NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Description of Business and Significant Accounting Policies
Lindsay Corporation, along with its subsidiaries (collectively called “Lindsay” or the “Company”), is a global leader in providing a variety of proprietary water management and road infrastructure products and services. The Company has been involved in the manufacture and distribution of agricultural irrigation equipment since 1955 and has grown from a regional company to an international water efficiency solutions and highway infrastructure firm with worldwide sales and distribution. Lindsay, a Delaware corporation, maintains its global headquarters in Omaha, Nebraska. The Company has operations which are categorized into two reporting segments.
Irrigation Segment
The Company’s irrigation segment includes the manufacture and marketing of center pivot, lateral move, and hose reel irrigation systems which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor. The irrigation segment also manufactures and markets repair and replacement parts for its irrigation systems and controls. The Company continues to strengthen irrigation product offerings through innovative technology such as Global Positioning System (“GPS”) positioning and guidance, variable rate irrigation, wireless irrigation management, machine-to-machine (“M2M”) communication technology solutions and smartphone applications. The Company’s domestic irrigation manufacturing facilities are located in Lindsay, Nebraska and Olathe, Kansas. Internationally, the Company has production operations in Brazil, France, China, Turkey and South Africa as well as distribution and sales operations in the Netherlands, Australia and New Zealand. The Company also exports equipment from the U.S. to other international markets.
Infrastructure Segment
The Company’s infrastructure segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, road marking and road safety equipment, large diameter steel tubing, and railroad signals and structures. The infrastructure segment also provides outsourced manufacturing and production services. The principal infrastructure manufacturing facilities are located in Rio Vista, California; Milan, Italy; and Lindsay, Nebraska.
Notes to the consolidated financial statements describe various elements of the financial statements and the accounting policies, estimates, and assumptions applied by management. While actual results could differ from those estimated at the time of preparation of the consolidated financial statements, management believes that the accounting policies, assumptions, and estimates applied promote the representational faithfulness, verifiability, neutrality, and transparency of the accounting information included in the consolidated financial statements. The significant accounting policies of the Company are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company adopted ASC 606 – Revenue from Contracts with Customers on September 1, 2018 using the modified retrospective transition approach. The core principle of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. Refer to Note 3 for additional information regarding our revenue recognition policy under ASC 606.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values on the date of grant. The Company uses the straight-line amortization method over the vesting period of the awards. The Company has historically issued shares upon exercise of stock options or vesting of restricted stock units or performance stock units.
36
The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s Consolidated Statement of Operations over the periods during which the employee or director is required to perform a service in exchange for the award.
The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) as its valuation method for stock option awards. Under the Black-Scholes model, the fair value of stock option awards on the date of grant is estimated using an option-pricing model that is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Restricted stock, restricted stock units, performance shares and performance stock units issued under the 2015 Long-Term Incentive Plan will have a grant-date fair value equal to the fair market value of the underlying stock on the grant date less present value of expected dividends. The portion of performance stock units based on market-based metrics will have a grant-date fair value calculated through a Monte Carlo simulation model using a number of inputs. The inputs to the Company’s Monte Carlo valuation model are summarized in Note 19 – Share-Based Compensation, to the consolidated financial statements.
Warranty Costs
The Company’s provision for product warranty reflects management’s best estimate of probable liability under its product warranties. At the time a sale is recognized, the Company records the estimated future warranty costs. The Company generally determines its total future warranty liability by applying historical claims rate experience to the amount of equipment that has been sold and is still within the warranty period. In addition, the Company records provisions for known warranty claims and adjusts for current trends, if applicable. This provision is periodically adjusted to reflect actual experience.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Marketable Securities
The Company accounts for and classifies its marketable securities in accordance with the accounting guidance related to the accounting and classification of certain investments in marketable securities. The determination on appropriate classification is based primarily on management’s ability and intent to sell the debt security.
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 until realized. The Company determines fair value using data points that are observable, such as quoted prices and interest rates. Investment income is recorded within interest income on the consolidated statements of earnings. As of August 31, 2021, approximately 51% of the Company’s marketable securities investments mature within one year and 49% mature within one to two years.
Receivables and Allowances
Trade receivables are reported on the balance sheet net of any doubtful accounts. Losses are recognized when it is probable that an asset has been impaired and the amount of the loss can be reasonably estimated. In estimating probable losses, the Company reviews specific accounts that are significant and past due, in bankruptcy or otherwise identified as at risk for potential credit loss. Collectability of these specific accounts are assessed based on facts and circumstances of that customer, and an allowance for credit losses is established based on the probability of default. In assessing the likelihood of collection of receivable, the Company considers (for example) the Company’s history of collections, the current status of discussions and repayment plans, collateral received, and other evidence and information regarding collection or default risk that is available in the market place. The allowance for credit losses attributable to the remaining accounts is established using probabilities of default and an estimate of associated losses based upon the aging of receivable balances, collection experience, economic condition and credit risk quality.
37
The Company’s allowance for all doubtful accounts related to outstanding receivables increased to $3.4 million at August 31, 2021 from $2.8 million at August 31, 2020. The Company’s evaluation of the adequacy of the allowance for credit losses is based on facts and circumstances available to the Company at the date the consolidated financial statements are issued and considers any significant changes in circumstances occurring through the date that the financial statements are issued.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the last‑in, first‑out (“LIFO”) method, the first-in, first-out (“FIFO”) method, or the weighted average cost method for inventory depending on the operations at each specific location. At all locations, the Company reserves for obsolete, slow moving, and excess inventory by estimating the net realizable value based on the potential future use of such inventory.
Property, Plant, and Equipment
Property, plant, equipment, and capitalized assets held for lease are stated at cost. The Company capitalizes major expenditures and charges to operating expenses the cost of current maintenance and repairs. Provisions for depreciation and amortization have been computed principally on the straight-line method for property, plant, and equipment. Rates used for depreciation are based principally on the following expected lives: buildings ‑‑ 15 to 40 years; equipment ‑‑ 3 to 7 years; computer hardware and software – 3 to 5 years; leased barrier transfer machines -- 8 to 10 years; leased barriers -- 12 years; other ‑‑ 2 to 20 years and leasehold improvements – shorter of the economic life or term of the lease. The Company’s internally developed software is included in computer hardware and software. All of the Company’s long‑lived asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the asset group, an impairment loss is recognized based upon the difference between the fair value of the asset and its carrying value. No impairments were recorded during the fiscal years ended August 31, 2021, 2020, and 2019. The cost and accumulated depreciation relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of disposition. The resulting gain or loss is included in operating income in the consolidated statements of earnings.
Valuation of Goodwill and Identifiable Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Acquired intangible assets are recognized separately from goodwill. Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. Assessment of the potential impairment of goodwill and identifiable intangible assets is an integral part of the Company’s normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management’s best estimates at a particular point in time. The dynamic economic environments in which the Company’s businesses operate and key economic and business assumptions related to projected selling prices, market growth, inflation rates and operating expense ratios, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.
In fiscal 2021, in conjunction with the Company’s annual review for impairment, the Company performed a qualitative analysis of goodwill for each of the Company’s reporting units, which are the same as its operating segments, and did not identify any potential impairment. The estimated fair value of all reporting units is substantially in excess of its carrying value. Also in fiscal 2021, the Company performed a qualitative analysis of other intangible assets not subject to amortization and concluded there were no indicators of impairment.
Income Taxes
Income taxes are accounted for utilizing the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. These expected future tax consequences are measured based on currently enacted tax rates. The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company’s evaluation of the adequacy of any potential allowance is based on facts and circumstances available to the Company at the date the consolidated financial statements are issued and considers any significant changes in circumstances occurring through the date that the financial statements are issued.
