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended February 28, 2021 and February 29, 2020
6
Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2021 and February 29, 2020
8
Notes to the Condensed Consolidated Financial Statements
9
ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk
24
ITEM 4 – Controls and Procedures
25
Part II – OTHER INFORMATION
26
ITEM 1 – Legal Proceedings
ITEM 1A – Risk Factors
ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 3 – Defaults Upon Senior Securities
ITEM 4 – Mine Safety Disclosures
ITEM 5 – Other Information
ITEM 6 – Exhibits
27
SIGNATURES
28
- 2 -
ITEM 1 - Financial Statements
LINDSAY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended
Six months ended
($ and shares in thousands, except per share amounts)
February 28,
2021
February 29,
2020
Operating revenues
$
143,577
113,788
252,062
223,181
Cost of operating revenues
102,403
80,382
179,480
155,701
Gross profit
41,174
33,406
72,582
67,480
Operating expenses:
Selling expense
7,778
8,192
15,110
14,684
General and administrative expense
14,275
13,167
27,727
24,971
Engineering and research expense
3,312
3,405
6,402
6,907
Total operating expenses
25,365
24,764
49,239
46,562
Operating income
15,809
8,642
23,343
20,918
Other (expense) income:
Interest expense
(1,205
)
(1,191
(2,406
(2,377
Interest income
268
389
571
1,004
Other expense, net
(311
(973
(65
(1,423
Total other (expense) income
(1,248
(1,775
(1,900
(2,796
Earnings before income taxes
14,561
6,867
21,443
18,122
Income tax expense
2,685
1,351
2,472
4,261
Net earnings
11,876
5,516
18,971
13,861
Earnings per share:
Basic
1.09
0.51
1.75
1.28
Diluted
1.08
1.74
Shares used in computing earnings per share:
10,884
10,825
10,865
10,810
10,981
10,857
10,934
10,843
Cash dividends declared per share
0.32
0.31
0.64
0.62
See accompanying notes to condensed consolidated financial statements.
- 3 -
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
Other comprehensive income (loss):
Defined benefit pension plan adjustment, net of tax
59
43
102
86
Foreign currency translation adjustment, net of hedging activities and tax
481
(895
1,864
(1,188
Unrealized gain (loss) on marketable securities, net of tax
(25
61
(56
Total other comprehensive income (loss), net of tax expense (benefit) of $20, ($449), ($12), and ($373), respectively
515
(791
1,910
(1,041
Total comprehensive income
12,391
4,725
20,881
12,820
- 4 -
CONDENSED CONSOLIDATED BALANCE SHEETS
($ and shares in thousands, except par values)
August 31,
ASSETS
Current assets:
Cash and cash equivalents
110,775
101,272
121,403
Marketable securities
19,555
18,740
19,511
Receivables, net of allowance of $3,021, $2,597, and $2,780,
respectively
94,211
80,468
84,604
Inventories, net
121,566
105,454
104,792
Other current assets, net
29,509
19,083
17,625
Total current assets
375,616
325,017
347,935
Property, plant, and equipment:
Cost
223,418
191,688
208,107
Less accumulated depreciation
(134,197
(122,926
(128,526
Property, plant, and equipment, net
89,221
68,762
79,581
Intangibles, net
22,383
23,162
23,477
Goodwill
68,087
64,338
68,004
Operating lease right-of-use assets
20,173
27,257
27,457
Deferred income tax assets
10,347
10,162
9,935
Other noncurrent assets
10,821
15,632
14,137
Total assets
596,648
534,330
570,526
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
39,934
33,307
29,554
Current portion of long-term debt
215
211
195
Other current liabilities
74,687
54,303
72,646
Total current liabilities
114,836
87,821
102,395
Pension benefits liabilities
6,182
5,868
6,374
Long-term debt
115,599
115,765
115,682
Operating lease liabilities
20,174
25,919
25,862
Deferred income tax liabilities
900
839
889
Other noncurrent liabilities
19,933
20,791
20,806
Total liabilities
277,624
257,003
272,008
Shareholders' equity:
Preferred stock of $1 par value - authorized 2,000 shares; no shares issued and outstanding
—
Common stock of $1 par value - authorized 25,000 shares;
18,990, 18,918, and 18,918 shares issued, respectively
18,990
18,918
Capital in excess of stated value
84,206
74,645
77,686
Retained earnings
511,728
481,890
499,724
Less treasury stock - at cost, 8,083 shares
(277,238
Accumulated other comprehensive loss, net
(18,662
(20,888
(20,572
Total shareholders' equity
319,024
277,327
298,518
Total liabilities and shareholders' equity
- 5 -
Lindsay Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Shares of
common
stock
treasury
Common
Capital in
excess of
stated
value
Retained
earnings
Treasury
Accumulated
other
comprehensive
loss,
net
Total
shareholders’
equity
Balance at August 31, 2019
18,870
8,083
71,684
474,740
(19,847
268,209
Comprehensive income:
Other comprehensive loss
Cash dividends ($.62) per share
(6,711
Issuance of common shares under share compensation plans, net
48
386
434
Share-based compensation
expense
2,575
Balance at February 29, 2020
Balance at August 31, 2020
Other comprehensive income
Cash dividends ($.64) per share
(6,967
72
2,473
2,545
4,047
Balance at February 28, 2021
- 6 -
Balance at November 30, 2019
18,897
71,706
479,732
(20,097
273,000
Cash dividends ($0.31) per share
(3,358
21
1,524
1,545
Share-based compensation expense
1,415
Balance at November 30, 2020
18,948
78,026
503,342
(19,177
303,901
Cash dividends ($0.32) per share
(3,490
42
3,716
3,758
2,464
