10-Q 1 lnn-10q_20181130.htm 10-Q lnn-10q_20181130.htm

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2018

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-13419

 

Lindsay Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47‑0554096

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2222 N. 111th Street, Omaha, Nebraska

 

68164

(Address of principal executive offices)

 

(Zip Code)

 

402‑829-6800

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 

Indicate by check mark whether the registrant has submitted electronically 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 December 22, 2018, 10,786,339 shares of the registrant’s common stock were outstanding.

 

- 1 -


Table of Contents

 

Lindsay Corporation

INDEX FORM 10-Q

 

 

 

 

 

Page

 

 

 

 

 

Part I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

ITEM 1 – Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Earnings for the three months ended November 30, 2018 and November 30, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended November 30, 2018 and November 30, 2017

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of November 30, 2018, November 30, 2017, and August 31, 2018

                                                  

 

5

 

 

Condensed Consolidated Statements of Shareholders’ Equity as of November 30, 2018

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2018 and November 30, 2017

 

7

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

 

 

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

 

 

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk

 

26

 

 

 

 

 

 

 

ITEM 4 – Controls and Procedures

 

26

 

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

ITEM 1 – Legal Proceedings

 

27

 

 

 

 

 

 

 

ITEM 1A – Risk Factors

 

27

 

 

 

 

 

 

 

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

 

27

 

 

 

 

 

 

 

ITEM 3 – Defaults Upon Senior Securities

 

27

 

 

 

 

 

 

 

ITEM 4 – Mine Safety Disclosures

 

27

 

 

 

 

 

 

 

ITEM 5 – Other Information

 

27

 

 

 

 

 

 

 

ITEM 6 – Exhibits

 

28

 

 

 

 

 

SIGNATURES

 

29

 

- 2 -


Table of Contents

 

Part I – FINANCIAL INFORMATION

ITEM 1 - Financial Statements

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

 

 

Three months ended

 

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

 

November 30,

2018

 

 

November 30,

2017

 

Operating revenues

 

$

111,951

 

 

$

124,526

 

Cost of operating revenues

 

 

83,303

 

 

 

92,129

 

Gross profit

 

 

28,648

 

 

 

32,397

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling expense

 

 

7,982

 

 

 

10,225

 

General and administrative expense

 

 

15,058

 

 

 

11,918

 

Engineering and research expense

 

 

3,568

 

 

 

4,053

 

Total operating expenses

 

 

26,608

 

 

 

26,196

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,040

 

 

 

6,201

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,205

)

 

 

(1,181

)

Interest income

 

 

654

 

 

 

320

 

Other (expense) income, net

 

 

192

 

 

 

(548

)

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

1,681

 

 

 

4,792

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

469

 

 

 

1,607

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,212

 

 

$

3,185

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

$

0.30

 

Diluted

 

$

0.11

 

 

$

0.30

 

 

 

 

 

 

 

 

 

 

Shares used in computing earnings per share:

 

 

 

 

 

 

 

 

Basic

 

 

10,766

 

 

 

10,705

 

Diluted

 

 

10,806

 

 

 

10,740

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.31

 

 

$

0.30

 

 

See accompanying notes to condensed consolidated financial statements.

- 3 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three months ended

 

($ in thousands)

 

November 30,

2018

 

 

November 30,

2017

 

Net earnings

 

$

1,212

 

 

$

3,185

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustment, net of tax

 

 

29

 

 

 

32

 

Foreign currency translation adjustment, net of hedging activities and tax

 

 

1,106

 

 

 

(1,034

)

Total other comprehensive (loss) income, net of tax expense

    of $226 and $32, respectively

 

 

1,135

 

 

 

(1,002

)

Total comprehensive income

 

$

2,347

 

 

$

2,183

 

 

See accompanying notes to condensed consolidated financial statements.

- 4 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

($ and shares in thousands, except par values)

 

November 30,

2018

 

 

November 30,

2017

 

 

August 31,

2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

137,217

 

 

$

109,450

 

 

$

160,787

 

Receivables, net of allowance of $3,324, $7,524, and $3,585,

   respectively

 

 

84,864

 

 

 

79,774

 

 

 

69,107

 

Inventories, net

 

 

88,912

 

 

 

93,994

 

 

 

79,233

 

Prepaid expenses

 

 

3,199

 

 

 

3,555

 

 

 

3,883

 

Assets held-for-sale

 

 

2,744

 

 

 

 

 

 

10,837

 

Other current assets

 

 

8,386

 

 

 

9,461

 

 

 

7,204

 

Total current assets

 

 

325,322

 

