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" or "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/defense markets. The Company is comprised of
three
unique operating units, or divisions, classified into reportable 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, 2019
.
Financial results for the interim
three
-month period ended
April 30, 2019
, are not necessarily indicative of the results that may be expected for the year ending January 31, 2020. The January 31, 2019, 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.
Noncontrolling interests represent capital contributions, income and loss attributable to the owners of less than wholly-owned consolidated entities. The Company owns a
75%
interest in an entity consolidated under the Aerostar business segment. Given the Company's controlling financial interest, the accounts of the business venture have been consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for the noncontrolling investor interest in the net assets and operations of the business venture.
(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, 2019, other than described in the Accounting Standards Adopted section below.
Accounting Pronouncements
Accounting Standards Adopted
In the fiscal 2020 first quarter, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)" (ASU 2016-02), issued in February 2016 and the subsequently-issued codification improvements to Topic 842. The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and liabilities by lessees for leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize a lease liability (to make lease payments) and a right-of-use asset (representing its right to use the underlying asset for the lease term) on the balance sheet with terms greater than 12 months. The Company adopted ASU 2016-02 on a modified retrospective basis for all agreements existing as of February 1, 2019. Prior comparative periods have not been adjusted and continue to be reported and disclosed under ASC Topic 840. This adoption did not have a material impact to the Company. As of February 1, 2019, the Company recognized a right-of-use asset for finance leases and operating leases of
$233
and
$3,807
, respectively and a current and non-current lease liability of
$1,446
and
$2,571
, respectively. As part of the adoption of ASU 2016-02, the Company elected the following practical expedient: short-term recognition exemption for all leases that qualify. Note disclosures required in Topic 842 are reported in Note 11
Leases
of the Notes to the Consolidated Financial Statements in this Form 10-Q.
New Accounting Standards Not Yet Adopted
In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606" (ASU 2018-18). The amendments in ASU 2018-18 clarify that certain transactions between participants in collaborative arrangements should be accounted for as revenue under Topic 606, "Revenue from Contracts with
(dollars in thousands, except per-share amounts)
Customers,"
and precludes certain transactions that are not with a customer from using Topic 606. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of this guidance is permitted in any interim period. The amendments should be applied retrospectively to the date Topic 606 was adopted. The Company is examining specific collaborative agreements to determine the impact, if any, the new guidance will have on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13). The amendments in ASU 2018-13 remove, modify and add disclosures for companies required to make disclosures about recurring or nonrecurring fair value measurements under Topic 820. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of this guidance is permitted; however, the Company has the option to delay the adoption of the additional disclosures required until the effective date. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The Company is evaluating the amendments in ASU 2018-13 to determine when it will adopt this guidance and the impact the guidance will have on the Company's disclosures for assets and liabilities reported at fair value on a recurring or nonrecurring basis.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). Current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring. The amendments in this 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 generally only considered past events and current conditions in measuring the incurred loss. The new standard is effective for annual reporting periods beginning after December 15, 2019. All entities may elect to early adopt ASU 2016-13 for annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of ASU 2016-13, including all subsequent amendments and improvements to ASC Topic 326 issued by FASB, will have on its consolidated financial statements and associated disclosures.