38
Net Earnings per Share
Basic net earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted net earnings per share is computed using the weighted average number of common shares outstanding plus dilutive potential common shares outstanding during the period.
Employee stock options, non-vested shares and similar equity instruments granted by the Company are treated as potential common share equivalents outstanding in computing diluted net earnings per share. The Company’s diluted common shares outstanding reported in each period includes the dilutive effect of restricted stock units, in-the-money options, and performance stock units for which threshold performance conditions have been satisfied and is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, and the amount of compensation cost for future service that the Company has not yet recognized, are assumed to be used to repurchase shares.
Derivative Instruments and Hedging Activities
The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates and foreign currency exchange rates. All derivative instruments are recorded on the balance sheet at their respective fair values. The Company uses these derivative instruments only to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative purposes. On the date a derivative contract is entered into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation.
The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is used in the hedging transaction is effective. Changes in fair value of derivative instruments that qualify as hedges of a net investment in foreign operations are recorded as a component of accumulated currency translation adjustment in accumulated other comprehensive income (“AOCI”), net of related income tax effects. As of August 31, 2021, the Company did not have any open derivative contracts.
Fair Value Measurements
The Company’s disclosure of the fair value of assets and liabilities is based on a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
|
•
|
Level 1 – inputs to valuation techniques are quoted prices in active markets for identical assets or liabilities
|
|
•
|
Level 2 – inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
|
|
•
|
Level 3 – inputs to the valuation techniques are unobservable for the assets or liabilities
|
Treasury Stock
When the Company repurchases its outstanding stock, it records the repurchased shares at cost as a reduction to shareholders’ equity. The weighted average cost method is utilized for share re-issuances. The difference between the cost and the re-issuance price is charged or credited to a “capital in excess of stated value – treasury stock” account to the extent that there is a sufficient balance to absorb the charge. If the treasury stock is sold for an amount less than its cost and there is not a sufficient balance in the capital in excess of stated value – treasury stock account, the excess is charged to retained earnings.
Contingencies
The Company’s accounting for contingencies covers a variety of business activities including contingencies for legal exposures and environmental exposures. The Company accrues these contingencies when its assessments indicate that it is probable that a liability has been incurred and an amount can be reasonably estimated. The Company’s estimates are based on currently available facts and its estimates of the ultimate outcome or resolution. Actual results may differ from the Company’s estimates resulting in an impact, positive or negative, on earnings.
39
Environmental Remediation Liabilities
Environmental remediation liabilities include costs directly associated with site investigation and clean up, such as materials, external contractor costs and incremental internal costs directly related to the remedy. The Company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated. Estimates used to record environmental remediation liabilities are based on the Company’s best estimate of probable future costs based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental engineers or other service providers. The Company records the environmental remediation liabilities that represent the points in the range of estimates that are most probable or the minimum amount when no amount within the range is a better estimate than any other amount. Portions of the long-term liability that are fixed and reliably determinable are discounted at a risk-free rate.
Translation of Foreign Currency
The Company’s portion of the assets and liabilities related to foreign investments are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and expenses are translated at the average rates of exchange prevailing during the year. Unrealized gains or losses are reflected within common shareholders’ equity as accumulated other comprehensive income or loss.
Note 2 – New Accounting Pronouncements
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 ASU in the first quarter of the Company’s fiscal 2021. The adoption of this ASU did not have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 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 ASU in the first quarter of the Company’s fiscal 2021. The adoption of this ASU did not have a material impact on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a lease liability for most leases and disclose key information about leasing arrangements. The new guidance became effective for the Company in the first quarter of fiscal 2020. The Company implemented Accounting Standards Codification (“ASC”) 842 using the modified retrospective transition method and recorded a right of use asset and lease liability of $26.2 million and $29.5 million, respectively, upon adoption of the standard on the first day of fiscal 2020.
Note 3 – Revenue Recognition
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.
40
For contracts with a length longer than twelve months, the unsatisfied performance obligations were $4.5 million and $11.3 million at August 31, 2021 and 2020, respectively.
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.
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. Judgment 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 to customers. Revenues from the leasing 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 twelve months ended August 31, 2021 and 2020, is as follows:
41
|
|
Year ended August 31, 2021
|
|
($ in thousands)
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
Point in time
|
|
$
|
438,594
|
|
|
$
|
74,228
|
|
|
$
|
512,822
|
|
Over time
|
|
|
32,764
|
|
|
|
5,697
|
|
|
|
38,461
|
|
Revenue from the contracts with customers
|
|
|
471,358
|
|
|
|
79,925
|
|
|
|
551,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
|
|
—
|
|
|
|
16,363
|
|
|
|
16,363
|
|
Total operating revenues
|
|
$
|
471,358
|
|
|
$
|
96,288
|
|
|
$
|
567,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, 2020
|
|
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
Point in time
|
|
$
|
304,326
|
|
|
$
|
105,054
|
|
|
$
|
409,380
|
|
Over time
|
|
|
45,020
|
|
|
|
8,807
|
|
|
|
53,827
|
|
Revenue from the contracts with customers
|
|
|
349,346
|
|
|
|
113,861
|
|
|
|
463,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
|
|
—
|
|
|
|
11,485
|
|
|
|
11,485
|
|
Total operating revenues
|
|
$
|
349,346
|
|
|
$
|
125,346
|
|
|
$
|
474,692
|
|
Further disaggregation of revenue is disclosed in the Note 18 – 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. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred.
At August 31, 2021 and 2020, contract assets amounted to $1.3 million and $0.9 million. These amounts are included within other current assets on the consolidated balance sheet.
At August 31, 2021, and 2020, the contract liability amounted to $37.4 million and $19.6 million. Contract liabilities are included within other current liabilities and noncurrent liabilities on the consolidated balance sheet. During the year ended August 31, 2021, the Company recognized $17.0 million of revenue that was included in the liability as of August 31, 2020. The revenue recognized was due to performance obligations being completed during the year. Amounts included here exclude deferred lease revenues that are also included within other current liabilities.
Note 4 – Acquisitions and Divestitures
IRZ Consulting, LLC
On August 27, 2021, the Company completed the divestiture of ownership interests in IRZ Consulting, LLC (“IRZ”). Proceeds from the sale totaled $3.4 million, which consisted of (i) $1.3 million in cash and (ii) $2.1 million in short-term notes. A gain of $1.1 million was recorded in general and administrative expense on the consolidated statement of earnings in the year ended August 31, 2021.
Net Irrigate, LLC
On April 8, 2020, the Company completed the acquisition of the membership interests of Net Irrigate, LLC (“Net Irrigate”), an agriculture technology company based in Indiana that provides remote monitoring services for irrigation customers. The purchase price of $4.5 million consisted of (i) $3.0 million, net of cash acquired, paid in cash at closing and financed from the Company’s cash on hand, (ii) $0.3 million of cash to be paid within one year of closing, and (iii) an earn-out payment, initially valued at $1.2 million, based on active customers one year subsequent to the closing date. The fair value of the earn-out payment was calculated using the weighted average probability for each potential outcome and has a maximum potential payout of $1.5 million. As of August 31, 2021, the remainder of the earn-out liability was valued at $0.3 million and is expected to be fully settled in the first quarter of fiscal 2022. As of August 31, 2020, the earn-out payment was valued at $1.1 million.
42
The Company’s allocation of purchase price consists of goodwill of $3.2 million and various other assets and liabilities amounting to $1.3 million.