- 7 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
February 28, 2021
February 29, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization
9,878
9,418
Gain on sale of assets held-for-sale
Provision for uncollectible accounts receivable
246
213
Deferred income taxes
206
1,806
Unrealized foreign currency transaction (gain) loss
(754
1,515
Other, net
1,804
(2,153
Changes in assets and liabilities:
Receivables
(10,769
(5,716
Inventories
(16,245
(14,153
Other current assets
(9,492
(4,539
10,962
3,540
334
(2,183
Other noncurrent assets and liabilities
1,940
(5,178
Net cash provided by (used in) operating activities
11,128
(2,185
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment
(16,556
(5,335
Proceeds from sale of property and equipment held-for-sale
3,955
Purchases of marketable securities available-for-sale
(8,313
(19,978
Proceeds from maturities of marketable securities available-for-sale
8,043
1,250
Other investing activities, net
(860
1,092
Net cash used in investing activities
(17,686
(19,016
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
3,814
Common stock withheld for payroll tax obligations
(1,269
(1,111
Principal payments on long-term debt
(88
(104
Dividends paid
Net cash used in financing activities
(4,510
(6,381
Effect of exchange rate changes on cash and cash equivalents
440
1,650
Net change in cash and cash equivalents
(10,628
(25,932
Cash and cash equivalents, beginning of period
127,204
Cash and cash equivalents, end of period
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net of refunds
2,397
2,294
Interest paid
2,347
2,334
- 8 -
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2020.
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 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 Company adopted this in the first quarter of the Company’s fiscal 2021. The adoption of this ASU did not have a material impact on its condensed consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill; rather, an entity will measure its goodwill impairment by the amount the carrying value exceeds the fair value of a reporting unit. The Company adopted this in the first quarter of the Company’s fiscal 2021. The adoption of this ASU did not have a material impact on its condensed consolidated financial statements and related disclosures.
- 9 -
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 six months ended February 28, 2021 and February 29, 2020 is as follows:
Irrigation
Infrastructure
Point in time
110,814
20,819
131,633
73,844
17,334
91,178
Over time
7,758
1,535
9,293
19,650
1,426
21,076
Revenue from the contracts with customers
118,572
22,354
140,926
93,494
18,760
112,254
Lease revenue
2,651
1,534
Total operating revenues
25,005
20,294
190,926
36,269
227,195
147,661
38,498
186,159
15,003
3,174
18,177
29,159
3,550
32,709
205,929
39,443
245,372
176,820
42,048
218,868
6,690
4,313
46,133
46,361
Further disaggregation of revenue is disclosed in the Note 13 – Industry Segment Information.
For contracts with an initial length longer than twelve months, the unsatisfied performance obligations were $6.8 million at February 28, 2021.
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 February 28, 2021, February 29, 2020, and August 31, 2020, contract assets amounted to $1.2 million, $0.9 million, and $0.9 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 February 28, 2021, February 29, 2020, and August 31, 2020, contract liabilities amounted to $21.3 million, $13.4 million, and $19.6 million, respectively. Contract liabilities are included within other current liabilities on the condensed consolidated balance sheets. During the Company’s six months ended February 28, 2021 and February 29 2020, the Company recognized $15.4 million and $12.6 million of revenue that were included in the liabilities as of August 31, 2020 and 2019, respectively. The revenue recognized was due to applying advance payments received for the performance obligations completed during the quarter.
Note 3 – Net Earnings per Share
Basic earnings per share is calculated on the basis of weighted average outstanding common shares. Diluted earnings per share is calculated on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, restricted stock unit awards and other dilutive securities.
- 10 -
The following table shows the computation of basic and diluted net earnings per share for the three and six months ended February 28, 2021 and February 29, 2020:
Numerator:
Denominator:
Weighted average shares outstanding
Diluted effect of stock awards
97
32
69
33
Weighted average shares outstanding assuming
dilution
Basic net earnings per share
Diluted net earnings per share
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:
(Units and options in thousands)
Restricted stock units
11
Stock options
12
Performance stock units
10
Note 4 – Income Taxes
The Company recorded income tax expense of $2.7 million and $1.4 million for the three months ended February 28, 2021 and February 29, 2020, respectively, and recorded income tax expense of $2.5 million and $4.3 million for the six months ended February 28, 2021 and February 29, 2020, 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 23.7 percent and 23.5 percent for the six months ended February 28, 2021 and February 29, 2020, respectively.
