LINDSAY CORPORATION 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 fiscal year ended
COVID-19 Impact
In
The ultimate impact of COVID-19 on the Company's business, results of operations, or cash flows remains uncertain and depends on numerous evolving factors that the Company may not be able to accurately predict or effectively respond to, including, without limitation: the duration and scope of the outbreak; actions taken by governments, businesses, and individuals in response to the outbreak; the effect on economic activity and actions taken in response; the effect on customers and their demand for the Company's products and services; and the Company's ability to manufacture, sell, and service its products, including without limitation as a result of supply chain challenges, facility closures, social distancing, restrictions on travel, fear or anxiety by the populace, and shelter-in-place orders. As such, the financial impact of COVID-19 on the Company's business, results of operations, or cash flows cannot be reasonably estimated at this time.
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
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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:
• Agricultural commodity prices - As ofMay 2020 , corn prices have decreased 19 percent and soybean prices have increased approximately 3 percent fromMay 2019 and remain substantially lower than the peak levels in 2013. During the three months endedMay 31, 2020 , agricultural commodity prices declined significantly because of impacts caused by the global coronavirus pandemic. The pandemic has resulted in the shutdown of economies globally, a significant increase in unemployment, the disruption of food supply systems and consumption patterns, and the reduction in gasoline consumption and demand for ethanol. Under theU.S. -China Phase 1 trade deal signedJanuary 15, 2020 ,China has pledged to increase purchases ofU.S. agricultural products by$32 billion over two years, to an average annual total of$40 billion compared to the 2017 baseline of$24 billion . An increase in purchases byChina should be supportive of higher agricultural commodity prices, however it is uncertain thatChina will actually increase purchases to this level. • Net farm income - As ofFebruary 2020 , theU.S. Department of Agriculture (the "USDA") estimatedU.S. 2020 net farm income to be$96.7 billion , an increase of 3 percent from theUSDA's estimatedU.S. 2019 net farm income of$93.6 billion . The modest increase is a result of projected increases in cash receipts for both crops and livestock, which are partially offset by a projected decrease in payments from the Market Facilitation Program that had to be implemented in response to theU.S. trade dispute withChina . InApril 2020 theUSDA announced theCoronavirus Food Assistance Program ("CFAP"), which includes$16 billion in assistance for several agricultural sectors and is designed to address price declines caused by the demand disruption in the food service industry. The impact on net farm income from lower commodity prices caused by the coronavirus pandemic and from government assistance provided under CFAP have not yet been factored into theUSDA's 2020 estimate. • 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, - 21 -
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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. On December 19, 2019 , the U.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. Demand for biofuels has been negatively impacted in 2020 by
reduced driving and fuel consumption caused by the coronavirus
pandemic.
• 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 the U.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 the U.S. into these countries and, therefore, could negatively affect
the Company's international sales and margins. In addition, the U.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
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.
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Table of Contents 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 operations for the three
months ended
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