Lindsay(LNN) - 2020 Q1 - Quarterly Report

Part I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ITEM 1 – Financial Statements This section presents the unaudited condensed consolidated financial statements, including statements of earnings, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, revenue recognition, and other financial details for the three months ended November 30, 2019 and 2018 Condensed Consolidated Statements of Earnings This statement details the company's revenues, expenses, and net earnings for the three months ended November 30 Condensed Consolidated Statements of Earnings (Three months ended November 30) | ($ and shares in thousands, except per share amounts) | 2019 | 2018 | | :-------------------------------------------------- | :----- | :----- | | Operating revenues | $109,393 | $111,951 | | Cost of operating revenues | 75,319 | 83,303 | | Gross profit | 34,074 | 28,648 | | Operating expenses: | | | | Selling expense | 6,492 | 7,982 | | General and administrative expense | 11,804 | 15,058 | | Engineering and research expense | 3,502 | 3,568 | | Total operating expenses | 21,798 | 26,608 | | Operating income | 12,276 | 2,040 | | Other income (expense): | | | | Interest expense | (1,186) | (1,205) | | Interest income | 615 | 654 | | Other (expense) income, net | (450) | 192 | | Earnings before income taxes | 11,255 | 1,681 | | Income tax expense | 2,910 | 469 | | Net earnings | $8,345 | $1,212 | | Earnings per share: | | | | Basic | $0.77 | $0.11 | | Diluted | $0.77 | $0.11 | | Shares used in computing earnings per share: | | | | Basic | 10,795 | 10,766 | | Diluted | 10,828 | 10,806 | | Cash dividends declared per share | $0.31 | $0.31 | Condensed Consolidated Statements of Comprehensive Income This statement presents net earnings and other comprehensive income components for the three months ended November 30 Condensed Consolidated Statements of Comprehensive Income (Three months ended November 30) | ($ in thousands) | 2019 | 2018 | | :------------------------------------------------------- | :----- | :----- | | Net earnings | $8,345 | $1,212 | | Other comprehensive (loss) income: | | | | Defined benefit pension plan adjustment, net of tax | 43 | 29 | | Foreign currency translation adjustment, net of hedging activities and tax | (293) | 1,106 | | Total other comprehensive (loss) income, net of tax expense | (250) | 1,135 | | Total comprehensive income | $8,095 | $2,347 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity as of November 30 Condensed Consolidated Balance Sheets (As of November 30, 2019, November 30, 2018, and August 31, 2019) | ($ and shares in thousands, except par values) | Nov 30, 2019 | Nov 30, 2018 | Aug 31, 2019 | | :------------------------------------------- | :----------- | :----------- | :----------- | | ASSETS | | | | | Current assets: | | | | | Cash and cash equivalents | $120,910 | $137,217 | $127,204 | | Receivables, net | 79,317 | 84,864 | 75,551 | | Inventories, net | 97,284 | 88,912 | 92,287 | | Assets held-for-sale | 2,744 | 2,744 | 2,744 | | Other current assets, net | 16,376 | 11,585 | 15,704 | | Total current assets | 316,631 | 325,322 | 313,490 | | Property, plant, and equipment, net | 70,305 | 60,482 | 68,968 | | Intangibles, net | 23,739 | 26,576 | 24,382 | | Goodwill | 64,358 | 64,557 | 64,387 | | Operating lease right-of-use assets | 25,764 | — | — | | Deferred income tax assets | 9,902 | 5,639 | 11,758 | | Other noncurrent assets | 16,112 | 19,511 | 17,329 | | Total assets | $526,811 | $502,087 | $500,314 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Current liabilities: | | | | | Accounts payable | $30,097 | $41,338 | $29,434 | | Current portion of long-term debt | 210 | 206 | 209 | | Other current liabilities | 54,494 | 41,480 | 52,488 | | Total current liabilities | 84,801 | 83,024 | 82,131 | | Pension benefits liabilities | 5,948 | 5,803 | 6,029 | | Long-term debt | 115,805 | 116,086 | 115,846 | | Operating lease liabilities | 25,323 | — | — | | Deferred income tax liabilities | 845 | 1,048 | 872 | | Other noncurrent liabilities | 21,089 | 19,451 | 27,227 | | Total liabilities | 253,811 | 225,412 | 232,105 | | Shareholders' equity: | | | | | Common stock | 18,897 | 18,870 | 18,870 | | Capital in