The tax effects of significant or unusual items are not considered in the estimated annual effective income tax rate. The tax effects of such discrete events are recognized in the interim period in which the events occur. The Company recorded discrete items resulting in an income tax benefit of $2.6 million for the six months ended February 28, 2021, which includes a benefit of $1.7 million related to the release of a valuation allowance primarily related to net operating loss carryforwards in a foreign jurisdiction that are now expected to be realizable. The tax effects of discrete items did not have a significant impact on income tax expense for the six months ended February 29, 2020.
Note 5 – Inventories
Inventories consisted of the following as of February 28, 2021, February 29, 2020, and August 31, 2020:
Raw materials and supplies
62,404
50,240
51,205
Work in process
8,993
6,746
6,464
Finished goods and purchased parts, net
58,682
53,496
51,684
Total inventory value before LIFO adjustment
130,079
110,482
109,353
Less adjustment to LIFO value
(8,513
(5,028
(4,561
- 11 -
Note 6 – Long-Term Debt
The following table sets forth the outstanding principal balances of the Company’s long-term debt as of the dates shown:
Series A Senior Notes
115,000
Revolving Credit Facility
Elecsys Series 2006A Bonds
1,256
1,467
1,344
Total debt
116,256
116,467
116,344
Less current portion
(215
(211
(195
Less unamortized debt issuance costs
(442
(491
(467
Total long-term debt
Principal payments on the debt are due as follows:
Due within
$ in thousands
1 year
2 years
219
3 years
224
4 years
228
5 years
232
Thereafter
115,138
Note 7 – 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 February 28, 2021, February 29, 2020, and August 31, 2020. There were no transfers between any levels for the periods presented.
Level 1
Level 2
Level 3
Marketable securities:
Corporate bonds
15,501
U.S. treasury securities
4,054
Earn-out liability
(1,098
14,555
4,185
Derivative assets
247
August 31, 2020
14,426
5,085
(1,112
- 12 -
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 earnings. As of February 28, 2021, approximately 65% of the Company’s marketable securities investments mature within one year and 35% mature within one to three years.
The Company’s earn-out liability relates to its acquisition of Net Irrigate, LLC during the third quarter of fiscal 2020. The value of the earn-out liability is based on active customers one year subsequent to the closing date. The fair value of this earn-out payment was calculated using the weighted average probability for each potential outcome and has a maximum potential payout of $1.5 million.
There were no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis for the six months ended February 28, 2021 or February 29, 2020.
Note 8 – 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 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 2018 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 believe that a loss is probable in any of these lawsuits; therefore, no accrual has been included in the Company’s 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
In previous years, the Company committed to a plan to remediate environmental contamination of the groundwater at and adjacent to its Lindsay, Nebraska facility (the “site”). The current estimated aggregate accrued cost of $16.1 million is based on consideration of remediation options which the Company believes could be successful in meeting the long-term
- 13 -
regulatory requirements of the site. The Company submitted a revised remedial alternatives evaluation report to the U.S. Environmental Protection Agency (“EPA”) and the Nebraska Department of Environment and Energy (the “NDEE”) in August 2020 to review remediation alternatives and proposed plans for the site. The proposed remediation plan is preliminary and has not been approved by the EPA or the NDEE. Based on guidance from third-party environmental experts and the preliminary discussions with the regulatory agencies, the Company anticipates that a definitive plan will not be agreed upon until the latter half of calendar 2021 or later. An increase to the liability of $1.0 million was recorded within general and administrative expense on the condensed consolidated statement of earnings in the fourth quarter of fiscal 2020. Of the total liability, $11.0 million was calculated on a discounted basis using a discount rate of 1.2%, which represents a risk-free rate. This discounted portion of the liability amounts to $12.4 million on an undiscounted basis.
The Company accrues the anticipated cost of investigation and remediation when the obligation is probable and can be reasonably estimated. While the plan has not formally been approved by the EPA, the Company believes the current accrual is a good faith estimate of the long-term cost of remediation at this site; however, the estimate of costs and their timing could change as a result of a number of factors, including (1) EPA input on the proposed remediation plan and any changes which it 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 February 28, 2021, February 29, 2020, and August 31, 2020:
1,105
1,243
1,115
15,017
14,396
15,030
Total environmental remediation liabilities
16,122
15,639
16,145
Note 9 – Warranties
The following table provides the changes in the Company’s product warranties:
Product warranty accrual balance, beginning of period
10,858
8,788
10,765
8,960
Liabilities accrued for warranties during the period
2,247
2,135
3,981
3,616
Warranty claims paid during the period
(1,378
(1,933
(3,019
(3,586
Changes in estimates
Product warranty accrual balance, end of period
11,786
8,990
Note 10 – 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, 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 $2.5 million and $1.5 million for the three months ended February 28, 2021 and February 29, 2020, respectively, and $4.2 million and $2.7 million for the six months ended February 28, 2021 and February 29, 2020, respectively.
During the second quarter of fiscal 2021, the Company’s former chief executive officer retired and entered into a one-year consulting agreement to provide transition services. The agreement provided for the modification of all outstanding and unvested share-based payment awards held by the former chief executive officer to continue vesting according to their respective original vesting schedules for the duration of the consulting services. For the three months ended February 28, 2021, the Company recorded $1.5 million of incremental share-based compensation expense related to this modification.
