| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended October 31, 2020
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission File Number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
SD | 46-0246171 | |||||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| 205 East 6th Street, P.O. Box 5107 | Sioux Falls | , | SD | 57117-5107 | ||||||||||||||||
(Address of principal executive offices)
(605) 336-2750
(Registrant’s telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Common Stock, $1 par value | RAVN | NASDAQ | Global Select Market | |||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," “smaller"smaller reporting company”company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☑ | Accelerated filer | |||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||
| Emerging growth company | ☐ | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes þ No
As of November 17, 201720, 2020, there were 35,755,646 were 35,853,785 shares of common stock, $1 par value, of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.
RAVEN INDUSTRIES, INC.
INDEX
| PAGE | |||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||||
Item 4. Mine Safety Disclosures | |||||
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| (dollars and shares in thousands, except per-share data) | October 31, 2020 | January 31, 2020 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | 38,217 | $ | 20,707 | ||||||||||
| Accounts receivable, net | 54,224 | 62,552 | ||||||||||||
| Inventories, net | 44,674 | 53,899 | ||||||||||||
| Other current assets | 4,938 | 5,436 | ||||||||||||
| Total current assets | 142,053 | 142,594 | ||||||||||||
| Property, plant and equipment, net | 104,596 | 100,850 | ||||||||||||
| Goodwill | 105,925 | 106,509 | ||||||||||||
| Intangible assets, net | 44,083 | 46,217 | ||||||||||||
| Other assets | 11,123 | 7,087 | ||||||||||||
| TOTAL ASSETS | $ | 407,780 | $ | 403,257 | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | $ | 19,314 | $ | 14,893 | ||||||||||
| Accrued liabilities | 22,986 | 20,743 | ||||||||||||
| Other current liabilities | 2,941 | 2,287 | ||||||||||||
| Total current liabilities | 45,241 | 37,923 | ||||||||||||
| Long term debt | 1,900 | 225 | ||||||||||||
| Other liabilities | 32,944 | 29,161 | ||||||||||||
| Total liabilities | 80,085 | 67,309 | ||||||||||||
| Commitments and contingencies (see Note 11) | ||||||||||||||
| Redeemable noncontrolling interest | 0 | 21,302 | ||||||||||||
| Shareholders' equity | ||||||||||||||
| Common stock, $1 par value, authorized shares 100,000; issued 67,516 and 67,436, respectively | 67,516 | 67,436 | ||||||||||||
| Paid-in capital | 65,954 | 61,508 | ||||||||||||
| Retained earnings | 311,393 | 302,300 | ||||||||||||
| Accumulated other comprehensive loss | (5,985) | (5,415) | ||||||||||||
| Treasury stock at cost, 31,665 and 31,665 shares, respectively | (111,183) | (111,183) | ||||||||||||
| Total shareholders' equity | 327,695 | 314,646 | ||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 407,780 | $ | 403,257 | ||||||||||
| (dollars and shares in thousands, except per-share data) | October 31, 2017 | January 31, 2017 | October 31, 2016 | ||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 36,873 | $ | 50,648 | $ | 46,313 | |||||
| Accounts receivable, net | 59,573 | 43,143 | 39,554 | ||||||||
| Inventories | 53,481 | 42,336 | 42,813 | ||||||||
| Other current assets | 3,910 | 2,689 | 2,747 | ||||||||
| Total current assets | 153,837 | 138,816 | 131,427 | ||||||||
| Property, plant and equipment, net | 105,651 | 106,324 | 108,948 | ||||||||
| Goodwill | 46,752 | 40,649 | 40,703 | ||||||||
| Amortizable intangible assets, net | 11,375 | 12,048 | 12,511 | ||||||||
| Other assets | 2,926 | 3,672 | 3,746 | ||||||||
| TOTAL ASSETS | $ | 320,541 | $ | 301,509 | $ | 297,335 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 13,383 | $ | 8,467 | $ | 9,377 | |||||
| Accrued liabilities | 21,645 | 18,055 | 14,708 | ||||||||
| Customer advances | 908 | 1,860 | 1,154 | ||||||||
| Total current liabilities | 35,936 | 28,382 | 25,239 | ||||||||
| Other liabilities | 13,456 | 13,696 | 12,134 | ||||||||
| Commitments and contingencies | — | — | — | ||||||||
| Shareholders' equity | |||||||||||
| Common stock, $1 par value, authorized shares 100,000; issued 67,088; 67,060; and 67,060, respectively | 67,088 | 67,060 | 67,060 | ||||||||
| Paid-in capital | 58,484 | 55,795 | 55,703 | ||||||||
| Retained earnings | 249,034 | 230,649 | 230,957 | ||||||||
| Accumulated other comprehensive income (loss) | (3,058 | ) | (3,676 | ) | (3,361 | ) | |||||
| Treasury stock at cost, 31,332; 30,984; and 30,984 shares, respectively | (100,402 | ) | (90,402 | ) | (90,402 | ) | |||||
| Total Raven Industries, Inc. shareholders' equity | 271,146 | 259,426 | 259,957 | ||||||||
| Noncontrolling interest | 3 | 5 | 5 | ||||||||
| Total equity | 271,149 | 259,431 | 259,962 | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 320,541 | $ | 301,509 | $ | 297,335 | |||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (dollars in thousands, except per-share data) | October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | ||||||||||||||||||||||
| Net sales | $ | 96,607 | $ | 100,533 | $ | 268,282 | $ | 296,769 | ||||||||||||||||||
| Cost of sales | 62,083 | 70,229 | 175,159 | 200,061 | ||||||||||||||||||||||
| Gross profit | 34,524 | 30,304 | 93,123 | 96,708 | ||||||||||||||||||||||
| Research and development expenses | 10,949 | 7,662 | 32,262 | 22,000 | ||||||||||||||||||||||
| Selling, general, and administrative expenses | 14,284 | 11,310 | 41,488 | 37,685 | ||||||||||||||||||||||
| Operating income | 9,291 | 11,332 | 19,373 | 37,023 | ||||||||||||||||||||||
| Other income (expense), net | (423) | 84 | (514) | 398 | ||||||||||||||||||||||
| Income before income taxes | 8,868 | 11,416 | 18,859 | 37,421 | ||||||||||||||||||||||
| Income tax expense | 140 | 1,483 | 363 | 5,512 | ||||||||||||||||||||||
| Net income | 8,728 | 9,933 | 18,496 | 31,909 | ||||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interest and noncontrolling interest | 0 | (1) | (98) | (1) | ||||||||||||||||||||||
| Net income attributable to Raven Industries, Inc. | $ | 8,728 | $ | 9,934 | $ | 18,594 | $ | 31,910 | ||||||||||||||||||
| Net income per common share: | ||||||||||||||||||||||||||
| ─ Basic | $ | 0.24 | $ | 0.28 | $ | 0.52 | $ | 0.89 | ||||||||||||||||||
| ─ Diluted | $ | 0.24 | $ | 0.28 | $ | 0.51 | $ | 0.88 | ||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||
| Net income | $ | 8,728 | $ | 9,933 | $ | 18,496 | $ | 31,909 | ||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Foreign currency translation | 148 | (40) | (563) | (343) | ||||||||||||||||||||||
| Postretirement benefits, net of income tax benefit of $1, $4, $3 and $11, respectively | (2) | (12) | (7) | (37) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 146 | (52) | (570) | (380) | ||||||||||||||||||||||
| Comprehensive income | 8,874 | 9,881 | 17,926 | 31,529 | ||||||||||||||||||||||
| Comprehensive loss attributable to redeemable noncontrolling interest and noncontrolling interest | 0 | (1) | (98) | (1) | ||||||||||||||||||||||
| Comprehensive income attributable to Raven Industries, Inc. | $ | 8,874 | $ | 9,882 | $ | 18,024 | $ | 31,530 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| (dollars in thousands, except per-share data) | October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | |||||||||||
| Net sales | $ | 101,349 | $ | 72,522 | $ | 281,494 | $ | 208,480 | |||||||
| Cost of sales | 68,016 | 52,683 | 189,692 | 149,609 | |||||||||||
| Gross profit | 33,333 | 19,839 | 91,802 | 58,871 | |||||||||||
| Research and development expenses | 4,083 | 4,151 | 12,319 | 12,475 | |||||||||||
| Selling, general, and administrative expenses | 11,421 | 8,212 | 31,476 | 24,174 | |||||||||||
| Long-lived asset impairment loss | — | 87 | 259 | 87 | |||||||||||
| Operating income | 17,829 | 7,389 | 47,748 | 22,135 | |||||||||||
| Other income (expense), net | (34 | ) | (273 | ) | (327 | ) | (579 | ) | |||||||
| Income before income taxes | 17,795 | 7,116 | 47,421 | 21,556 | |||||||||||
| Income tax expense | 5,798 | 1,375 | 14,842 | 5,802 | |||||||||||
| Net income | 11,997 | 5,741 | 32,579 | 15,754 | |||||||||||
| Net income (loss) attributable to the noncontrolling interest | (1 | ) | — | (2 | ) | 1 | |||||||||
| Net income attributable to Raven Industries, Inc. | $ | 11,998 | $ | 5,741 | $ | 32,581 | $ | 15,753 | |||||||
| Net income per common share: | |||||||||||||||
| ─ Basic | $ | 0.33 | $ | 0.16 | $ | 0.90 | $ | 0.43 | |||||||
| ─ Diluted | $ | 0.33 | $ | 0.16 | $ | 0.89 | $ | 0.43 | |||||||
| Cash dividends paid per common share | $ | 0.13 | $ | 0.13 | $ | 0.39 | $ | 0.39 | |||||||
| Comprehensive income (loss): | |||||||||||||||
| Net income | $ | 11,997 | $ | 5,741 | $ | 32,579 | $ | 15,754 | |||||||
| Other comprehensive income (loss): | |||||||||||||||
| Foreign currency translation | (185 | ) | (201 | ) | 637 | 146 | |||||||||
| Postretirement benefits, net of income tax benefit (expense) of $4, $2, $11 and $4, respectively | (6 | ) | (2 | ) | (19 | ) | (6 | ) | |||||||
| Other comprehensive income (loss), net of tax | (191 | ) | (203 | ) | 618 | 140 | |||||||||
| Comprehensive income | 11,806 | 5,538 | 33,197 | 15,894 | |||||||||||
| Comprehensive income (loss) attributable to noncontrolling interest | (1 | ) | — | (2 | ) | 1 | |||||||||
| Comprehensive income attributable to Raven Industries, Inc. | $ | 11,807 | $ | 5,538 | $ | 33,199 | $ | 15,893 | |||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
| Three Months Ended October 31, 2020 | ||||||||||||||||||||||||||||||||
| $1 Par Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | Redeem-able Non-Controlling Interest | |||||||||||||||||||||||||||
| (dollars in thousands, except per-share amounts) | Treasury Stock at Cost | |||||||||||||||||||||||||||||||
| Balance July 31, 2020 | $ | 67,510 | $ | 64,690 | $ | (111,183) | $ | 302,665 | $ | (6,131) | $ | 317,551 | $ | 0 | ||||||||||||||||||
| Net income | — | — | — | 8,728 | — | 8,728 | 0 | |||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Cumulative foreign currency translation adjustment | — | — | — | — | 148 | 148 | — | |||||||||||||||||||||||||
| Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $1 | — | — | — | — | (2) | (2) | — | |||||||||||||||||||||||||
| Shares issued on stock options exercised, net of shares withheld for employee taxes | 4 | (75) | — | — | — | (71) | — | |||||||||||||||||||||||||
| Shares issued on vesting of stock units, net of shares withheld for employee taxes | 2 | (30) | — | — | — | (28) | — | |||||||||||||||||||||||||
| Share-based compensation | — | 1,369 | — | — | — | 1,369 | — | |||||||||||||||||||||||||
| Balance October 31, 2020 | $ | 67,516 | $ | 65,954 | $ | (111,183) | $ | 311,393 | $ | (5,985) | $ | 327,695 | $ | 0 | ||||||||||||||||||
| Nine Months Ended October 31, 2020 | ||||||||||||||||||||||||||||||||
| $1 Par Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | Redeem-able Non-Controlling Interest | |||||||||||||||||||||||||||
| (dollars in thousands, except per-share amounts) | Treasury Stock at Cost | |||||||||||||||||||||||||||||||
| Balance January 31, 2020 | $ | 67,436 | $ | 61,508 | $ | (111,183) | $ | 302,300 | $ | (5,415) | $ | 314,646 | $ | 21,302 | ||||||||||||||||||
| Net income (loss) | — | — | — | 18,594 | — | 18,594 | (98) | |||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Cumulative foreign currency translation adjustment | — | — | — | — | (563) | (563) | — | |||||||||||||||||||||||||
| Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $3 | — | — | — | — | (7) | (7) | — | |||||||||||||||||||||||||
| Reclassification and redemption of noncontrolling interest (see Note 6) | — | 215 | — | — | — | 215 | (21,204) | |||||||||||||||||||||||||
| Cash dividends ($0.26 per share) | — | 183 | — | (9,501) | — | (9,318) | — | |||||||||||||||||||||||||
| Shares issued on stock options exercised, net of shares withheld for employee taxes | 15 | (199) | — | — | — | (184) | — | |||||||||||||||||||||||||
| Shares issued on vesting of stock units, net of shares withheld for employee taxes | 56 | (722) | — | — | — | (666) | — | |||||||||||||||||||||||||