(dollars in thousands, except per-share amounts)
(3) SELECTED BALANCE SHEET INFORMATION
Following are the components of selected items from the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
January 31, 2019
|
Accounts receivable, net:
|
|
|
|
|
Trade accounts
|
|
$
|
62,539
|
|
|
$
|
53,820
|
|
Unbilled receivables
|
|
6,033
|
|
|
1,391
|
|
Allowance for doubtful accounts
|
|
(780
|
)
|
|
(739
|
)
|
|
|
$
|
67,792
|
|
|
$
|
54,472
|
|
Inventories:
|
|
|
|
|
Finished goods
|
|
7,980
|
|
|
7,629
|
|
In process
|
|
1,219
|
|
|
1,103
|
|
Materials
|
|
48,843
|
|
|
45,344
|
|
|
|
$
|
58,042
|
|
|
$
|
54,076
|
|
Other current assets:
|
|
|
|
|
Insurance policy benefit
|
|
318
|
|
|
336
|
|
Income tax receivable
|
|
1,418
|
|
|
1,045
|
|
Receivable from sale of investment
|
|
1,014
|
|
|
1,055
|
|
Prepaid expenses and other
|
|
4,513
|
|
|
6,300
|
|
|
|
$
|
7,263
|
|
|
$
|
8,736
|
|
Property, plant and equipment, net:
(a)
|
|
|
|
|
Land
|
|
$
|
3,234
|
|
|
$
|
3,234
|
|
Buildings and improvements
|
|
81,527
|
|
|
81,381
|
|
Machinery and equipment
|
|
156,745
|
|
|
155,463
|
|
Right-of-use assets - finance
|
|
665
|
|
|
—
|
|
Accumulated depreciation
|
|
(136,935
|
)
|
|
(133,724
|
)
|
|
|
105,236
|
|
|
106,354
|
|
Property, plant and equipment subject to capital leases:
|
|
|
|
|
Machinery and equipment
|
|
—
|
|
|
510
|
|
Accumulated amortization for capitalized leases
|
|
—
|
|
|
(249
|
)
|
|
|
$
|
105,236
|
|
|
$
|
106,615
|
|
Other assets:
|
|
|
|
|
Equity investments
|
|
$
|
1,223
|
|
|
$
|
345
|
|
Right-of-use assets - operating
|
|
3,420
|
|
|
—
|
|
Deferred income taxes
|
|
60
|
|
|
16
|
|
Other
|
|
2,921
|
|
|
2,963
|
|
|
|
$
|
7,624
|
|
|
$
|
3,324
|
|
Accrued liabilities:
|
|
|
|
|
Salaries and related
|
|
$
|
3,360
|
|
|
$
|
8,244
|
|
Benefits
|
|
5,097
|
|
|
4,751
|
|
Insurance obligations
|
|
1,856
|
|
|
1,963
|
|
Warranties
|
|
1,391
|
|
|
890
|
|
Income taxes
|
|
831
|
|
|
328
|
|
Other taxes
|
|
940
|
|
|
2,434
|
|
Acquisition-related contingent consideration
|
|
1,306
|
|
|
1,796
|
|
Lease liability
|
|
1,978
|
|
|
—
|
|
Other
|
|
2,678
|
|
|
3,072
|
|
|
|
$
|
19,437
|
|
|
$
|
23,478
|
|
Other liabilities:
|
|
|
|
|
Postretirement benefits
|
|
$
|
7,652
|
|
|
$
|
7,678
|
|
Acquisition-related contingent consideration
|
|
2,650
|
|
|
2,376
|
|
Lease liability
|
|
2,648
|
|
|
—
|
|
Deferred income taxes
|
|
3,211
|
|
|
1,659
|
|
Uncertain tax positions
|
|
2,681
|
|
|
2,670
|
|
Other
|
|
4,170
|
|
|
3,852
|
|
|
|
$
|
23,012
|
|
|
$
|
18,235
|
|
(a)
The amount of assets held for sale at April 30, 2019, and January 31, 2019, were not material.
(dollars in thousands, except per-share amounts)
(4) NET INCOME PER SHARE
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.
Certain outstanding options and restricted stock units were excluded from the diluted net income per 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 share calculation were as follows:
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30,
2019
|
|
April 30,
2018
|
Anti-dilutive options and restricted stock units
|
29,796
|
|
|
16,304
|
The computation of earnings per share is presented below:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30,
2019
|
|
April 30,
2018
|
Numerator:
|
|
|
|
Net income attributable to Raven Industries, Inc.
|
$
|
13,210
|
|
|
$
|
22,135
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted average common shares outstanding
|
35,962,066
|
|
|
35,826,096
|
|
Weighted average fully vested stock units outstanding
|
105,341
|
|
|
87,716
|
|
Denominator for basic calculation
|
36,067,407
|
|
|
35,913,812
|
|
|
|
|
|
Weighted average common shares outstanding
|
35,962,066
|
|
|
35,826,096
|
|
Weighted average fully vested stock units outstanding
|
105,341
|
|
|
87,716
|
|
Dilutive impact of stock options and restricted stock units
|
325,831
|
|
|
466,768
|
|
Denominator for diluted calculation
|
36,393,238
|
|
|
36,380,580
|
|
|
|
|
|
Net income per share ─ basic
|
$
|
0.37
|
|
|
$
|
0.62
|
|
Net income per share ─ diluted
|
$
|
0.36
|
|
|
$
|
0.61
|
|
(5) REVENUE
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.