- 14 -
Note 11 – Other Current Liabilities
Other current liabilities:
Contract liabilities
19,982
12,323
17,296
Compensation and benefits
16,717
13,398
20,945
Warranties
3,965
4,790
5,123
Dealer related liabilities
3,873
3,681
3,664
Deferred revenue - lease
3,301
2,190
1,822
Tax related liabilities
2,033
1,709
3,726
Accrued insurance
1,320
1,624
1,348
Accrued environmental liabilities
Other
10,605
4,355
6,842
Total other current liabilities
Note 12 – Share Repurchases
There were no shares repurchased during the three and six months ended February 28, 2021 and February 29, 2020 under the Company’s share repurchase program. The remaining amount available under the repurchase program was $63.7 million as of February 28, 2021.
Note 13 – 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 revenues, 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 six months ended February 28, 2021 or February 29, 2020.
Irrigation - This reporting segment includes the manufacture and marketing of center pivot, lateral move and hose reel irrigation systems and large diameter steel tubing 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 IoT, or “internet of things”, solutions. The irrigation reporting segment consists of one operating segment.
- 15 -
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 infrastructure reporting segment consists of one operating segment.
Certain immaterial reclassifications have been made to the prior year’s operating results to conform with the current year’s presentation, as revenues and operating income from certain product lines previously included within the infrastructure reporting segment are now included within the irrigation reporting segment.
Operating revenues:
Irrigation:
North America
80,178
67,088
132,968
120,675
International
38,394
26,406
72,961
56,145
Irrigation total
Operating income:
18,045
10,084
28,678
19,867
6,341
5,888
10,597
14,630
Corporate
(8,577
(7,330
(15,932
(13,579
Total operating income
Interest and other expense, net
Total assets:
363,542
318,689
307,537
87,542
82,608
113,111
145,564
133,033
149,878
- 16 -
ITEM 2 ‑ Management's Discussion and Analysis of Financial Condition and Results of Operations
Concerning Forward‑Looking Statements
This Quarterly Report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect information concerning possible or assumed future results of operations and planned financing of the Company. In addition, forward-looking statements may be made orally or in press releases, conferences, reports, on the Company's web site, or otherwise, in the future by or on behalf of the Company. When used by or on behalf of the Company, the words “expect,” “anticipate,” “estimate,” “believe,” “intend,” “will,” “plan,” “predict,” “project,” “outlook,” “could,” “may,” “should” or similar expressions generally identify forward-looking statements. The entire section entitled “Executive Overview and Outlook” should be considered forward-looking statements. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results or conditions, which may not occur as anticipated. Actual results or conditions could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein and in the Company’s other public filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended August 31, 2020, as well as other risks and uncertainties not now anticipated. The risks and uncertainties described herein and in the Company’s other public filings are not exclusive and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, may emerge from time to time. Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
COVID-19 Impact
In March 2020, the World Health Organization declared the 2019 coronavirus disease (COVID-19) a global pandemic. This outbreak, which has continued to spread worldwide, has adversely affected workforces, customers, economies, and financial markets globally, leading to economic uncertainty. Shelter-in-place or stay-at-home orders have been implemented from time to time in many of the jurisdictions in which the Company operates. However, because the Company supports critical industries, the Company’s facilities worldwide have generally been considered “business essential” and have remained open throughout the outbreak with limited exceptions. Accordingly, COVID-19 has had a limited impact on the Company’s manufacturing operations to date. While the Company has implemented new procedures to protect the health and well-being of employees and customers, costs associated with these procedures have not been material. In addition, the pandemic has not had a material adverse effect on demand for the Company’s irrigation or infrastructure products; however, the timing of infrastructure revenue continues to be impacted by reduced road construction activity and delays in project implementations.
The ultimate impact of COVID-19 on the Company’s business, results of operations, or cash flows remains uncertain and depends on numerous evolving factors that the Company may not be able to accurately predict or effectively respond to, including, without limitation: the duration and scope of the outbreak; mutations of COVID-19; actions taken by governments, businesses, and individuals in response to the outbreak; the effect on economic activity and actions taken in response; the effect on customers and their demand for the Company’s products and services; and the Company’s ability to manufacture, sell, distribute and service its products, including without limitation as a result of supply chain challenges, facility closures, social distancing, restrictions on travel, fear or anxiety by the populace, and shelter-in-place orders. As such, the full financial impact of COVID-19 on the Company’s business is difficult to estimate.
Accounting Policies
In preparing the Company’s condensed consolidated financial statements in conformity with U.S. GAAP, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and the Company’s historical experience.
The Company’s accounting policies that are most important to the presentation of its results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as its critical accounting policies. See discussion of the Company’s critical accounting policies under Item 7 in the Company’s Annual
- 17 -
Report on Form 10-K for the Company’s fiscal year ended August 31, 2020. Management periodically re-evaluates and adjusts its critical accounting policies as circumstances change. There were no significant changes in the Company’s critical accounting policies during the six months ended February 28, 2021.