 

 

296,234

 

 

 

331,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment:

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

176,669

 

 

 

190,028

 

 

 

171,450

 

Less accumulated depreciation

 

 

(116,187

)

 

 

(117,088

)

 

 

(114,202

)

Property, plant, and equipment, net

 

 

60,482

 

 

 

72,940

 

 

 

57,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles, net

 

 

26,576

 

 

 

41,702

 

 

 

27,376

 

Goodwill

 

 

64,557

 

 

 

77,127

 

 

 

64,671

 

Deferred income tax assets

 

 

5,639

 

 

 

3,111

 

 

 

6,645

 

Other noncurrent assets

 

 

19,943

 

 

 

12,293

 

 

 

13,265

 

Total assets

 

$

502,519

 

 

$

503,407

 

 

$

500,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

41,338

 

 

$

41,046

 

 

$

30,530

 

Current portion of long-term debt

 

 

206

 

 

 

202

 

 

 

205

 

Liabilities held-for-sale

 

 

 

 

 

 

 

 

2,424

 

Other current liabilities

 

 

41,480

 

 

 

48,875

 

 

 

46,935

 

Total current liabilities

 

 

83,024

 

 

 

90,123

 

 

 

80,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension benefits liabilities

 

 

5,803

 

 

 

6,223

 

 

 

5,874

 

Long-term debt

 

 

116,518

 

 

 

116,724

 

 

 

116,570

 

Deferred income tax liabilities

 

 

1,048

 

 

 

1,649

 

 

 

1,083

 

Other noncurrent liabilities

 

 

19,451

 

 

 

19,456

 

 

 

19,769

 

Total liabilities

 

 

225,844

 

 

 

234,175

 

 

 

223,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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;

   18,870, 18,805, and 18,841 shares issued, respectively

 

 

18,870

 

 

 

18,805

 

 

 

18,841

 

Capital in excess of stated value

 

 

68,710

 

 

 

63,191

 

 

 

68,465

 

Retained earnings

 

 

483,811

 

 

 

477,584

 

 

 

484,886

 

Less treasury stock - at cost, 8,083 shares

 

 

(277,238

)

 

 

(277,238

)

 

 

(277,238

)

Accumulated other comprehensive loss, net

 

 

(17,478

)

 

 

(13,110

)

 

 

(18,088

)

Total shareholders' equity

 

 

276,675

 

 

 

269,232

 

 

 

276,866

 

Total liabilities and shareholders' equity

 

$

502,519

 

 

$

503,407

 

 

$

500,256

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

- 5 -


Table of Contents

 

Lindsay Corporation and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

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

 

 

 

Shares of

common

stock

 

 

Shares of

treasury

stock

 

 

Common

stock

 

 

Capital in

excess of

stated

value

 

 

Retained

earnings

 

 

Treasury

stock

 

 

Accumulated

other

comprehensive

(loss) income,

net

 

 

Total

shareholders’

equity

 

Balance at August 31, 2018

 

 

18,841

 

 

 

8,083

 

 

$

18,841

 

 

$

68,465

 

 

$

484,886

 

 

$

(277,238

)

 

$

(18,088

)

 

$

276,866

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,212

 

 

 

 

 

 

 

 

 

 

 

1,212

 

Other comprehensive

   income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,135

 

 

 

1,135

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,347

 

Cash dividends ($0.31) per

   share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,344

)

 

 

 

 

 

 

 

 

 

 

(3,344

)

Issuance of common shares

   under share compensation

   plans, net

 

29

 

 

 

 

 

 

29

 

 

 

(972

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(943

)

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,217

 

Cumulative impact of ASC 606

   adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

532

 

 

 

 

 

 

 

 

 

 

 

532

 

Cumulative impact of ASU

   2018-02 adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

525

 

 

 

 

 

 

 

(525

)

 

 

 

Balance at November 30, 2018

 

 

18,870

 

 

 

8,083

 

 

$

18,870

 

 

$

68,710

 

 

$

483,811

 

 

$

(277,238

)

 

$

(17,478

)

 

$

276,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 6 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three months ended

 

($ in thousands)

 

November 30,

2018

 

 

November 30,

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net earnings

 

$

1,212

 

 

$

3,185

 

Adjustments to reconcile net earnings to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,424

 

 

 

4,335

 

Loss on sale of business

 

 

67

 

 

 

 

Provision for uncollectible accounts receivable

 

 

(159

)

 

 

112

 

Deferred income taxes

 

 

742

 

 

 

2,111

 

Share-based compensation expense

 

 

1,303

 

 

 