| Director shares issued | 9 | (9) | — | — | — | 0 | — | |||||||||||||||||||||||||
| Share-based compensation | — | 4,978 | — | — | — | 4,978 | — | |||||||||||||||||||||||||
| Balance October 31, 2020 | $ | 67,516 | $ | 65,954 | $ | (111,183) | $ | 311,393 | $ | (5,985) | $ | 327,695 | $ | 0 | ||||||||||||||||||
| $1 Par Common Stock | Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Raven Industries, Inc. Equity | Non- controlling Interest | Total Equity | |||||||||||||||||||
| (dollars in thousands, except per-share amounts) | Shares | Cost | ||||||||||||||||||||||||
| Balance January 31, 2016 | $ | 67,006 | $ | 53,907 | 30,500 | $ | (82,700 | ) | $ | 229,443 | $ | (3,501 | ) | $ | 264,155 | $ | 74 | $ | 264,229 | |||||||
| Net income | — | — | — | — | 15,753 | — | 15,753 | 1 | 15,754 | |||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Cumulative foreign currency translation adjustment | — | — | — | — | — | 146 | 146 | — | 146 | |||||||||||||||||
| Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4 | — | — | — | — | — | (6 | ) | (6 | ) | — | (6 | ) | ||||||||||||||
Cash dividends ($0.39 per share) | — | 161 | — | — | (14,239 | ) | — | (14,078 | ) | — | (14,078 | ) | ||||||||||||||
| Dividends of less than wholly-owned subsidiary attributable to non-controlling interest | — | — | — | — | — | — | — | (70 | ) | (70 | ) | |||||||||||||||
| Shares issued on vesting of stock units, net of shares withheld for employee taxes | 35 | (291 | ) | — | — | — | — | (256 | ) | — | (256 | ) | ||||||||||||||
| Director shares issued | 19 | (19 | ) | — | — | — | — | — | — | — | ||||||||||||||||
| Shares repurchased | — | — | 484 | (7,702 | ) | — | — | (7,702 | ) | — | (7,702 | ) | ||||||||||||||
| Share-based compensation | — | 2,291 | — | — | — | — | 2,291 | — | 2,291 | |||||||||||||||||
Income tax impact related to share-based compensation | — | (346 | ) | — | — | — | — | (346 | ) | — | (346 | ) | ||||||||||||||
| Balance October 31, 2016 | $ | 67,060 | $ | 55,703 | 30,984 | $ | (90,402 | ) | $ | 230,957 | $ | (3,361 | ) | $ | 259,957 | $ | 5 | $ | 259,962 | |||||||
| Balance January 31, 2017 | $ | 67,060 | $ | 55,795 | 30,984 | $ | (90,402 | ) | $ | 230,649 | $ | (3,676 | ) | $ | 259,426 | $ | 5 | $ | 259,431 | |||||||
| Net income | — | — | — | — | 32,581 | — | 32,581 | (2 | ) | 32,579 | ||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Cumulative foreign currency translation adjustment | — | — | — | — | — | 637 | 637 | — | 637 | |||||||||||||||||
| Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $11 | — | — | — | — | — | (19 | ) | (19 | ) | — | (19 | ) | ||||||||||||||
| Cash dividends ($0.39 per share) | — | 164 | — | — | (14,196 | ) | — | (14,032 | ) | — | (14,032 | ) | ||||||||||||||
| Shares issued on stock options exercised, net of shares withheld for employee taxes | 13 | (170 | ) | — | — | — | — | (157 | ) | — | (157 | ) | ||||||||||||||
| Shares issued on vesting of stock units, net of shares withheld for employee taxes | 11 | (162 | ) | — | — | — | — | (151 | ) | — | (151 | ) | ||||||||||||||
| Director shares issued | 4 | (4 | ) | — | — | — | — | — | — | — | ||||||||||||||||
| Shares repurchased | — | — | 348 | (10,000 | ) | — | — | (10,000 | ) | — | (10,000 | ) | ||||||||||||||
| Share-based compensation | — | 2,861 | — | — | — | — | 2,861 | — | 2,861 | |||||||||||||||||
| Balance October 31, 2017 | $ | 67,088 | $ | 58,484 | 31,332 | $ | (100,402 | ) | $ | 249,034 | $ | (3,058 | ) | $ | 271,146 | $ | 3 | $ | 271,149 | |||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS' EQUITY
(unaudited)
| Three Months Ended October 31, 2019 | ||||||||||||||||||||||||||||||||
| $1 Par Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Raven Industries, Inc. Equity | Non- controlling Interest | Total Equity | Redeem-able Non-Controlling Interest | |||||||||||||||||||||||||
| (dollars in thousands, except per-share amounts) | Treasury Stock at Cost | |||||||||||||||||||||||||||||||
| Balance July 31, 2019 | $ | 67,420 | $ | 59,127 | $ | (106,183) | $ | 298,496 | $ | (3,884) | $ | 314,976 | $ | 2 | $ | 314,978 | $ | 0 | ||||||||||||||
| Net income | — | — | — | 9,934 | — | 9,934 | (1) | 9,933 | 0 | |||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Cumulative foreign currency translation adjustment | — | — | — | — | (40) | (40) | — | (40) | — | |||||||||||||||||||||||
| Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4 | — | — | — | — | (12) | (12) | — | (12) | — | |||||||||||||||||||||||
| Cash dividends ($0.13 per share) | — | 50 | — | (4,698) | — | (4,648) | — | (4,648) | — | |||||||||||||||||||||||
| Shares issued on stock options exercised, net of shares withheld for employee taxes | 0 | 15 | — | — | — | 15 | — | 15 | — | |||||||||||||||||||||||
| Shares issued on vesting of stock units, net of shares withheld for employee taxes | 4 | (42) | — | — | — | (38) | — | (38) | — | |||||||||||||||||||||||
| Shares repurchased | — | — | (5,000) | — | — | (5,000) | — | (5,000) | (5,000) | — | ||||||||||||||||||||||
| Share-based compensation | — | 991 | — | — | — | 991 | — | 991 | 991 | — | ||||||||||||||||||||||
| Balance October 31, 2019 | $ | 67,424 | $ | 60,141 | $ | (111,183) | $ | 303,732 | $ | (3,936) | $ | 316,178 | $ | 1 | $ | 316,179 | $ | 0 | ||||||||||||||
| Nine Months Ended October 31, 2019 | ||||||||||||||||||||||||||||||||
| $1 Par Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Raven Industries, Inc. Equity | Non- controlling Interest | Total Equity | Redeem-able Non-Controlling Interest | |||||||||||||||||||||||||
| (dollars in thousands, except per-share amounts) | Treasury Stock at Cost | |||||||||||||||||||||||||||||||
| Balance January 31, 2019 | $ | 67,289 | $ | 59,655 | $ | (100,402) | $ | 285,969 | $ | (3,556) | $ | 308,955 | $ | 2 | $ | 308,957 | $ | 0 | ||||||||||||||
| Net income | — | — | — | 31,910 | — | 31,910 | (1) | 31,909 | 0 | |||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Cumulative foreign currency translation adjustment | — | — | — | — | (343) | (343) | — | (343) | — | |||||||||||||||||||||||
| Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $11 | — | — | — | — | (37) | (37) | — | (37) | — | |||||||||||||||||||||||
| Cash dividends ($0.39 per share) | — | 146 | — | (14,147) | — | (14,001) | — | (14,001) | — | |||||||||||||||||||||||
| Shares issued on stock options exercised, net of shares withheld for employee taxes | 29 | (735) | — | — | — | (706) | — | (706) | — | |||||||||||||||||||||||
| Shares issued on vesting of stock units, net of shares withheld for employee taxes | 106 | (2,464) | — | — | — | (2,358) | — | (2,358) | — | |||||||||||||||||||||||
| Shares repurchased | — | — | (10,781) | — | — | (10,781) | — | (10,781) | — | |||||||||||||||||||||||
| Share-based compensation | — | 3,539 | — | — | — | 3,539 | — | 3,539 | — | |||||||||||||||||||||||
| Balance October 31, 2019 | $ | 67,424 | $ | 60,141 | $ | (111,183) | $ | 303,732 | $ | (3,936) | $ | 316,178 | $ | 1 | $ | 316,179 | $ | 0 | ||||||||||||||
| Nine Months Ended | |||||||
| (dollars in thousands) | October 31, 2017 | October 31, 2016 | |||||
| OPERATING ACTIVITIES: | |||||||
| Net income | $ | 32,579 | $ | 15,754 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 10,985 | 11,526 | |||||
| Change in fair value of acquisition-related contingent consideration | 198 | (41 | ) | ||||
| Long-lived asset impairment loss | 259 | 87 | |||||
| Loss from equity investment | 247 | 223 | |||||
| Deferred income taxes | (1,035 | ) | (290 | ) | |||
| Share-based compensation expense | 2,861 | 2,291 | |||||
| Other operating activities, net | 868 | 8 | |||||
| Change in operating assets and liabilities: | |||||||
| Accounts receivable | (8,160 | ) | (1,620 | ) | |||
| Inventories | (9,213 | ) | 3,048 | ||||
| Other assets | (897 | ) | (135 | ) | |||
| Operating liabilities | 2,142 | 7,834 | |||||
| Net cash provided by operating activities | 30,834 | 38,685 | |||||
| INVESTING ACTIVITIES: | |||||||
| Capital expenditures | (7,003 | ) | (3,901 | ) | |||
| Payments related to business acquisitions | (12,700 | ) | — | ||||
| Proceeds from sale or maturity of investments | 250 | 250 | |||||
| Purchases of investments | (255 | ) | (750 | ) | |||
| (Disbursements) proceeds from settlement of liabilities, sale of assets | (333 | ) | 1,145 | ||||
| Other investing activities | (36 | ) | (498 | ) | |||
| Net cash used in investing activities | (20,077 | ) | (3,754 | ) | |||
| FINANCING ACTIVITIES: | |||||||
| Dividends paid | (14,032 | ) | (14,148 | ) | |||
| Payments for common shares repurchased | (10,000 | ) | (7,702 | ) | |||
| Payments of acquisition-related contingent liability | (364 | ) | (318 | ) | |||
| Restricted stock units vested and issued | (151 | ) | (256 | ) | |||
| Employee stock option exercises | (157 | ) | — | ||||
| Net cash used in financing activities | (24,704 | ) | (22,424 | ) | |||
| Effect of exchange rate changes on cash | 172 | 24 | |||||
| Net increase (decrease) in cash and cash equivalents | (13,775 | ) | 12,531 | ||||
| Cash and cash equivalents at beginning of year | 50,648 | 33,782 | |||||
| Cash and cash equivalents at end of period | $ | 36,873 | $ | 46,313 | |||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
6
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended | ||||||||||||||
| (dollars in thousands) | October 31, 2020 | October 31, 2019 | ||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||
| Net income | $ | 18,496 | $ | 31,909 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 12,829 | 12,124 | ||||||||||||
| Change in fair value of acquisition-related contingent consideration | (183) | 343 | ||||||||||||
| Deferred income taxes | (3,586) | 1,706 | ||||||||||||
| Share-based compensation expense | 4,978 | 3,539 | ||||||||||||
| Other operating activities, net | (136) | (229) | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | 6,142 | (8,406) | ||||||||||||
| Inventories | 6,556 | 1,932 | ||||||||||||
| Other assets | (130) | 2,592 | ||||||||||||
| Operating liabilities | 10,134 | 1,568 | ||||||||||||
| Net cash provided by operating activities | 55,100 | 47,078 | ||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||
| Capital expenditures | (10,931) | (6,143) | ||||||||||||
| Proceeds from sale or maturity of investments | 586 | 993 | ||||||||||||
| Purchases of investments | (227) | (934) | ||||||||||||
| Proceeds from sale of assets | 251 | 3,459 | ||||||||||||
| Other investing activities | (272) | (3,208) | ||||||||||||
| Net cash used in investing activities | (10,593) | (5,833) | ||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||
| Dividends paid | (9,318) | (14,001) | ||||||||||||
| Payments for common shares repurchased | 0 | (10,781) | ||||||||||||
| Proceeds from debt | 51,685 | 0 | ||||||||||||
| Repayments of debt | (50,000) | 0 | ||||||||||||
| Payments for redeemable noncontrolling interest | (17,853) | 0 | ||||||||||||
| Payments of acquisition-related contingent liability | 0 | (1,308) | ||||||||||||
| Restricted stock unit issuances, net of taxes | (666) | (2,358) | ||||||||||||
| Employee stock option exercises, net of shares withheld for employee taxes | (184) | (706) | ||||||||||||
| Other financing activities | (319) | (716) | ||||||||||||
| Net cash used in financing activities | (26,655) | (29,870) | ||||||||||||
| Effect of exchange rate changes on cash | (342) | (68) | ||||||||||||
| Net increase in cash and cash equivalents | 17,510 | 11,307 | ||||||||||||
| Cash and cash equivalents at beginning of year | 20,707 | 65,787 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 38,217 | $ | 77,094 | ||||||||||
| Significant non-cash transactions: | ||||||||||||||
| Capital expenditures converted from inventories | $ | 2,960 | $ | 0 | ||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
7
RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands, except per-share amounts)
(1) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Raven Industries, Inc. (the Company("the Company" or Raven)"Raven") is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air, and aerospace/aerospace and defense markets. The Company is comprised of three3 unique operating units, or divisions, classified into reportable business segments: Applied Technology, Engineered Films, and Aerostar.