Recent Accounting Guidance
See Note 1 – Basis of Presentation and the disclosure therein of recently adopted accounting guidance to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Executive Overview and Outlook
Operating revenues for the three months ended February 28, 2021 were $143.6 million, an increase of 26 percent compared to $113.8 million for the three months ended February 29, 2020. Irrigation segment revenues increased 27 percent to $118.6 million and infrastructure segment revenues increased 23 percent to $25.0 million. Net earnings for the three months ended February 28, 2021 were $11.9 million, or $1.08 per diluted share, compared to net earnings of $5.5 million, or $0.51 per diluted share, for the three months ended February 29, 2020.
The Company’s irrigation revenues are highly dependent upon the need for irrigated agricultural crop production, which, in turn, depends upon many factors, including the following primary drivers:
•
Agricultural commodity prices – As of February 2021, U.S. corn prices have increased approximately 43 percent and U.S. soybean prices have increased approximately 54 percent from February 2020. The increase in these commodity prices resulted from lower production levels caused by unfavorable weather conditions coupled with higher demand coming primarily from an increase in corn and soybean exports to China.
Net farm income – As of February 2021, the U.S. Department of Agriculture (the “USDA”) estimated U.S. 2021 net farm income to be $111.4 billion, a decrease of eight percent from the USDA’s estimated U.S. 2020 net farm income of $121.1 billion. The decrease is primarily related to a reduction in 2021 in Federal government direct farm program payments from the Coronavirus Food Assistance Program (“CFAP”) that increased government support in 2020. Federal government direct farm program payments are estimated to return to more historical levels during 2021. A projected increase in cash receipts from crops and livestock is expected to offset a portion of the decrease in government support payments.
Weather conditions – Demand for irrigation equipment is often positively affected by storm damage and prolonged periods of drought conditions as producers look for ways to reduce the risk of low crop production and crop failures. Conversely, demand for irrigation equipment can be negatively affected during periods of more predictable or excessive natural precipitation.
Governmental policies – A number of governmental laws and regulations can affect the Company’s business, including:
The Agriculture Improvement Act of 2018 (the “Farm Bill”) was signed into law in December 2018. The Farm Bill continues many of the programs that were in the Agricultural Act of 2014, which expired in September 2018. Such programs are designed to provide a degree of certainty to growers, including funding for the Environmental Quality Incentives Program, which provides financial assistance to farmers to implement conservation practices, and is frequently used to assist in the purchase of center pivot irrigation systems.
The U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) enacted in December 2017 increased the benefit of certain tax incentives, such as the Section 179 income tax deduction and Section 168 bonus depreciation, which are intended to encourage equipment purchases by allowing the entire cost of equipment to be treated as an expense in the year of purchase rather than amortized over its useful life.
Biofuel production continues to be a major demand driver for irrigated corn, sugar cane and soybeans as these crops are used in high volumes to produce ethanol and biodiesel. The U.S. Environmental Protection Agency (“EPA”) missed the November 30, 2020 deadline to finalize Renewable Fuels Standard (RFS) volume requirements for 2021. In explaining the delay, the EPA cited a steep decline in gasoline sales during the coronavirus pandemic, making it difficult to forecast demand in 2021.
Many international markets are affected by government policies such as subsidies and other agriculturally related incentives. While these policies can have a significant effect on individual markets, they typically do not have a material effect on the consolidated results of the Company.
- 18 -
Currency – The value of the U.S. dollar fluctuates in relation to the value of currencies in a number of countries to which the Company exports products and in which the Company maintains local operations. The strengthening of the dollar increases the cost in the local currency of the products exported from the U.S. into these countries and, therefore, could negatively affect the Company’s international sales and margins. In addition, the U.S. dollar value of sales made in any affected foreign currencies will decline as the value of the dollar rises in relation to these other currencies.
International irrigation markets remain active with opportunities for further development and expansion, however regional political and economic factors, currency conditions and other factors can create a challenging environment. Additionally, international results are heavily dependent upon project sales which tend to fluctuate and can be difficult to forecast accurately.
The infrastructure business is dependent to some extent on government spending for road construction. In December 2015, the U.S. government enacted a five-year, $305 billion highway-funding bill (the “FAST Act”) to fund highway and bridge projects. The FAST Act was scheduled to expire in September 2020, however Congress reauthorized a one year extension. This extension includes an additional $13.6 billion added to the Highway Trust Fund, which finances most government spending for highways and mass transit. A Federal COVID-19 relief bill signed December 27, 2020 includes $10 billion of emergency aid for state departments of transportation to help fund eligible projects. Despite government spending uncertainty, opportunities exist for market expansion in each of the infrastructure product lines. Demand for the Company’s transportation safety products continues to be driven by population growth and the need for improved road safety.
During the first six months of fiscal 2021, demand for irrigation equipment in the U.S. has increased significantly over the same prior year period due to improved farmer sentiment resulting from higher agricultural commodity prices and improved net farm income in 2020. Also, during this period there has been a significant increase in steel and other raw material costs as well as freight and logistics costs. This has created short-term pressure on operating margins until these increased costs can be fully covered by increases in selling prices. In addition, supply chain constraints impacting availability of raw materials and trucking resources have contributed to cost increases and have resulted in extended lead times for deliveries.