1,001

 

Other, net

 

 

(1,053

)

 

 

614

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(14,782

)

 

 

(6,526

)

Inventories

 

 

(11,387

)

 

 

(8,672

)

Prepaid expenses and other current assets

 

 

298

 

 

 

(15

)

Accounts payable

 

 

13,917

 

 

 

4,642

 

Other current liabilities

 

 

(7,106

)

 

 

(6,156

)

Other noncurrent assets and liabilities

 

 

(792

)

 

 

399

 

Net cash used in operating activities

 

 

(14,316

)

 

 

(4,970

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(5,701

)

 

 

(1,991

)

Proceeds from settlement of net investment hedges

 

 

962

 

 

 

101

 

Payments for settlement of net investment hedges

 

 

 

 

 

(1,176

)

Other investing activities, net

 

 

8

 

 

 

74

 

Net cash used in investing activities

 

 

(4,731

)

 

 

(2,992

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

177

 

 

 

132

 

Common stock withheld for payroll tax obligations

 

 

(1,120

)

 

 

(828

)

Principal payments on long-term debt

 

 

(51

)

 

 

(50

)

Dividends paid

 

 

(3,344

)

 

 

(3,216

)

Net cash used in financing activities

 

 

(4,338

)

 

 

(3,962

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(185

)

 

 

(246

)

Net change in cash and cash equivalents

 

 

(23,570

)

 

 

(12,170

)

Cash and cash equivalents, beginning of period

 

 

160,787

 

 

 

121,620

 

Cash and cash equivalents, end of period

 

$

137,217

 

 

$

109,450

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Income taxes paid

 

$

553

 

 

$

213

 

Interest paid

 

$

83

 

 

$

123

 

 

 

NONCASH INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Note receivable from sale of business

 

$

5,823

 

 

$

 

 

See accompanying notes to condensed consolidated financial statements.

- 7 -


Table of Contents

 

LINDSAY CORPORATION AND SUBSIDIARIES

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, 2018.

In the opinion of management, the condensed consolidated financial statements of the Company reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented.  The results for interim periods are not necessarily indicative of trends or results expected by the Company for a full year.  The condensed consolidated financial statements were prepared using U.S. GAAP. These principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates.  Certain reclassifications have been made to prior financial statements and notes to conform to the current year presentation.

 

Recent Accounting Guidance Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The standard requires a lessee to recognize assets and liabilities arising from an operating lease on the balance sheet. Additionally, companies are permitted to make an accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less.  The effective date of ASU No. 2016-02 will be the first quarter of the Company’s fiscal 2020 with early adoption permitted. The Company is currently in the assessment phase and is evaluating the effect that adoption of this standard will have on its consolidated financial statements.

 

In June 2016, the FASB issued 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 2020 with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.

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 is effective in the first quarter of the Company’s fiscal 2020 with early adoption permitted.  The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.

Recent Accounting Guidance Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which had been codified in ASC Topic 606 Revenue from Contracts with Customers. The standard provides a single model for revenue arising from contracts with customers and supersedes previous revenue recognition guidance. The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of goods or services. The guidance replaces existing revenue recognition guidance in U.S. GAAP and became effective for the Company in its first quarter of fiscal 2019. Under ASC Topic 606 the timing of revenue recognition may differ from previous guidance for contracts with multiple performance obligations as revenue is recognized when control has been transferred for each performance obligation.  For custom and contract manufactured products that do not have an alternate use to the Company revenue is recognized over-time when the customer agreements contain contractual termination clauses and right to payment for work performed to date which is a change from previous guidance.

 

The Company adopted the new standard using the modified retrospective approach effective the first day of fiscal 2019.  As a result of the adoption, the Company increased retained earnings, $0.5 million, net of tax. This change relates primarily to custom and contract manufacturing arrangements for certain of the Company’s irrigation and infrastructure equipment products at various stages of production at August 31, 2018 in addition to contracts with multiple performance obligations for which control of the relevant performance obligation had been satisfied. Results for reporting periods beginning

- 8 -


Table of Contents

 

September 1, 2018 are presented in accordance with the ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the previously applied revenue recognition guidance.

In March 2017, the FASB issued ASU No. 2017-07, Presentation of Net Periodic Benefit Cost Related to Defined Benefit Plans, which amends the income statement presentation requirements for the components of net periodic benefit cost for an entity's defined benefit pension and post-retirement plans. The Company adopted ASU No. 2017-07 in first quarter of fiscal 2019, recognizing the net periodic pension cost within other (expense) income, net.  The Company also reclassified an immaterial amount of net periodic pension cost for its first quarter of fiscal 2018 out of general and administrative expense and into other (expense) income, net.