(dollars in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Product Category
|
|
Three Months Ended April 30, 2019
|
|
Three Months Ended April 30, 2018
|
|
ATD
|
EFD
|
AERO
|
ELIM
(a)
|
Total
|
|
ATD
|
EFD
|
AERO
|
ELIM
(a)
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
$
|
—
|
|
$
|
7,029
|
|
$
|
—
|
|
$
|
7,029
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,548
|
|
$
|
—
|
|
$
|
6,548
|
|
International
|
—
|
|
—
|
|
34
|
|
—
|
|
34
|
|
|
—
|
|
—
|
|
454
|
|
—
|
|
454
|
|
Plastic Films & Sheeting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
41,762
|
|
—
|
|
(29
|
)
|
41,733
|
|
|
—
|
|
55,297
|
|
—
|
|
(194
|
)
|
55,103
|
|
International
|
—
|
|
2,530
|
|
—
|
|
—
|
|
2,530
|
|
|
—
|
|
4,695
|
|
—
|
|
—
|
|
4,695
|
|
Precision Agriculture Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
29,584
|
|
—
|
|
—
|
|
—
|
|
29,584
|
|
|
29,525
|
|
—
|
|
—
|
|
—
|
|
29,525
|
|
International
|
12,141
|
|
—
|
|
—
|
|
—
|
|
12,141
|
|
|
10,905
|
|
—
|
|
—
|
|
—
|
|
10,905
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
—
|
|
5,122
|
|
—
|
|
5,122
|
|
|
—
|
|
—
|
|
3,899
|
|
—
|
|
3,899
|
|
International
|
—
|
|
—
|
|
5
|
|
—
|
|
5
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Totals
|
$
|
41,725
|
|
$
|
44,292
|
|
$
|
12,190
|
|
$
|
(29
|
)
|
$
|
98,178
|
|
|
$
|
40,430
|
|
$
|
59,992
|
|
$
|
10,901
|
|
$
|
(194
|
)
|
$
|
111,129
|
|
(a)
Intersegment sales for both fiscal 2020 and 2019 were primarily sales from Engineered Films to Aerostar.
Contract Balances
Contract balances consist of contract assets and contract liabilities. Contract assets primarily relate to the Company’s rights to consideration for work completed but not yet billed for at the reporting date, or retainage provisions on billings that have been issued. Contract liabilities primarily relate to consideration received from customers prior to transferring goods or services to the customer. Contract assets and contract liabilities are reported in "Accounts receivable, net" and "Other current liabilities" in the Consolidated Balance Sheets, respectively.
During the three months ended April 30, 2019, the Company’s contract assets and liabilities increased by
$4,642
and
$1,536
, respectively. The increase was primarily a result of the contract terms which include timing of customer payments, timing of invoicing, and progress made on open contracts. Due to the short-term nature of the Company’s contracts, substantially all contract liabilities are recognized as revenue during the twelve months thereafter. Changes in our contract assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2019
|
|
January 31,
2019
|
|
$ Change
|
% Change
|
Contract assets
|
$
|
6,669
|
|
|
$
|
2,027
|
|
|
$
|
4,642
|
|
229.0
|
%
|
|
|
|
|
|
|
|
Contract liabilities
|
$
|
2,839
|
|
|
$
|
1,303
|
|
|
$
|
1,536
|
|
117.9
|
%
|
Remaining Performance Obligations
As of April 30, 2019, the Company did not have any remaining performance obligations related to customer contracts with an original expected duration of one year or more. Revenue recognized during the three-month period ending April 30, 2019, from performance obligations satisfied in the prior period were not material.
(6) ACQUISITIONS AND DIVESTITURES OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Fiscal year 2020
There were
no
significant business acquisitions and divestitures or purchases of technologies in the three-month period ended April 30, 2019.
Fiscal year 2019
On
January 1, 2019
, the Company completed the acquisition of substantially all of the assets ("AgSync Acquisition") of
AgSync Inc.
("AgSync"), an Indiana corporation, headquartered in Wakarusa, Indiana. This acquisition was aligned under the Company’s Applied Technology Division and is expected to enhance its Slingshot® platform by delivering a more seamless logistics solution
(dollars in thousands, except per-share amounts)
for ag retailers, aerial applicators, custom applicators and enterprise farms. The AgSync Acquisition constitutes a business and, as such, was accounted for as a business combination; however, the business combination was not significant enough to warrant pro-forma financial information.