excess of stated value | 71,706 | 68,710 | 71,684 | | Retained earnings | 479,732 | 483,811 | 474,740 | | Less treasury stock | (277,238) | (277,238) | (277,238) | | Accumulated other comprehensive loss, net | (20,097) | (17,478) | (19,847) | | Total shareholders' equity | 273,000 | 276,675 | 268,209 | | Total liabilities and shareholders' equity | $526,811 | $502,087 | $500,314 | Condensed Consolidated Statements of Shareholders' Equity This statement details changes in shareholders' equity, including net earnings, dividends, and share-based compensation Condensed Consolidated Statements of Shareholders' Equity (Three months ended November 30, 2019 and 2018) | ($ and shares in thousands, except per share amounts) | 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 | $68,465 | $484,886 | $(277,238) | $(18,088) | $276,866 | | Net earnings | — | — | 1,212 | — | — | 1,212 | | Other comprehensive income | — | — | — | — | 1,135 | 1,135 | | Cash dividends ($0.31) per share | — | — | (3,344) | — | — | (3,344) | | Issuance of common shares under share compensation plans, net | 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 | $68,710 | $483,811 | $(277,238) | $(17,478) | $276,675 | | Balance at August 31, 2019 | $18,870 | $71,684 | $474,740 | $(277,238) | $(19,847) | $268,209 | | Net earnings | — | — | 8,345 | — | — | 8,345 | | Other comprehensive loss | — | — | — | — | (250) | (250) | | Cash dividends ($0.31) per share | — | — | (3,353) | — | — | (3,353) | | Issuance of common shares under share compensation plans, net | 27 | (1,138) | — | — | — | (1,111) | | Share-based compensation expense | — | 1,160 | — | — | — | 1,160 | | Balance at November 30, 2019 | $18,897 | $71,706 | $479,732 | $(277,238) | $(20,097) | $273,000 | Condensed Consolidated Statements of Cash Flows This statement outlines cash flows from operating, investing, and financing activities for the three months ended November 30 Condensed Consolidated Statements of Cash Flows (Three months ended November 30) | ($ in thousands) | 2019 | 2018 | | :---------------------------------------------------------------- | :----- | :----- | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | Net earnings | $8,345 | $1,212 | | Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | | | | Depreciation and amortization | 4,748 | 3,424 | | Loss on sale of business | — | 67 | | Provision for uncollectible accounts receivable | 248 | (159) | | Deferred income taxes | 1,987 | 742 | | Share-based compensation expense | 1,160 | 1,303 | | Other, net | 374 | (1,053) | | Changes in assets and liabilities: | | | | Receivables | (4,122) | (14,782) | | Inventories | (4,931) | (11,387) | | Other current assets | (2,466) | 298 | | Accounts payable | 725 | 13,917 | | Other current liabilities | (1,901) | (7,106) | | Other noncurrent assets and liabilities | (2,626) | (792) | | Net cash provided by (used in) operating activities | 1,541 | (14,316) | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | Purchases of property, plant, and equipment | (4,322) | (5,701) | | Proceeds from settlement of net investment hedges | 1,092 | 962 | | Other investing activities, net | 24 | 8 | | Net cash used in investing activities | (3,206) | (4,731) | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | Proceeds from exercise of stock options | — | 177 | | Common stock withheld for payroll tax obligations | (1,111) | (1,120) | | Principal payments on long-term debt | (52) | (51) | | Dividends paid | (3,352) | (3,344) | | Net cash used in financing activities | (4,515) | (4,338) | | Effect of exchange rate changes on cash and cash equivalents | (114) | (185) | | Net change in cash and cash equivalents | (6,294) | (23,570) | | Cash and cash equivalents, beginning of period | 127,204 | 160,787 | | Cash and cash equivalents, end of period | $120,910 | $137,217 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 – Basis of Presentation The financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP, reflecting management's estimates. The company adopted ASU 2016-02 (Leases) in Q1 FY2020, recognizing right-of-use assets and lease liabilities, and ASU 2017-12 (Hedging Activities) with no material impact. ASU 2016-13 (Credit Losses) is pending adoption in