Quarterly Report (10-q)

Date : 08/22/2019 @ 8:30PM
Source : Edgar (US Regulatory)
Stock : Raven Industries Inc (RAVN)
Quote : 35.295  -0.075 (-0.21%) @ 11:00PM
After Hours
Last Trade
Last $ 35.30 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2019
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)
CORPLOGOA25.JPG
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)
(605336-2750
(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 every Interactive Data File required to be submitted 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 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 reporting 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ No
As of August 16, 2019, there were 35,927,047 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
 
 
 
 
 
 
3
4
5
7
8
21
31
31
 
 
 
 
 
32
32
32
32
Item 4. Mine Safety Disclosures
32
32
33
34




PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars and shares in thousands, except per-share data)
July 31,
2019
 
January 31,
2019
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
69,131

 
$
65,787

Accounts receivable, net
60,700

 
54,472

Inventories
61,311

 
54,076

Other current assets
8,727

 
8,736

Total current assets
199,869

 
183,071

 
 
 
 
Property, plant and equipment, net
104,654

 
106,615

Goodwill
50,827

 
50,942

Amortizable intangible assets, net
15,373

 
16,293

Other assets
5,789

 
3,324

TOTAL ASSETS
$
376,512

 
$
360,245

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
15,722

 
$
8,272

Accrued liabilities
21,292

 
23,478

Other current liabilities
1,704

 
1,303

Total current liabilities
38,718

 
33,053

 
 
 
 
Other liabilities
22,816

 
18,235

 
 
 
 
Commitments and contingencies (see Note 12)

 

 
 
 
 
Shareholders' equity
 
 
 
Common stock, $1 par value, authorized shares 100,000; issued 67,420 and 67,289, respectively
67,420

 
67,289

Paid-in capital
59,127

 
59,655

Retained earnings
298,496

 
285,969

Accumulated other comprehensive income (loss)
(3,884
)
 
(3,556
)
Treasury stock at cost, 31,496 and 31,332 shares, respectively
(106,183
)
 
(100,402
)
Total Raven Industries, Inc. shareholders' equity
314,976

 
308,955

Noncontrolling interest
2

 
2

Total shareholders' equity
314,978

 
308,957

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
376,512

 
$
360,245


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
 
Six Months Ended
(dollars in thousands, except per-share data)
July 31,
2019
 
July 31,
2018
 
July 31,
2019
 
July 31,
2018
Net sales
$
98,058

 
$
102,684

 
$
196,236

 
$
213,813

Cost of sales
66,720

 
68,076

 
129,832

 
139,207

Gross profit
31,338

 
34,608

 
66,404

 
74,606

 
 
 
 
 
 
 
 
Research and development expenses
7,067

 
6,151

 
14,338

 
11,436

Selling, general, and administrative expenses
13,701

 
11,828

 
26,375

 
25,010

Operating income
10,570

 
16,629

 
25,691

 
38,160

 
 
 
 
 
 
 
 
Other income (expense), net
383

 
(139
)
 
314

 
5,540

Income before income taxes
10,953

 
16,490

 
26,005

 
43,700

 
 
 
 
 
 
 
 
Income tax expense
2,187

 
2,769

 
4,029

 
7,832

Net income
8,766

 
13,721

 
21,976

 
35,868

 
 
 
 
 
 
 
 
Net income (loss) attributable to the noncontrolling interest

 
44

 

 
56

 
 
 
 
 
 
 
 
Net income attributable to Raven Industries, Inc.
$
8,766

 
$
13,677

 
$
21,976

 
$
35,812

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
      ─ Basic
$
0.24

 
$
0.38

 
$
0.61

 
$
1.00

      ─ Diluted
$
0.24

 
$
0.38

 
$
0.60

 
$
0.98

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
 
 
Net income
$
8,766

 
$
13,721

 
$
21,976

 
$
35,868

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
1

 
(357
)
 