Note 5 – Net Earnings Per Share
The following table shows the computation of basic and diluted net earnings per share for fiscal 2021, 2020, and 2019:
|
|
For the years ended August 31,
|
|
($ and shares in thousands, except per share amounts)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
42,572
|
|
|
$
|
38,629
|
|
|
$
|
2,172
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
10,886
|
|
|
|
10,823
|
|
|
|
10,781
|
|
Diluted effect of stock equivalents
|
|
|
99
|
|
|
|
38
|
|
|
|
29
|
|
Weighted average shares outstanding assuming dilution
|
|
|
10,985
|
|
|
|
10,861
|
|
|
|
10,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
$
|
3.91
|
|
|
$
|
3.57
|
|
|
$
|
0.20
|
|
Diluted net earnings per share
|
|
$
|
3.88
|
|
|
$
|
3.56
|
|
|
$
|
0.20
|
|
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:
|
|
For the years ended August 31,
|
|
(Units and options in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Restricted stock units
|
|
|
—
|
|
|
|
6
|
|
|
|
8
|
|
Stock options
|
|
|
21
|
|
|
|
34
|
|
|
|
72
|
|
Performance stock units
|
|
|
3
|
|
|
|
—
|
|
|
|
5
|
|
Note 6 – Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is included in the accompanying consolidated balance sheets in the shareholders’ equity section, and consists of the following components:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Defined benefit pension plan, net of tax benefit of $894 and $1,015
|
|
$
|
(2,843
|
)
|
|
|
(3,228
|
)
|
Foreign currency translation, net of hedging activities, net of tax
expense of $2,687 and $2,371
|
|
|
(15,085
|
)
|
|
|
(17,430
|
)
|
Unrealized gain (loss) on marketable securities, net of tax expense of $3 and $31
|
|
|
(5
|
)
|
|
|
86
|
|
Total accumulated other comprehensive loss
|
|
$
|
(17,933
|
)
|
|
$
|
(20,572
|
)
|
43
The following is a roll-forward of the balances in accumulated other comprehensive loss, net of tax.
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
|
Defined
|
|
|
Foreign
|
|
|
gain (loss) on
|
|
|
other
|
|
|
|
benefit
|
|
|
currency
|
|
|
marketable
|
|
|
comprehensive
|
|
($ in thousands)
|
|
pension plan
|
|
|
translation
|
|
|
securities
|
|
|
loss
|
|
Balance at August 31, 2019
|
|
$
|
(2,916
|
)
|
|
$
|
(16,931
|
)
|
|
$
|
—
|
|
|
$
|
(19,847
|
)
|
Current period change
|
|
|
(312
|
)
|
|
|
(499
|
)
|
|
|
86
|
|
|
|
(725
|
)
|
Balance at August 31, 2020
|
|
|
(3,228
|
)
|
|
|
(17,430
|
)
|
|
|
86
|
|
|
|
(20,572
|
)
|
Current period change
|
|
|
385
|
|
|
|
2,345
|
|
|
|
(91
|
)
|
|
|
2,639
|
|
Balance at August 31, 2021
|
|
$
|
(2,843
|
)
|
|
$
|
(15,085
|
)
|
|
$
|
(5
|
)
|
|
$
|
(17,933
|
)
|
Note 7 – Income Taxes
For financial reporting purposes earnings (losses) before income taxes include the following components:
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
28,605
|
|
|
$
|
38,928
|
|
|
$
|
(1,949
|
)
|
Foreign
|
|
|
21,781
|
|
|
|
9,915
|
|
|
|
4,056
|
|
|
|
$
|
50,386
|
|
|
$
|
48,843
|
|
|
$
|
2,107
|
|
Significant components of the income tax provision are as follows:
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,432
|
|
|
$
|
4,231
|
|
|
$
|
2,190
|
|
State
|
|
|
733
|
|
|
|
1,421
|
|
|
|
324
|
|
Foreign
|
|
|
2,738
|
|
|
|
3,178
|
|
|
|
3,107
|
|
Total current
|
|
|
5,903
|
|
|
|
8,830
|
|
|
|
5,621
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,251
|
|
|
|
2,630
|
|
|
|
(3,209
|
)
|
State
|
|
|
281
|
|
|
|
121
|
|
|
|
(624
|
)
|
Foreign
|
|
|
(621
|
)
|
|
|
(1,367
|
)
|
|
|
(1,853
|
)
|
Total deferred
|
|
|
1,911
|
|
|
|
1,384
|
|
|
|
(5,686
|
)
|
Total income tax provision
|
|
$
|
7,814
|
|
|
$
|
10,214
|
|
|
$
|
(65
|
)
|
Total income tax provision resulted in effective tax rates differing from that of the statutory United States federal income tax rates. The reasons for these differences are:
|
|
For the years ended August 31,
|
|
|
|
2021
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
($ in thousands)
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
U.S. statutory rate
|
|
$
|
10,581
|
|
|
|
21.0
|
|
|
$
|
10,257
|
|
|
|
21.0
|
|
|
$
|
443
|
|
|
|
21.0
|
|
State and local taxes, net of federal tax benefit
|
|
|
859
|
|
|
|
1.7
|
|
|
|
1,079
|
|
|
|
2.2
|
|
|
|
(379
|
)
|
|
|
(18.0
|
)
|
Foreign tax rate differences
|
|
|
(390
|
)
|
|
|
(0.8
|
)
|
|
|
(292
|
)
|
|
|
(0.6
|
)
|
|
|
164
|
|
|
|
7.8
|
|
U.S. tax reform
|
|
|
339
|
|
|
|
0.7
|
|
|
|
(165
|
)
|
|
|
(0.3
|
)
|
|
|
160
|
|
|
|
7.6
|
|
Deferred tax asset valuation allowance
|
|
|
(2,169
|
)
|
|
|
(4.3
|
)
|
|
|
(479
|
)
|
|
|
(1.0
|
)
|
|
|
142
|
|
|
|
6.7
|
|
Federal credits
|
|
|
(629
|
)
|
|
|
(1.2
|
)
|
|
|
(419
|
)
|
|
|
(0.9
|
)
|
|
|
(338
|
)
|
|
|
(16.0
|
)
|
Uncertain tax benefits
|
|
|
(622
|
)
|
|
|
(1.2
|
)
|
|
|
165
|
|
|
|
0.3
|
|
|
|
(153
|
)
|
|
|
(7.3
|
)
|
Other
|
|
|
(155
|
)
|
|
|
(0.4
|
)
|
|
|
68
|
|
|
|
0.1
|
|
|
|
(104
|
)
|
|
|
(4.9
|
)
|
Effective rate
|
|
$
|
7,814
|
|
|
|
15.5
|
|
|
$
|
10,214
|
|
|
|
20.9
|
|
|
$
|
(65
|
)
|
|
|
(3.1
|
)
|
44
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
10,172
|
|
|
$
|
10,376
|
|
Warranty
|
|
|
3,096
|
|
|
|
2,439
|
|
Defined benefit pension plan
|
|
|
1,626
|
|
|
|
1,767
|
|
Inventory
|
|
|
2,403
|
|
|
|
2,362
|
|
Share-based compensation
|
|
|
1,197
|
|
|
|
1,185
|
|
Vacation
|
|
|
749
|
|
|
|
780
|
|
Net operating loss and capital loss carry forwards
|
|
|
2,245
|
|
|
|
3,009
|
|
Deferred revenue
|
|
|
1,565
|
|
|
|
2,282
|
|
Allowance for doubtful accounts
|
|
|
870
|
|
|
|
683
|
|
Other
|
|
|
1,169
|
|
|
|
2,233
|
|
Gross deferred tax assets
|
|
|
25,092
|
|
|
|
27,116
|
|
Valuation allowance
|
|
|
(1,091
|
)
|
|
|
(3,218
|
)
|
Net deferred tax assets
|
|
$
|
24,001
|
|
|
$
|
23,898
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
(5,607
|
)
|
|
$
|
(6,054
|
)
|
Property, plant, and equipment
|
|
|
(11,113
|
)
|
|
|
(8,798
|
)
|
Total deferred tax liabilities
|
|
$
|
(16,720
|
)
|
|
$
|
(14,852
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,281
|
|
|
$
|
9,046
|
|
In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The discrete items recorded in fiscal 2021 include a benefit of $1.7 million related to the release of a valuation allowance related to net operating loss carryforwards in a foreign jurisdiction that are now expected to be realizable. The valuation allowance related to the net operating loss in the certain foreign tax jurisdiction amounted to $0 and $1.7 million as of August 31, 2021 and 2020, respectively. The Company has also recorded a valuation allowance of $0.8 million and $1.2 million as of August 31, 2021 and 2020, respectively, related to capital losses from business divestitures where the Company believes it is more likely than not that the benefit from the capital loss will not be realized. Remaining valuation allowance relates to deferred tax assets in a certain foreign tax jurisdiction not subject to tax due to a free trade zone exemption.