 

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which provides guidance on accounting for the impacts of the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”).  SAB 118 directs companies to consider the impact of the U.S. Tax Reform as provisional when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting under ASC Topic 740, Income Taxes.  The Company has completed its accounting for the tax effects of U.S. Tax Reform as more fully explained in Note 5 to the condensed consolidated financial statements.  

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides entities with the option to eliminate the stranded tax effects associated with the change in tax rates under U.S. Tax Reform through a reclassification of the stranded tax effects from accumulated other comprehensive income (“AOCI”) to retained earnings.  The amount of the reclassification is calculated on the basis of the difference between the historical and newly enacted tax rates for deferred tax liabilities and assets related to items within AOCI. The Company adopted ASU No. 2018-02 in the first quarter of the Company’s fiscal 2019 and reclassified $0.5 million to retained earnings for the impact of stranded tax effects resulting from U.S. Tax Reform.

Note 2 – Revenue Recognition

The cumulative effect of initially applying the new revenue standard under ASC Topic 606 was recorded as an adjustment to the opening balance of retained earnings, which impacted the condensed consolidated balance sheet as follows:

 

($ in thousands)

 

August 31,

2018

 

 

ASC Topic 606 Adjustments

 

 

September 1,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Inventories, net

 

$

79,233

 

 

$

(942

)

 

$

78,291

 

Other current assets

 

 

7,204

 

 

 

1,651

 

 

 

8,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

46,935

 

 

$

14

 

 

$

46,949

 

Deferred income tax liabilities

 

 

1,083

 

 

 

163

 

 

 

1,246

 

Retained earnings

 

 

484,886

 

 

 

532

 

 

 

485,418

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


- 9 -


Table of Contents

 

The adoption of ASC Topic 606 had the following impact on the condensed consolidated balance sheet and condensed consolidated statement of earnings for the three months ended November 30, 2018:

 

($ in thousands)

 

As Reported

 

 

ASC Topic 606 Adjustments

 

 

Balance without adoption of ASC Topic 606

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Inventories, net

 

$

88,912

 

 

$

3,669

 

 

$

92,581

 

Other current assets

 

 

8,386

 

 

 

(1,059

)

 

 

7,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

41,480

 

 

$

5,489

 

 

$

46,969

 

Retained earnings

 

 

483,811

 

 

 

(2,879

)

 

 

480,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

111,951

 

 

$

(6,168

)

 

$

105,783

 

Operating income

 

 

2,040

 

 

 

(3,280

)

 

 

(1,240

)

 

The Company determines the appropriate revenue recognition for its contracts by analyzing the type, terms and conditions of each contract or arrangement with a customer.  Revenue is recognized when the Company satisfies the performance obligation by transferring control over goods or services to a customer. The amount of revenue recognized is measured as the consideration the Company expects to receive in exchange for those goods or services pursuant to a contract with the customer. The Company does not recognize revenue in cases where collectability is not probable, and defers the recognition until collection is probable or payment is received. Sales taxes, value added taxes, and other taxes collected from its customers concurrent with its revenue activities are excluded from revenue.

 

The Company elected to use the practical expedient of treating shipping and handling costs associated with outbound freight as a fulfillment obligation instead of a separate performance obligation.  Shipping and handling fees billed to the customer are reported as revenue and recorded in the same period as the associated fulfillment costs.  

 

Customer rebates, cash discounts and other sales incentives are recorded as a reduction of revenues in the period in which the sale is recognized.  The Company establishes provisions for estimated warranties and does not generally sell extended warranties for its products.

 

In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations at the end of the period when the contract has an original expected length of service of one year or less. For contracts with a length longer than twelve months, the unsatisfied performance obligation was $0.7 million at November 30, 2018.

 

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

 

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using the stand-alone selling price of each distinct good or service in the contract.  For most performance obligations, the stand-alone selling price is directly observable as these goods or services are also sold separately by the Company.  For performance obligations where the stand-alone selling price is not directly observable, the Company uses the expected cost plus a margin approach, under which the expected costs of satisfying a performance obligation are forecasted and then an appropriate margin for that distinct good or service is added.

 

The Company’s performance obligations are satisfied at either a point in time or over time depending on the measure of progress applied toward the complete satisfaction in the transfer of control of the related goods and services to the customer.

 

Revenue recognized at a point in time is derived from the sale of equipment and related parts.  Revenue recognition for equipment and parts is generally at a point in time upon transfer of control of the goods to the customer which generally happens upon shipment of goods to the customer.  