The backlog of unshipped orders at February 28, 2021 was $101.4 million compared with $104.4 million at February 29, 2020. Included in these backlogs are amounts of $2.7 million and $5.5 million, respectively, for orders that are not expected to be fulfilled within the subsequent twelve months. The decrease in the total backlog is due to two large infrastructure orders in the prior year totaling $38.0 million that did not repeat, while order backlogs in North America and international irrigation are higher compared to the prior year. The Company’s backlog can fluctuate from period to period due to the seasonality, cyclicality, timing and execution of contracts. Backlog typically represents long-term projects as well as short lead-time orders, and therefore is generally not a good indication of the next fiscal quarter’s revenues.
The global drivers for the Company’s markets of population growth, expanded food production, efficient water use and infrastructure expansion support the Company’s long-term growth goals. The most significant opportunities for growth over the next several years are in international markets, where irrigation use is less developed and demand is driven primarily by food security, water scarcity and population growth.
- 19 -
Results of Operations
For the Three Months ended February 28, 2021 compared to the Three Months ended February 29, 2020
The following section presents an analysis of the Company’s operating results displayed in the condensed consolidated statements of earnings for the three months ended February 28, 2021 and February 29, 2020. It should be read together with the industry segment information in Note 13 to the condensed consolidated financial statements:
Percent
Increase
(Decrease)
Consolidated
26%
23%
Gross margin
28.7
%
29.4
Operating expenses (1)
2%
83%
Operating margin
11.0
7.6
-30%
99%
Overall income tax rate
18.4
19.7
115%
Irrigation Segment
Segment operating revenues
27%
Segment operating income
79%
Segment operating margin
15.2
10.8
Infrastructure Segment
8%
25.4
29.0
(1)
Includes $8.6 million and $7.3 million of corporate operating expenses for the three months ended February 28, 2021 and February 29, 2020, respectively.
Revenues
Operating revenues for the three months ended February 28, 2021 increased 26 percent to $143.6 million from $113.8 million for the three months ended February 29, 2020, as irrigation revenues increased $25.1 million and infrastructure revenues increased $4.7 million. The irrigation segment provided 83 percent of the Company’s revenue during the three months ended February 28, 2021 as compared to 82 percent for the three months ended February 29, 2020.
North America irrigation revenues for the three months ended February 28, 2021 of $80.2 million increased $13.1 million, or 19 percent, from $67.1 million for the three months ended February 29, 2020. The increase resulted primarily from higher irrigation equipment unit volume and slightly higher average selling prices. The increase was partially offset by revenue from engineering project services in the prior year that did not repeat.
International irrigation revenues for the three months ended February 28, 2021 of $38.4 million increased $12.0 million, or 45 percent, from $26.4 million for the three months ended February 29, 2020. The increase resulted from higher unit sales volumes in several international markets which were partially offset by the unfavorable effects of foreign currency translation of approximately $0.6 million compared to the prior year second quarter.
Infrastructure segment revenues for the three months ended February 28, 2021 of $25.0 million increased $4.7 million, or 23 percent, from $20.3 million for the three months ended February 29, 2020. The increase resulted primarily from higher Road Zipper System sales and lease revenue.
- 20 -
Gross Profit
Gross profit for the three months ended February 28, 2021 of $41.2 million increased 23 percent from $33.4 million for the three months ended February 29, 2020. The increase in gross profit resulted primarily from higher irrigation equipment unit sales volume and was partially offset by the impact of higher raw material and freight costs. In addition, gross profit for the three months ended February 29, 2020 included a gain recorded in the infrastructure segment of $1.2 million on the sale of a building that had been held for sale. Gross margin was 28.7 percent of sales for the three months ended February 28, 2021 compared with 29.4 percent of sales for the three months ended February 29, 2020. Higher gross margin in the prior year was primarily due to the building sale gain.
Operating Expenses
Operating expenses of $25.4 million for the three months ended February 28, 2021 increased $0.6 million, or 2 percent, compared with $24.7 million for the three months ended February 29, 2020. The increase resulted from a one-time expense of $1.5 million in equity awards related to the retirement of the Company’s chief executive officer, which was partially offset by decreases in other areas such as travel.
Other Expense, net
Other expense for the three months ended February 28, 2021 decreased $0.5 million compared to the three months ended February 29, 2020. The change resulted primarily from lower foreign currency transaction losses.
Income Taxes
The Company recorded income tax expense of $2.7 million and $1.4 million for the three months ended February 28, 2021 and February 29, 2020, respectively. The effective income tax rate was 18.4 percent and 19.7 percent for the three months ended February 28, 2021 and February 29, 2020, respectively.
For the Six Months ended February 28, 2021 compared to the Six Months ended February 29, 2020
The following section presents an analysis of the Company’s operating results displayed in the condensed consolidated statements of earnings for the six months ended February 28, 2021 and February 29, 2020. It should be read together with the industry segment information in Note 13 to the condensed consolidated financial statements:
13%
28.8
30.2
6%
12%
9.3
9.4
-32%
-42%
11.5
23.5
37%
16%
44%
13.9
11.2
0%
-28%
23.0
31.6
- 21 -
Includes $15.9 million and $13.6 million of corporate operating expenses for the six months ended February 28, 2021 and February 29, 2020, respectively.