The purchase price was approximately
$9,700
, which includes potential earn-out payments with an estimated fair value of
$2,052
. The earn-out is contingent upon achieving certain revenue milestones. The purchase price of the business acquired was allocated 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, which is fully tax deductible. The Company completed the valuation and the purchase price allocation during the first quarter of fiscal 2020. This resulted in an adjustment in the fiscal 2020 first quarter that increased the purchase price and the estimated fair value of the contingent earn-outs payments by approximately
$300
. The goodwill and identifiable intangible assets recorded as part of the purchase price allocation at April 30, 2019, were
$4,526
and
$5,700
, respectively.
During the first quarter of fiscal 2019, Aerostar sold its client private business for
$832
, which resulted in an immaterial gain in the three-months ended April 30, 2018. In fiscal 2018, Aerostar actively marketed the sale of its client private business and as such, classified it as held for sale.
In the first quarter of fiscal 2019, the Company sold its ownership interest of approximately
22%
in Site-Specific Technology Development Group, Inc. (
SST
) with a carrying value of
$1,937
. This investment was being accounted for as an equity method investment. Raven received
$6,556
in cash at closing which was reported as "Proceeds from sale or maturity of investments" in the Consolidated Statements of Cash Flows. The Company recognized a gain on the sale of
$5,785
for the three-months ended April 30, 2018. The gain was reported in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income. The gain included a fifteen percent hold-back provision held in an escrow account and is expected to be paid in fiscal 2020.
Acquisition-related Contingent Consideration
The Company has contingent liabilities related to the acquisition of AgSync in fiscal 2019 as well as prior acquisitions of Colorado Lining International, Inc. (CLI) in fiscal 2018; SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG) in fiscal 2015; and Aerostar Technical Solutions, Inc. (ATS), formerly named Vista Research, Inc. or "Vista," completed in fiscal 2012. 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 subject 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
|
|
April 30,
2019
|
|
April 30,
2018
|
Beginning balance
|
$
|
4,172
|
|
|
$
|
3,046
|
|
Fair value of contingent consideration acquired
|
310
|
|
|
—
|
|
Change in fair value of the liability
|
94
|
|
|
152
|
|
Contingent consideration earn-out paid
|
(620
|
)
|
|
(295
|
)
|
Ending balance
|
$
|
3,956
|
|
|
$
|
2,903
|
|
|
|
|
|
Classification of liability in the consolidated balance sheet
|
|
|
|
Accrued liabilities
|
$
|
1,306
|
|
|
$
|
1,483
|
|
Other liabilities, long-term
|
2,650
|
|
|
1,420
|
|
Balance at April 30
|
$
|
3,956
|
|
|
$
|
2,903
|
|
For the AgSync Acquisition, 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
no
payments on this potential earn-out liability as of April 30, 2019.
In the acquisition of CLI, 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 revenues and operational synergies. To date, the Company has paid a total of
$667
of this potential earn-out liability.
(dollars in thousands, except per-share amounts)
In connection with the acquisition of SBG, Raven is committed to making additional earn-out payments, not to exceed
$2,500
, calculated and paid quarterly for
ten years
after the purchase date, contingent upon achieving certain revenues. To date, the Company has paid a total of
$1,564
of this potential earn-out liability.
Related to the acquisition of ATS in
2012
, the Company was committed to making annual payments based upon earn-out percentages on specific revenue streams for
seven years
after the purchase date. The Company made the final payment in the first quarter of fiscal 2020 and has
no
further contingent obligations related to acquisition of ATS.
(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 first quarter of fiscal 2020 and determined that no triggering events had occurred for any of the Company's reporting units. There were
no
goodwill impairment losses reported in the
three
-month periods ending
April 30, 2019
and 2018, respectively.
The changes in the carrying amount of goodwill by reporting unit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applied
Technology
|
|
Engineered
Films
|
|
Aerostar
|
|
Total
|
Balance at January 31, 2019
|
|
$
|
17,076
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
50,942
|
|
Changes due to business combinations
|
|
(33
|
)
|
|
—
|
|
|
—
|
|
|
(33
|
)
|
Foreign currency translation adjustment
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
Balance at April 30, 2019
|
|
$
|
16,979
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
50,845
|
|
Long-lived Assets and Other Intangibles
The Company assesses the recoverability of long-lived assets, including definite-lived intangibles and property plant and equipment, if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, management performs impairment reviews by asset 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 estimated undiscounted cash flows used in determining the fair value of the asset are less than its carrying amount.