The Company does not intend to, and has not historically, repatriated earnings of its foreign subsidiaries. Thus, the Company has not provided a deferred income tax liability on these undistributed earnings that are indefinitely reinvested. The Company would recognize a deferred income tax liability if the Company were to determine that such earnings were no longer indefinitely reinvested. There are other taxes that may be incurred if the Company would repatriate earnings of its foreign subsidiaries. It is not practicable to estimate the amount of income taxes that would be incurred if the Company would repatriate earnings of its foreign subsidiaries.
The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
45
A reconciliation of changes in unrecognized tax benefits is as follows:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Unrecognized tax benefits at beginning of the year
|
|
$
|
1,141
|
|
|
$
|
2,389
|
|
Increases for positions taken in current year
|
|
|
—
|
|
|
|
52
|
|
Increases for positions taken in prior years
|
|
|
—
|
|
|
|
266
|
|
Decreases for positions taken in prior years
|
|
|
(36
|
)
|
|
|
(1,360
|
)
|
Reduction resulting from lapse of applicable
statute of limitations
|
|
|
(287
|
)
|
|
|
(206
|
)
|
Decreases for settlements with tax authorities
|
|
|
(94
|
)
|
|
|
—
|
|
Unrecognized tax benefits at end of the year
|
|
$
|
724
|
|
|
$
|
1,141
|
|
The net amount of unrecognized tax benefits at both August 31, 2021 and 2020 that, if recognized, would impact the Company’s effective tax rate was $0.5 million and $0.8 million, respectively. Recognition of these tax benefits would have a favorable impact on the Company’s effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Total accrued liabilities for interest and penalties included in the unrecognized tax benefits liability were $0.8 million and $1.1 million for each of the years ended August 31, 2021 and 2020, respectively.
While it is expected that the amount of unrecognized tax benefits will change in the next twelve months as a result of the expiration of statutes of limitations, the Company does not expect this change to have a significant impact on its results of operations or financial position.
The Company files income tax returns in the United States and various state and foreign jurisdictions. The Company is no longer subject to income tax examination by US federal and most state tax authorities for tax years prior to fiscal 2017. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years.
Note 8 - Inventories
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Raw materials and supplies
|
|
$
|
69,962
|
|
|
$
|
51,205
|
|
Work in process
|
|
|
8,301
|
|
|
|
6,464
|
|
Finished goods and purchased parts
|
|
|
75,053
|
|
|
|
51,684
|
|
Total inventory value before LIFO adjustment
|
|
|
153,316
|
|
|
|
109,353
|
|
Less adjustment to LIFO value
|
|
|
(8,072
|
)
|
|
|
(4,561
|
)
|
Inventories, net
|
|
$
|
145,244
|
|
|
$
|
104,792
|
|
46
Note 9 – Property, Plant, and Equipment
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Operating property, plant, and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
7,970
|
|
|
$
|
2,639
|
|
Buildings
|
|
|
49,308
|
|
|
|
40,730
|
|
Machinery and equipment
|
|
|
87,765
|
|
|
|
85,185
|
|
Furniture and fixtures
|
|
|
7,978
|
|
|
|
8,089
|
|
Computer hardware and software
|
|
|
24,569
|
|
|
|
20,927
|
|
Construction in progress
|
|
|
6,336
|
|
|
|
10,677
|
|
Total operating property, plant, and equipment
|
|
|
183,926
|
|
|
|
168,247
|
|
Accumulated depreciation
|
|
|
(116,856
|
)
|
|
|
(110,389
|
)
|
Total operating property, plant, and equipment, net
|
|
|
67,070
|
|
|
|
57,858
|
|
Property held for lease:
|
|
|
|
|
|
|
|
|
Machines
|
|
|
15,135
|
|
|
|
12,457
|
|
Barriers
|
|
|
29,939
|
|
|
|
27,403
|
|
Total property held for lease
|
|
|
45,074
|
|
|
|
39,860
|
|
Accumulated depreciation
|
|
|
(20,147
|
)
|
|
|
(18,137
|
)
|
Total property held for lease, net
|
|
|
24,927
|
|
|
|
21,723
|
|
Property, plant, and equipment, net
|
|
$
|
91,997
|
|
|
$
|
79,581
|
|
Depreciation expense was $12.7 million, $11.6 million, and $11.1 million for fiscal 2021, 2020, and 2019, respectively.
Note 10 – Goodwill and Other Intangible Assets
The carrying amount of goodwill by reportable segment for the year ended August 31, 2021 and 2020 is as follows:
($ in thousands)
|
|
Irrigation
|
|
|
Infrastructure
|
|
|
Total
|
|
Balance as of August 31, 2019
|
|
$
|
48,567
|
|
|
$
|
15,820
|
|
|
$
|
64,387
|
|
Acquisition of Net Irrigate
|
|
|
3,265
|
|
|
|
—
|
|
|
|
3,265
|
|
Foreign currency translation
|
|
|
(30
|
)
|
|
|
382
|
|
|
|
352
|
|
Balance as of August 31, 2020
|
|
|
51,802
|
|
|
|
16,202
|
|
|
|
68,004
|
|
Foreign currency translation
|
|
|
9
|
|
|
|
(45
|
)
|
|
|
(36
|
)
|
Balance as of August 31, 2021
|
|
$
|
51,811
|
|
|
$
|
16,157
|
|
|
$
|
67,968
|
|
The components of the Company’s identifiable intangible assets and their weighted average remaining life at August 31, 2021 and 2020 are included in the table below.
|
|
August 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
|
|
average
|
|
|
carrying
|
|
|
Accumulated
|
|
|
average
|
|
|
carrying
|
|
|
Accumulated
|
|
($ in thousands)
|
|
years
|
|
|
amount
|
|
|
amortization
|
|
|
years
|
|
|
amount
|
|
|
amortization
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and developed technology
|
|
|
3.7
|
|
|
$
|
27,085
|
|
|
$
|
(23,931
|
)
|
|
|
4.3
|
|
|
$
|
27,082
|
|
|
$
|
(22,905
|
)
|
Customer relationships
|
|
|
2.6
|
|
|
|
17,461
|
|
|
|
(11,560
|
)
|
|
|
3.1
|
|
|
|
17,965
|
|
|
|
(10,986
|
)
|
Unamortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
N/A
|
|
|
|
11,312
|
|
|
|
-
|
|
|
N/A
|
|
|
|
12,321
|
|
|
|
-
|
|
Total
|
|
|
3.1
|
|
|
$
|
55,858
|
|
|
$
|
(35,491
|
)
|
|
|
3.5
|
|
|
$
|
57,368
|
|
|
$
|
(33,891
|
)
|
Amortization expense for amortizable intangible assets was $2.2 million, $2.5 million, and $2.9 million for fiscal 2021, 2020, and 2019, respectively.