(303
)
 
(837
)
Postretirement benefits, net of income tax benefit of $3, $2, $7, and $4 respectively
(13
)
 
(6
)
 
(25
)
 
(12
)
Other comprehensive income (loss), net of tax
(12
)
 
(363
)
 
(328
)
 
(849
)
 
 
 
 
 
 
 
 
Comprehensive income (loss)
8,754

 
13,358

 
21,648

 
35,019

 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to noncontrolling interest

 
44

 

 
56

 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Raven Industries, Inc.
$
8,754

 
$
13,314

 
$
21,648

 
$
34,963


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 July 31, 2019
 
$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 April 30, 2019
$
67,417

$
57,369

31,393

$
(102,683
)
$
294,450

$
(3,872
)
$
312,681

$
2

$
312,683

Net income




8,766


8,766


8,766

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Cumulative foreign currency translation adjustment





1

1


1

Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $3





(13
)
(13
)
 
(13
)
Cash dividends ($0.13 per share)

49



(4,720
)

(4,671
)

(4,671
)
Shares issued on stock options exercised, net of shares withheld for employee taxes
3

(57
)




(54
)

(54
)
Shares issued on vesting of stock units, net of shares withheld for employee taxes









Shares repurchased


103

(3,500
)


(3,500
)

(3,500
)
Share-based compensation

1,766





1,766


1,766

Balance July 31, 2019
$
67,420

$
59,127

31,496

$
(106,183
)
$
298,496

$
(3,884
)
$
314,976

$
2

$
314,978

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended July 31, 2019
 
$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, 2019
$
67,289

$
59,655

31,332

$
(100,402
)
$
285,969

$
(3,556
)
$
308,955

$
2

$
308,957

Net income




21,976


21,976


21,976

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Cumulative foreign currency translation adjustment





(303
)
(303
)

(303
)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $7





(25
)
(25
)

(25
)
Cash dividends ($0.26 per share)

96



(9,449
)

(9,353
)

(9,353
)
Shares issued on stock options exercised, net of shares withheld for employee taxes
29

(750
)




(721
)

(721
)
Shares issued on vesting of stock units, net of shares withheld for employee taxes
102

(2,422
)




(2,320
)

(2,320
)
Shares repurchased


164

(5,781
)


(5,781
)

(5,781
)
Share-based compensation

2,548





2,548


2,548

Balance July 31, 2019
$
67,420

$
59,127

31,496

$
(106,183
)
$
298,496

$
(3,884
)
$
314,976

$
2

$
314,978

 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.






#5

                           

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
 
Three Months Ended July 31, 2018
 
$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 April 30, 2018
$
67,177

$
59,157

31,332

$
(100,402
)
$
270,479

$
(3,339
)
$
293,072

$
14

$
293,086

Net income




13,677


13,677

44

13,721

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Cumulative foreign currency translation adjustment





(357
)
(357
)

(357
)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $2





(6
)
(6
)

(6
)
Cash dividends ($0.13 per share)

50



(4,718
)

(4,668
)

(4,668
)
Shares issued on stock options exercised, net of shares withheld for employee taxes
51

(1,185
)




(1,134
)

(1,134
)
Shares issued on vesting of stock units, net of shares withheld for employee taxes
1

(27
)




(26
)

(26
)
Share-based compensation

1,494





1,494


1,494

Balance July 31, 2018
$
67,229

$
59,489

31,332

$
(100,402
)
$
279,438

$
(3,702
)
$
302,052

$
58

$
302,110

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended July 31, 2018
 
$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, 2018
$
67,124

$
59,143

31,332

$
(100,402
)
$
252,772

$
(2,573
)
$
276,064

$
2

$
276,066

Net income




35,812


35,812

56

35,868

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Cumulative foreign currency translation adjustment





(837
)
(837
)

(837
)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4





(12
)
(12
)

(12
)
Reclassification due to ASU 2018-02 adoption





280

(280
)