Fiscal 2020 and 2019
Management performed an assessment in the fiscal 2020 and fiscal 2019 first quarter and determined that there were no impairment indicators identified for any of the Company's asset groups. There were
no
long-lived asset impairment losses reported in the
three
-month period ending
April 30, 2019
and 2018, respectively.
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
January 31, 2019
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
Amount
|
amortization
|
Net
|
|
Amount
|
amortization
|
Net
|
Existing technology
|
$
|
9,179
|
|
$
|
(7,345
|
)
|
$
|
1,834
|
|
|
$
|
9,203
|
|
$
|
(7,216
|
)
|
$
|
1,987
|
|
Customer relationships
|
16,076
|
|
(5,848
|
)
|
10,228
|
|
|
15,791
|
|
(5,508
|
)
|
10,283
|
|
Patents and other intangibles
|
5,941
|
|
(2,025
|
)
|
3,916
|
|
|
5,908
|
|
(1,885
|
)
|
4,023
|
|
Total
|
$
|
31,196
|
|
$
|
(15,218
|
)
|
$
|
15,978
|
|
|
$
|
30,902
|
|
$
|
(14,609
|
)
|
$
|
16,293
|
|
(dollars in thousands, except per-share amounts)
(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
|
|
April 30,
2019
|
|
April 30,
2018
|
Service cost
|
$
|
7
|
|
|
$
|
7
|
|
Interest cost
|
83
|
|
|
79
|
|
Amortization of actuarial losses
|
24
|
|
|
32
|
|
Amortization of unrecognized gains in prior service cost
|
(40
|
)
|
|
(40
|
)
|
Net periodic benefit cost
|
$
|
74
|
|
|
$
|
78
|
|
Postretirement benefit cost components are reclassified in their entirety from accumulated other comprehensive loss to net periodic benefit cost. Net periodic benefit costs are reported in net income in accordance with ASU 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Postretirement Benefit Cost." Service cost is reported in net income as “Cost of sales” or “Selling, general, and administrative expenses” in a manner consistent with the classification of direct labor and personnel costs of the eligible employees. Interest cost, amortization of actuarial gains or losses, and amortization of prior service cost 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
|
|
April 30,
2019
|
|
April 30,
2018
|
Beginning balance
|
$
|
890
|
|
|
$
|
1,163
|
|
Change in provision
|
822
|
|
|
157
|
|
Settlements made
|
(321
|
)
|
|
(223
|
)
|
Ending balance
|
$
|
1,391
|
|
|
$
|
1,097
|
|
(10) FINANCING ARRANGEMENTS
The Company entered into a credit facility on
April 15, 2015
, with JPMorgan Chase Bank, N.A., Toronto Branch as Canadian Administrative Agent, JPMorgan Chase Bank, National Association, as administrative agent, and each lender from time to time a party thereto (the Credit Agreement). The Credit Agreement provides for a syndicated senior revolving credit facility up to
$125,000
with a maturity date of
April 15, 2020
. Loan proceeds may be utilized by Raven for strategic business purposes, such as business acquisitions, and for net working capital needs. The Company expects to enter into a new credit facility prior to the Credit Agreement maturing in fiscal 2021.
Simultaneous with execution of the Credit Agreement, Raven and its subsidiaries entered into a guaranty agreement in favor of JPMorgan Chase Bank, National Association in its capacity as administrator under the Credit Agreement for the benefit of JPMorgan Chase Bank, N.A., Toronto Branch and the lenders and their affiliates under the Credit Agreement.
The unamortized debt issuance costs associated with this Credit Agreement were as follows:
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
January 31, 2019
|
Unamortized debt issuance costs
(a)
|
$
|
105
|
|
|
$
|
132
|
|
(a)
Unamortized debt issuance costs are amortized over the term of the Credit Agreement and are reported as "Other assets" in the Consolidated Balance Sheets.