47
Future estimated amortization of intangible assets for the next five years is as follows:
Fiscal years
|
|
$ in thousands
|
|
2022
|
|
$
|
2,012
|
|
2023
|
|
|
1,905
|
|
2024
|
|
|
1,905
|
|
2025
|
|
|
1,682
|
|
2026
|
|
|
517
|
|
Thereafter
|
|
|
1,034
|
|
|
|
$
|
9,055
|
|
The Company updated its impairment evaluation of goodwill and intangible assets with indefinite useful lives at August 31, 2021. No impairment losses were indicated as a result of the annual impairment testing for fiscal 2021, 2020 and 2019.
Note 11 – Other Current Liabilities
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
$
|
36,060
|
|
|
$
|
17,296
|
|
Compensation and benefits
|
|
|
21,623
|
|
|
|
20,945
|
|
Warranties
|
|
|
12,736
|
|
|
|
10,765
|
|
Operating lease liabilities
|
|
|
3,991
|
|
|
|
5,123
|
|
Dealer related liabilities
|
|
|
3,971
|
|
|
|
3,664
|
|
Deferred revenue - lease
|
|
|
3,456
|
|
|
|
1,822
|
|
Accrued insurance
|
|
|
1,123
|
|
|
|
1,348
|
|
Tax related liabilities
|
|
|
1,072
|
|
|
|
3,726
|
|
Accrued environmental liabilities
|
|
|
965
|
|
|
|
1,115
|
|
Other
|
|
|
7,817
|
|
|
|
6,842
|
|
Total other current liabilities
|
|
$
|
92,814
|
|
|
$
|
72,646
|
|
Note 12 – Credit Arrangements
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 and 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 August 26, 2026. The Company intends to use borrowings under the Revolving Credit Facility for working capital purposes and to fund future acquisitions. At August 31, 2021 and 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 August 31, 2021, the Company had the ability to borrow up to $50.0 million under the Revolving Credit Facility. The Revolving Credit Facility may be increased by up to an additional $50.0 million at any time, subject to additional commitment approval. The Revolving Credit Facility was amended to transition the benchmark rate from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”). Borrowings under the Revolving Credit Facility bear interest at a variable rate equal to the SOFR plus a margin of between 100 and 210 basis points depending on the Company’s leverage ratio then in effect (which resulted in a variable rate of 1.40 percent at August 31, 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 on the unused portion of the Revolving Credit Facility. The fee is between 0.125 percent and 0.2 percent (0.125 percent at August 31, 2021) on the unused balance depending on the Company’s leverage ratio then in effect.
48
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 into the Senior Notes for the benefit of the 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 August 31, 2021 and 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 $1.1 million in principal amount of industrial revenue bonds that were issued in 2006 (the “Series 2006A Bonds”). Principal and interest on the Series 2006A Bonds are payable monthly through maturity on September 1, 2026. The interest rate is adjustable every five years based on the yield of the 5-year United States Treasury Notes, plus 0.45 percent (1.92 percent as of August 31, 2021 and 1.72 percent from on September 1, 2021 through maturity). The obligations under the Series 2006A Bonds are secured by a first priority security interest in certain real estate.
Long-term debt consists of the following:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Series A Senior Notes
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
Revolving Credit Facility
|
|
|
—
|
|
|
|
—
|
|
Elecsys Series 2006A Bonds
|
|
|
1,148
|
|
|
|
1,344
|
|
Total debt
|
|
|
116,148
|
|
|
|
116,344
|
|
Less current portion
|
|
|
(217
|
)
|
|
|
(195
|
)
|
Less debt issuance costs
|
|
|
(417
|
)
|
|
|
(467
|
)
|
Total long-term debt
|
|
$
|
115,514
|
|
|
$
|
115,682
|
|
Principal payments due on the debt are as follows:
Due within
|
|
$ in thousands
|
|
1 year
|
|
$
|
217
|
|
2 years
|
|
|
221
|
|
3 years
|
|
|
226
|
|
4 years
|
|
|
230
|
|
5 years
|
|
|
235
|
|
Thereafter
|
|
|
115,019
|
|
|
|
$
|
116,148
|
|
Note 13 – Leases
The Company, as lessee, has operating leases primarily for office space, manufacturing facilities, equipment, and vehicles. The Company determines if a contract is or contains a lease at the inception of the contract based on whether the contract conveys the right to control the use of an identified asset over a period of time in exchange for consideration. The Company considers disclosures related to its transactions as a lessor to not be material and has omitted such disclosures.
The Company elected, for all classes of underlying assets, to not separate lease and non-lease components and instead will treat the lease agreement as a single lease component for all asset classes. The Company additionally elected practical expedients to not reassess whether existing contracts are or contain leases, the classification of any existing leases, accounting for initial direct costs for any existing leases, and hindsight in determining the lease term and in assessing impairment of the right-of-use (“ROU”) asset.
49
Short-term operating leases, which have an initial expected term of twelve months or less, are not recorded on the condensed consolidated balance sheet. Such fixed lease payments are recognized within the condensed consolidated statement of earnings on a straight-line basis over the lease term. Any variable payments associated with short-term operating leases are recognized within the condensed consolidated statement of earnings as they are incurred. The Company did not recognize any expense for such leases during the twelve months ended August 31, 2021 and 2020.
Many of the Company’s leases contain renewal or extension options. The Company includes all renewal or extension periods that it is reasonably certain to exercise at lease commencement within the measurement of the ROU asset and lease liability.
The Company’s lease portfolio consists of operating leases which are included in operating lease ROU assets and operating lease liabilities in the condensed consolidated balance sheet. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To calculate the present value of future lease payments, the Company uses an incremental borrowing rate that estimates a collateralized rate based on the expected term of the lease.
