Lindsay(LNN) - 2020 Q3 - Quarterly Report

Part I – FINANCIAL INFORMATION ITEM 1 – Financial Statements This section presents unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and detailed notes on accounting policies and other financial items Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations | Metric | Three months ended May 31, 2020 ($ in millions) | Three months ended May 31, 2019 ($ in millions) | Nine months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2019 ($ in millions) | | :--------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Operating revenues | 123.1 | 121.1 | 346.3 | 342.2 | | Gross profit | 39.7 | 30.0 | 107.2 | 83.1 | | Operating income | 15.8 | 4.5 | 36.7 | 2.1 | | Net earnings | 10.1 | 2.9 | 24.0 | 0.7 | | Basic EPS | 0.93 | 0.27 | 2.21 | 0.06 | | Diluted EPS | 0.93 | 0.27 | 2.21 | 0.06 | | Cash dividends declared per share | 0.32 | 0.31 | 0.94 | 0.93 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income | Metric | Three months ended May 31, 2020 ($ in millions) | Three months ended May 31, 2019 ($ in millions) | Nine months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2019 ($ in millions) | | :------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Net earnings | 10.1 | 2.9 | 24.0 | 0.7 | | Foreign currency translation adjustment, net | (2.6) | (1.8) | (3.8) | 0.1 | | Total comprehensive income | 7.6 | 1.1 | 20.4 | 0.9 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets | Metric | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Total assets | 557.5 | 505.9 | 500.3 | | Total liabilities | 274.5 | 235.5 | 232.1 | | Total shareholders' equity | 283.0 | 270.4 | 268.2 | | Cash and cash equivalents | 102.5 | 110.8 | 127.2 | | Inventories, net | 113.3 | 91.1 | 92.3 | | Operating lease right-of-use assets | 27.7 | — | — | Condensed Consolidated Statements of Shareholders' Equity Condensed Consolidated Statements of Shareholders' Equity | Metric | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Total shareholders' equity | 283.0 | 270.4 | 268.2 | | Net earnings (9 months) | 24.0 | 0.7 | N/A | | Cash dividends (9 months) | (10.2) | (10.0) | N/A | | Share-based compensation expense (9 months) | 4.1 | 3.1 | N/A | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows | Metric | Nine months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2019 ($ in millions) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by (used in) operating activities | 16.0 | (19.6) | | Net cash used in investing activities | (28.9) | (18.2) | | Net cash used in financing activities | (9.9) | (11.2) | | Cash and cash equivalents, end of period | 102.5 | 110.8 | Notes to the Condensed Consolidated Financial Statements Note 1 – Basis of Presentation - The Company adopted ASU 2016-02 (Leases) in Q1 fiscal 2020, recognizing a right-of-use asset of $26.2 million and a lease liability of $29.5 million[25] - ASU No. 2016-13 (Credit Losses) will be effective in Q1 fiscal 2021 but is not expected to have a material impact[24] Note 2 – Revenue Recognition Total Operating Revenues by Segment | Segment | Three months ended May 31, 2020 ($ in millions) | Three months ended May 31, 2019 ($ in millions) | Nine months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2019 ($ in millions) | | :---------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Irrigation | 93.5 | 98.6 | 267.9 | 282.0 | | Infrastructure | 29.6 | 22.4 | 78.3 | 60.2 | | Total | 123.1 | 121.1 | 346.3 | 342.2 | - Contract liabilities increased to $16.9 million at May 31, 2020, from $13.1 million at May 31, 2019[31] - The Company recognized $13.5 million of revenue from advance payments for the nine months ended May 31, 2020, significantly up from $0.8 million in the prior year[31] Note 3 – Acquisitions and Divestitures - Acquired Net Irrigate, LLC on April 8, 2020, for $4.5 million, consisting of cash and an earn-out payment[32] - Sold an infrastructure manufacturing facility building in Q2 fiscal 2020 for $3.9 million, resulting in a $1.2 million gain[35] Note 4 – Net Earnings per Share Net Earnings per Share | Metric | Three months ended May 31, 2020 | Three months ended May 31, 2019 | Nine months ended May 31, 2020 | Nine months ended May 31, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic net earnings per share | $0.93 | $0.27 | $2.21 | $0.06 | | Diluted net earnings per share | $0.93 | $0.27 | $2.21 | $0.06 | - Certain stock options and restricted stock units were excluded from diluted EPS calculation due to their anti-dilutive effect (e.g., 115k stock options for 3 months ended May 31, 2020)[37] Note 5 – Income Taxes Income Tax Expense (Benefit) | Period | Income Tax Expense (Benefit) ($ in millions) | | :-------------------------- | :------------------------------------------ | | Three months ended May 31, 2020 | 2.2 | | Three months ended May 31, 2019 | 0.3 | | Nine months ended May 31, 2020 | 6.4 | | Nine months ended May 31, 2019 | (0.8) | - The estimated annual effective income tax rate decreased to 23.6% for the nine months ended May 31, 2020, from 42.6% in 2019, primarily due to a change in earnings mix between U.S. and foreign operations[39] Note 6 – Inventories Inventories, Net | Category | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Raw materials and supplies | 50.8 | 44.7 | 49.0 | | Work in process | 7.8 | 6.9 | 4.5 | | Finished goods and purchased parts, net | 59.5 | 47.7 | 46.8 | | Total inventory value before LIFO adjustment | 118.1 | 99.3 | 100.4 | | Less adjustment to LIFO value | (4.8) | (8.2) | (8.1) | | Inventories, net | 113.3 | 91.1 | 92.3 | Note 7 – Long-Term Debt Outstanding Principal Balances of Long-Term Debt | Debt Type | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Series A Senior Notes | 115.0 | 115.0 | 115.0 | | Elecsys Series 2006A Bonds | 1.4 | 1.6 | 1.6 | | Total debt | 116.4 | 116.6 | 116.6 | | Less current portion | (0.2) | (0.2) | (0.2) | | Less unamortized debt issuance costs | (0.5) | (0.5) | (0.5) | | Total long-term debt | 115.7 | 115.9 | 115.8 | - Principal payments on debt due within 1 year are $0.2 million[42] Note 8 – Financial Derivatives Fair Values of Derivative Instruments | Derivative Type | Balance sheet location | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------------- | :----------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Foreign currency forward contracts (hedging) | Other current assets | — | 0.5 | 1.1 | | Foreign currency option contracts (non-hedging) | Other current assets | 0.9 | 0.0 | 0.0 | | Foreign currency forward contracts (non-hedging) | Other current liabilities | (0.5) | (0.0) | — | - For the nine months ended May 31, 2020, settled foreign currency forward contracts (net investment hedges) resulted in an after-tax net gain of $1.1 million[44] - At May 31, 2020, the Company had no foreign currency forward contracts qualifying as a hedge of a net investment in foreign operations[45] Note 9 – Leases Operating Lease Costs and Information | Metric | Three months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2020 ($ in millions) | | :-------------------------------- | :----------------------------------------------- | :---------------------------------------------- | | Operating lease cost | 1.5 | 4.4 | | Variable lease cost | 0.1 | 0.3 | | Total lease cost | 1.6 | 4.7 | | Operating cash outflows from operating leases | 1.2 | 4.0 | | Weighted average lease term | 9.2 years | 9.2 years | | Weighted average discount rate | 3.2% | 3.2% | Operating Lease Balance Sheet Information (May 31, 2020) | Classification | Amount ($ in millions) | | :-------------------------- | :---------------------- | | Operating lease ROU assets | 27.7 | | Operating lease short-term liabilities | 5.0 | | Operating lease long-term liabilities | 26.3 | | Total lease liabilities | 31.4 | Note 10 – Fair Value Measurements Financial Assets and Liabilities Measured at Fair Value (May 31, 2020) | Category | Level 1 ($ in millions) | Level 2 ($ in millions) | Level 3 ($ in millions) | Total ($ in millions) | | :-------------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | | Cash and cash equivalents | 102.5 | — | — | 102.5 | | Marketable securities: Corporate bonds | — | 14.6 | — | 14.6 | | Marketable securities: U.S. treasury securities | — | 4.5 | — | 4.5 | | Derivative assets | — | 0.9 | — | 0.9 | | Derivative liabilities | — | (0.5) | — | (0.5) | | Earn-out liability | — | — | 1.2 | 1.2 | - Approximately 67% of the Company's marketable securities investments mature within one year, and 33% mature within one to