(dollars in thousands, except per-share amounts)
Loans or borrowings defined under the Credit Agreement bear interest and fees at varying rates and terms defined in the Credit Agreement based on the type of borrowing as defined. The Credit Agreement includes annual administrative and unborrowed capacity fees. The Credit Agreement also contains customary affirmative and negative covenants, including those relating to financial reporting and notification, limits on levels of indebtedness and liens, investments, mergers and acquisitions, affiliate transactions, sales of assets, restrictive agreements, and change in control as defined in the Credit Agreement. Financial covenants include an interest coverage ratio and funded indebtedness to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement.
Letters of credit (LOC) issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
January 31, 2019
|
Letters of credit outstanding
(a)
|
$
|
314
|
|
|
$
|
514
|
|
(a)
Any draws required under the LOC would be settled with available cash or borrowings under the Credit Agreement.
There were
no
borrowings under the Credit Agreement for any of the fiscal periods covered by this Quarterly Report on Form 10-Q. Availability under the Credit Agreement for borrowings as of
April 30, 2019
, was
$124,736
.
(11) LEASES
The Company enters into operating and finance lease contracts related to facilities, vehicles and equipment. Operating leases are primarily related to facilities to support production, research and development, and sales efforts. Finance leases are primarily related to vehicles and equipment to support general business operations. Lease payments are typically fixed and carry lease terms of one to
six years
, some of which have an option to terminate or extend up to an additional
ten years
. For purposes of the quantitative disclosures below related to the calculation of operating and finance leases, lease terms did not include options to terminate or extend, as the Company is reasonably certain it would not exercise the options. Most of the Company's leases do not contain a purchase option, material residual value guarantee, or material restrictive covenants.
The Company is primarily a lessee in all lease arrangements but may become a lessor and lease or sublease certain assets to other entities if not fully utilized. These lessor activities are not material and are not separately disclosed.
To determine whether a contract is or contains a lease, the Company assessed its right to control the use of the identified asset, whether explicitly or implicitly stated, for a period of time while considering all facts and circumstances for each individual arrangement. The Company also has leases with non-lease components which are separately stated within the agreement and not included in the recognition of the right-of use asset and lease liability balances.
The discount rate used to calculate the present value of the lease liabilities is based upon the implied rate within each contract. If the rate is unknown or cannot be determined, the Company uses an incremental borrowing rate, which is determined by the length of the contract, asset class, and the Company's borrowing rates as of the commencement date of the contract.
Components of Company lease costs, including operating, finance, and short-term leasing are included in the table below. Depreciation of right-of-use assets, operating leases cost, and short-term lease costs are reported in net income as "Cost of sales," "Research and development expenses," or "Selling, general, and administrative expenses," depending on what business function the asset primarily supports. Interest on lease liabilities
are classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.
(dollars in thousands, except per-share amounts)
|
|
|
|
|
|
Three Months Ended
April 30, 2019
|
Lease Costs:
|
|
Finance Leases
|
|
Depreciation of right-of-use assets
|
$
|
95
|
|
Interest on lease liabilities
|
5
|
|
Total finance lease cost
|
$
|
100
|
|
|
|
Operating Leases
|
|
Operating lease cost
|
$
|
360
|
|
Short-term lease cost
|
105
|
|
Total operating lease cost
|
$
|
465
|
|
Total finance and operating lease cost
|
$
|
565
|
|
Supplemental unaudited balance sheet information related to operating and finance leases include:
|
|
|
|
|
|
April 30, 2019
|
Operating Leases
|
|
Operating lease right-of-use assets
|
$
|
3,420
|
|
|
|
Current lease liability
|
$
|
1,689
|
|
Non-current lease liability
|
2,367
|
|
Total operating lease liabilities
|
$
|
4,056
|
|
|
|
Finance Leases
|
|
Property, plant and equipment, at cost
|
$
|
665
|
|
Accumulated depreciation
|
(95
|
)
|
Property, plant and equipment, net
|
$
|
570
|
|
|
|
Current lease liability
|
$
|
289
|
|
Non-current lease liability
|
281
|
|
Total finance lease liabilities
