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 August 31, 2020. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results or conditions, which may not occur as anticipated. Actual results or conditions could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein and in the Company's other public filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the Company's fiscal year ended August 31, 2021, as well as other risks and uncertainties not now anticipated. The risks and uncertainties described herein and in the Company's other public filings are not exclusive and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, may emerge from time to time. Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.





COVID-19 Impact

In March 2020, the World Health Organization declared the 2019 coronavirus disease (COVID-19) a global pandemic. This outbreak has adversely affected workforces, customers, economies, and financial markets globally, leading to economic uncertainty. Shelter-in-place or stay-at-home orders have been implemented from time to time in many of the jurisdictions in which the Company operates. However, because the Company supports critical industries, the Company's facilities worldwide have generally been considered "business essential" and have remained open throughout the outbreak with limited exceptions. Accordingly, COVID-19 has had a limited impact on the Company's manufacturing operations to date. While the Company has implemented new procedures to protect the health and well-being of employees and customers, costs associated with these procedures have not been material. The pandemic has not had a material adverse effect on demand for the Company's irrigation or infrastructure products; however, the pandemic has resulted in a slowdown of road construction activity and delays in certain project implementations. As pandemic conditions improve and economic activity increases, the Company has experienced a number of supply chain challenges including increased lead times and limited availability of certain components, raw material inflation, and labor and logistics constraints.

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; mutations of COVID-19; 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, distribute 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 full financial impact of COVID-19 on the Company's business is difficult to estimate.

Accounting Policies

In preparing the Company's condensed consolidated financial statements in conformity with U.S. GAAP, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and the Company's historical experience.


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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 August 31, 2021. Management periodically re-evaluates and adjusts its critical accounting policies as circumstances change. There were no significant changes in the Company's critical accounting policies during the three months ended November 30, 2021.

Recent Accounting Guidance

See Note 1 - Basis of Presentation and the disclosure therein of recently adopted accounting guidance 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 November 30, 2021 were $166.2 million, an increase of 53 percent compared to $108.5 million for the three months ended November 30, 2020. Irrigation segment revenues increased 67 percent to $145.9 million and infrastructure segment revenues decreased 4 percent to $20.2 million. Net earnings for the three months ended November 30, 2021 were $7.9 million, or $0.72 per diluted share, compared to net earnings of $7.1 million, or $0.65 per diluted share, for the three months ended November 30, 2020.

The global drivers for the Company's irrigation segment are population growth and the attendant need for expanded food production and efficient water use. The need for irrigated agricultural crop production, which depends upon many factors, include the following primary drivers:



?
Agricultural commodity prices - As of November 2021, U.S. corn prices have
increased approximately 40 percent and U.S. soybean prices have increased
approximately six percent from November 2020. The increases are due to lower
production levels in the U.S. coupled with higher demand coming primarily from
an increase in corn and soybean exports to China.
?
Net farm income - As of December 2021, the U.S. Department of Agriculture (the
"USDA") estimated U.S. 2021 net farm income to be $116.8 billion, an increase of
23 percent from the USDA's estimated U.S. 2020 net farm income of $94.8 billion.
The increase is primarily related to an increase in cash receipts from crops and
livestock that is offsetting a portion of the decrease in government support
payments. If estimates hold, U.S. net farm income in 2021 will be the highest
level since 2013.
?
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 in
December 2018. The Farm Bill continues many of the programs that were in the
Agricultural Act of 2014, which expired in September 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.
?
Changes to U.S. income tax laws enacted in December 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.

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?
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. In December 2021, the U.S. Environmental Protection
Agency ("EPA") proposed the Renewable Fuels Standard (RFS) volume requirements
for 2022, 2021, and 2020. The proposed volumes for 2022 are over 3.5 billion
gallons higher than the volume of renewable fuel used in 2020. The EPA is
proposing 2021 volumes at the level it predicts the market will use by the end
of the year, while proposing revisions to the 2020 standards to account for
market challenges, including the COVID-19 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 continues to be driven by the Company's transportation safety products which is dependent to a significant extent on government spending for road construction and improvements. The enactment of the Infrastructure Investment and Jobs Act in November 2021 marked the largest infusion of federal investment into infrastructure projects in more than a decade. This legislation introduced $110 billion in incremental federal funding, planned for roads, bridges, and other transformational projects, which the Company anticipates will translate into higher demand for its transportation safety products.

Demand for irrigation equipment in the U.S. has remained robust over the same prior year period due to positive farmer sentiment resulting from strong agricultural commodity prices and a favorable outlook for net farm income. During this period supply chain constraints such as steel and other raw material costs as well as freight and logistics costs have continued to persist. These circumstances have continued to temper operating margins and are expected to continue to do so until these increased costs can be fully covered by increases in selling prices. In addition, supply chain constraints impacting availability of raw materials and trucking resources have contributed to cost increases and have resulted in extended lead times for deliveries.

The backlog of unshipped orders at November 30, 2021 was $154.8 million compared with $89.2 million at November 30, 2020. The irrigation backlog is higher compared to the prior year while the infrastructure backlog is lower. 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.


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Results of Operations

For the Three Months ended November 30, 2021 compared to the Three Months ended November 30, 2020

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 November 30, 2021 and 2020. It should be read together with the industry segment information in Note 13 to the condensed consolidated financial statements:

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