Concerning ForwardLooking Statements
This Quarterly Report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect information concerning possible or assumed future results of operations and planned financing of the Company. In addition, forward-looking statements may be made orally or in press releases, conferences, reports, on the Company's web site, or otherwise, in the future by or on behalf of the Company. When used by or on behalf of the Company, the words "expect," "anticipate," "estimate," "believe," "intend," "will," "plan," "predict," "project," "outlook," "could," "may," "should" or similar expressions generally identify forward-looking statements. The entire section entitled "Executive Overview and Outlook" should be considered forward-looking statements. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve a number of risks and uncertainties,
including but not limited to those discussed in the "Risk Factors" section in
the Company's Annual Report on Form 10-K for the year ended
Accounting Policies
In preparing the Company's condensed consolidated financial statements in
conformity with
The Company's accounting policies that are most important to the presentation of
its results of operations and financial condition, and which require the
greatest use of judgments and estimates by management, are designated as its
critical accounting policies. See discussion of the Company's critical
accounting policies under Item 7 in the Company's Annual Report on Form 10-K for
the Company's fiscal year ended
Recent Accounting Guidance
See Note 1 - Basis of Presentation and the disclosure therein of recent accounting guidance (adopted and not yet adopted) to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Executive Overview and Outlook
Operating revenues for the three months ended
Net earnings for the three months ended
The Company's irrigation revenues are highly dependent upon the need for irrigated agricultural crop production, which, in turn, depends upon many factors, including the following primary drivers:
- 18 -
--------------------------------------------------------------------------------
Table of Contents • Agricultural commodity prices - As ofNovember 2019 , corn prices have increased 3 percent and soybean prices have increased approximately 1 percent fromNovember 2018 . While commodity prices have improved slightly from the prior year, they remain substantially lower than the peak levels in 2013. • Net farm income - As ofNovember 30, 2019 , theU.S. Department of Agriculture (the "USDA") estimatedU.S. 2019 net farm income to be$92.5 billion , an increase of 10.2 percent from theUSDA's finalU.S. 2018 net farm income of$84.0 billion . The projected increase is largely the result of an increase in direct government payments from the Market Facilitation Program in response to theU.S. trade dispute withChina . • Weather conditions - Demand for irrigation equipment is often positively affected by storm damage and prolonged periods of drought conditions as producers look for ways to reduce the risk of low crop production and crop failures. Conversely, demand for irrigation equipment can be negatively affected during periods of more predictable or excessive natural precipitation. • Governmental policies - A number of governmental laws and regulations can affect the Company's business, including: • The Agriculture Improvement Act of 2018 (the "Farm Bill") was signed into law inDecember 2018 . The 2018 Farm Bill continues many of the programs that were in the Agricultural Act of 2014, which expired inSeptember 2018 . Such programs are designed to provide a degree of certainty to growers, including funding for the Environmental Quality Incentives Program, which provides financial assistance to farmers to implement conservation practices, and is frequently used to assist in the purchase of center pivot irrigation systems. • TheU.S. Tax Cuts and Jobs Act ("U.S. Tax Reform") enacted inDecember 2017 increased the benefit of certain tax incentives, such as the Section 179 income tax deduction and Section 168 bonus depreciation, which are intended to encourage equipment purchases by allowing the entire cost of equipment to be treated as an expense in the year of purchase rather than amortized over its useful life. • Biofuel production continues to be a major demand driver for irrigated corn, sugar cane and soybeans as these crops are used in high volumes to produce ethanol and biodiesel. OnDecember 19, 2019 , theU.S. Environmental Protection Agency finalized Renewable Fuels Standard (RFS) volume requirements for 2020 that slightly increased volumes of conventional biofuels as well as volumes for advanced and cellulosic biofuels. • Many international markets are affected by government policies such as subsidies and other agriculturally related incentives. While these policies can have a significant effect on individual markets, they typically do not have a material effect on the consolidated results of the Company. • Currency - The value of theU.S. dollar fluctuates in relation to the value of currencies in a number of countries to which the Company exports products and in which the Company maintains local operations. The strengthening of the dollar increases the cost in the local currency of the products exported from theU.S. into these countries and, therefore, could negatively affect the Company's international sales and margins. In addition, theU.S. dollar value of sales made in any affected foreign currencies will decline as the value of the dollar rises in relation to these other currencies.
International irrigation markets remain active with opportunities for further development and expansion, however regional political and economic factors, currency conditions and other factors can create a challenging environment. Additionally, international results are heavily dependent upon project sales which tend to fluctuate and can be difficult to forecast accurately.
The infrastructure business is dependent to some extent on government spending
for road construction. In
The backlog of unshipped orders at
- 19 -
--------------------------------------------------------------------------------
Table of Contents
expected to be fulfilled within the subsequent twelve months. The Company's backlog can fluctuate from period to period due to the seasonality, cyclicality, timing and execution of contracts. Backlog typically represents long-term projects as well as short lead-time orders, and therefore is generally not a good indication of the next fiscal quarter's revenues.
The global drivers for the Company's markets of population growth, expanded food production, efficient water use and infrastructure expansion support the Company's long-term growth goals. The most significant opportunities for growth over the next several years are in international markets, where irrigation use is less developed and demand is driven primarily by food security, water scarcity and population growth.
Results of Operations
For the Three Months ended
The following section presents an analysis of the Company's operating results
displayed in the condensed consolidated statements of earnings for the three
months ended
© Edgar Online, source