|
$
|
570
|
|
Weighted average remaining lease terms and discount rates include:
|
|
|
|
|
April 30, 2019
|
Weighted Average Remaining Lease Term:
|
|
Operating leases
|
3 years
|
|
Finance leases
|
2 years
|
|
Weighted Average Discount Rate:
|
|
Operating leases
|
3.5
|
%
|
Finance leases
|
3.5
|
%
|
(dollars in thousands, except per-share amounts)
Supplemental unaudited cash flow information related to operating and finance leases include:
|
|
|
|
|
|
Three Months Ended
April 30, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
360
|
|
Operating cash flows from finance leases
|
5
|
|
Financing cash flows from finance leases
|
95
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Finance leases
|
$
|
190
|
|
Operating leases
|
—
|
|
Future operating and finance lease obligations that have not yet commenced as of April 30, 2019, were immaterial and excluded from the lease liability schedule below accordingly.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30, 2019
|
|
|
Operating Leases
|
|
Finance Leases
|
Remainder of Fiscal 2020
|
|
$
|
1,353
|
|
|
$
|
284
|
|
Fiscal 2021
|
|
1,844
|
|
|
184
|
|
Fiscal 2022
|
|
679
|
|
|
101
|
|
Fiscal 2023
|
|
315
|
|
|
36
|
|
Fiscal 2024
|
|
99
|
|
|
6
|
|
Thereafter
|
|
—
|
|
|
—
|
|
Total lease payments
|
|
$
|
4,290
|
|
|
$
|
611
|
|
Less imputed interest
|
|
(234
|
)
|
|
(41
|
)
|
Total lease liabilities
|
|
$
|
4,056
|
|
|
$
|
570
|
|
Prior to the Company's adoption of ASU 2016-02 in the first quarter of fiscal year 2020, future minimum lease payments reported in the Company’s Annual Report on Form 10-K for the year ended January 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
January 31, 2019
|
|
|
Operating Leases
|
|
Capital Leases
|
Fiscal 2020
|
|
$
|
2,213
|
|
|
$
|
182
|
|
Fiscal 2021
|
|
1,939
|
|
|
102
|
|
Fiscal 2022
|
|
728
|
|
|
44
|
|
Fiscal 2023
|
|
356
|
|
|
2
|
|
Fiscal 2024
|
|
140
|
|
|
—
|
|
Thereafter
|
|
—
|
|
|
—
|
|
Total lease payments
|
|
$
|
5,376
|
|
|
$
|
330
|
|
Less amount representing estimated executory costs such as taxes, license and insurance including profit thereon.
|
|
|
|
(14
|
)
|
Less amounts representing interest
|
|
|
|
(32
|
)
|
Present value of net minimum lease payments
|
|
|
|
$
|
284
|
|
(dollars in thousands, except per-share amounts)
(12) 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; potential costs and liabilities of which cannot be determined at this time. Management does not believe the ultimate outcomes of its legal proceedings are likely to be material to its results of operations, financial position, or cash flows. In addition, the Company has insurance policies that provide coverage to various degrees for potential liabilities arising from legal proceedings.
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 by South Dakota State University (SDSU), located in Brookings, SD, for the establishment of a precision agriculture facility to support SDSU's Precision Agriculture degrees and curriculum. This facility will assist the Company in further collaboration with faculty, staff and students on emerging technology in support of the growing need for precision agriculture practices and tools.
The Agreement states that the Company will make a
$5,000
gift to the Foundation, conditional on certain actions. Management concluded that the contingencies related to this gift were substantially met during the three-month period ended April 30, 2018, and a liability had been incurred. As such,
$4,503
of selling, general, and administrative expense was recognized in the three-month period ending April 30, 2018, with interest expense to be recognized in periods thereafter. The fair value of this contingency at
April 30, 2019
, was
$3,230
(measured based on the present value of the expected future cash outflows), of which
$697
was classified as "Accrued liabilities" and
$2,533
was classified as "Other liabilities." As of April 30, 2019, the Company has made payments related to the commitment totaling
$1,430
.
In addition to commitments disclosed elsewhere in the Notes to the 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.
(13) INCOME TAXES
The Company’s effective tax rate varies from the federal statutory rate, primarily due to state and local taxes, research and development tax credit, foreign-derived intangible income deduction, and tax-exempt insurance premiums. The Company’s effective tax rates were as follows:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30,
2019
|
|
April 30,
2018
|
Effective tax rate
|
12.2
|
%
|
|
18.6
|
%
|
The decrease in the effective tax rate year-over-year is primarily due to discrete items in the current year. The Company’s effective tax rates, excluding discrete items, in the three-month periods ended April 30, 2019, and 2018, were
20.0 percent
and
19.5 percent
, respectively.