Cash dividends ($0.26 per share)

100



(9,426
)

(9,326
)

(9,326
)
Shares issued on stock options exercised, net of shares withheld for employee taxes
63

(1,314
)




(1,251
)

(1,251
)
Shares issued on vesting of stock units, net of shares withheld for employee taxes
42

(721
)




(679
)

(679
)
Share-based compensation

2,281





2,281


2,281

Balance July 31, 2018
$
67,229

$
59,489

31,332

$
(100,402
)
$
279,438

$
(3,702
)
$
302,052

$
58

$
302,110

 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.


#6

                           

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Six Months Ended
(dollars in thousands)
July 31,
2019
 
July 31,
2018
OPERATING ACTIVITIES:
 
 
 
Net income
$
21,976

 
$
35,868

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
8,122

 
7,401

Change in fair value of acquisition-related contingent consideration
243

 
403

Gain from sale of equity method investment

 
(5,785
)
Deferred income taxes
1,575

 
(439
)
Share-based compensation expense
2,548

 
2,281

Other operating activities, net
1,544

 
(1,987
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable
(6,762
)
 
(2,982
)
Inventories
(7,326
)
 
(792
)
Other assets
107

 
74

Operating liabilities
4,133

 
4,610

Net cash provided by operating activities
26,160

 
38,652

 
 
 
 
INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(3,784
)
 
(6,853
)
Proceeds from sale or maturity of investments
993

 
6,668

Purchases of investments
(907
)
 
(164
)
Proceeds (disbursements) from sale of assets, settlement of liabilities

 
832

Other investing activities
20

 
(1,971
)
Net cash used in investing activities
(3,678
)
 
(1,488
)
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
Dividends paid
(9,353
)
 
(9,326
)
Payments for common shares repurchased
(5,781
)
 

Payments of acquisition-related contingent liability
(717
)
 
(499
)
Restricted stock unit issuances
(2,320
)
 
(679
)
Employee stock option exercises
(722
)
 
(1,251
)
Other financing activities
(199
)
 
(102
)
Net cash used in financing activities
(19,092
)
 
(11,857
)
 
 
 
 
Effect of exchange rate changes on cash
(46
)
 
(403
)
 
 
 
 
Net increase in cash and cash equivalents
3,344

 
24,904

Cash and cash equivalents at beginning of year
65,787

 
40,535

Cash and cash equivalents at end of period
$
69,131

 
$
65,439


The accompanying notes are an integral part of the unaudited consolidated financial statements.

#7


(dollars in thousands, except per-share amounts)


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" 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- and six-month period ended July 31, 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

#8


(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. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The Company is currently evaluating the impact of the adoption of ASU 2018-13 to determine 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.


#9


(dollars in thousands, except per-share amounts)


(3) SELECTED BALANCE SHEET INFORMATION

Following are the components of selected items from the Consolidated Balance Sheets:
 
 
July 31, 2019
 
January 31, 2019
Accounts receivable, net:
 
 
 
 
     Trade accounts
 
$
58,032

 
$
53,820

     Unbilled receivables
 
3,802

 
1,391

     Allowance for doubtful accounts
 
(1,134
)
 
(739
)
 
 
$
60,700

 
$
54,472

Inventories:
 
 
 
 
Finished goods
 
7,274

 
7,629

In process
 
2,481

 
1,103

Materials
 
51,556

 
45,344

 

$
61,311


$
54,076

Other current assets:
 
 
 
 
Insurance policy benefit
 
73

 
336

     Income tax receivable
 
2,837

 
1,045

Receivable from sale of investment
 

 
1,055

     Prepaid expenses and other
 
5,817

 
6,300

 
 
$
8,727

 
$
8,736

Property, plant and equipment, net:(a)
 
 
 
 
Land
 
$
3,234

 
$
3,234

Buildings and improvements
 
81,017

 
81,381

Machinery and equipment
 
158,475

 
155,463

Right-of-use assets - finance
 
873

 