 

- 10 -


Table of Contents

 

Revenue recognized over time is primarily derived from engineering services and remote monitoring subscription services as well as custom and contract manufactured products.  For engineering services, transfer of control to the customer is continuous over time.  Therefore, revenue is recognized based on the extent of progress towards completion of the performance obligation.  Judgement is required when selecting the method to measure progress towards completion.  For fixed price agreements, the Company recognizes revenue on an inputs basis, using total costs incurred to date as a percentage of total costs expected to be incurred.  For time and material arrangements, the Company utilizes an output method of resources consumed such as the expended hours times the hourly billing rate.  For remote monitoring subscription services, customers are generally billed in advance and revenue is recognized ratably over the life of the agreement.

 

For custom and contract manufactured products, the transfer of control is continuous over the life of the agreement and products do not have an alternate use to the Company.  When the customer agreements contain contractual termination clauses and right to payment for work performed to date, the revenue from these agreements is recognized over time as the products are produced.

 

The Company also leases certain infrastructure property.  Revenues for the lease of infrastructure property are recognized on a straight-line basis over the lease term.

 

A breakout by segment of revenue recognized over time versus point in time for the three months ended November 30, 2018 is as follows:

 

($ in thousands)

 

Irrigation

 

 

Infrastructure

 

 

Total

 

Point in time

 

$

81,086

 

 

$

21,247

 

 

$

102,333

 

Over time

 

 

6,524

 

 

 

1,490

 

 

 

8,014

 

Revenue from the contracts with customers

 

 

87,610

 

 

 

22,737

 

 

 

110,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease revenue

 

 

 

 

 

1,604

 

 

 

1,604

 

Total operating revenues

 

$

87,610

 

 

$

24,341

 

 

$

111,951

 

  

Further disaggregation of revenue is disclosed in the Note 15 – Industry Segment Information.

 

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.

 

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date. The contract liabilities primarily relate to the advance consideration received from customers for customer contracts, for which transfer of control of products or performance of service occurs in the future, and therefore revenue is recognized upon completion of the performance obligation.

 

At November 30, 2018, contract assets amounted to $1.8 million. This amount is included in the other current assets line item within current assets on the condensed consolidated balance sheets.  The contract asset attributable to the cumulative effect from the adoption of ASC Topic 606 was $1.1 million; the contract asset at August 31, 2018 was $0.5 million.

 

At November 30, 2018 and August 31, 2018, the contract liability was $6.4 million and $7.5 million, respectively. The contract liability is included in the other current liabilities on the condensed consolidated balance sheets. During the Company’s fiscal quarter ended November 30, 2018, the Company recognized $4.6 million of revenue that was included in the liability as of August 31, 2018. The revenue recognized was due to applying advance payments received for the performance obligations completed during the quarter. Amounts included here exclude deferred lease revenues that are also included within other current liabilities.

Note 3 – Divestitures and Held-For-Sale

 

During fiscal 2018, in connection with a portfolio review of business investments, the Company committed to a plan of divestiture of its pump and filtration businesses, a Company-owned irrigation dealership, and a Company-owned water resource consulting firm, all of which are reported in the Irrigation segment.  The Company completed the divestiture of its

- 11 -


Table of Contents

 

pump and filtration businesses and the Company-owned water resource consulting firm during the fourth quarter of fiscal 2018.

 

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 $0.1 million included in general and administrative expense on the condensed consolidated statement of earnings for the three months ended November 30, 2018.  The Company received a note of $5.8 million as proceeds for this sale. This is included as a noncash investing activity on the condensed consolidated statement of cash flows.

 

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.  The building related to the closure is currently listed for sale and is included within the caption “Assets held-for-sale” in the condensed consolidated balance sheet as of November 30, 2018.

 

The carrying amounts of the major classes of assets and liabilities that were classified as held-for-sale at November 30, 2018, November 30, 2017, and August 31, 2018 are as follows:

 

($ in thousands)

 

November 30,

2018

 

 

November 30,

2017

 

 

August 31,

2018

 

Receivables, net of allowance of $244

 

$

 

 

$

 

 

$

3,473

 

Inventories, net

 

 

 

 

 

 

 

 

3,676

 

Property, plant, and equipment, net

 

 

2,744

 

 

 

 

 

 

3,637

 

Intangibles, net

 

 

 

 

 

 

 

 

51

 

Total assets

 

 

2,744

 

 

 

 

 

 

10,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

 

 

 

 

 

1,476

 

Other current liabilities

 

 

 

 

 

 

 

 

948