The Company’s total discrete tax items for both three-month periods in the table below relate to the vesting or settlement of equity awards.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30,
2019
|
|
April 30,
2018
|
Total discrete tax benefit
|
$
|
1,168
|
|
|
$
|
243
|
|
The Company operates both domestically and internationally. As of April 30, 2019, undistributed earnings from the Company's foreign subsidiaries were considered to have been reinvested indefinitely.
(dollars in thousands, except per-share amounts)
(14) DIVIDENDS AND TREASURY STOCK
Dividends paid to Raven shareholders were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30,
2019
|
|
April 30,
2018
|
Dividends paid
(a)
|
$
|
4,682
|
|
|
$
|
4,658
|
|
|
|
|
|
Dividends paid per share (in cents per share)
(a)
|
13.0
|
|
|
13.0
|
|
(a)
There were
no
declared and unpaid shareholder dividends at
April 30, 2019
or 2018.
On November 3, 2014, the Company announced that its Board of Directors ("Board") had authorized a
$40,000
stock buyback program. Since that time, the Board has provided additional authorizations to increase the total amount authorized under the program to
$75,000
. This authorization remains in place until the authorized spending limit is reached or such authorization is revoked by the Board.
Pursuant to these authorizations, the Company repurchased
60,700
shares for
$2,281
in the three-month period ended
April 30, 2019
. There were
no
shares repurchased in the three-month period ended
April 30, 2018
. There were
no
share repurchases unpaid at April 30, 2019, or April 30, 2018.
The remaining dollar value authorized for share repurchases at
April 30, 2019
, is
$25,679
.
(15) SHARE-BASED COMPENSATION
Share-based compensation expense is recognized based on the fair value of the share-based awards expected to vest during the period.
The share-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30, 2019
|
|
April 30, 2018
|
Cost of sales
|
$
|
76
|
|
|
$
|
80
|
|
Research and development expenses
|
35
|
|
|
31
|
|
Selling, general, and administrative expenses
|
671
|
|
|
676
|
|
Total stock-based compensation expense
|
$
|
782
|
|
|
$
|
787
|
|
(16) SEGMENT REPORTING
The Company's operating segments, which are also its reportable segments, are defined by their product lines which have been generally grouped based on technology, manufacturing processes, and end-use application. The Company's reportable segments are Applied Technology Division, Engineered Films Division, and Aerostar Division. Separate financial information is available for each reportable segment and regularly evaluated by the Company's chief operating decision-maker, 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.
(dollars in thousands, except per-share amounts)
Business segment financial performance and other information is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 30,
2019
|
|
April 30,
2018
|
Net sales
|
|
|
|
Applied Technology
|
$
|
41,725
|
|
|
$
|
40,430
|
|
Engineered Films
(a)
|
44,292
|
|
|
59,992
|
|
Aerostar
|
12,190
|
|
|
10,901
|
|
Intersegment eliminations
(b)
|
(29
|
)
|
|
(194
|
)
|
Consolidated net sales
|
$
|
98,178
|
|
|
$
|
111,129
|
|
|
|
|
|
Operating income
(c)
|
|
|
|
Applied Technology
|
$
|
13,236
|
|
|
$
|
15,948
|
|
Engineered Films
|
6,363
|
|
|
13,196
|
|
Aerostar
|
1,996
|
|
|
2,805
|
|
Intersegment eliminations
|
1
|
|
|
(15
|
)
|
Total reportable segment income
|
21,596
|
|
|
31,934
|
|
General and administrative expenses
(c)
|
(6,475
|
)
|
|
(10,403
|
)
|
Consolidated operating income
|
$
|
15,121
|
|
|
$
|
21,531
|
|
(a)
Hurricane recovery film sales for the three-month period ended April 30, 2019 and 2018, were
$17
and
$8,919
, respectively.
(b)
Intersegment sales for both fiscal 2020 and 2019 were primarily sales from Engineered Films to Aerostar.
(c)
At the segment level, operating income does not include an allocation of general and administrative expenses and, as a result, "General and administrative expenses" are reported as a deduction from "Total reportable segment income" to reconcile to "Operating income" reported in the Consolidated Statements of Income and Comprehensive Income.
(17) 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.