Operating revenues for the six months ended February 28, 2021 increased 13 percent to $252.1 million from $223.2 million for the six months ended February 29, 2020, as irrigation revenues increased $29.1 million and infrastructure revenues decreased $0.3 million. The irrigation segment provided 82 percent of the Company’s revenue during the six months ended February 28, 2021 as compared to 79 percent for the six months ended February 29, 2020.
North America irrigation revenues for the six months ended February 28, 2021 of $132.9 million increased $12.3 million, or 10 percent, from $120.7 million for the six months ended February 29, 2020. The increase resulted primarily from higher irrigation equipment unit sales volume. The increase was partially offset by revenue from engineering project services in the prior year that did not repeat.
International irrigation revenues for the six months ended February 28, 2021 of $73.0 million increased $16.8 million, or 30 percent, from $56.1 million for the six months ended February 29, 2020. The increase resulted from higher unit sales volumes in several international markets which were partially offset by the unfavorable effects of foreign currency translation of approximately $3.0 million compared to the six months ended February 29, 2020.
Infrastructure segment revenues for the six months ended February 28, 2021 of $46.1 million decreased $0.3 million or 0.5 percent from $46.3 million. The decrease resulted primarily from lower sales of road safety products due to lower road construction activity which was partially offset by higher Road Zipper System lease revenue.
Gross profit for the six months ended February 28, 2021 of $72.6 million increased 8 percent from $67.5 million for the six months ended February 29, 2020. The increase in gross profit resulted primarily from higher irrigation equipment unit sales volume and was partially offset by the impact of higher raw material and freight costs. In addition, gross profit for the six months ended February 29, 2020 included a gain recorded in the infrastructure segment of $1.2 million on the sale of a building that had been held for sale. Gross margin was 28.8 percent of sales for the six months ended February 28, 2021 compared with 30.2 percent of sales for the six months ended February 29, 2020. Lower gross margin in the current year resulted primarily from a higher proportion of revenues coming from irrigation compared to the prior year, which have lower gross margin than infrastructure revenues. In addition, the prior year gross margin benefited from the building sale gain.
Operating expenses of $49.2 million for the six months ended February 28, 2021 increased $2.7 million, or 6 percent, compared with $46.6 million for the six months ended February 29, 2020. The increase resulted primarily from increased incentive compensation expense and a one-time expense of $1.5 million in equity awards related to the retirement of the Company’s chief executive officer. These increases were partially offset by decreases in other areas such as travel.
Other expense for the six months ended February 28, 2021 decreased $0.9 million compared to the six months ended February 29, 2020. The change resulted primarily from lower foreign currency transaction losses.
The Company recorded income tax expense of $2.5 million and $4.3 million for the six months ended February 28, 2021 and February 29, 2020, respectively. The effective income tax rate was 11.5 percent and 23.5 percent for the six months ended February 28, 2021 and February 29, 2020, respectively. The six months ended February 28, 2021 include a benefit of $1.7 million related to the release of a valuation allowance primarily related to net operating loss carryforwards in a foreign jurisdiction that are now expected to be realizable.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and marketable securities totaled $130.3 million at February 28, 2021 compared with $120.0 million at February 29, 2020 and $140.9 million at August 31, 2020. The Company requires cash for financing its receivables and inventories, paying operating expenses and capital expenditures, and for dividends and share
- 22 -
repurchases. The Company meets its liquidity needs and finances its capital expenditures from its available cash and funds provided by operations along with borrowings under its credit arrangements described below. The Company’s investments in marketable securities are primarily comprised of United States government securities and investment grade corporate bonds. The Company believes its current cash resources, investments in marketable securities, projected operating cash flow, and remaining capacity under its continuing bank lines of credit are sufficient to cover all of its expected working capital needs, planned capital expenditures and dividends. The Company may require additional borrowings to fund potential acquisitions in the future.
The Company’s total cash and cash equivalents held by foreign subsidiaries were approximately $35.8 million, $39.8 million, and $37.2 million as of February 28, 2021, February 29, 2020, and August 31, 2020, respectively. The Company considers earnings in foreign subsidiaries to be indefinitely reinvested and would need to accrue and pay incremental state, local, and foreign taxes if such earnings were repatriated to the United States. The Company does not intend to repatriate the funds and does not expect these funds to have a significant impact on the Company’s overall liquidity.
Net working capital was $260.8 million at February 28, 2021, as compared with $237.2 million at February 29, 2020 and $245.5 million at August 31, 2020. Cash provided by operating activities totaled $11.1 million during the six months ended February 28, 2021, compared to cash used in operating activities of $2.2 million during the six months ended February 29, 2020. This change was primarily due to higher net earnings and more cash generated from changes in working capital, primarily accounts payable and other noncurrent assets and liabilities, compared to the same prior year period.