     Accumulated depreciation
 
(138,945
)
 
(133,724
)
 
 
104,654

 
106,354

Property, plant and equipment subject to capital leases:
 
 
 
 
Machinery and equipment
 

 
510

Accumulated amortization for capitalized leases
 

 
(249
)
 
 
$
104,654

 
$
106,615

Other assets:
 
 
 
 
Equity investments
 
$
1,283

 
$
345

Right-of-use assets - operating
 
3,121

 

Deferred income taxes
 
15

 
16

Other
 
1,370

 
2,963

 
 
$
5,789

 
$
3,324

Accrued liabilities:
 
 
 
 
Salaries and related
 
$
5,453

 
$
8,244

Benefits
 
4,826

 
4,751

Insurance obligations
 
1,812

 
1,963

Warranties
 
1,739

 
890

Income taxes
 
273

 
328

Other taxes
 
1,632

 
2,434

Acquisition-related contingent consideration
 
1,013

 
1,796

Lease liability
 
2,064

 

Other
 
2,480

 
3,072

 
 
$
21,292

 
$
23,478

Other liabilities:
 
 
 
 
Postretirement benefits
 
$
7,691

 
$
7,678

Acquisition-related contingent consideration
 
2,566

 
2,376

Lease liability
 
2,301

 

Deferred income taxes
 
3,228

 
1,659

Uncertain tax positions
 
2,691

 
2,670

Other
 
4,339

 
3,852

 
 
$
22,816

 
$
18,235

(a) The amount of assets held for sale at July 31, 2019, and January 31, 2019, were not material.


#10


(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
 
Six Months Ended
 
July 31,
2019
 
July 31,
2018
 
July 31,
2019
 
July 31,
2018
Anti-dilutive options and restricted stock units
92,974

 
55,810
 
29,976
 
36,384


The computation of earnings per share is presented below:
 
Three Months Ended
 
Six Months Ended
 
July 31,
2019
 
July 31,
2018
 
July 31,
2019
 
July 31,
2018
Numerator:
 
 
 
 
 
 
 
Net income attributable to Raven Industries, Inc.
$
8,766

 
$
13,677

 
$
21,976

 
$
35,812

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
35,933,618

 
35,893,132

 
35,947,842

 
35,859,614

Weighted average fully vested stock units outstanding
128,128

 
102,339

 
116,734

 
95,027

Denominator for basic calculation
36,061,746

 
35,995,471

 
36,064,576

 
35,954,641

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
35,933,618

 
35,893,132

 
35,947,842

 
35,859,614

Weighted average fully vested stock units outstanding
128,128

 
102,339

 
116,734

 
95,027

Dilutive impact of stock options and restricted stock units
184,873

 
429,409

 
260,323

 
455,595

Denominator for diluted calculation
36,246,619

 
36,424,880

 
36,324,899

 
36,410,236

 
 
 
 
 
 
 
 
Net income per share ─ basic
$
0.24

 
$
0.38

 
$
0.61

 
$
1.00

Net income per share ─ diluted
$
0.24

 
$
0.38

 
$
0.60

 
$
0.98



(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.

#11


(dollars in thousands, except per-share amounts)


 
Revenue by Product Category
 
Three Months Ended July 31, 2019
 
Three Months Ended July 31, 2018
 
ATD
EFD
AERO
ELIM(a)
Total
 
ATD
EFD
AERO
ELIM(a)
Total
Lighter-than-Air
 
 
 
 
 
 
 
 
 
 
 
    Domestic
$

$

$
8,130

$

$
8,130

 
$

$

$
11,199

$

$
11,199

    International


15


15

 


82


82

Plastic Films & Sheeting
 
 
 
 


 
 
 
 
 


    Domestic

54,843


(18
)
54,825

 

54,921


(70
)
54,851

    International

2,673



2,673

 