FY2021 - The Company adopted ASU 2016-02, Leases, in the first quarter of fiscal 2020, recognizing a right-of-use asset of $26.2 million and a lease liability of $29.5 million[21] - ASU No 2016-13, Financial Instruments - Credit Losses, will be effective in the first quarter of the Company's fiscal 2021, and the Company is currently evaluating its impact[20] - ASU No 2017-12, Targeted Improvements to Accounting for Hedging Activities, was adopted in Q1 FY2020 and did not have a material impact on the consolidated financial statements[22] Note 2 – Revenue Recognition Revenue is disaggregated by segment (Irrigation and Infrastructure) and recognition method (point in time vs. over time). Total operating revenues decreased by 2.3% YoY. Contract assets and liabilities are detailed, with $6.4 million of revenue recognized from prior period liabilities in Q1 FY2020 Operating Revenues by Segment and Recognition Method (Three months ended November 30) | Category | 2019 ($ in thousands) | 2018 ($ in thousands) | YoY Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :------------- | | Irrigation | | | | | Point in time | 73,375 | 81,086 | -9.5% | | Over time | 8,977 | 6,524 | 37.6% | | Subtotal Irrigation | 82,352 | 87,610 | -6.0% | | Infrastructure | | | | | Point in time | 21,605 | 21,247 | 1.7% | | Over time | 2,657 | 1,490 | 78.3% | | Subtotal Infrastructure | 24,262 | 22,737 | 6.7% | | Lease revenue (Infrastructure) | 2,779 | 1,604 | 73.3% | | Total Operating Revenues | 109,393 | 111,951 | -2.3% | - Contract assets amounted to $1.2 million at November 30, 2019, down from $1.3 million at August 31, 2019[25] - Contract liabilities amounted to $14.7 million at November 30, 2019, down from $18.4 million at August 31, 2019. The Company recognized $6.4 million of revenue from prior period liabilities in Q1 FY2020[26] Note 3 – Divestitures and Held-For-Sale The Company completed the divestiture of an irrigation dealership in Q1 FY2019, resulting in a $0.1 million loss and a $5.8 million note receivable. An infrastructure manufacturing facility closed in FY2018, with the related building listed as held-for-sale at $2.7 million - Divestiture of Company-owned irrigation dealership in Q1 FY2019 resulted in a $0.1 million loss and a $5.8 million note receivable[27] - A building related to an infrastructure manufacturing facility closure in FY2018 is listed for sale at $2.7 million[28] Note 4 – Net Earnings per Share Basic and diluted net earnings per share significantly increased to $0.77 for Q1 FY2020 from $0.11 in Q1 FY2019, driven by higher net earnings. Certain stock options and restricted stock units were excluded from diluted EPS calculation due to their anti-dilutive effect Net Earnings Per Share (Three months ended November 30) | Metric | 2019 | 2018 | YoY Change | | :------------------------------------ | :----- | :----- | :--------- | | Net earnings ($ in thousands) | 8,345 | 1,212 | 588.5% | | Basic net earnings per share | $0.77 | $0.11 | 600.0% | | Diluted net earnings per share | $0.77 | $0.11 | 600.0% | | Weighted average shares outstanding (Basic) | 10,795 | 10,766 | 0.3% | | Weighted average shares outstanding (Diluted) | 10,828 | 10,806 | 0.2% | Anti-dilutive Securities Excluded from EPS Calculation (Three months ended November 30) | Security Type | 2019 (thousands) | 2018 (thousands) | | :---------------------- | :--------------- | :--------------- | | Restricted stock units | 19 | 26 | | Stock options | — | 35 | | Performance stock units | 20 | — | Note 5 – Income Taxes Income tax expense increased significantly to $2.9 million in Q1 FY2020 from $0.5 million in Q1 FY2019, reflecting higher earnings. The effective income tax rate decreased to 25.8% from 27.9% primarily due to changes in earnings mix among foreign operations. The company accounts for GILTI as a period cost Income Tax Expense and Rate (Three months ended November 30) | Metric | 2019 | 2018 | YoY Change | | :-------------------- | :----- | :----- | :--------- | | Income tax expense ($ in thousands) | 2,910 | 469 | 520.5% | | Estimated annual effective income tax rate | 25.8% | 27.9% | -2.1 pp | - The decrease in the effective income tax rate is primarily due to the change in earnings mix among foreign operations[33] - The