Cash flows used in investing activities totaled $17.7 million during the six months ended February 28, 2021 compared to $19.0 million during the six months ended February 29, 2020. The current year period includes $16.6 million in purchases of property, plant, and equipment, compared to $5.3 million in the same prior year period. The increase includes $8.5 million to exercise a purchase option for the land and buildings related to the Company’s manufacturing operation in Turkey. The prior year period included cash outflows of $20.0 million related to the Company’s initial purchase of marketable securities.
Cash flows used in financing activities totaled $4.5 million during the six months ended February 28, 2021 compared to cash flows used in financing activities of $6.4 million during the six months ended February 29, 2020. The decrease was primarily the result of higher proceeds from the exercise of stock options compared to the same prior year period.
Capital Allocation Plan
The Company’s capital allocation plan is to continue investing in revenue and earnings growth, combined with a defined process for enhancing returns to stockholders. Under the Company’s capital allocation plan, the priorities for uses of cash include:
Investment in organic growth including capital expenditures and expansion of international markets,
Dividends to stockholders, along with expectations to increase dividends over time,
Synergistic acquisitions that provide attractive returns to stockholders, and
Opportunistic share repurchases taking into account cyclical and seasonal fluctuations.
Capital Expenditures
Capital expenditures for fiscal 2021 are expected to be between $20.0 million and $25.0 million, including equipment replacement, productivity improvements and new product development. The Company’s management does maintain flexibility to modify the amount and timing of some of the planned expenditures in response to economic conditions.
Dividends
In the second quarter of fiscal 2021, the Company paid a quarterly cash dividend to stockholders of $0.32 per common share, or $3.5 million, compared to a quarterly cash dividend of $0.31 per common share, or $3.3 million, in the second quarter of fiscal 2020.
Share Repurchases
The Company’s Board of Directors authorized a share repurchase program of up to $250.0 million of common stock with no expiration date. 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
- 23 -
Exchange Act of 1934, as amended. There were no shares repurchased during the six months ended February 28, 2021 or February 29, 2020. The remaining amount available under the repurchase program was $63.7 million as of February 28, 2021.
Long-Term Borrowing Facilities
Senior Notes. The Company has outstanding $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. Borrowings under the Senior Notes are unsecured. The Company used the proceeds of the sale of the Senior Notes for general corporate purposes, including acquisitions and dividends.
Revolving Credit Facility. The Company has outstanding a $50.0 million unsecured Amended and Restated Revolving Credit Facility (the “Revolving Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) expiring May 31, 2022. The Company intends to use borrowings under the Revolving Credit Facility for working capital purposes and to fund acquisitions. At February 28, 2021 and February 29, 2020, 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 issued by Wells Fargo then outstanding. At February 28, 2021, the Company had the ability to borrow up to $50.0 million under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility bear interest at a variable rate equal to LIBOR plus 90 basis points (1.09 percent at February 28, 2021), 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 currently pays an annual commitment fee of 0.15 percent on the unused portion of the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility have equal priority with borrowings under the Company’s Senior Notes. Each of the credit arrangements described above include certain covenants relating primarily to the Company’s financial condition. These financial covenants include a funded debt to EBITDA leverage ratio and an interest coverage ratio. In the event that the loan documents for the Revolving Credit Facility were to require the Company to comply with any financial covenant that is not already included or is more restrictive than what is already included in the arrangement governing the Senior Notes, then such covenant shall be deemed incorporated by reference for the benefit of holders of the Senior Notes. 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 February 28, 2021 and February 29, 2020, 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 LLC, a wholly owned subsidiary of the Company, has outstanding $1.6 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 every five years based on the yield of the 5-year United States Treasury Notes, plus 0.45 percent (0.81 percent as of February 28, 2021). This rate was adjusted on September 1, 2016 in accordance with the terms of the bonds, and the adjusted rate will be in force until September 1, 2021. The obligations under the Series 2006A Bonds are secured by a first priority security interest in certain real estate.
Contractual Obligations and Commercial Commitments
There have been no material changes in the Company’s contractual obligations and commercial commitments as described in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020.
ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the Company’s quantitative and qualitative disclosures about market risk previously disclosed in the Company’s most recent Annual Report on Form 10-K. See discussion of the Company’s quantitative and qualitative disclosures about market risk under Part II, Item 7A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020.
- 24 -
Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and the participation of the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of February 28, 2021.
Changes in Internal Control over Financial Reporting
The CEO and CFO determined that there has not been any significant change to the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
- 25 -
See the disclosure in Note 8 – Commitments and Contingencies to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, which disclosure is hereby incorporated herein by reference.
There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussions of the Company’s risk factors under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020.
None.
Not applicable.
- 26 -
Exhibit
No.
Description
3.1
Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on December 14, 2006.
3.2
Amended and Restated By‑Laws of the Company, effective October 17, 2018, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on October 19, 2018.
4.1
Specimen Form of Common Stock Certificate, incorporated by reference to Exhibit 4(a) of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006.
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350.
101*
Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language ("Inline XBRL").
104*
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
* Filed herein.
- 27 -
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 6th day of April 2021.
LINDSAY CORPORATION
By:
/s/ BRIAN L. KETCHAM
Name:
Brian L. Ketcham
Title:
Senior Vice President and Chief Financial Officer
(on behalf of the registrant and as principal financial officer)
- 28 -