three years[58] Note 11 – Commitments and Contingencies - The Company is defending multiple product liability lawsuits related to its X-Lite® end terminal, including a lawsuit filed by the Missouri Highways and Transportation Commission (MHTC) on June 9, 2020, alleging defective design and failure to warn[61][62] - The Department of Justice is investigating the Company regarding the X-Lite® end terminal and potential violations of the federal civil False Claims Act, which could have a material adverse effect[65] Environmental Remediation Liabilities | Category | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Other current liabilities | 1.2 | 1.2 | 1.2 | | Other noncurrent liabilities | 14.3 | 14.9 | 14.7 | | Total environmental remediation liabilities | 15.4 | 16.1 | 15.9 | Note 12 – Warranties Product Warranty Accrual Balance | Metric | Three months ended May 31, 2020 ($ in millions) | Three months ended May 31, 2019 ($ in millions) | Nine months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2019 ($ in millions) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Product warranty accrual balance, beginning of period | 9.0 | 8.0 | 9.0 | 7.1 | | Liabilities accrued for warranties during the period | 2.7 | 2.6 | 6.4 | 5.5 | | Warranty claims paid during the period | (2.0) | (2.0) | (5.6) | (4.3) | | Changes in estimates | 0.1 | 0.0 | 0.1 | 0.4 | | Product warranty accrual balance, end of period | 9.8 | 8.7 | 9.8 | 8.7 | Note 13 – Share-Based Compensation Share-Based Compensation Expense | Period | Share-Based Compensation Expense ($ in millions) | | :-------------------------- | :---------------------------------------------- | | Three months ended May 31, 2020 | 1.5 | | Three months ended May 31, 2019 | 0.8 | | Nine months ended May 31, 2020 | 4.1 | | Nine months ended May 31, 2019 | 3.2 | Note 14 – Other Current Liabilities Other Current Liabilities | Category | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | August 31, 2019 ($ in millions) | | :-------------------------- | :---------------------------- | :---------------------------- | :------------------------------- | | Compensation and benefits | 17.1 | 13.5 | 14.0 | | Contract liabilities | 16.0 | 11.7 | 14.8 | | Warranties | 9.8 | 8.7 | 9.0 | | Tax related liabilities | 6.7 | 2.1 | 1.5 | | Operating lease liabilities | 5.0 | — | — | | Deferred revenue - lease | 3.5 | 0.2 | 3.0 | | Dealer related liabilities | 3.5 | 3.7 | 3.2 | | Accrued insurance | 1.5 | 1.6 | 1.5 | | Accrued environmental liabilities | 1.2 | 1.2 | 1.2 | | Other | 7.3 | 6.4 | 4.4 | | Total other current liabilities | 71.7 | 49.1 | 52.5 | Note 15 – Share Repurchases - No shares were repurchased during the three and nine months ended May 31, 2020 and 2019[72] - The remaining amount available under the share repurchase program was $63.7 million as of May 31, 2020[72] Note 16 – Industry Segment Information - The Company operates in two reportable segments: Irrigation (manufacturing and marketing of irrigation systems and technology solutions) and Infrastructure (manufacturing and marketing of road safety equipment, steel tubing, and railroad structures)[74][76] Segment Operating Revenues and Income | Segment | Three months ended May 31, 2020 ($ in millions) | Three months ended May 31, 2019 ($ in millions) | Nine months ended May 31, 2020 ($ in millions) | Nine months ended May 31, 2019 ($ in millions) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating Revenues: | | | | | | Irrigation | 93.5 | 98.6 | 267.9 | 282.0 | | Infrastructure | 29.6 | 22.4 | 78.3 | 60.2 | | Total Operating Revenues | 123.1 | 121.1 | 346.3 | 342.2 | | Operating Income: | | | | | | Irrigation | 15.0 | 11.0 | 34.4 | 26.3 | | Infrastructure | 8.6 | 3.5 | 23.7 | 7.3 | | Corporate | (7.7) | (10.1) | (21.3) | (31.5) | | Total Operating Income | 15.8 | 4.5 | 36.7 | 2.1 | Total Assets by Segment (May 31, 2020) | Segment | Total Assets ($ in millions) | | :---------- | :---------------------------- | | Irrigation | 313.2 | | Infrastructure | 105.8 | | Corporate | 138.4 | | Total | 557.5 | ITEM 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and outlook, including COVID-19 impact, operating results, liquidity, and capital resources Concerning Forward-Looking Statements - The report contains