Lease cost and other information related to the Company’s operating leases are as follows:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Operating lease cost (cost resulting from lease payments)
|
|
$
|
5,441
|
|
|
$
|
5,999
|
|
Variable lease cost (cost excluded from lease payments)
|
|
|
508
|
|
|
|
424
|
|
Total lease cost
|
|
$
|
5,949
|
|
|
$
|
6,423
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
4,805
|
|
|
$
|
5,767
|
|
Weighted average lease term - operating leases
|
|
9.7 years
|
|
|
9.1 years
|
|
Weighted average discount rate - operating leases
|
|
|
3.3
|
%
|
|
|
3.2
|
%
|
Supplemental balance sheet information related to operating leases are as follows:
|
|
|
|
August 31,
|
|
($ in thousands)
|
|
Classification
|
|
2021
|
|
|
2020
|
|
Operating lease ROU assets
|
|
Operating lease right-of-use assets
|
|
$
|
18,281
|
|
|
$
|
27,457
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease short-term liabilities
|
|
Other current liabilities
|
|
|
3,991
|
|
|
|
5,123
|
|
Operating lease long-term liabilities
|
|
Operating lease liabilities
|
|
|
18,301
|
|
|
|
25,862
|
|
Total lease liabilities
|
|
|
|
$
|
22,292
|
|
|
$
|
30,985
|
|
The minimum lease payments under operating leases expiring subsequent to August 31, 2021 are as follows:
Fiscal year ending
|
|
$ in thousands
|
|
2022
|
|
$
|
4,655
|
|
2023
|
|
|
2,983
|
|
2024
|
|
|
2,609
|
|
2025
|
|
|
2,007
|
|
2026
|
|
|
1,736
|
|
Thereafter
|
|
|
12,657
|
|
Total lease payments
|
|
|
26,647
|
|
Less: interest
|
|
|
4,355
|
|
Present value of lease liabilities
|
|
$
|
22,292
|
|
50
Note 14 – 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 August 31, 2021 and 2020, respectively:
|
|
August 31, 2021
|
|
($ in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
127,107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
127,107
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
—
|
|
|
|
15,484
|
|
|
|
—
|
|
|
|
15,484
|
|
U.S. treasury securities
|
|
|
—
|
|
|
|
4,120
|
|
|
|
—
|
|
|
|
4,120
|
|
Earn-out liability
|
|
|
—
|
|
|
|
—
|
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
August 31, 2020
|
|
($ in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
121,403
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121,403
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
—
|
|
|
|
14,426
|
|
|
|
—
|
|
|
|
14,426
|
|
U.S. treasury securities
|
|
|
—
|
|
|
|
5,085
|
|
|
|
—
|
|
|
|
5,085
|
|
Derivative assets
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
Earn-out liability
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,112
|
)
|
|
|
(1,112
|
)
|
The carrying value of long-term debt (including current portion) was $116.1 million and $116.3 million at August 31, 2021 and 2020, respectively. The fair value of this debt was estimated to be $125.8 million and $122.9 million as of August 31, 2021 and 2020, respectively, based on current market rates as of the respective year-ends.
Note 15 – 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 Litigation
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.
51
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 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 first half of fiscal 2022 or later. An increase to the liability of $1.0 million was recorded within general and administrative expense on the consolidated statement of earnings for the year ended August 31, 2020. Of the total liability as of both August 31, 2021 and 2020, $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 $12.4 million on an undiscounted basis.
The Company accrues the anticipated cost of investigation and remediation when the obligation is probable and can be reasonably estimated. While the plan has not been formally been approved by the EPA, the Company believes the current accrual is a good faith estimate of the long-term cost of remediation at this site; however, the estimate of costs and their timing could change as a result of a number of factors, including but not limited to (1) EPA input on the proposed remediation plan and any changes which the EPA may subsequently require, (2) refinement of cost estimates and length of time required to complete remediation and post-remediation operations and maintenance, (3) effectiveness of the technology chosen in remediation of the site as well as changes in technology that may be available in the future, and (4) unforeseen circumstances existing at the site. As a result of these factors, the actual amount of costs incurred by the Company in connection with the remediation of contamination of its Lindsay, Nebraska site could exceed the amounts accrued for this expense at this time. While any revisions could be material to the operating results of any fiscal quarter or fiscal year, the Company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition.
The following table summarizes the environmental remediation liability classifications included in the balance sheet as of August 31, 2021 and 2020, respectively:
($ in thousands)
|
|
August 31,
|
|
Balance sheet location
|
|
2021
|
|
|
2020
|
|
Other current liabilities
|
|
$
|
965
|
|
|
$
|
1,115
|
|
Other noncurrent liabilities
|
|
|
15,128
|
|
|
|
15,030
|
|
Total environmental remediation liabilities
|
|
$
|
16,093
|
|
|
$
|
16,145
|
|
Note 16 – Retirement Plans
The Company has defined contribution profit‑sharing plans covering substantially all of its full-time U.S. employees. Participants may voluntarily contribute a percentage of compensation, but not in excess of the maximum allowed under the Internal Revenue Code. The plans provide for a matching contribution by the Company. The Company’s total contributions charged to expense under the plans were $1.3 million, $1.2 million, and $1.2 million for the years ended August 31, 2021, 2020, and 2019, respectively.
52
A supplementary non‑qualified, non‑funded retirement plan for five former executives is also maintained. Plan benefits are based on the executive’s average total compensation during the three highest compensation years of employment. This unfunded supplemental retirement plan is not subject to the minimum funding requirements of ERISA. While the plan is unfunded, the Company has purchased life insurance policies on certain former executives named in this supplemental retirement plan to provide funding for this liability. The cash surrender values of these insurance policies are recorded as other noncurrent assets.
As of August 31, 2021 and 2020, the funded status of the supplemental retirement plan was recorded in the consolidated balance sheets. The Company utilizes an August 31 measurement date for plan obligations related to the supplemental retirement plan. As this is an unfunded retirement plan, the funded status is equal to the benefit obligation.
The funded status of the plan and the net amount recognized in the accompanying balance sheets as of August 31 is as follows:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
6,904
|
|
|
$
|
6,559
|
|
Interest cost
|
|
|
146
|
|
|
|
208
|
|
Actuarial (gain) loss
|
|
|
(236
|
)
|
|
|
667
|
|
Benefits paid
|
|
|
(530
|
)
|
|
|
(530
|
)
|
Benefit obligation at end of year
|
|
$
|
6,284
|
|
|
$
|
6,904
|
|
Amounts recorded in the consolidated balance sheets for the pension benefit obligation consist of:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Other current liabilities
|
|
$
|
530
|
|
|
$
|
530
|
|
Other non-current liabilities
|
|
|
5,754
|
|
|
|
6,374
|
|
Net amount recognized
|
|
$
|
6,284
|
|
|
$
|
6,904
|
|
The before-tax amounts recognized in accumulated other comprehensive loss consists of:
|
|
August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Net actuarial loss
|
|
$
|
(3,737
|
)
|
|
$
|
(4,242
|
)
|
For the years ended August 31, 2021 and 2020, the Company assumed a discount rate of 2.6 percent and 2.2 percent, respectively, for the determination of the liability. The assumptions used to determine benefit obligations and costs are selected based on current and expected market conditions. The discount rate is based on a hypothetical portfolio of long-term corporate bonds with cash flows approximating the timing of expected benefit payments.
For the years ended August 31, 2021, 2020, and 2019, the Company assumed a discount rate of 2.2 percent, 3.3 percent, and 4.0 percent, respectively, for the determination of the net periodic benefit cost. The components of the net periodic benefit cost for the supplemental retirement plan recorded within other income (expense) on the consolidated statement of earnings are as follows:
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Interest cost
|
|
$
|
146
|
|
|
$
|
208
|
|
|
$
|
246
|
|
Net amortization and deferral
|
|
|
269
|
|
|
|
226
|
|
|
|
199
|
|
Total
|
|
$
|
415
|
|
|
$
|
434
|
|
|
$
|
445
|
|
53
The estimated actuarial loss for the supplemental retirement plan that will be amortized, on a pre-tax basis, from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2022 will be $0.3 million.
The Company’s future annual contributions to the supplemental retirement plan will be equal to expected net benefit payments since the plan is unfunded. The following net benefit payments are expected to be paid:
Fiscal years
|
|
$ in thousands
|
|
2022
|
|
$
|
520
|
|
2023
|
|
|
511
|
|
2024
|
|
|
501
|
|
2025
|
|
|
490
|
|
2026
|
|
|
477
|
|
Thereafter
|
|
|
3,785
|
|
|
|
$
|
6,284
|
|
Note 17 - Warranties
Product Warranties
The Company generally warrants its products against certain manufacturing and other defects and estimates the amount of warranty accrual based on various factors, including historical warranty costs, current claim trends, and operating revenue. These product warranties are provided for specific periods and/or usage of the product. The accrued product warranty costs are for a combination of specifically identified items and other incurred, but not identified, items based primarily on historical experience of actual warranty claims. This reserve is classified within other current liabilities.