The accompanying interim unaudited consolidated financial statements, which includes the accounts of Raven and its wholly-owned or controlled subsidiaries, net of intercompany balances and transactions, has been prepared by the Company in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present this financial information have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2017.2020.
Financial results for the interim three- and nine-month periods ended October 31, 20172020, are not necessarily indicative of the results that may be expected for the year ending January 31, 2018.2021. The January 31, 20172020, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required in an annual report on Form 10-K. Preparing financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities as of 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.
Redeemable noncontrolling interest
The Company acquired a majority ownership in Dot Technology Corp. (DOT) in the fourth quarter of fiscal 2020. Due to the owners of less than wholly-owned consolidated entities. The Company owns a 75% interestredemption features provided to the minority shareholders in an entity consolidated under the Aerostar business segment. Givenacquisition, the Company's majority ownership interest, the accounts of the business venture have been consolidated with the accounts of the Company, and a36% remaining noncontrolling interest has been recorded for thewas classified as a redeemable noncontrolling investor interest in the net assets and operationsCompany’s Consolidated Balance Sheets as of January 31, 2020. During the second quarter of fiscal 2021, the Company closed on the transaction to purchase the shares of the business venture.largest minority interest shareholder for $17,853, giving the Company full voting control of DOT. The majority ownership in DOT and redeemable noncontrolling interest is further described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies," and aligns under the Applied Technology segment.
Following the acquisition of DOT, the Company sold products to, paid rent to, and purchased services for manufacturing, research and development (R&D), selling, and administration from a business owned by the largest minority interest shareholder of DOT. All of the shares formerly held by this minority interest shareholder were acquired in the second quarter of fiscal 2021 and are owned by Raven; therefore, 0 transactions with this previous shareholder during the three-month period ended October 31, 2020 are considered related party transactions. The total of the related party transactions was $1,954 for the six-month period ended July 31, 2020, NaN of which was in accounts payable at October 31, 2020.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 20172020, other than described below in the Accounting Standards Adopted section.
Accounting Pronouncements
Accounting Standards Adopted
In the fiscal 2018 first quarter of fiscal 2021, the Company early adopted, Accounting Standards Update (ASU) No. 2017-04 (issued by the Financial Accounting Standards Board (FASB) in January 2017)Accounting Standard Update (ASU) No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13), "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" (ASU 2017-04) on a prospective basis . This ASU removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, a goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value. The amount of any impairment may not exceed the carrying amount of goodwill.when it became effective. The amendments shouldin ASU 2018-13 remove, modify, and add required disclosures for companies related to recurring and nonrecurring fair value measurements under Topic 820. Certain amendments in this guidance are required to be applied on a prospective basis. As discussedprospectively, and others are to be applied retrospectively. The amendments in Note 7 Goodwill, Long-lived Assets,ASU 2018-13 only related to financial statement disclosures and Other Intangibles, management performed an assessment in the fiscal 2018 first, second and third quarters and determined no triggering events had occurred for any of its three reporting units; therefore, the early adoption of this guidance did not have any impact on the consolidated financial statements or the results of operations as of and for the three- or nine-month periods ended October 31, 2017.a significant
8
(dollars in thousands, except per-share amounts)
In the fiscal 2018 first quarter of fiscal 2021, the Company adopted FASB ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), when it became effective along with all subsequent amendments to Topic 326 issued by FASB. Current GAAP generally delays recognition of the Company adoptedfull amount of credit losses until the FASB ASU No. 2015-11 (issued in July 2015), "Inventory (Topic 330) Simplifying the Measurementloss is deemed probable of Inventory" (ASU 2015-11) on a prospective basis.occurring. The amendments in ASU 2015-11 clarify thatthis guidance eliminate the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity should measure inventory withingenerally only considered past events and current conditions in measuring the scope of this update atincurred loss. At adoption, the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Substantial and unusual losses that result from subsequent measurement of inventory should be disclosed in the financial statements. Previously the Company reported its inventory at the lower of cost or market. Market was defined as replacement cost with a ceiling of net realizable value and a floor of net realizable value less a normal profit margin. The Company evaluates its inventory in all three reporting segments quarterly to determine if cost exceeds net realizable value and records a write-down, if necessary. The adoption of this guidance did not have any impact onfinancial instruments in scope under ASU 2016-13 other than trade accounts receivables. In accordance with ASU 2016-13, the consolidated financial statements or the results of operationsCompany updated its current expected credit loss model for its trade accounts receivable and remeasured its allowance for doubtful accounts as of February 1, 2020. The remeasurement impact was immaterial and forno cumulative accounting adjustment was recorded to retained earnings in the three- and nine-month periods ended October 31, 2017.first quarter of fiscal 2021.
New Accounting Standards Not Yet Adopted
9
(dollars in thousands, except per-share amounts)
| October 31, 2020 | January 31, 2020 | |||||||||||||||||||
| Accounts receivable, net: | ||||||||||||||||||||
| Trade accounts | $ | 53,099 | $ | 56,978 | ||||||||||||||||
| Unbilled receivables | 3,217 | 6,954 | ||||||||||||||||||
| Allowance for doubtful accounts | (2,092) | (1,380) | ||||||||||||||||||
| $ | 54,224 | $ | 62,552 | |||||||||||||||||
| Inventories, net: | ||||||||||||||||||||
| Finished goods | $ | 5,992 | $ | 6,309 | ||||||||||||||||
| In process | 1,356 | 3,287 | ||||||||||||||||||
| Materials | 37,326 | 44,303 | ||||||||||||||||||
| $ | 44,674 | $ | 53,899 | |||||||||||||||||
| Other current assets: | ||||||||||||||||||||
| Insurance policy benefit | $ | 0 | $ | 38 | ||||||||||||||||
| Income tax receivable | 858 | 1,370 | ||||||||||||||||||
| Prepaid expenses and other | 4,080 | 4,028 | ||||||||||||||||||
| $ | 4,938 | $ | 5,436 | |||||||||||||||||
Property, plant and equipment, net:(a) | ||||||||||||||||||||
| Land | $ | 3,117 | $ | 3,117 | ||||||||||||||||
| Buildings and improvements | 84,010 | 80,330 | ||||||||||||||||||
| Machinery and equipment | 164,599 | 158,354 | ||||||||||||||||||
| Financing lease right-of-use assets | 1,207 | 881 | ||||||||||||||||||
| 252,933 | 242,682 | |||||||||||||||||||
| Accumulated depreciation | (148,337) | (141,832) | ||||||||||||||||||
| $ | 104,596 | $ | 100,850 | |||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Equity investments | $ | 1,452 | $ | 1,289 | ||||||||||||||||
| Operating lease right-of-use assets | 7,638 | 4,275 | ||||||||||||||||||
| Deferred income taxes | 65 | 16 | ||||||||||||||||||
| Other | 1,968 | 1,507 | ||||||||||||||||||
| $ | 11,123 | $ | 7,087 | |||||||||||||||||
| Accrued liabilities: | ||||||||||||||||||||
| Salaries and related | $ | 5,925 | $ | 4,188 | ||||||||||||||||
| Benefits | 5,888 | 5,339 | ||||||||||||||||||
| Insurance obligations | 1,935 | 1,680 | ||||||||||||||||||
| Warranties | 1,519 | 2,019 | ||||||||||||||||||
| Income taxes | 279 | 293 | ||||||||||||||||||
| Other taxes | 1,843 | 1,734 | ||||||||||||||||||
| Acquisition-related contingent consideration | 0 | 763 | ||||||||||||||||||
| Lease liability | 2,490 | 2,530 | ||||||||||||||||||
| Other | 3,107 | 2,197 | ||||||||||||||||||
| $ | 22,986 | $ | 20,743 | |||||||||||||||||
| Other liabilities: | ||||||||||||||||||||
| Postretirement benefits | $ | 8,787 | $ | 8,741 | ||||||||||||||||
| Acquisition-related contingent consideration | 2,254 | 2,171 | ||||||||||||||||||
| Lease liability | 5,936 | 2,627 | ||||||||||||||||||
| Deferred income taxes | 2,460 | 7,080 | ||||||||||||||||||
| Uncertain tax positions | 2,618 | 2,606 | ||||||||||||||||||
| Other | 10,889 | 5,936 | ||||||||||||||||||
| $ | 32,944 | $ | 29,161 | |||||||||||||||||
(a) Includes assets held for use and assets held for sale. The Company isamount of assets held for sale at October 31, 2020, and January 31, 2020, were not material.
10
(dollars in its final stages of evaluating the impact that the standard will have on revenue recognition. The Company has reviewed contracts for all material revenue streams across the Company's three divisions, held discussions with key stakeholders, and assessed potential impacts on the Company’s consolidated financial statements, results of operations, disclosures, and internal controls over financial reporting. The Company currently recognizes a significant majority of its revenue across all three divisions at a point-in-time with some exceptions that are recognized over time. These exceptions primarily relate to certain revenue streams within the Aerostar Division and installation sales within the Engineered Films Division. Management expects that this will remain materially consistent upon adoption of the new standard, but has identified a few exceptions for which further evaluation is necessary, and for which the timing of revenue recognition could be impacted. Additionally, the Company expects to make additional disclosures related to the revenues arising from contracts with customers as required by the new standard. The Company will adopt this guidance in the first quarter of fiscal 2019 using the modified retrospective approach.thousands, except per-share amounts)
Basic net income per share is computed by dividing net income by the weighted average common shares and fully vested stock units outstanding. Diluted net income per share is computed by dividing net income by the weighted average common and common equivalent shares outstanding, which includes the shares issuable upon exercise of employee stock options (net of shares assumed purchased with the option proceeds), stock units, and restricted stock units outstanding. Performance share awards are included in the diluted calculation based upon what would be issued if the end of the most recent reporting period was the end of the term of the award. Weighted average common and common equivalent shares outstanding are excluded from the diluted loss per share calculation if their inclusion would have an antidilutive effect.
Certain outstanding options and restricted stock units were excluded from the diluted net income per-shareper share calculations because their effect would have been anti-dilutive under the treasury stock method. The options and restricted stock units excluded from the diluted net income per-shareper share calculation were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Anti-dilutive options and restricted stock units | 263,505 | 101,384 | 265,377 | 21,444 | ||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||
| October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | ||||
| Anti-dilutive options and restricted stock units | 338,244 | 653,513 | 385,157 | 922,041 | |||
The computation of earnings per share is presented below:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income attributable to Raven Industries, Inc. | $ | 8,728 | $ | 9,934 | $ | 18,594 | $ | 31,910 | ||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average common shares outstanding | 35,849,310 | 35,785,460 | 35,828,586 | 35,893,714 | ||||||||||||||||||||||
| Weighted average fully vested stock units outstanding | 151,971 | 128,604 | 146,377 | 120,691 | ||||||||||||||||||||||
| Denominator for basic calculation | 36,001,281 | 35,914,064 | 35,974,963 | 36,014,405 | ||||||||||||||||||||||
| Weighted average common shares outstanding | 35,849,310 | 35,785,460 | 35,828,586 | 35,893,714 | ||||||||||||||||||||||
| Weighted average fully vested stock units outstanding | 151,971 | 128,604 | 146,377 | 120,691 | ||||||||||||||||||||||
| Dilutive impact of stock options and restricted stock units | 150,097 | 176,850 | 142,708 | 236,222 | ||||||||||||||||||||||
| Denominator for diluted calculation | 36,151,378 | 36,090,914 | 36,117,671 | 36,250,627 | ||||||||||||||||||||||
| Net income per share ─ basic | $ | 0.24 | $ | 0.28 | $ | 0.52 | $ | 0.89 | ||||||||||||||||||
| Net income per share ─ diluted | $ | 0.24 | $ | 0.28 | $ | 0.51 | $ | 0.88 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | ||||||||||||
| Numerator: | |||||||||||||||
| Net income attributable to Raven Industries, Inc. | $ | 11,998 | $ | 5,741 | $ | 32,581 | $ | 15,753 | |||||||
| Denominator: | |||||||||||||||
| Weighted average common shares outstanding | 35,829,880 | 36,076,259 | 36,002,024 | 36,164,468 | |||||||||||
| Weighted average fully vested stock units outstanding | 109,558 | 97,716 | 105,830 | 100,595 | |||||||||||
| Denominator for basic calculation | 35,939,438 | 36,173,975 | 36,107,854 | 36,265,063 | |||||||||||
| Weighted average common shares outstanding | 35,829,880 | 36,076,259 | 36,002,024 | 36,164,468 | |||||||||||
| Weighted average fully vested stock units outstanding | 109,558 | 97,716 | 105,830 | 100,595 | |||||||||||
| Dilutive impact of stock options and restricted stock units | 380,997 | 122,270 | 369,339 | 70,102 | |||||||||||
| Denominator for diluted calculation | 36,320,435 | 36,296,245 | 36,477,193 | 36,335,165 | |||||||||||
| Net income per share ─ basic | $ | 0.33 | $ | 0.16 | $ | 0.90 | $ | 0.43 | |||||||
| Net income per share ─ diluted | $ | 0.33 | $ | 0.16 | $ | 0.89 | $ | 0.43 | |||||||
Disaggregation of Revenues
Revenue is disaggregated by major product category and geography, as we believe these categories best depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The following table includes a reconciliation of the disaggregated revenue by reportable segments. Service revenues are not material and are not separately disclosed.