forward-looking statements, for which the Company claims protection under the Private Securities Litigation Reform Act of 1995[78] - Readers are advised not to place undue reliance on forward-looking statements, as actual results may differ materially due to various risks and uncertainties detailed in the Company's 10-K and 10-Q filings[78] COVID-19 Impact - The Company's facilities have generally remained open as 'business essential' during the COVID-19 pandemic, resulting in limited impact on manufacturing operations to date[79] - For the three months ended May 31, 2020, COVID-19 caused approximately $14.0 million in shipment and project delays, but associated costs were not material[79] - The ultimate financial impact of COVID-19 remains uncertain and depends on evolving factors such as the outbreak's duration, government actions, and changes in customer demand[80] Accounting Policies - There were no changes in the Company's critical accounting policies during the nine months ended May 31, 2020[83] Recent Accounting Guidance - Refer to Note 1 – Basis of Presentation for details on recent accounting guidance adopted and not yet adopted[84] Executive Overview and Outlook Q3 Fiscal 2020 Key Financial Highlights | Metric | Three months ended May 31, 2020 | Change YoY | | :-------------------------- | :------------------------------ | :--------- | | Operating revenues | $123.1 million | +2% | | Net earnings | $10.1 million | +248% | | Diluted EPS | $0.93 | +244% | - Net earnings for the three months ended May 31, 2019, were reduced by $2.6 million ($0.23 diluted EPS) due to non-recurring 'Foundation for Growth' initiative costs[86] - The backlog of unshipped orders increased to $78.6 million at May 31, 2020, from $52.5 million at May 31, 2019[91] - Long-term growth is supported by global drivers such as population growth, expanded food production, efficient water use, and infrastructure expansion, with significant opportunities in international markets[92] Results of Operations For the Three Months ended May 31, 2020 compared to the Three Months ended May 31, 2019 Consolidated Financial Performance (Three Months) | Metric | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | % Change | | :-------------------------- | :---------------------------- | :---------------------------- | :------- | | Operating revenues | 123.1 | 121.1 | 2% | | Gross profit | 39.7 | 30.0 | 32% | | Gross margin | 32.2% | 24.8% | +7.4 pp | | Operating expenses | 23.9 | 25.5 | -6% | | Operating income | 15.8 | 4.5 | 254% | | Operating margin | 12.9% | 3.7% | +9.2 pp | - Irrigation segment revenues decreased 5% to $93.5 million, primarily due to lower North America unit volume and unfavorable foreign currency translation ($3.5 million) and COVID-19 related shipment delays ($2.0 million) internationally[95][96] - Infrastructure segment revenues increased 32% to $29.6 million, driven by higher Road Zipper System® sales and lease revenues, despite $12.0 million in COVID-19 related project delays[97] - Operating expenses decreased by $1.7 million, or 6%, primarily due to the non-recurrence of $3.9 million in 'Foundation for Growth' initiative costs from the prior year[99] For the Nine Months ended May 31, 2020 compared to the Nine Months ended May 31, 2019 Consolidated Financial Performance (Nine Months) | Metric | May 31, 2020 ($ in millions) | May 31, 2019 ($ in millions) | % Change | | :-------------------------- | :---------------------------- | :---------------------------- | :------- | | Operating revenues | 346.3 | 342.2 | 1% | | Gross profit | 107.2 | 83.1 | 29% | | Gross margin | 31.0% | 24.3% | +6.7 pp | | Operating expenses | 70.4 | 81.1 | -13% | | Operating income | 36.7 | 2.1 | 1688% | | Operating margin | 10.6% | 0.6% | +10.0 pp | | Net earnings | 24.0 | 0.7 | 3481% | - Irrigation segment revenues decreased 5% to $267.9 million, primarily due to lower international project activity and $5.6 million unfavorable foreign currency translation[106] - Infrastructure segment revenues increased 30% to $78.3 million, driven by higher Road Zipper System® sales and lease revenues and increased road safety product sales[107] - Gross profit for the nine months ended May 31, 2020, included a $1.2 million gain on the sale of a building