Company has elected to account for Global Intangible Low-Taxed Income (GILTI) as a period cost[34] Note 6 – Inventories Net inventories increased to $97.3 million at November 30, 2019, from $88.9 million at November 30, 2018, primarily driven by an increase in raw materials and supplies Inventories, Net ($ in thousands) | Category | Nov 30, 2019 | Nov 30, 2018 | Aug 31, 2019 | | :------------------------------ | :----------- | :----------- | :----------- | | Raw materials and supplies | 47,266 | 40,781 | 49,047 | | Work in process | 6,235 | 9,601 | 4,514 | | Finished goods and purchased parts, net | 51,908 | 46,925 | 46,812 | | Total inventory value before LIFO adjustment | 105,409 | 97,307 | 100,373 | | Less adjustment to LIFO value | (8,125) | (8,395) | (8,086) | | Inventories, net | 97,284 | 88,912 | 92,287 | Note 7 – Long-Term Debt Total long-term debt remained stable at $115.8 million at November 30, 2019. The majority consists of $115.0 million in Series A Senior Notes due in 2030. Principal payments are minimal in the short term, with the bulk due after 5 years Outstanding Principal Balances of Long-Term Debt ($ in thousands) | Debt Type | Nov 30, 2019 | Nov 30, 2018 | Aug 31, 2019 | | :------------------------ | :----------- | :----------- | :----------- | | Series A Senior Notes | 115,000 | 115,000 | 115,000 | | Revolving Credit Facility | — | — | — | | Elecsys Series 2006A Bonds | 1,519 | 1,724 | 1,571 | | Total debt | 116,519 | 116,724 | 116,571 | | Less current portion | (210) | (206) | (209) | | Less unamortized debt issuance costs | (504) | (432) | (516) | | Total long-term debt | 115,805 | 116,086 | 115,846 | Principal Payments on Debt Schedule ($ in thousands) | Due within | Amount | | :--------- | :----- | | 1 year | $210 | | 2 years | 214 | | 3 years | 218 | | 4 years | 222 | | 5 years | 227 | | Thereafter | 115,428 | | Total | $116,519 | Note 8 – Financial Derivatives The Company uses foreign currency forward contracts to hedge foreign exchange rate volatility, both designated and not designated as hedging instruments. Total derivatives designated as hedging instruments showed a net liability of $115 thousand at Nov 30, 2019, down from a net asset of $625 thousand at Nov 30, 2018 Fair Values of Derivative Instruments ($ in thousands) | Category | Nov 30, 2019 | Nov 30, 2018 | Aug 31, 2019 | | :------------------------------------------ | :----------- | :----------- | :----------- | | Derivatives designated as hedging instruments | (115) | 625 | 1,073 | | Derivatives not designated as hedging instruments | 13 | 6 | 39 | - For net investment hedging relationships, a net loss of $76 thousand (after-tax) was recognized in other comprehensive income for the three months ended November 30, 2019, compared to a gain of $651 thousand in the prior year[38] - At November 30, 2019, the Company had outstanding foreign currency forward contracts to sell a notional amount of 32.7 million Euro[39] Note 9 – Leases Following the adoption of ASC 842 in Q1 FY2020, the Company recognized operating lease ROU assets of $25.8 million and total lease liabilities of $29.5 million. Total lease cost for the quarter was $1.5 million, with a weighted average lease term of 10.0 years Operating Lease Cost and Other Information (Three months ended November 30, 2019) | Metric | Value ($ in thousands) | | :------------------------------------ | :--------------------- | | Operating lease cost | 1,418 | | Variable lease cost | 100 | | Total lease cost | 1,518 | | Operating cash outflows from operating leases | 1,086 | | Weighted average lease term - operating leases | 10.0 years | | Weighted average discount rate - operating leases | 3.3% | Supplemental Balance Sheet Information Related to Operating Leases (As of November 30, 2019) | Item | Value ($ in thousands) | | :---------------------------- | :--------------------- | | Operating lease ROU assets | 25,764 | | Operating lease short-term liabilities | 4,200 | | Operating lease long-term liabilities | 25,323 | | Total lease liabilities | 29,523 | Note 10 – Fair Value Measurements The Company's financial assets and liabilities measured at fair value primarily consist of cash and cash equivalents (Level 1) and derivative instruments (Level 