3,954



3,954

Precision Agriculture Equipment
 
 
 
 


 
 
 
 
 


    Domestic
20,374




20,374

 
23,592




23,592

    International
6,997




6,997

 
6,770




6,770

Other
 
 
 
 


 
 
 
 
 


    Domestic


4,966


4,966

 


2,221


2,221

    International


78


78

 


15


15

Totals
$
27,371

$
57,516

$
13,189

$
(18
)
$
98,058

 
$
30,362

$
58,875

$
13,517

$
(70
)
$
102,684

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended July 31, 2019
 
Six Months Ended July 31, 2018
 
ATD
EFD
AERO
ELIM(a)
Total
 
ATD
EFD
AERO
ELIM(a)
Total
Lighter-than-Air
 
 
 
 
 
 
 
 
 
 
 
    Domestic
$

$

$
15,159

$

$
15,159

 
$

$

$
17,747

$

$
17,747

    International


49


49

 


536


536

Plastic Films & Sheeting
 
 
 
 
 
 
 
 
 
 
 
    Domestic

96,605


(47
)
96,558

 

110,218


(264
)
109,954

    International

5,203



5,203

 

8,649



8,649

Precision Agriculture Equipment
 
 
 
 
 
 
 
 
 
 
 
    Domestic
49,958




49,958

 
53,117




53,117

    International
19,138




19,138

 
17,675




17,675

Other
 
 
 
 
 
 
 
 
 
 
 
    Domestic


10,088


10,088

 


6,120


6,120

    International


83


83

 


15


15

Totals
$
69,096

$
101,808

$
25,379

$
(47
)
$
196,236

 
$
70,792

$
118,867

$
24,418

$
(264
)
$
213,813

(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. 


#12


(dollars in thousands, except per-share amounts)


During the six months ended July 31, 2019, the Company’s contract assets and liabilities increased by $2,362 and $401, 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:
 
July 31,
2019
 
January 31,
2019
 
$ Change
% Change
Contract assets
$
4,389

 
$
2,027

 
$
2,362

116.5
%
 
 
 
 
 
 
 
Contract liabilities
$
1,704

 
$
1,303

 
$
401

30.8
%


Remaining Performance Obligations
As of July 31, 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 from performance obligations satisfied in the prior period during the three- and six-month period ending July 31, 2019, 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- and six-month period ended July 31, 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 is aligned under the Company’s Applied Technology Division and is expected to enhance its Slingshot® platform by delivering a more seamless logistics solution 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 included 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. This increased the purchase price and the estimated fair value of the contingent earn-out payments by approximately $300. The goodwill and identifiable intangible assets recorded as part of the purchase price allocation at July 31, 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 which was received in the second quarter of 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; Raven Europe B.V. (Raven Europe), formerly named SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), in fiscal 2015; and Aerostar Technical Solutions, Inc. (ATS), formerly named Vista Research, Inc. (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

#13


(dollars in thousands, except per-share amounts)


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
 
Six Months Ended
 
July 31,
2019
 
July 31,
2018
 
July 31,
2019
 
July 31,
2018
Beginning balance
$
3,956

 
$
2,903

 
$
4,172

 
$
3,046

Fair value of contingent consideration acquired

 

 
310

 

Change in fair value of the liability
149

 
251

 
243

 
403

Contingent consideration earn-out paid
(526
)
 
(204
)
 
(1,146
)
 
(499
)
Ending balance
$
3,579

 
$
2,950

 
$
3,579

 
$
2,950

 
 
 
 
 
 
 
 
Classification of liability in the consolidated balance sheet
 
 
 
 
 
 
 
Accrued liabilities
$
1,013

 
$
1,709

 
$
1,013

 
$
1,709

Other liabilities, long-term
2,566

 
1,241

 
2,566

 
1,241

Balance at July 31
$
3,579

 
$
2,950

 
$
3,579

 
$
2,950



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 July 31, 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 revenue milestones and operational synergies. To date, the Company has paid a total of $667 of this potential earn-out liability.