11
(dollars in thousands, except per-share amounts)
| Revenue by Product Category | |||||||||||||||||||||||||||||||||||
| Three Months Ended October 31, 2020 | Three Months Ended October 31, 2019 | ||||||||||||||||||||||||||||||||||
| ATD | EFD | AERO | ELIM(a) | Total | ATD | EFD | AERO | ELIM(a) | Total | ||||||||||||||||||||||||||
| Lighter-than-Air | |||||||||||||||||||||||||||||||||||
| Domestic | $ | — | $ | — | $ | 14,849 | $ | — | $ | 14,849 | $ | — | $ | — | $ | 11,071 | $ | — | $ | 11,071 | |||||||||||||||
| International | — | — | 2 | — | 2 | — | — | 0 | — | 0 | |||||||||||||||||||||||||
Plastic Films & Sheeting | |||||||||||||||||||||||||||||||||||
| Domestic | — | 40,466 | — | (6) | 40,460 | — | 54,673 | — | (33) | 54,640 | |||||||||||||||||||||||||
| International | — | 3,299 | — | 0 | 3,299 | — | 1,733 | — | 0 | 1,733 | |||||||||||||||||||||||||
Precision Agriculture Equipment | |||||||||||||||||||||||||||||||||||
| Domestic | 27,599 | — | — | 0 | 27,599 | 22,957 | — | — | (1) | 22,956 | |||||||||||||||||||||||||
| International | 7,239 | — | — | — | 7,239 | 5,543 | — | — | — | 5,543 | |||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Domestic | — | — | 3,158 | — | 3,158 | — | — | 4,577 | — | 4,577 | |||||||||||||||||||||||||
| International | — | — | 1 | — | 1 | — | — | 13 | — | 13 | |||||||||||||||||||||||||
| Totals | $ | 34,838 | $ | 43,765 | $ | 18,010 | $ | (6) | $ | 96,607 | $ | 28,500 | $ | 56,406 | $ | 15,661 | $ | (34) | $ | 100,533 | |||||||||||||||
| Nine Months Ended October 31, 2020 | Nine Months Ended October 31, 2019 | ||||||||||||||||||||||||||||||||||
| ATD | EFD | AERO | ELIM(a) | Total | ATD | EFD | AERO | ELIM(a) | Total | ||||||||||||||||||||||||||
| Lighter-than-Air | |||||||||||||||||||||||||||||||||||
| Domestic | $ | — | $ | — | $ | 30,939 | $ | — | $ | 30,939 | $ | — | $ | — | $ | 26,230 | $ | — | $ | 26,230 | |||||||||||||||
| International | — | — | 48 | — | 48 | — | — | 49 | — | 49 | |||||||||||||||||||||||||
| Plastic Films & Sheeting | |||||||||||||||||||||||||||||||||||
| Domestic | — | 103,500 | — | (104) | 103,396 | — | 151,278 | — | (80) | 151,198 | |||||||||||||||||||||||||
| International | — | 9,915 | — | 0 | 9,915 | — | 6,936 | — | 0 | 6,936 | |||||||||||||||||||||||||
| Precision Agriculture Equipment | |||||||||||||||||||||||||||||||||||
| Domestic | 86,460 | — | — | (2) | 86,458 | 72,915 | — | — | (1) | 72,914 | |||||||||||||||||||||||||
| International | 25,887 | — | — | — | 25,887 | 24,681 | — | — | — | 24,681 | |||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Domestic | — | — | 11,633 | — | 11,633 | — | — | 14,665 | — | 14,665 | |||||||||||||||||||||||||
| International | — | — | 6 | — | 6 | — | — | 96 | — | 96 | |||||||||||||||||||||||||
| Totals | $ | 112,347 | $ | 113,415 | $ | 42,626 | $ | (106) | $ | 268,282 | $ | 97,596 | $ | 158,214 | $ | 41,040 | $ | (81) | $ | 296,769 | |||||||||||||||
| October 31, 2017 | January 31, 2017 | October 31, 2016 | ||||||||||
| Accounts receivable, net: | ||||||||||||
| Trade accounts | $ | 60,621 | $ | 43,834 | $ | 40,257 | ||||||
| Allowance for doubtful accounts | (1,048 | ) | (691 | ) | (703 | ) | ||||||
| $ | 59,573 | $ | 43,143 | $ | 39,554 | |||||||
| Inventories: | ||||||||||||
| Finished goods | $ | 7,063 | $ | 5,438 | $ | 5,686 | ||||||
| In process | 1,035 | 2,288 | 2,325 | |||||||||
| Materials | 45,383 | 34,610 | 34,802 | |||||||||
| $ | 53,481 | $ | 42,336 | $ | 42,813 | |||||||
| Other current assets: | ||||||||||||
| Insurance policy benefit | $ | 593 | $ | 802 | $ | 776 | ||||||
| Income tax receivable | 269 | 604 | 228 | |||||||||
| Receivable from sale of business | 17 | 28 | 71 | |||||||||
| Prepaid expenses and other | 3,031 | 1,255 | 1,672 | |||||||||
| $ | 3,910 | $ | 2,689 | $ | 2,747 | |||||||
| Property, plant and equipment, net: | ||||||||||||
| Land | $ | 3,234 | $ | 3,054 | $ | 3,054 | ||||||
| Buildings and improvements | 80,009 | 77,817 | 78,674 | |||||||||
| Machinery and equipment | 147,723 | 142,471 | 142,946 | |||||||||
| Accumulated depreciation | (125,315 | ) | (117,018 | ) | (115,726 | ) | ||||||
| $ | 105,651 | $ | 106,324 | $ | 108,948 | |||||||
| Other assets: | ||||||||||||
| Equity method investments | $ | 1,884 | $ | 2,371 | $ | 2,346 | ||||||
| Deferred income taxes | 18 | 18 | 65 | |||||||||
| Other | 1,024 | 1,283 | 1,335 | |||||||||
| $ | 2,926 | $ | 3,672 | $ | 3,746 | |||||||
| Accrued liabilities: | ||||||||||||
| Salaries and related | $ | 6,464 | $ | 6,286 | $ | 3,931 | ||||||
| Benefits | 4,128 | 3,960 | 3,720 | |||||||||
| Insurance obligations | 3,106 | 2,400 | 2,022 | |||||||||
| Warranties | 1,217 | 1,547 | 1,852 | |||||||||
| Income taxes | 1,668 | 498 | 332 | |||||||||
| Other taxes | 1,446 | 1,540 | 1,230 | |||||||||
| Acquisition-related contingent consideration | 815 | 445 | 396 | |||||||||
| Other | 2,801 | 1,379 | 1,225 | |||||||||
| $ | 21,645 | $ | 18,055 | $ | 14,708 | |||||||
| Other liabilities: | ||||||||||||
| Postretirement benefits | $ | 8,110 | $ | 8,054 | $ | 7,714 | ||||||
| Acquisition-related contingent consideration | 2,016 | 1,397 | 1,385 | |||||||||
| Deferred income taxes | 393 | 1,421 | 257 | |||||||||
| Uncertain tax positions | 2,584 | 2,610 | 2,778 | |||||||||
| Other | 353 | 214 | — | |||||||||
| $ | 13,456 | $ | 13,696 | $ | 12,134 | |||||||
12
(dollars in thousands, except per-share amounts)
During the fair value of the net assets held for sale is in excess of their net book value. As such there is no impact to the Consolidated Statement of Income for the three- or nine-month periodsnine months ended October 31, 2017.
| October 31, 2020 | January 31, 2020 | $ Change | % Change | |||||||||||||||||||||||
| Contract assets | $ | 3,778 | $ | 7,525 | $ | (3,747) | (49.8) | % | ||||||||||||||||||
| Contract liabilities | 2,941 | $ | 2,288 | $ | 653 | 28.5 | % | |||||||||||||||||||
| October 31, 2017 | |||
| Assets held for sale | |||
| Inventories | $ | 3,000 | |
| Other current assets | 79 | ||
| Total current assets held for sale | 3,079 | ||
| Property, plant and equipment, net | 227 | ||
| Goodwill | 102 | ||
| Amortizable intangible assets, net | 358 | ||
| Other assets | 17 | ||
| Total assets held for sale | $ | 3,783 | |
Liabilities held for sale | |||
| Current liabilities | $ | 392 | |
| Other long-term liabilities | 127 | ||
| Total liabilities held for sale | $ | 519 | |
As of October 31, 2020, the Company has 0 remaining performance obligations related to customer contracts with an original expected duration of one year or more. Revenue recognized from performance obligations satisfied in the prior period during the three- and nine-month periods ending October 31, 2020, were not material.
(6) ACQUISITIONS AND DIVESTITURES OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
There were 0 significant business acquisitions or divestitures in the three- and nine-month periods ended October 31, 2020.
Fiscal year 2020
On SeptemberNovember 1, 2017,2019, the Company completedacquired Smart Ag, Inc. (Smart Ag). Smart Agis a technology company located in Ames, Iowa, that develops autonomous farming solutions for agriculture. Smart Agoffers aftermarket retrofit kits to automate farm equipment as well as a platform to connect, manage, and safely operate autonomous agricultural machinery.
On November 13, 2019, the acquisitionCompany acquired a majority ownership in DOT. Simultaneously with acquiring this majority ownership, the Company contributed cash to DOT in exchange for additional equity, making the majority ownership percentage in DOT 60% when the transaction closed. DOT, located in Regina, Saskatchewan, Canada, designs autonomous agriculture solutions and manufactures a unique U-shaped agriculture platform to semi-autonomously handle a large variety of substantially all of the assets ("the acquisition") of Colorado Lining International, Inc., a Colorado corporation, headquartered in Parker, CO (“CLI”).agriculture implements. The acquisition will immediately alignprovided noncontrolling interest shareholders various put options that, if exercised, obligated the Company to purchase their outstanding DOT shares. Due to the redemption features, the noncontrolling interest was classified as a redeemable noncontrolling interest in the Company’s Consolidated Balance Sheet as of January 31, 2020.
Both acquisitions aligned under the Company’s Engineered Films Division.Company's Applied Technology Division and complement the division's suite of precision ag products and solutions. The acquisition enhances the Company’s geomembrane market position through extended service and product offerings with the addition of new design-build and installation service components, and will advance Engineered Films’ business model into a vertically-integrated, full-service solutions provider for the geomembrane market. The acquisition constitutes a business and as such was accounted for as a business combination.
During the first quarter of fiscal 2021, certain revenues and operational synergies.minority interest shareholders in DOT exercised their put options, requiring the Company to redeem the remaining noncontrolling interest in DOT. The acquisition includes a working capital adjustmentCompany closed on the transaction to be settled within ninety days after acquisition.
The Company completed the valuation of intangible assets and pre-acquisition tax filings during the first and second quarters of fiscal 2021. The following adjustments were made to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was $5,941, all of which is tax deductible. during the six months ended July 31, 2020:
| Previously Reported | Measurement Period Adjustments | Adjusted Balance | ||||||||||||||||||
| Goodwill | $ | 56,022 | $ | (440) | $ | 55,582 | ||||||||||||||
| Intangibles, net | 31,800 | (600) | 31,200 | |||||||||||||||||
| Deferred income taxes | (4,158) | 1,005 | (3,153) | |||||||||||||||||
| Accounts payable and other current liabilities | (1,462) | 35 | (1,427) | |||||||||||||||||
| $ | 0 | |||||||||||||||||||
Identifiable intangible assets acquired as part of the acquisition were $610, including definite-lived intangibles, such as customer relationships and order backlog. The estimated fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted as the Company obtains additional information, primarily related to adjustments for the true up of acquired net working capital in accordance with the asset purchase agreement. If there are adjustments made for these items, the fair value ofindefinite-lived intangible assets for in-process research and goodwill could be impacted. Thus, the provisional measurements of fair value are subject to change.development.