The following tables provide the changes in the Company’s product warranties:
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Product warranty accrual balance, beginning of period
|
|
$
|
10,765
|
|
|
$
|
8,960
|
|
Liabilities accrued for warranties during the period
|
|
|
7,286
|
|
|
|
7,895
|
|
Warranty claims paid during the period
|
|
|
(5,454
|
)
|
|
|
(6,970
|
)
|
Changes in estimates
|
|
|
139
|
|
|
|
880
|
|
Product warranty accrual balance, end of period
|
|
$
|
12,736
|
|
|
$
|
10,765
|
|
Warranty costs were $7.4 million, $8.8 million, and $7.6 million for fiscal 2021, 2020, and 2019, respectively.
Note 18 – Industry Segment Information
The Company manages its business activities in two reportable segments: Irrigation and Infrastructure. The accounting policies of the two reportable segments are the same as those described in Note 1, Description of Business and Significant Accounting Policies. The Company evaluates the performance of its reportable segments based on segment sales, gross profit, and operating income, with operating income for segment purposes excluding unallocated corporate general and administrative expenses, interest income, interest expense, other income and expenses, and income taxes. Operating income for segment purposes does include 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.
Irrigation
This reporting segment includes the manufacture and marketing of center pivot, lateral move, and hose reel irrigation systems, as well as various innovative technology solutions such as GPS positioning and guidance, variable rate irrigation, wireless irrigation management, M2M communication technology, and smartphone applications. The irrigation reporting segment consists of one operating segment.
54
Infrastructure
This reporting segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, and road marking and road safety equipment; the manufacturing and selling of large diameter steel tubing and railroad signals and structures; and providing outsourced manufacturing and production services. The infrastructure reporting segment consists of one operating segment.
The Company has no single major customer representing ten percent or more of its total revenues during fiscal 2021, 2020, or 2019.
Summarized financial information concerning the Company’s reportable segments is shown in the following tables:
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
273,871
|
|
|
$
|
224,771
|
|
|
$
|
225,677
|
|
International
|
|
|
197,487
|
|
|
|
124,575
|
|
|
|
132,871
|
|
Irrigation total
|
|
|
471,358
|
|
|
|
349,346
|
|
|
|
358,548
|
|
Infrastructure
|
|
|
96,288
|
|
|
|
125,346
|
|
|
|
85,524
|
|
Total operating revenues
|
|
$
|
567,646
|
|
|
$
|
474,692
|
|
|
$
|
444,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
63,181
|
|
|
$
|
41,263
|
|
|
$
|
29,374
|
|
Infrastructure
|
|
|
20,174
|
|
|
|
42,722
|
|
|
|
17,029
|
|
Corporate
|
|
|
(29,248
|
)
|
|
|
(29,783
|
)
|
|
|
(40,288
|
)
|
Total operating income
|
|
|
54,107
|
|
|
|
54,202
|
|
|
|
6,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(3,721
|
)
|
|
|
(5,359
|
)
|
|
|
(4,008
|
)
|
Earnings before income taxes
|
|
$
|
50,386
|
|
|
$
|
48,843
|
|
|
$
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
19,188
|
|
|
$
|
9,254
|
|
|
$
|
9,473
|
|
Infrastructure
|
|
|
6,866
|
|
|
|
11,275
|
|
|
|
4,928
|
|
Corporate
|
|
|
457
|
|
|
|
916
|
|
|
|
8,810
|
|
|
|
$
|
26,511
|
|
|
$
|
21,445
|
|
|
$
|
23,211
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Irrigation
|
|
$
|
12,245
|
|
|
$
|
12,906
|
|
|
$
|
9,500
|
|
Infrastructure
|
|
|
3,748
|
|
|
|
3,495
|
|
|
|
3,663
|
|
Corporate
|
|
|
3,183
|
|
|
|
2,994
|
|
|
|
855
|
|
|
|
$
|
19,177
|
|
|
$
|
19,396
|
|
|
$
|
14,018
|
|
Summarized financial information concerning the Company’s geographical areas is shown in the following tables.
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
Revenues
|
|
|
% of total
|
|
|
Revenues
|
|
|
% of total
|
|
|
Revenues
|
|
|
% of total
|
|
United States
|
|
$
|
307,313
|
|
|
|
54
|
|
|
$
|
259,557
|
|
|
|
55
|
|
|
$
|
257,719
|
|
|
|
58
|
|
International
|
|
|
260,333
|
|
|
|
46
|
|
|
|
215,135
|
|
|
|
45
|
|
|
|
186,353
|
|
|
|
42
|
|
Total revenues
|
|
$
|
567,646
|
|
|
|
100
|
|
|
$
|
474,692
|
|
|
|
100
|
|
|
$
|
444,072
|
|
|
|
100
|
|
55
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
Long-lived
tangible
assets
|
|
|
% of total
|
|
|
Long-lived
tangible
assets
|
|
|
% of total
|
|
|
Long-lived
tangible
assets
|
|
|
% of total
|
|
United States
|
|
$
|
68,526
|
|
|
|
74
|
|
|
$
|
64,857
|
|
|
|
81
|
|
|
$
|
52,187
|
|
|
|
76
|
|
International
|
|
|
23,471
|
|
|
|
26
|
|
|
|
14,724
|
|
|
|
19
|
|
|
|
16,781
|
|
|
|
24
|
|
Total long-lived assets
|
|
$
|
91,997
|
|
|
|
100
|
|
|
$
|
79,581
|
|
|
|
100
|
|
|
$
|
68,968
|
|
|
|
100
|
|
Total assets by reportable segment are not disclosed because such information is not used by the Company to allocate resources or evaluate performance.
Note 19 – Share-Based Compensation
Share-Based Compensation Program
Share-based compensation is designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share grants are based on competitive practices, operating results of the Company, and individual performance. As of August 31, 2021, the Company’s share-based compensation plan was the 2015 Long-Term Incentive Plan (the “2015 Plan”). The 2015 Plan was approved by the shareholders of the Company, and became effective on January 26, 2015, and replaced the Company’s 2010 Long Term Incentive Plan. At August 31, 2021, the Company had share-based awards outstanding under its 2010 and 2015 Long-Term Incentive Plans.
The 2015 Plan provides for awards of stock options, restricted shares, restricted stock units, stock appreciation rights, performance shares and performance stock units to employees and non-employee directors of the Company. The maximum number of shares as to which stock awards may be granted under the 2015 Plan is 626,968 shares, exclusive of any forfeitures from the 2010 Long Term Incentive Plan. At August 31, 2021, 255,514 shares of common stock (including forfeitures from prior plans) remained available for issuance under the 2015 Plan. All stock awards will be counted against the 2015 Plan in a 1 to 1 ratio. If options, restricted stock units or performance stock units awarded under the 2010 Plan terminate without being fully vested or exercised, those shares will be available again for grant under the 2015 Plan. The 2015 Plan also limits the total awards that may be made to any individual.