2). There were no transfers between fair value hierarchy levels during the periods presented Fair Value Measurements ($ in thousands, November 30, 2019) | Item | Level 1 | Level 2 | Level 3 | Total | | :-------------------- | :------ | :------ | :------ | :------ | | Cash and cash equivalents | 120,910 | — | — | 120,910 | | Derivative assets | — | 13 | — | 13 | | Derivative liabilities | — | (115) | — | (115) | Note 11 – Commitments and Contingencies The Company is involved in various legal proceedings, including product liability lawsuits related to its X-Lite® end terminal and a federal civil False Claims Act investigation. Environmental remediation for groundwater contamination at its Lindsay, Nebraska facility is estimated at $15.8 million, with a definitive plan pending EPA/NDEQ approval - The Company is defending product liability lawsuits related to its X-Lite® end terminal and is under investigation by the Department of Justice for potential federal civil False Claims Act violations[50][51] - The estimated aggregate accrued cost for environmental remediation at the Lindsay, Nebraska facility is $15.8 million, with a definitive plan expected in the second half of fiscal 2020 or later[52][53] Environmental Remediation Liabilities ($ in thousands, as of November 30) | Category | 2019 | 2018 | Aug 31, 2019 | | :------------------------------------ | :----- | :----- | :----------- | | Other current liabilities | 1,243 | 1,243 | 1,243 | | Other noncurrent liabilities | 14,548 | 15,142 | 14,674 | | Total environmental remediation liabilities | 15,791 | 16,385 | 15,917 | Note 12 – Warranties The product warranty accrual balance decreased slightly to $8.8 million at November 30, 2019, from $9.0 million at the beginning of the period, as claims paid ($1.7 million) exceeded new accruals ($1.5 million) Product Warranty Accrual Changes ($ in thousands, Three months ended November 30) | Metric | 2019 | 2018 | | :------------------------------------ | :----- | :----- | | Product warranty accrual balance, beginning of period | 8,960 | 7,109 | | Liabilities accrued for warranties during the period | 1,480 | 1,178 | | Warranty claims paid during the period | (1,652) | (1,047) | | Product warranty accrual balance, end of period | 8,788 | 7,240 | Note 13 – Share-Based Compensation Share-based compensation expense was $1.2 million in Q1 FY2020, slightly down from $1.3 million in Q1 FY2019. Awards granted include stock options, RSUs, and PSUs, with fair values determined using specific assumptions like dividend yield, volatility, and risk-free interest rates - Share-based compensation expense was $1.2 million for the three months ended November 30, 2019, compared to $1.3 million for the same period in 2018[55] Share-Based Compensation Awards Granted (Three months ended November 30) | Award Type | 2019 Units Granted | 2019 Avg Grant-Date Fair Value | 2018 Units Granted | 2018 Avg Grant-Date Fair Value | | :----------------- | :----------------- | :----------------------------- | :----------------- | :----------------------------- | | Stock options | 44,347 | $24.18 | 38,337 | $24.71 | | RSUs | 30,235 | $90.73 | 29,013 | $88.27 | | PSUs | 22,715 | $102.28 | 20,631 | $107.80 | Assumptions for Stock Options (Grant Year) | Assumption | 2019 | 2018 | | :-------------------------- | :----- | :----- | | Weighted-average dividend yield | 1.3% | 1.4% | | Weighted-average volatility | 28.4% | 26.3% | | Risk-free interest rate | 1.6% | 3.1% | | Weighted-average expected life | 6 years | 6 years | Note 14 – Other Current Liabilities Total other current liabilities increased to $54.5 million at November 30, 2019, from $41.5 million at November 30, 2018, primarily due to increases in contract liabilities and operating lease liabilities Other Current Liabilities ($ in thousands) | Category | Nov 30, 2019 | Nov 30, 2018 | Aug 31, 2019 | | :-------------------------- | :----------- | :----------- | :----------- | | Compensation and benefits | 11,400 | 12,034 | 13,960 | | Contract liabilities | 13,280 | 7,022 | 14,763 | | Warranties | 8,788 | 7,240 | 8,960 | | Operating lease liabilities | 4,200 | — | — | | Dealer related liabilities | 3,536 | 2,849 | 3,246 | | Deferred revenue - lease | 2,431 | 657 | 2,985 | | Tax