13
(dollars in thousands, except per-share amounts)
The following pro forma consolidated condensed financial results of operations are presented as if the entity. The purchase price was allocated betweenacquisitions described above had been included in the equity ownership interest and an intangible assetCompany's consolidated financial statements for the exclusive distribution agreement. In April 2017, the Company determined that the investment in AgEagle, was fully impaired, further described in Note 7 Goodwill, Long-lived Assets and Other Intangibles, due to lower than expected cash flows. The Company has no commitments or guarantees related to this equity method investment.prior year comparative period (unaudited):
| (Unaudited) | ||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||
| October 31, 2019 | October 31, 2019 | |||||||||||||
| Net sales | $ | 100,905 | $ | 297,651 | ||||||||||
| Net income attributable to Raven Industries, Inc. | $ | 7,864 | $ | 25,862 | ||||||||||
| Earnings per common share | ||||||||||||||
| Basic | $ | 0.22 | $ | 0.72 | ||||||||||
| Diluted | $ | 0.22 | $ | 0.71 | ||||||||||
Acquisition-related Contingent Consideration
The Company has a contingent liability related to the acquisition of AgSync, Inc. (AgSync) in fiscal 2019. The Company also had contingent liabilities related to the recent acquisitionacquisitions of CLI, as well as the prior acquisitions ofColorado Lining International, Inc. (CLI) in fiscal 2018; and Raven Europe B.V. (Raven Europe), formerly named SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), in May 2014 and Vista Research, Inc. (Vista)fiscal 2015; both of which were settled in January 2012.the current fiscal year. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires the Company to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subjectparticular contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable (Level 3 fair value measures).
Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Beginning balance | $ | 2,459 | $ | 3,579 | $ | 2,934 | $ | 4,172 | ||||||||||||||||||
| Fair value of contingent consideration acquired | 0 | 0 | 0 | 310 | ||||||||||||||||||||||
| Change in fair value of the liability | 29 | 100 | (183) | 343 | ||||||||||||||||||||||
| Contingent consideration earn-out paid | (234) | (723) | (497) | (1,869) | ||||||||||||||||||||||
| Ending balance | $ | 2,254 | $ | 2,956 | $ | 2,254 | $ | 2,956 | ||||||||||||||||||
| Classification of liability in the consolidated balance sheet | ||||||||||||||||||||||||||
| Accrued liabilities | $ | 0 | $ | 813 | $ | 0 | $ | 813 | ||||||||||||||||||
| Other liabilities, long-term | 2,254 | 2,143 | 2,254 | 2,143 | ||||||||||||||||||||||
| Balance at October 31 | $ | 2,254 | $ | 2,956 | $ | 2,254 | $ | 2,956 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | ||||||||||||
| Beginning balance | $ | 1,567 | $ | 1,901 | $ | 1,741 | $ | 2,059 | |||||||
| Fair value of contingent consideration acquired | 1,256 | — | 1,256 | — | |||||||||||
| Change in fair value of the liability | 52 | (165 | ) | 198 | (41 | ) | |||||||||
| Contingent consideration earn-out paid | (44 | ) | (36 | ) | (364 | ) | (318 | ) | |||||||
| Ending balance | $ | 2,831 | $ | 1,700 | $ | 2,831 | $ | 1,700 | |||||||
| Classification of liability in the Consolidated balance sheet | |||||||||||||||
| Accrued Liabilities | $ | 815 | $ | 315 | |||||||||||
| Other Liabilities, long-term | 2,016 | 1,385 | |||||||||||||
| Balance at October 31, 2017 | $ | 2,831 | $ | 1,700 | |||||||||||
For the acquisition of AgSync, the Company entered into a contingent earn-out agreement, not to exceed $3,500. The earn-out is to be paid annually over three years after the purchase date, contingent upon achieving certain revenue milestones. The Company has made 0 payments on this potential earn-out liability as of October 31, 2020.
In the recentacquisition of CLI, acquisition, the Company entered into a contingent earn-out agreement, not to exceed $2,000. The earn-out is paid annually for three years after the purchase date, contingent upon achieving certain revenuesrevenue milestones and operational synergies. To date,The Company made its final payment related to this agreement in the third quarter of fiscal 2021 and has no further contingent obligations related to the acquisition of CLI. Cumulatively, the Company has made no payments onpaid a total of $1,567 related to this potential earn-out liability.
14
(dollars in thousands, except per-share amounts)
In connection with the acquisition of SBG, Raven is committed to making additionalEurope, the Company entered into a contingent earn-out payments,agreement, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date, contingent upon achieving certain revenues. To date,revenue milestones. All revenue milestones under the agreement were achieved by Raven Europe in fiscal 2021. The Company has paid a total of $847 of this potential earn-out liability.
(7) GOODWILL, LONG-LIVED ASSETS, AND OTHER CHARGES
Goodwill
Management assesses goodwill for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are done at the reporting unit level. Management performed an assessment in the fiscal 2018 third quarter and determined that no triggering events had occurred for any of the Company's reporting units. There were no0 goodwill impairment losses reported in the three- and nine-month periods endedending October 31, 2017.
The changes in the carrying amount of goodwill by reporting unit were as follows:
| Applied Technology (excluding Autonomy) | Autonomy | Engineered Films | Aerostar | Total | ||||||||||||||||||||||||||||
| Balance at January 31, 2020 | $ | 16,943 | $ | 55,700 | $ | 33,232 | $ | 634 | $ | 106,509 | ||||||||||||||||||||||
| Changes due to business combinations | 0 | (440) | 0 | 0 | (440) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | 145 | (289) | 0 | 0 | (144) | |||||||||||||||||||||||||||
| Balance at October 31, 2020 | $ | 17,088 | $ | 54,971 | $ | 33,232 | $ | 634 | $ | 105,925 | ||||||||||||||||||||||
Applied Technology | Engineered Films | Aerostar | Total | |||||||||||||
| Balance at January 31, 2017 | $ | 12,342 | $ | 27,518 | $ | 789 | $ | 40,649 | ||||||||
| Additions due to business combinations | — | 5,941 | — | 5,941 | ||||||||||||
| Divestiture of business | — | — | (52 | ) | (52 | ) | ||||||||||
| Foreign currency translation adjustment | 214 | — | — | 214 | ||||||||||||
| Balance at October 31, 2017 | $ | 12,556 | $ | 33,459 | $ | 737 | $ | 46,752 | ||||||||
| Balance at January 31, 2016 | $ | 12,365 | $ | 27,518 | $ | 789 | $ | 40,672 | ||||||||
| Foreign currency translation adjustment | 31 | — | — | 31 | ||||||||||||
| Balance at October 31, 2016 | $ | 12,396 | $ | 27,518 | $ | 789 | $ | 40,703 | ||||||||
Long-lived Assets and Other Intangibles
The Company assesses the recoverability of long-lived assets, including definite-lived intangibles equity method investments, and property, plant, and equipment, if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, the Companymanagement performs impairment reviews by asset groups. group. Management periodically assesses for triggering events and discusses any significant changes in the utilization of long-lived assets. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
When performing long-lived asset testing, the fair values of assets are determined based on valuation techniques using the best available information. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures). An impairment loss is recognized when the carrying amount of an asset is above the estimated undiscounted cash flows used in determiningnot recoverable and exceeds the fair value of the asset.
| October 31, 2020 | January 31, 2020 | |||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||
| Amount | amortization | Net | Amount | amortization | Net | |||||||||||||||||||||||||||||||||
| Existing technology | $ | 8,821 | $ | (8,137) | $ | 684 | $ | 9,190 | $ | (7,706) | $ | 1,484 | ||||||||||||||||||||||||||
| Customer relationships | 16,102 | (7,901) | 8,201 | 16,067 | (6,868) | 9,199 | ||||||||||||||||||||||||||||||||
| Patents and other intangibles | 7,198 | (2,945) | 4,253 | 6,678 | (2,444) | 4,234 | ||||||||||||||||||||||||||||||||
In-process research and development(a) | 30,945 | 0 | 30,945 | 31,300 | 0 | 31,300 | ||||||||||||||||||||||||||||||||
| Total | $ | 63,066 | $ | (18,983) | $ | 44,083 | $ | 63,235 | $ | (17,018) | $ | 46,217 | ||||||||||||||||||||||||||
| (a) Refer to Note 6 "Acquisitions and Divestitures Of and Investments in Businesses and Technologies" for a more detailed description of these indefinite-lived intangible assets acquired in business combinations in fiscal 2020. A portion of these intangible assets are denominated in a foreign currency and subject to exchange rate fluctuations. | ||||||||||||||||||||||||||||||||||||||
There were no0 long-lived asset impairments or accelerated equity method investmentimpairment losses reported in the three-month period endedthree- and nine-month periods ending October 31, 2017.2020 and 2019, respectively.
15
(dollars in thousands, except per-share amounts)
| October 31, 2017 | January 31, 2017 | October 31, 2016 | |||||||||||||||||||||||||||
| Accumulated | Accumulated | Accumulated | |||||||||||||||||||||||||||
| Amount | amortization | Net | Amount | amortization | Net | Amount | amortization | Net | |||||||||||||||||||||
| Existing technology | $ | 7,218 | $ | (6,854 | ) | $ | 364 | $ | 7,136 | $ | (6,553 | ) | $ | 583 | $ | 7,157 | $ | (6,490 | ) | $ | 667 | ||||||||
| Customer relationships | 13,220 | (4,503 | ) | 8,717 | 12,987 | (3,680 | ) | 9,307 | 13,000 | (3,421 | ) | 9,579 | |||||||||||||||||
| Patents and other intangibles | 4,708 | (2,414 | ) | 2,294 | 4,378 | (2,220 | ) | 2,158 | 4,427 | (2,162 | ) | 2,265 | |||||||||||||||||
| Total | $ | 25,146 | $ | (13,771 | ) | $ | 11,375 | $ | 24,501 | $ | (12,453 | ) | $ | 12,048 | $ | 24,584 | $ | (12,073 | ) | $ | 12,511 | ||||||||
(8) EMPLOYEE POSTRETIREMENT BENEFITS
The Company provides postretirement medical and other benefits to certain current and past senior executive officers and senior managers. These plan obligations are unfunded. The components of the net periodic benefit cost for postretirement benefits are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Service cost | $ | 9 | $ | 7 | $ | 27 | $ | 21 | ||||||||||||||||||
| Interest cost | 70 | 83 | 210 | 250 | ||||||||||||||||||||||
| Amortization of actuarial losses | 43 | 24 | 129 | 72 | ||||||||||||||||||||||
| Amortization of unrecognized gains in prior service cost | (40) | (40) | (120) | (120) | ||||||||||||||||||||||
| Net periodic benefit cost | $ | 82 | $ | 74 | $ | 246 | $ | 223 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | ||||||||||||
| Service cost | $ | 21 | $ | 20 | $ | 64 | $ | 60 | |||||||
| Interest cost | 83 | 83 | 247 | 249 | |||||||||||
| Amortization of actuarial losses | 30 | 36 | 90 | 110 | |||||||||||
| Amortization of unrecognized gains in prior service cost | (40 | ) | (40 | ) | (120 | ) | (120 | ) | |||||||
| Net periodic benefit cost | $ | 94 | $ | 99 | $ | 281 | $ | 299 | |||||||
Postretirement benefit cost components are reclassified in their entirety from accumulated other comprehensive loss to net periodic benefit cost. Net periodic benefit costs areService cost is reported in net income as “Cost"Cost of sales”sales" or “Selling,"Selling, general, and administrative expenses”expenses" in a manner consistent with the classification of direct labor and personnel costs of the eligible employees. The components of the net periodic benefit cost, other than the service cost component, are classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.
(9) WARRANTIES
Accruals necessary for product warranties are estimated based on historical warranty costs and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues. Changes in the warranty accrual were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Beginning balance | $ | 1,609 | $ | 1,739 | $ | 2,019 | $ | 890 | ||||||||||||||||||
| Change in provision | 299 | 1,184 | 1,299 | 3,038 | ||||||||||||||||||||||
| Settlements made | (389) | (939) | (1,799) | (1,944) | ||||||||||||||||||||||
| Ending balance | $ | 1,519 | $ | 1,984 | $ | 1,519 | $ | 1,984 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | ||||||||||||
| Beginning balance | $ | 2,265 | $ | 2,076 | $ | 1,547 | $ | 1,835 | |||||||
| Change in provision | (274 | ) | 202 | 1,504 | 1,288 | ||||||||||
| Settlements made | (774 | ) | (426 | ) | (1,834 | ) | (1,271 | ) | |||||||
| Ending balance | $ | 1,217 | $ | 1,852 | $ | 1,217 | $ | 1,852 | |||||||
(10) FINANCING ARRANGEMENTS
Credit Facility
On September 20, 2019, the Company entered into a credit facility on April 15, 2015with JPMorgan Chase Bank N.A.of America, N. A., Toronto Branch as Canadian Administrative Agent, JPMorgan Chase Bank, National Association, as administrative agent, and each lender from time to time party theretoWells Fargo Bank, National Association (the Credit Agreement). The Credit Agreement provides for a syndicated senior revolving credit facility up to $125,000$100,000 with a maturity date of April 15, 2020.
The unamortized debt issuance costs associated with the Credit Agreement were as follows:
| October 31, 2020 | January 31, 2020 | |||||||||||||
Unamortized debt issuance costs(a) | $ | 154 | $ | 215 | ||||||||||
(a) Unamortized debt issuance costs are amortized over the term of the Credit Agreement and for working capital needs.are reported as "Other assets" in the Consolidated Balance Sheets.