Share-Based Compensation Information
The following table summarizes share-based compensation expense for fiscal 2021, 2020, and 2019:
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Share-based compensation expense included in cost of
operating revenues
|
|
$
|
258
|
|
|
$
|
142
|
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and research
|
|
|
202
|
|
|
|
207
|
|
|
|
221
|
|
Selling
|
|
|
544
|
|
|
|
419
|
|
|
|
250
|
|
General and administrative
|
|
|
5,524
|
|
|
|
5,079
|
|
|
|
3,819
|
|
Share-based compensation expense included in
operating expenses
|
|
|
6,270
|
|
|
|
5,705
|
|
|
|
4,290
|
|
Total share-based compensation expense
|
|
|
6,528
|
|
|
|
5,847
|
|
|
|
4,395
|
|
Tax benefit
|
|
|
(1,534
|
)
|
|
|
(1,374
|
)
|
|
|
(1,033
|
)
|
Share-based compensation expense, net of tax
|
|
$
|
4,994
|
|
|
$
|
4,473
|
|
|
$
|
3,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2021, there was $5.4 million pre-tax of total unrecognized compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized over a weighted average period of 1.8 years.
56
Stock Options – Stock option awards have an exercise price equal to the closing price on the date of grant, expire no later than ten years from the date of grant and vest evenly over a three or four year period. The fair value of stock option awards is estimated using the Black-Scholes option pricing model. The table below shows the annual weighted average assumptions used for valuation purposes.
|
|
Grant year
|
|
|
|
Fiscal 2021
|
|
|
Fiscal 2020
|
|
Risk-free interest rate
|
|
|
0.5
|
%
|
|
|
1.6
|
%
|
Dividend yield
|
|
|
1.1
|
%
|
|
|
1.3
|
%
|
Expected life (years)
|
|
|
6
|
|
|
|
6
|
|
Volatility
|
|
|
32.8
|
%
|
|
|
28.4
|
%
|
Weighted average grant-date fair value of options granted
|
|
$
|
31.38
|
|
|
$
|
24.18
|
|
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and volatility is based on the historical volatility of the Company’s stock price over the expected life of the option.
The following table summarizes stock option activity for fiscal 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
stock options
|
|
|
Average
exercise price
|
|
|
Average
remaining
contractual
term (years)
|
|
|
Aggregate
intrinsic value
(thousands)
|
|
Stock options outstanding at August 31, 2020
|
|
|
132,144
|
|
|
$
|
90.56
|
|
|
|
7.9
|
|
|
$
|
1,242
|
|
Granted
|
|
|
40,048
|
|
|
|
112.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(41,947
|
)
|
|
|
90.92
|
|
|
|
|
|
|
|
2,125
|
|
Forfeited/cancelled
|
|
|
(3,034
|
)
|
|
|
91.50
|
|
|
|
|
|
|
|
200
|
|
Stock options outstanding at August 31, 2021
|
|
|
127,211
|
|
|
$
|
97.33
|
|
|
|
7.7
|
|
|
$
|
5,601
|
|
Stock options exercisable at August 31, 2021
|
|
|
39,834
|
|
|
$
|
87.40
|
|
|
|
6.3
|
|
|
$
|
3,129
|
|
There were 38,954, 25,843, and 15,496 outstanding stock options that vested during fiscal 2021, 2020, and 2019, respectively. Additional information regarding stock option exercises is summarized in the table below.
|
|
For the years ended August 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Intrinsic value of stock options exercised
|
|
$
|
2,125
|
|
|
$
|
721
|
|
|
$
|
93
|
|
Cash received from stock option exercises
|
|
$
|
3,965
|
|
|
$
|
1,545
|
|
|
$
|
177
|
|
Tax benefit realized from stock option exercises
|
|
$
|
499
|
|
|
$
|
169
|
|
|
$
|
26
|
|
Weighted average grant-date fair value of stock options vested
|
|
$
|
25.95
|
|
|
$
|
27.08
|
|
|
$
|
32.66
|
|
Restricted stock units - The restricted stock units have a grant-date fair value equal to the fair market value of the underlying stock on the grant date less present value of expected dividends. The restricted stock units granted to employees vest over a three year period at approximately 33 percent per year. The restricted stock units granted to non-employee directors generally vest over a nine month period.
The following table summarizes restricted stock unit activity for fiscal 2021:
|
|
Number of
restricted
stock units
|
|
|
Weighted
average grant-
date fair value
|
|
Restricted stock units outstanding at August 31, 2020
|
|
|
72,723
|
|
|
$
|
89.92
|
|
Granted
|
|
|
32,880
|
|
|
|
111.96
|
|
Vested
|
|
|
(44,252
|
)
|
|
|
89.30
|
|
Forfeited / Cancelled
|
|
|
(4,011
|
)
|
|
|
96.73
|
|
Restricted stock units outstanding at August 31, 2021
|
|
|
57,340
|
|
|
$
|
102.60
|
|
57
Restricted stock units are generally settled with the issuance of shares with the exception of certain restricted stock units awarded to internationally-based employees that are settled in cash. At August 31, 2021, 2020, and 2019, outstanding restricted stock units included 4,656, 4,938, and 4,103 units, respectively, that will be settled in cash. The fair value of restricted stock units that vested during the period was $3.7 million and $3.8 million for each of the years ended August 31, 2021 and 2020, respectively. Share issuances are presented net of share repurchases to cover payroll taxes of $1.3 million, $1.1 million, and $1.1 million for each of the years ended August 31, 2021, 2020, and 2019, respectively.
Performance stock units - The performance stock units have a grant-date fair value equal to the fair market value of the underlying stock on the grant date less present value of expected dividends. The performance stock units granted to employees cliff vest after a three year period and a specified number of shares of common stock will be awarded under the terms of the performance stock units, if performance measures relating to revenue growth and a return on net assets are achieved.
The table below summarizes performance stock unit activity for fiscal 2021:
|
|
Number of
performance
stock units
|
|
|
Weighted
average grant-
date fair value
|
|
Performance stock units outstanding at August 31, 2020
|
|
|
53,928
|
|
|
$
|
101.29
|
|
Granted
|
|
|
22,324
|
|
|
|
126.31
|
|
Forfeited / cancelled
|
|
|
(13,687
|
)
|
|
|
89.63
|
|
Performance stock units outstanding at August 31, 2021
|
|
|
62,565
|
|
|
$
|
112.77
|
|
Performance stock units outstanding as of August 31, 2021 and issued during fiscal 2021 and 2020 include performance goals based on a return on invested capital and total shareholder return (TSR) relative to the Company’s peers during the performance period. The awards actually earned will range from zero to two hundred percent of the targeted number of performance stock units and will be paid in shares of common stock. Shares earned will be distributed upon vesting on the first day of November following the end of the three-year performance period. For the return on invested capital portion of the award, the Company is accruing compensation expense based on the estimated number of shares expected to be issued utilizing the most current information available to the Company at the date of the financial statements. For the TSR portion of the award, compensation expense is recorded ratably over the three-year term of the award based on the estimated grant date fair value. In fiscal 2021, 2020, and 2019, no performance stock units vested.
The fair value of the TSR portion of the awards granted in fiscal 2021 was estimated at the grant date using a Monte Carlo simulation model which included the following assumptions:
Expected term (years)
|
|
|
3
|
|
Risk-free interest rate
|
|
|
0.2
|
%
|
Volatility
|
|
|
38.6
|
%
|
Dividend yield
|
|
|
1.2
|
%
|
Note 20 – 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 Exchange Act of 1934, as amended. There were no shares repurchased during the twelve months ended August 31, 2021. The remaining amount available under the repurchase program was $63.7 million as of August 31, 2021.
58