In connection with the acquisition of Raven Europe, the Company entered into a contingent earn-out agreement, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date, contingent upon achieving certain revenue milestones. To date, the Company has paid a total of $2,090 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. There were no goodwill impairment losses reported in the three- and six-month periods ending July 31, 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
 
(82
)
 

 

 
(82
)
Balance at July 31, 2019
 
$
16,961

 
$
33,232

 
$
634

 
$
50,827



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

#14


(dollars in thousands, except per-share amounts)


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 is not recoverable and exceeds the fair value of the asset.

Fiscal 2020 and 2019
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
 
July 31, 2019
 
January 31, 2019
 
 
Accumulated
 
 
 
Accumulated
 
 
Amount
amortization
Net
 
Amount
amortization
Net
Existing technology
$
9,172

$
(7,463
)
$
1,709

 
$
9,203

$
(7,216
)
$
1,987

Customer relationships
16,072

(6,188
)
9,884

 
15,791

(5,508
)
10,283

Patents and other intangibles
5,942

(2,162
)
3,780

 
5,908

(1,885
)
4,023

Total
$
31,186

$
(15,813
)
$
15,373

 
$
30,902

$
(14,609
)
$
16,293



There were no long-lived asset impairment losses reported in the three- and six-month period ending July 31, 2019 and 2018, respectively.

(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
 
Six Months Ended
 
July 31,
2019
 
July 31,
2018
 
July 31,
2019
 
July 31,
2018
Service cost
$
7

 
$
7

 
$
14

 
$
14

Interest cost
84

 
79

 
167

 
158

Amortization of actuarial losses
24

 
32

 
48

 
64

Amortization of unrecognized gains in prior service cost
(40
)
 
(40
)
 
(80
)
 
(80
)
Net periodic benefit cost
$
75

 
$
78

 
$
149

 
$
156


Postretirement benefit cost components are reclassified in their entirety from accumulated other comprehensive loss to net periodic 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
 
Six Months Ended
 
July 31,
2019
 
July 31,
2018
 
July 31,
2019
 
July 31,
2018
Beginning balance
$
1,391

 
$
1,097

 
$
890

 
$
1,163

Change in provision
1,032

 
329

 
1,854

 
486

Settlements made
(684
)
 
(289
)
 
(1,005
)
 
(512
)
Ending balance
$
1,739

 
$
1,137

 
$
1,739

 
$
1,137




#15


(dollars in thousands, except per-share amounts)


(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:
 
July 31, 2019
 
January 31, 2019
Unamortized debt issuance costs(a)
$
78

 
$
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.

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:
 
July 31, 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 July 31, 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.

#16


(dollars in thousands, except per-share amounts)


Components of Company lease costs, including operating, finance, and short-term leases 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.
 
Three Months Ended
July 31, 2019
 
Six Months Ended
July 31, 2019
Lease Costs:
 
 
 
Finance Leases
 
 
 
Depreciation of right-of-use assets
$
104

 
$
199

Interest on lease liabilities
6

 
11

Total finance lease cost
$
110

 
$
210

 
 
 
 
Operating Leases
 
 
 
Operating lease cost
$
362

 
$
722

Short-term lease cost
101

 
206

Total operating lease cost
$
463

 
$
928

Total finance and operating lease cost
$
573

 
$
1,138


Supplemental unaudited balance sheet information related to operating and finance leases include:
 
July 31, 2019
Operating Leases
 
Operating lease right-of-use assets
$
3,121

 
 
Current lease liability
$
1,721

Non-current lease liability
1,951

Total operating lease liabilities
$
3,672

 
 
Finance Leases
 
Property, plant and equipment, at cost
$
873

Accumulated depreciation
(180
)
Property, plant and equipment, net
$
693