16
(dollars in thousands, except per-share amounts)
Letters of credit (LOCs) totaling $1,103(LOC) issued and outstanding were outstanding at October 31, 2017. Letters of Credit totaling $514 were outstanding at January 31, 2017, and October 31, 2016. as follows:
| October 31, 2020 | January 31, 2020 | |||||||||||||||||||
Letters of credit outstanding(a) | $ | 50 | $ | 50 | ||||||||||||||||
(a) Any draws required under the LOCsLOC would be settled with available cash or borrowings under the Credit Agreement.
The Company assumed certain long-term notes pursuant to the Creditacquisition of a majority ownership in DOT in fiscal year 2020 as described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies". The related financial assistance agreement (Agreement) is between DOT and Western Economic Diversification Canada (WEDC), a government agency in Canada, that was entered into in August 2019. Under the Agreement, the WEDC agrees to contribute up to $5,000 in Canadian dollars, approximately $4,000 in US dollars, over a three-year period for any ofcosts incurred to develop a cloud-based distribution and service channel for a particular product being developed by DOT. DOT is eligible to receive contributions for costs incurred for purposes specified in the fiscal periods coveredAgreement. The Company is required to repay the funds contributed by this Quarterly ReportWEDC in 60 monthly installments beginning April 1, 2023, plus interest that begins on Form 10-Q. Availability under the Credit Agreement for borrowings asApril 1, 2023, based on an average bank rate plus 3%. As of October 31, 2017 was $123,947.2020, the Company had received $1,900 in contributions from WEDC and 0 repayments have been made. The outstanding liability balance is reported as "Long-term debt" on the Consolidated Balance Sheets. NaN interest expense is being recorded prior to the interest start date.
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | |||||||||||||||||||||||||||||||||
| Maturities of debt | $ | 0 | $ | 0 | $ | 0 | $ | 1,900 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its business, the potential costs and liabilityliabilities of which cannot be determined at this time. Among these matters is a patent infringement lawsuit filed in federal district court in Kansas, in which Capstan Ag Systems, Inc. has made certain infringement claims against the Company and one of its customers, CNH Industrial America LLC, related to the Applied Technology Division’s Hawkeye® Nozzle Control System. Management does not believe the ultimate outcomes of its legal proceedings are likely to be significantmaterial to its results of operations, financial position, or cash flows. Additionally, because ofIn addition, the present status of the lawsuit, management cannot determine the potential impact, if any, of the patent infringement lawsuit described above.
The Company entered into a Gift Agreement ("the Agreement") effective in January 2018 with the South Dakota State University Foundation, Inc. ("the Foundation"). This gift will be used for the establishment of a precision agriculture facility to support South Dakota State University's Precision Agriculture degrees and curriculum. The Agreement states that the Company will make a $5,000 gift to the Foundation, conditional on certain actions. The fair value of this contingency at October 31, 2020, was $2,682 (measured based on the present value of the expected future cash outflows), of which $710 was classified as "Accrued liabilities" and $1,972 was classified as "Other liabilities." As of October 31, 2020, the Company has made payments related to the commitment totaling $2,145.
In addition to commitments disclosed elsewhere in the Notes to the unaudited Consolidated Financial Statements, the Company has other unconditional purchase obligations that arise in the normal course of business operations. The majority of these obligations are related to the purchase of raw material inventory for the Applied Technology and Engineered Films divisions.
(12) INCOME TAXES
The Company’s effective tax rate varies from the federal statutory rate primarily due to state and local taxes, research and developmentR&D tax credit, tax benefits on qualified production activities,foreign-derived intangible income deduction, and tax-exempt insurance premiums. The Company’s effective tax rates for the nine-month periods ended October 31, 2017 and 2016 were 31.3% and 26.9%, respectively. as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Effective tax rate | 1.6 | % | 13.0 | % | 1.9 | % | 14.7 | % | ||||||||||||||||||
The increasedecrease in the effective tax rate isyear-over-year was driven primarily due to higherby an increase in the R&D tax credit as a percentage of estimated pre-tax income in the current year and recognition offiscal year.
17
(dollars in thousands, except per-share amounts)
The Company's discrete tax expense related tobenefit was as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Discrete tax benefit | $ | 303 | $ | 268 | $ | 580 | $ | 1,336 | ||||||||||||||||||
The Company operates both domestically and internationally. As of October 31, 2020, undistributed earnings from the Company's adoption of ASU 2016-09 in the fiscal 2018 as further discussed in Note 2 foreign subsidiaries were considered to have been reinvested indefinitely.
(13) DIVIDENDS AND TREASURY STOCK
On August 26, 2020, the Company announced that the board of directors indefinitely suspended the Company’s regular quarterly cash dividend on its common stock.
Dividends paid to Raven shareholders for the three- and nine-month periods ended October 31, 2017 were $4,648 and $14,032, or 13.0 cents and 39.0 cents per share, respectively. Dividends paid to Raven shareholders for the three- and nine-month periods ended October 31, 2016 were $4,690 and $14,078, or 13.0 cents and 39.0 cents per share, respectively. as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
Dividends paid(a) | $ | 0 | $ | 4,648 | $ | 9,318 | $ | 14,001 | ||||||||||||||||||
Dividends paid per share (in cents per share)(a) | 0 | 13.0 | 26.0 | 39.0 | ||||||||||||||||||||||
(a)There were no0 declared and unpaid shareholder dividends at October 31, 20172020 or 2016.
On November 3, 2014, the Company announced that its Board of Directors (Board)("Board") had authorized an extension and increase of the authorizeda $40,000 stock buyback program. Since that time, the Board has provided additional authorizations to increase the total amount authorized under the program in place at that time.An additional $10,000 was authorized for share repurchases once the $40,000 authorization limit is reached.
The Company reserves shares for issuance pursuant to the Amended and Restated 2010 Stock Incentive Plan effective March 23, 2012, administered by the Personnel and Compensation Committee of the Board of Directors. Two types of awards, stock options and restricted stock units, were granted duringhad 0 share repurchases in the nine months endedOctober 31, 2017three- and October 31, 2016.
| Nine Months Ended | |||||
| October 31, 2017 | October 31, 2016 | ||||
| Risk-free interest rate | 1.68 | % | 1.05 | % | |
| Expected dividend yield | 1.78 | % | 3.33 | % | |
| Expected volatility factor | 33.87 | % | 32.61 | % | |
| Expected option term (in years) | 4.25 | 4.00 | |||
| Weighted average grant date fair value | $7.35 | $3.05 | |||
(14) SHARE-BASED COMPENSATION
Share-based compensation expense is recognized based upon the closing market price of the Company's common stock on the day prior to the date of grant. The weighted average grant date fair value per share of the time-vested RSUs granted in the periods ended October 31, 2017 and 2016, respectively, was $29.25 and $15.94. Time-vested RSUs will vest if, at the end of the three-year period, the employee remains employed by the Company. RSUs contain retirement and change-in-control provisions, as well as termination without cause provisions for certain executive officers, which may accelerate the vesting period. Dividends are cumulatively earned on the time-vested RSUs over the vesting period.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Cost of sales | $ | 64 | $ | 98 | $ | 182 | $ | 273 | ||||||||||||||||||
| Research and development expenses | 369 | 41 | 1,126 | 122 | ||||||||||||||||||||||
| Selling, general, and administrative expenses | 936 | 852 | 3,670 | 3,144 | ||||||||||||||||||||||
| Total share-based compensation expense | $ | 1,369 | $ | 991 | $ | 4,978 | $ | 3,539 | ||||||||||||||||||
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(dollars in thousands, except per-share amounts)
(15) SEGMENT REPORTING
The Company's operating segments, which are also its reportable segments, are defined by their product lines which have been generally grouped in these segments based on technology, manufacturing processes, and end-use application. Raven'sThe Company's reportable segments are Applied Technology Division, Engineered Films Division, and Aerostar. The Company measures the performance of its segments based on their operating income excluding general and administrative expenses. Other expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets.Aerostar Division. Separate financial information is available for each reportable segment and regularly evaluated by the Company's chief operating decision-maker, (CODM), the President and Chief Executive Officer, in making resource allocation decisions for the Company's reportable segments. The Company measures the performance of its segments based on their operating income excluding administrative and general expenses. Other income, interest expense, and income taxes are not allocated to individual operating segments. Segment information is reported consistent with the Company's management reporting structure.
| Three Months Ended | Nine Months Ended | ||||||||||||||
| October 31, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | ||||||||||||
| Net sales | |||||||||||||||
| Applied Technology | $ | 25,319 | $ | 25,203 | $ | 94,233 | $ | 79,327 | |||||||
| Engineered Films | 65,108 | 38,551 | 157,691 | 104,307 | |||||||||||
| Aerostar | 11,103 | 9,003 | 30,078 | 25,313 | |||||||||||
Intersegment eliminations (a) | (181 | ) | (235 | ) | (508 | ) | (467 | ) | |||||||
| Consolidated net sales | $ | 101,349 | $ | 72,522 | $ | 281,494 | $ | 208,480 | |||||||
Operating income (loss)(b) | |||||||||||||||
Applied Technology | $ | 5,357 | $ | 6,415 | $ | 25,447 | $ | 20,280 | |||||||
| Engineered Films | 17,115 | 7,129 | 35,386 | 17,666 | |||||||||||
Aerostar(c) | 1,359 | (1,375 | ) | 4,165 | (1,804 | ) | |||||||||
Intersegment eliminations | (12 | ) | (16 | ) | (3 | ) | (21 | ) | |||||||
| Total reportable segment income | 23,819 | 12,153 | 64,995 | 36,121 | |||||||||||
General and administrative expenses(d) | (5,990 | ) | (4,764 | ) | (17,247 | ) | (13,986 | ) | |||||||
| Consolidated operating income | $ | 17,829 | $ | 7,389 | $ | 47,748 | $ | 22,135 | |||||||
Business segment financial performance and other information is as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| Applied Technology | $ | 34,838 | $ | 28,500 | $ | 112,347 | $ | 97,596 | ||||||||||||||||||
| Engineered Films | 43,765 | 56,406 | 113,415 | 158,214 | ||||||||||||||||||||||
| Aerostar | 18,010 | 15,661 | 42,626 | 41,040 | ||||||||||||||||||||||
Intersegment eliminations(a) | (6) | (34) | (106) | (81) | ||||||||||||||||||||||
| Consolidated net sales | $ | 96,607 | $ | 100,533 | $ | 268,282 | $ | 296,769 | ||||||||||||||||||
Operating income(b) | ||||||||||||||||||||||||||
Applied Technology | $ | 5,797 | $ | 7,035 | $ | 21,247 | $ | 25,120 | ||||||||||||||||||
| Engineered Films | 7,321 | 8,474 | 13,393 | 24,987 | ||||||||||||||||||||||
| Aerostar | 2,777 | 2,488 | 4,821 | 7,427 | ||||||||||||||||||||||
Intersegment eliminations | 9 | (12) | 60 | (10) | ||||||||||||||||||||||
| Total reportable segment income | 15,904 | 17,985 | 39,521 | 57,524 | ||||||||||||||||||||||
General and administrative expenses(b) | (6,613) | (6,653) | (20,148) | (20,501) | ||||||||||||||||||||||
| Consolidated operating income | $ | 9,291 | $ | 11,332 | $ | 19,373 | $ | 37,023 | ||||||||||||||||||
(a)Intersegment sales for both fiscal 20182021 and 20172020 were primarily sales from Engineered Films to Aerostar.
(b)At the segment level, operating income (loss) does not include an allocation of general and administrative expenses.
(16) SUBSEQUENT EVENTS
The Company has evaluated events up to the filing date of this Quarterly Report on Form 10-Q and concluded that no subsequent events have occurred that would require recognition or disclosure in the Notes to the Consolidated Financial Statements.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary on the operating results, liquidity, capital resources, and financial condition of Raven Industries, Inc. (the Company or Raven) should be read in conjunction with the unaudited Consolidated Financial Statements in Item 1 of Part 1 of this Quarterly Report on Form 10-Q (Form 10-Q) and the Company's Annual Report on Form 10-K for the year ended January 31, 2017.2020.
The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is organized as follows:
•Executive Summary
•Results of Operations - Segment Analysis
•Market Conditions and Outlook
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements and Contractual Obligations
•Critical Accounting Policies and Estimates
•Accounting Pronouncements
EXECUTIVE SUMMARY
Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, aerospace/defense,commercial lighter-than-air, and situational awarenessaerospace and defense markets. The Company is comprised of three unique operating divisions,units, classified into reportable segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films), and Aerostar Division (Aerostar). Segment information is reported consistent with the Company's management reporting structure.
Management uses a number of metrics to assess the Company's performance:
•Consolidated net sales, gross margin, operating income, operating margin, net income, and diluted earnings per shareshare.
•Cash flow from operations and shareholder returnsreturns.
•Return on sales, average assets, and average equity.
•Segment net sales, gross profit, gross margin, operating income, and operating margin. At the segment level, operating income and margin does not include an allocation of general and administrative expenses.
Vision and Strategy
The Raven business model is our platform for success. OurRaven's business model is defensible, sustainable, and gives us a consistent approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three business segments, is summarized as follows:
•Intentionally serve a set of diversified market segments with attractive near-strong growth prospects in both the near and long-term growth prospects;long term.
•Consistently manage a pipeline of growth initiatives within our market segments;segments.