related liabilities | 2,400 | 1,400 | 1,469 | | Accrued insurance | 1,555 | 2,139 | 1,482 | | Accrued environmental liabilities | 1,243 | 1,243 | 1,243 | | Other | 5,661 | 6,896 | 4,380 | | Total other current liabilities | 54,494 | 41,480 | 52,488 | Note 15 – Share Repurchases No shares were repurchased during Q1 FY2020 or Q1 FY2019. The Company has $63.7 million remaining under its authorized share repurchase program - No shares were repurchased during the three months ended November 30, 2019 and 2018[60] - The remaining amount available under the share repurchase program was $63.7 million as of November 30, 2019[60] Note 16 – Industry Segment Information The Company manages its business activities in two reportable segments: Irrigation and Infrastructure. While total operating revenues decreased slightly, Infrastructure segment revenues and operating income saw significant growth, offsetting a decline in Irrigation revenues. Corporate operating expenses decreased substantially Segment Operating Revenues ($ in thousands, Three months ended November 30) | Segment | 2019 | 2018 | YoY Change (%) | | :---------- | :----- | :----- | :------------- | | Irrigation | 82,352 | 87,610 | -6.0% | | Infrastructure | 27,041 | 24,341 | 11.1% | | Total | 109,393 | 111,951 | -2.3% | Segment Operating Income ($ in thousands, Three months ended November 30) | Segment | 2019 | 2018 | YoY Change (%) | | :---------- | :----- | :----- | :------------- | | Irrigation | 9,757 | 7,783 | 25.4% | | Infrastructure | 8,768 | 4,168 | 110.4% | | Corporate | (6,249) | (9,911) | -37.0% | | Total | 12,276 | 2,040 | 501.8% | Segment Total Assets ($ in thousands, as of November 30) | Segment | 2019 | 2018 | Aug 31, 2019 | | :---------- | :----- | :----- | :----------- | | Irrigation | 305,928 | 289,773 | 292,202 | | Infrastructure | 84,813 | 74,671 | 85,848 | | Corporate | 136,070 | 137,643 | 122,264 | | Total | 526,811 | 502,087 | 500,314 | Key Consolidated Financial Highlights (Three months ended November 30) | Metric | 2019 ($ in thousands) | 2018 ($ in thousands) | YoY Change (%) | | :-------------------------- | :-------------------- | :-------------------- | :------------- | | Operating revenues | 109,393 | 111,951 | -2.3% | | Gross profit | 34,074 | 28,648 | 19.0% | | Operating income | 12,276 | 2,040 | 501.8% | | Net earnings | 8,345 | 1,212 | 588.5% | | Basic EPS | $0.77 | $0.11 | 600.0% | | Diluted EPS | $0.77 | $0.11 | 600.0% | Key Consolidated Financial Position (As of November 30) | Metric | 2019 ($ in thousands) | 2018 ($ in thousands) | Aug 31, 2019 ($ in thousands) | | :-------------------------- | :-------------------- | :-------------------- | :---------------------------- | | Total assets | 526,811 | 502,087 | 500,314 | | Total liabilities | 253,811 | 225,412 | 232,105 | | Total shareholders' equity | 273,000 | 276,675 | 268,209 | ITEM 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the Company's financial performance, including a 2% decrease in operating revenues but a significant increase in net earnings due to higher gross margins and reduced operating expenses. It also discusses key drivers for the Irrigation and Infrastructure segments, the capital allocation plan, and liquidity - Operating revenues for Q1 FY2020 decreased 2% to $109.4 million, while net earnings significantly increased to $8.3 million ($0.77 per diluted share) from $1.2 million ($0.11 per diluted share) in Q1 FY2019[71] - Q1 FY2019 net earnings were reduced by $2.9 million ($0.27 per diluted share) due to 'Foundation for Growth' initiative costs, which were not incurred in Q1 FY2020[72] - Key drivers for the Irrigation segment include agricultural commodity prices, net farm income, weather conditions, governmental policies (Farm Bill, U.S. Tax Reform, Biofuel production), international market factors, and currency fluctuations[73][75][77] - Key drivers for the Infrastructure segment include government spending on road construction (FAST Act), highway safety product certification requirements, population growth, and the need for improved road safety[76] Consolidated Financial Performance Summary (Three months ended November 30) | Metric | 2019 ($ in thousands) | 2018 ($ in thousands) | Change (%) | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Operating revenues | 109,393 | 111,951 | -2% | | Gross profit | 34,074 | 28,648 | 19% | | Gross margin | 31.1% | 25.6% | 5.5 pp | | Operating expenses | 21,798 | 26,608 | -18% | | Operating income | 12,276 | 2,040 | 502% | | Operating margin | 11.2% | 1.8% | 9.4 pp | | Net earnings | 8,345 | 1,212 | 589% | - The backlog of unshipped orders at November 30, 2019, was $69.2 million, up from $49.2 million at November 30, 2018[77] - Cash and cash equivalents totaled $120.9 million at November 30, 2019. Net cash provided by operating activities was $1.5 million in Q1 FY2020, a significant improvement from cash used of $14.3 million in Q1 FY2019[88][90] - The Company's capital allocation plan prioritizes investment in organic growth, dividends, synergistic acquisitions, and opportunistic share repurchases. Capital expenditures for fiscal 2020 are projected to be $15.0 million to $20.0 million[93][98] ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the Company's quantitative and qualitative disclosures about market risk from those previously reported in its most recent Annual Report on Form 10-K - No material changes from previously disclosed quantitative and qualitative disclosures about market risk in the Company's most recent Annual Report on Form 10-K[102] ITEM 4 – Controls and Procedures The CEO and CFO concluded that the Company's disclosure controls and procedures were ineffective as of November 30, 2019, due to a previously disclosed material weakness related to ineffective internal control over indirect tax credits in a foreign jurisdiction. Remediation efforts are underway and expected to be completed in fiscal 2020 - The Company's disclosure controls and procedures were ineffective as of November 30, 2019[103] - A material weakness was identified related to ineffective internal control over indirect tax credits in a foreign jurisdiction, specifically concerning the valuation of tax credits[104] - Remediation efforts, including implementing new controls for tax credit valuation, began in Q1 FY2020 and are expected to be completed during fiscal 2020[105] - Other than remediation efforts and the implementation of ASC 842 (Leases), there were no significant changes to internal control over financial reporting during the last fiscal quarter[106][107] Part II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits ITEM 1 – Legal Proceedings This section refers to the disclosures in Note 11 – Commitments and Contingencies, which detail ongoing product liability lawsuits and a federal investigation related to the X-Lite® end terminal, as well as environmental remediation efforts - Legal proceedings disclosures are incorporated by reference from Note 11 – Commitments and Contingencies[108] ITEM 1A – Risk Factors There have been no material changes to the Company's risk factors from those previously disclosed in its most recent Annual Report on Form 10-K - No material changes from risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K[109] ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds The Company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and no use of proceeds reported[110] ITEM 3 – Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - No defaults upon senior securities reported[111] ITEM 4 – Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[111] ITEM 5 – Other Information The Company reported no other information for this period - No other information reported[112] ITEM 6 – Exhibits This section lists the exhibits filed with the Form 10-Q, including the Company's Restated Certificate of Incorporation, Amended and Restated By-Laws, specimen common stock certificate, Management Incentive Plan, and certifications from the CEO and CFO - Key exhibits filed include the Restated Certificate of Incorporation, Amended and Restated By-Laws, Specimen Form of Common Stock Certificate, Lindsay Corporation Management Incentive Plan (MIP) 2020 Plan Year, and Certifications of the Chief Executive Officer and Chief Financial Officer[114] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the report - The report was signed on January 9, 2020, by Brian L Ketcham, Senior Vice President and Chief Financial Officer of Lindsay Corporation[118][119]