held for sale[108] - Operating expenses decreased by $10.6 million, or 13%, mainly due to the non-recurrence of $13.2 million in 'Foundation for Growth' initiative costs from the prior year[109] Liquidity and Capital Resources - Cash, cash equivalents, and marketable securities totaled $121.5 million at May 31, 2020[112] - Net cash provided by operating activities was $16.0 million for the nine months ended May 31, 2020, a significant improvement from cash used of $19.6 million in the prior year[114] - Cash used in investing activities increased to $28.9 million for the nine months ended May 31, 2020, primarily due to purchases of marketable securities, partially offset by proceeds from asset sales and decreased capital expenditures[116] Capital Allocation Plan - Capital expenditures for fiscal 2020 are expected to be between $15.0 million and $20.0 million[118] - The Company paid a quarterly cash dividend of $0.32 per common share in Q3 fiscal 2020, up from $0.31 in Q3 fiscal 2019[119] - No shares were repurchased during the nine months ended May 31, 2020 or 2019, with $63.7 million remaining available under the repurchase program[120] Long-Term Borrowing Facilities - The Company has $115.0 million in Series A Senior Notes outstanding, due February 19, 2030, with a fixed annual interest rate of 3.82%[121] - A $50.0 million unsecured Revolving Credit Facility with Wells Fargo expires May 31, 2022, with no outstanding borrowings at May 31, 2020[122] - The Company was in compliance with all financial loan covenants under its credit arrangements as of May 31, 2020[124] Contractual Obligations and Commercial Commitments - There have been no material changes in the Company's contractual obligations and commercial commitments since the Annual Report on Form 10-K for the fiscal year ended August 31, 2019[126] ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk This section refers to previous filings for disclosures on market risk, indicating no material changes in the current period - There have been no material changes from the Company's quantitative and qualitative disclosures about market risk previously disclosed in its most recent Annual Report on Form 10-K[127] ITEM 4 – Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures, noting a material weakness and ongoing remediation efforts - The Company's disclosure controls and procedures were deemed ineffective as of May 31, 2020, due to a material weakness related to ineffective internal control over indirect tax credits in a foreign jurisdiction[128][129] - Remediation efforts, including the implementation of new controls for tax credit valuation, are ongoing and expected to be completed during fiscal 2020[130] - There have been no significant changes to the Company's internal control over financial reporting during the last fiscal quarter[131] Part II – OTHER INFORMATION ITEM 1 – Legal Proceedings This section refers to Note 11 for detailed information on legal proceedings, including product liability lawsuits and an environmental remediation investigation - Refer to Note 11 – Commitments and Contingencies for disclosure on legal proceedings[132] ITEM 1A – Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K and prior Quarterly Report on Form 10-Q - No material changes from risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2020[133] ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds This section confirms that there were no unregistered sales of equity securities or use of proceeds during the reporting period - None[134] ITEM 3 – Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - None[135] ITEM 4 – Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Not applicable[136] ITEM 5 – Other Information This section states that there is no other information to report - None[137] ITEM 6 – Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, certifications, and interactive data files - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[139] - Interactive Data Files are provided in Inline Extensible Business Reporting Language (Inline XBRL)[139] SIGNATURES This section contains the official signatures for the Form 10-Q filing - The report was signed on July 2, 2020, by Brian L. Ketcham, Senior Vice President and Chief Financial Officer[143]