•Aggressively compete on quality, service, innovation, and peak performance;performance.
•On a path of continuous improvement;improvement, consistently taking actions to streamline processes, improve efficiencies, and increase value delivered to our customers.
•Value our balance sheet as a source of strength and stability with which to pursue strategic acquisitions; andstability.
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The following discussion highlights the consolidated operating results for the three- and nine-month periods ended October 31, 20172020 and 2016.2019. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except per-share data) | October 31, 2020 | October 31, 2019 | % Change | October 31, 2020 | October 31, 2019 | % Change | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 96,607 | $ | 100,533 | (3.9) | % | $ | 268,282 | $ | 296,769 | (9.6) | % | |||||||||||||||||||||||||||||
| Gross profit | 34,524 | 30,304 | 13.9 | % | 93,123 | 96,708 | (3.7) | % | |||||||||||||||||||||||||||||||||
Gross margin (a) | 35.7 | % | 30.1 | % | 34.7 | % | 32.6 | % | |||||||||||||||||||||||||||||||||
| Operating income | $ | 9,291 | $ | 11,332 | (18.0) | % | $ | 19,373 | $ | 37,023 | (47.7) | % | |||||||||||||||||||||||||||||
Operating margin (a) | 9.6 | % | 11.3 | % | 7.2 | % | 12.5 | % | |||||||||||||||||||||||||||||||||
| Other income (expense), net | $ | (423) | $ | 84 | $ | (514) | $ | 398 | |||||||||||||||||||||||||||||||||
| Net income attributable to Raven Industries, Inc. | $ | 8,728 | $ | 9,934 | (12.1) | % | $ | 18,594 | $ | 31,910 | (41.7) | % | |||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.24 | $ | 0.28 | $ | 0.51 | $ | 0.88 | |||||||||||||||||||||||||||||||||
| Cash flow from operating activities | $ | 24,516 | $ | 20,918 | 17.2 | % | $ | 55,100 | $ | 47,078 | 17.0 | % | |||||||||||||||||||||||||||||
| Cash outflow for capital expenditures | $ | (3,148) | $ | (2,359) | 33.4 | % | $ | (10,931) | $ | (6,143) | 77.9 | % | |||||||||||||||||||||||||||||
| Cash dividends | $ | — | $ | (4,648) | $ | (9,318) | $ | (14,001) | (33.4) | % | |||||||||||||||||||||||||||||||
| Common share repurchases | $ | — | $ | (5,000) | $ | — | $ | (10,781) | |||||||||||||||||||||||||||||||||
(a) The Company's gross and operating margins may not be comparable to industry peers due to variability in the classification of expenses across industries in which the Company operates. | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (dollars in thousands, except per-share data) | October 31, 2017 | October 31, 2016 | % Change | October 31, 2017 | October 31, 2016 | % Change | ||||||||||||||||
| Net sales | $ | 101,349 | $ | 72,522 | 39.7 | % | $ | 281,494 | $ | 208,480 | 35.0 | % | ||||||||||
| Gross profit | 33,333 | 19,839 | 68.0 | % | 91,802 | 58,871 | 55.9 | % | ||||||||||||||
Gross margin (a) | 32.9 | % | 27.4 | % | 32.6 | % | 28.2 | % | ||||||||||||||
| Operating income | $ | 17,829 | $ | 7,389 | 141.3 | % | $ | 47,748 | $ | 22,135 | 115.7 | % | ||||||||||
Operating margin (a) | 17.6 | % | 10.2 | % | 17.0 | % | 10.6 | % | ||||||||||||||
| Net income attributable to Raven Industries, Inc. | $ | 11,998 | $ | 5,741 | 109.0 | % | $ | 32,581 | $ | 15,753 | 106.8 | % | ||||||||||
| Diluted earnings per share | $ | 0.33 | $ | 0.16 | $ | 0.89 | $ | 0.43 | ||||||||||||||
| Cash flow from operating activities | $ | 10,973 | $ | 13,127 | (16.4 | )% | $ | 30,834 | $ | 38,685 | (20.3 | )% | ||||||||||
| Cash outflow for capital expenditures | $ | 1,780 | $ | 1,733 | 2.7 | % | $ | 7,003 | $ | 3,901 | 79.5 | % | ||||||||||
| Cash dividends | $ | 4,648 | $ | 4,720 | (1.5 | )% | $ | 14,032 | $ | 14,148 | (0.8 | )% | ||||||||||
| Common share repurchases | $ | 10,000 | $ | — | $ | 10,000 | $ | 7,702 | 29.8 | % | ||||||||||||
(a) The Company's gross and operating margins may not be comparable to industry peers due to the diversity of its operations and variability in the classification of expenses across industries in which the Company operates. | ||||||||||||||||||||||
Consolidated Results
For the fiscal 20182021 third quarter, net sales were $101.3$96.6 million, up $28.8down $3.9 million, or 39.7%3.9%, from $72.5$100.5 million in last year’s third quarter. Significant year-over-year growth in Applied Technology and Aerostar was offset by a decline in Engineered Films. Strong growth in OEM sales drove the increase in Applied Technology. The growth in year-over-year revenue for Aerostar was achieved by completing the delivery of aerostats on its current contract and executing on a record number of successful stratospheric balloon flight campaigns. The global pandemic continued to present challenges for Engineered Films' end-markets, leading to the year-over-year decline in revenue.
The Company's operating income for the third quarter of fiscal 20182021 was $17.8$9.3 million, up $10.4down 18.0% from $11.3 million or 141.3%, compared toin the third quarter of fiscal 2017.2020. The increaseresults for the third quarter included incremental research and development and selling expenses to advance Raven Autonomy™ of $4.6 million. The strong profitability in this year's third quarter was driven by improved gross profit margin, which increased from 30.1 percent to 35.7 percent year-over-year. Applied Technology and Engineered Films improved gross margins versus the prior year, on improved volume and overhead reduction measures, respectively. Prior year third quarter operating income was principally due to improved operating leverageincluded a pre-tax gain of $1.9 million on higher sales volume. the sale of an Applied Technology facility in Austin, Texas.
Net income for the third quarter of fiscal 20182021 was $12.0$8.7 million, or $0.33$0.24 per diluted share, compared to net income of $5.7$9.9 million, or $0.16$0.28 per diluted share, in the prior year comparative period. The Company's investment in Raven Autonomy™ reduced net income attributable to Raven by $3.6 million, or $0.10 per diluted share, in the third quarter of fiscal 2021.
Applied Technology Division Results
Applied Technology's net sales in the third quarter of fiscal 2021 were $34.8 million, up $6.3 million, or 22.2%, versus last year's third quarter. The year-over-year sales growth was driven by higher volumes to OEM's, both domestically and internationally. The growth included last-time buy activity associated with the division's strategic decision to exit a commercial relationship. Excluding the benefit of the last-time buy activity, the division achieved growth over the prior year while overcoming certain production inefficiencies caused by process changes in response to the pandemic.
Division operating income in the third quarter of fiscal 2021 was $5.8 million, down $1.2 million, or 17.6% versus the third quarter of fiscal 2020. The profitability of the division was very strong and included an incremental investment of $4.5 million year-over-year into Raven Autonomy™. The prior year third quarter operating income included a pre-tax gain of $1.9 million on the sale of the division's facility in Austin, Texas.
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Engineered Films Division Results
Engineered Films’ fiscal 2021 third quarter net sales were $43.8 million, a decrease of $12.6 million, or 22.4%, compared to fiscal 2020 third quarter net sales of $56.4 million. Engineered Films continued to face weak demand in the third quarter across a majority of its end-markets, resulting in the year-over-year decline in revenue. However, the division saw an increase in demand and a recapture of market share within its industrial market that led to year-over-year growth. Geomembrane (including the energy sub-market) experienced the largest declines as rig counts in the Permian Basin remained down approximately 70 percent year-over-year. The construction market also experienced reduced demand as non-residential construction starts decreased significantly versus the prior year. Partially offsetting these declines was the delivery of the remaining $2.4 million of film-based medical supplies associated with a FEMA contract to aid in the pandemic response.
Operating income for Engineered Films in the third quarter of fiscal 2021 decreased 13.6% to $7.3 million as compared to $8.5 million in the prior year third quarter. The division achieved an improved operating margin year-over-year from 15.0 percent to 16.7 percent, driven by operational efficiency improvements and expense reductions as the division mitigated the impact of negative operating leverage on division profit margin and continued to invest in Raven Composites™. In addition, the division generated strong cash flows as it continues to effectively manage working capital levels.
Aerostar Division Results
Aerostar's net sales in the third quarter of fiscal 2021 were $18.0 million, an increase of $2.3 million, or 15.0%, compared to fiscal 2020 third quarter net sales of $15.7 million. The year-over-year growth was driven by the delivery of aerostat systems and the completion of a record number of successful stratospheric flight campaigns for the Department of Defense throughout the quarter.
Division operating income in the third quarter of fiscal 2021 was $2.8 million, up $0.3 million, or 11.6%, versus the third quarter of fiscal 2020. The year-over-year increase in operating income was driven by increased sales volume.
Nine Months Ended October 31, 2020 and 2019:
Consolidated Results
For the nine-month period ended October 31, 2020, net sales were $281.5$268.3 million compared to $208.5$296.8 million, up 35.0%down 9.6% versus the prior year comparative period. Year-over-year growth in Applied Technology and Aerostar was more than offset by a decline in Engineered Films. Applied Technology leveraged its new products and strong customer relationships to drive sales growth versus the prior year. Economic conditions resulting from one year earlier. the pandemic led to weak end-market demand across Engineered Films' markets, resulting in a sharp decline in year-over-year net sales. Aerostar achieved growth in net sales year-over-year for the nine-month period, overcoming pandemic related challenges that included Department of Defense travel restrictions which limited Aerostar's ability to fulfill contracts and conduct customer flight campaigns the first half of the fiscal year.
The Company's operating income was $47.7$19.4 million, up 115.7%down 47.7% from $37.0 million in the prior year nine-month period. The increaseyear-to-date results included $12.4 million of investment in operating income was principally dueRaven Autonomy™, primarily research and development and selling expenses to improved operating leverage on higher sales volume. drive commercialization of the Company's autonomous ag solutions.
Net income for the first nine months of fiscal 20182021 was $32.6$18.6 million, or $0.89$0.51 per diluted share, compared to net income of $15.8$31.9 million, or $0.43$0.88 per diluted share, forin the prior year comparative period. The investment in Raven Autonomy™ reduced net income attributable to Raven by $9.6 million, or $0.26 per diluted share, in the first nine
months of fiscal 2017. The year-to-date increase in earnings per share was driven by improved performance in all three of the Company's reporting segments, with each making significant contributions to the growth.2021.
Applied Technology Division Results
Net sales for Applied Technology in the third quarter of fiscal 2018 were $25.3 million, up slightly compared to fiscal 2017 third quarter net sales of $25.2 million. Sales in the original equipment manufacturer (OEM) channel were up 10.3% while sales in the aftermarket channel were down 10.1% for the fiscal 2018 third quarter. Geographically, domestic sales were up 3.2% year-over-year while international sales decreased 8.8% year-over-year. Operating income was $5.4 million, down 16.5% compared to $6.4 million in the third quarter of fiscal 2017. The decrease in operating income was primarily driven by higher investment in the sales function and research and development activities, and higher legal expenses. These strategic investments will support the Company's long-term growth through new product introductions and an enhanced sales function.
Engineered Films Division Results
Net sales for Engineered Films in the first nine months of fiscal 2021 were $113.4 million, a decrease of $44.8 million, or 28.3%, compared to the year-to-date nine-month period of fiscal 2020. Economic conditions as a result of the global pandemic have created weak demand across a majority of Engineered Films' end markets, resulting in the year-over-year decline in
22
revenue.
Operating income for the first nine months of fiscal 2021 decreased 46.4% to $13.4 million as compared to $17.7$25.0 million in the prior year comparative period. The year-over-year increasedecrease in operating income was driven principally by higher sales volume, improved capacity utilization, and continued spending discipline.negative operating leverage resulting from the sharp decline in revenues.
Aerostar Division Results
Net sales for Aerostar in the third quarter of fiscal 2018 were $11.1 million, an increase of $2.1 million, or 23.3%, compared to fiscal 2017 third quarter net sales of $9.0 million. The increase in net sales was primarily driven by growth in the stratospheric balloon platform. Operating income in the third quarter of fiscal 2018 was $1.4 million compared to an operating loss of ($1.4) million in the third quarter of last year. Fiscal 2018 third quarter results include charges of approximately $0.9 million related primarily to a strategic decision to narrow aerostat offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. Fiscal 2017 third quarter results include an inventory write-down adjustment of $2.3 million related to certain radar inventory. The remaining increase in operating income was driven by higher sales and reductions to operating expenses while maintaining a more focused approach to research and development spending.
Operating income for the nine-month year-to-date period of fiscal 20182021 was $4.2$4.8 million compared to operating lossincome of ($1.8)$7.4 million in the prior year comparative period. The first nine months of fiscal 2018 include charges of approximately $0.9 million related primarily to a strategic decision to narrow aerostat offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. The first nine months of fiscal 2017 include an inventory write-down adjustment of $2.3 million related to certain radar inventory. The remaining increase in operating incomeyear-over-year performance was driven by higher saleslower margins due to increased material and reductions to operatingoverhead expenses, while maintainingas well as a more focused approach to researchstrategic increase in investment in the division's stratospheric and development spending.radar systems.
RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products, autonomous solutions, and information management tools, which are collectively referred to as precision agriculture equipment, that help growersfarmers reduce costs, more precisely control inputs, and improve crop yields for the global agriculture market. Applied Technology’s operations include operations of SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), based in the Netherlands.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | October 31, 2020 | October 31, 2019 | $ Change | % Change | October 31, 2020 | October 31, 2019 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 34,838 | $ | 28,500 | $ | 6,338 | 22.2 | % | $ | 112,347 | $ | 97,596 | $ | 14,751 | 15.1 | % | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 18,535 | 13,205 | 5,330 | 40.4 | % | 57,328 | 47,539 | 9,789 | 20.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 53.2 | % | 46.3 | % | 51.0 | % | 48.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | $ | 12,738 | $ | 6,170 | $ | 6,568 | 106.5 | % | $ | 36,081 | $ | 22,419 | $ | 13,662 | 60.9 | % | ||||||||||||||||||||||||||||||||||||||||
| Operating expenses as % of sales | 36.6 | % | 21.6 | % | 32.1 | % | 23.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating income(a) | $ | 5,797 | $ | 7,035 | $ | (1,238) | (17.6) | % | $ | 21,247 | $ | 25,120 | $ | (3,873) | (15.4) | % | ||||||||||||||||||||||||||||||||||||||||
| Operating margin | 16.6 | % | 24.7 | % | 18.9 | % | 25.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
(a) At the segment level, operating income does not include an allocation of general and administrative expenses. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| (dollars in thousands) | October 31, 2017 | October 31, 2016 | $ Change | % Change | October 31, 2017 | October 31, 2016 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 25,319 | $ | 25,203 | $ | 116 | 0.5 | % | $ | 94,233 | $ | 79,327 | $ | 14,906 | 18.8 | % | ||||||||||||||
| Gross profit | 10,790 | 10,636 | 154 | 1.4 | % | 41,554 | 32,911 | 8,643 | 26.3 | % | ||||||||||||||||||||
| Gross margin | 42.6 | % | 42.2 | % | 44.1 | % | 41.5 | % | ||||||||||||||||||||||
| Operating expenses | $ | 5,433 | $ | 4,221 | $ | 1,212 | 28.7 | % | $ | 15,848 | $ | 12,631 | $ | 3,217 | 25.5 | % | ||||||||||||||
| Operating expenses as % of sales | 21.5 | % | 16.7 | % | 16.8 | % | 15.9 | % | ||||||||||||||||||||||
| Long-lived asset impairment loss | $ | — | $ | — | $ | 259 | $ | — | ||||||||||||||||||||||
Operating income (loss)(1) | $ | 5,357 | $ | 6,415 | $ | (1,058 | ) | (16.5 | )% | $ | 25,447 | $ | 20,280 | $ | 5,167 | 25.5 | % | |||||||||||||
| Operating margin | 21.2 | % | 25.5 | % | 27.0 | % | 25.6 | % | ||||||||||||||||||||||
(1) At the segment level, operating income does not include an allocation of general and administrative expenses. | ||||||||||||||||||||||||||||||
The following factors were the primary drivers of the three- and nine-month year-over-year changes:
•Market conditions. The North American ag market has been negatively impacted by low commodity prices, and the ongoing pandemic has driven further uncertainty in the marketplace. Unfavorable oil prices and demand have caused a reduction in ethanol production which has an unfavorable impact on corn prices. These factors have reduced expected farm income, and OEMs have responded with lower production of new machines. Improving commodity prices have provided optimism that the ag market conditions will improve, however, the Company anticipates uncertainty from the pandemic will hamper any further improvement throughout the remainder of fiscal 2021. The Company does not model comparative market share position for its divisions, but the Company believes Applied Technology maintained or increased its market share in the first nine months of fiscal 2021.
•Sales volume and selling prices. Third quarter fiscal 2021 net sales increased $6.3 million or 22.2%, to $34.8 million compared to $28.5 million in the prior year. Year-to-date sales increased $14.8 million, or 15.1%, to $112.3 million compared to the prior year. Higher sales volume, rather than a change in selling price, was the primary driver of this increase. For the three- and nine-month periods, domestic sales were up 20.2% and 18.6% year-over-year, respectively. Domestic sales include $5.0 million and $15.6 million of last time buy activity to a non-strategic OEM customer for the three- and nine-month periods, an increase of $4.3 million and $12.3 million year-over-year, respectively.
•International sales. For the third quarter of fiscal 2021, international sales totaled $7.2 million, up 30.6% from $5.5 million in the prior year comparative period. International sales represented 20.8% of segment revenue compared to 19.4% of segment revenue in the prior year comparative period. Year-to-date, international sales totaled $25.9 million, an increase of $1.2 million from the prior year. Year-to-date international sales represented 23.0% of segment sales compared to 25.3% in the prior year comparative period. Increased demand in Latin America and Canada drove an
23
increase in international sales during the third quarter. Sales to Europe, up approximately 20%, drove the increase in international sales for the nine-month period.
•Gross margin. Gross margin increased from 46.3% in the prior year third quarter of fiscal 2020 to 53.2% in the third quarter of fiscal 2021. Year-to-date fiscal 2021 gross margin increased from 48.7% to 51.0% compared to the prior year comparative period. The year-over-year increase in profitability was driven by positive operating leverage from higher sales volume and favorable product mix.
•Operating expenses. Fiscal 2021 third quarter operating expenses as a percentage of net sales was 36.6%, up from 21.6% in the prior year comparative period. Year-to-dateoperating expenses as a percentage of net sales was up from23.0% to 32.1%. These increases were driven by $4.5 million and $12.1 million of Raven AutonomyTM related expenses, for the three- and nine-month periods, respectively. These expenses primarily consisted of investment in research and development to drive the commercialization of autonomous ag solutions.
Engineered Films
Engineered Films manufactures high performanceproduces high-performance plastic films and sheeting for geomembrane, agricultural, construction, and industrial applications. Engineered Films' ability to develop value-added innovative products is expanded by its fabrication, conversion,applications and also offers design-build and installation capabilities.services of these plastic films and sheeting. Plastic film and sheeting can be purchased separately or together with installation services.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| (dollars in thousands) | October 31, 2017 | October 31, 2016 | $ Change | % Change | October 31, 2017 | October 31, 2016 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 65,108 | $ | 38,551 | $ | 26,557 | 68.9 | % | $ | 157,691 | $ | 104,307 | $ | 53,384 | 51.2 | % | ||||||||||||||
| Gross profit | 19,358 | 8,711 | 10,647 | 122.2 | % | 41,631 | 22,334 | 19,297 | 86.4 | % | ||||||||||||||||||||
| Gross margin | 29.7 | % | 22.6 | % | 26.4 | % | 21.4 | % | ||||||||||||||||||||||
| Operating expenses | $ | 2,243 | $ | 1,582 | $ | 661 | 41.8 | % | $ | 6,245 | $ | 4,668 | $ | 1,577 | 33.8 | % | ||||||||||||||
| Operating expenses as % of sales | 3.4 | % | 4.1 | % | 4.0 | % | 4.5 | % | ||||||||||||||||||||||
Operating income (loss)(1) | $ | 17,115 | $ | 7,129 | $ | 9,986 | 140.1 | % | $ | 35,386 | $ | 17,666 | $ | 17,720 | 100.3 | % | ||||||||||||||
| Operating margin | 26.3 | % | 18.5 | % | 22.4 | % | 16.9 | % | ||||||||||||||||||||||
(1) At the segment level, operating income does not include an allocation of general and administrative expenses. | ||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | October 31, 2020 | October 31, 2019 | $ Change | % Change | October 31, 2020 | October 31, 2019 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 43,765 | $ | 56,406 | $ | (12,641) | (22.4) | % | $ | 113,415 | $ | 158,214 | $ | (44,799) | (28.3) | % | ||||||||||||||||||||||||||||||||||
| Gross profit | 9,986 | 10,714 | (728) | (6.8) | % | 20,890 | 32,258 | (11,368) | (35.2) | % | ||||||||||||||||||||||||||||||||||||||||
| Gross margin | 22.8 | % | 19.0 | % | 18.4 | % | 20.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | $ | 2,665 | $ | 2,240 | $ | 425 | 19.0 | % | $ | 7,497 | $ | 7,271 | $ | 226 | 3.1 | % | ||||||||||||||||||||||||||||||||||
| Operating expenses as % of sales | 6.1 | % | 4.0 | % | 6.6 | % | 4.6 | % | ||||||||||||||||||||||||||||||||||||||||||
Operating income(a) | $ | 7,321 | $ | 8,474 | $ | (1,153) | (13.6) | % | $ | 13,393 | $ | 24,987 | $ | (11,594) | (46.4) | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 16.7 | % | 15.0 | % | 11.8 | % | 15.8 | % | ||||||||||||||||||||||||||||||||||||||||||
(a) At the segment level, operating income does not include an allocation of general and administrative expenses. | ||||||||||||||||||||||||||||||||||||||||||||||||||
The following factors were the primary drivers of the three-three and nine-month year-over-year changes:
•Gross margin. For the three-month period, gross margin was 22.8%, increasing from 19.0% in the prior year comparative period. The completion of a $4.8 million FEMA contract during the quarter and operational efficiency improvements drove the increased gross margin for three-month period. For the nine-month period ending October 31, 2020, gross margin was down from 20.4% in the prior year to 18.4% in the current year. Negative operating leverage from lower sales volume along with lower selling prices drove the year-to-date decrease in gross margin.
•Operating expenses. As a percentage of net sales, operating expenses were 6.1% in the current year three-month period as compared to 4.0% in the prior year comparative period. As a percentage of net sales, operating expenses were 6.6% in the current year nine-month period as compared to 4.6% in the prior year comparative period. Despite ongoing efforts to reduce costs due to the uncertainty of the pandemic, lower sales and focused research and development expenditures to improve quality and production efficiencies to support Raven Composites™, drove the increase in
24
operating expenses as a percentage of net sales. In addition, the division increased their allowance for uncollectible accounts, contributing to the increase in operating expenses.
Aerostar
Aerostar serves the aerospace/commercial lighter-than-air and aerospace and defense and situational awareness markets. Aerostar designs and manufactures proprietaryAerostar's core products includinginclude high-altitude (stratospheric) balloon systems, tethered aerostats,stratospheric balloons and radar processing systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. Aerostar pursues product and support services contracts with agencies and instrumentalities of the U.S. government.
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | October 31, 2017 | October 31, 2016 | $ Change | % Change | October 31, 2017 | October 31, 2016 | $ Change | % Change | (dollars in thousands) | October 31, 2020 | October 31, 2019 | $ Change | % Change | October 31, 2020 | October 31, 2019 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 11,103 | $ | 9,003 | $ | 2,100 | 23.3 | % | $ | 30,078 | $ | 25,313 | $ | 4,765 | 18.8 | % | Net sales | $ | 18,010 | $ | 15,661 | $ | 2,349 | 15.0 | % | $ | 42,626 | $ | 41,040 | $ | 1,586 | 3.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 3,197 | 508 | 2,689 | 529.3 | % | 8,620 | 3,647 | 4,973 | 136.4 | % | Gross profit | 5,994 | 6,397 | (403) | (6.3) | % | 14,845 | 16,921 | (2,076) | (12.3) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 28.8 | % | 5.6 | % | 28.7 | % | 14.4 | % | Gross margin | 33.3 | % | 40.8 | % | 34.8 | % | 41.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | $ | 1,838 | $ | 1,796 | $ | 42 | 2.3 | % | $ | 4,455 | $ | 5,364 | $ | (909 | ) | (16.9 | )% | Operating expenses | $ | 3,217 | $ | 3,909 | $ | (692) | (17.7) | % | $ | 10,024 | $ | 9,494 | $ | 530 | 5.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses as % of sales | 16.6 | % | 19.9 | % | 14.8 | % | 21.2 | % | Operating expenses as % of sales | 17.9 | % | 25.0 | % | 23.5 | % | 23.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-lived asset impairment loss | — | 87 | (87 | ) | — | 87 | $ | (87 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss)(1) | $ | 1,359 | $ | (1,375 | ) | $ | 2,734 | (198.8 | )% | $ | 4,165 | $ | (1,804 | ) | $ | 5,969 | (330.9 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income(a) | Operating income(a) | $ | 2,777 | $ | 2,488 | $ | 289 | 11.6 | % | $ | 4,821 | $ | 7,427 | $ | (2,606) | (35.1) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating margin | 12.2 | % | (15.3 | )% | 13.8 | % | (7.1 | )% | Operating margin | 15.4 | % | 15.9 | % | 11.3 | % | 18.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) At the segment level, operating income does not include an allocation of general and administrative expenses. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) At the segment level, operating income does not include an allocation of general and administrative expenses. | (a) At the segment level, operating income does not include an allocation of general and administrative expenses. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||