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 and defense markets. The Company is comprised of three unique operating units, or divisions, classified into reportable business segments: Applied Technology, Engineered Films, and Aerostar.
The accompanying interim unaudited consolidated financial statements, which includes the accounts of Raven and its wholly-owned or controlled subsidiaries, net of intercompany balances and transactions, has been prepared by the Company in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present this financial information have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020.
Financial results for the interim three- and nine-month periods ended October 31, 2020, are not necessarily indicative of the results that may be expected for the year ending January 31, 2021. The January 31, 2020, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required in an annual report on Form 10-K. Preparing financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Redeemable noncontrolling interest
The Company acquired a majority ownership in Dot Technology Corp. (DOT) in the fourth quarter of fiscal 2020. Due to the redemption features provided to the minority shareholders in the acquisition, the 36% remaining noncontrolling interest was classified as a redeemable noncontrolling interest in the Company’s Consolidated Balance Sheets as of January 31, 2020. During the second quarter of fiscal 2021, the Company closed on the transaction to purchase the shares of the largest minority interest shareholder for $17,853, giving the Company full voting control of DOT. The majority ownership in DOT and redeemable noncontrolling interest is further described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies," and aligns under the Applied Technology segment.
Related Party Transactions
Following the acquisition of DOT, the Company sold products to, paid rent to, and purchased services for manufacturing, research and development (R&D), selling, and administration from a business owned by the largest minority interest shareholder of DOT. All of the shares formerly held by this minority interest shareholder were acquired in the second quarter of fiscal 2021 and are owned by Raven; therefore, no transactions with this previous shareholder during the three-month period ended October 31, 2020 are considered related party transactions. The total of the related party transactions was $1,954 for the six-month period ended July 31, 2020, none of which was in accounts payable at October 31, 2020.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020, other than described in the Accounting Standards Adopted section below.
Accounting Pronouncements
Accounting Standards Adopted
In the first quarter of fiscal 2021, the Company adopted, Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13), when it became effective. The amendments in ASU 2018-13 remove, modify, and add required disclosures for companies related to recurring and nonrecurring fair value measurements under Topic 820. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The amendments in ASU 2018-13 only related to financial statement disclosures and did not have a significant
(dollars in thousands, except per-share amounts)
impact on the Company's consolidated financial statements or its note disclosures.
In the first quarter of fiscal 2021, the Company adopted FASB ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), when it became effective along with all subsequent amendments to Topic 326 issued by FASB. Current GAAP generally delays recognition of the full amount of credit losses until the loss is deemed 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. At adoption, the Company did not have any financial instruments in scope under ASU 2016-13 other than trade accounts receivables. In accordance with ASU 2016-13, the Company updated its current expected credit loss model for its trade accounts receivable and remeasured its allowance for doubtful accounts as of February 1, 2020. The remeasurement impact was immaterial and no cumulative accounting adjustment was recorded to retained earnings in the first quarter of fiscal 2021.
New Accounting Standards Not Yet Adopted
There are no significant ASU's issued and not yet adopted as of October 31, 2020.
(dollars in thousands, except per-share amounts)
(3) SELECTED BALANCE SHEET INFORMATION
Following are the components of selected items from the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
Trade accounts
|
|
$
|
53,099
|
|
|
$
|
56,978
|
|
|
|
Unbilled receivables
|
|
3,217
|
|
|
6,954
|
|
|
|
Allowance for doubtful accounts
|
|
(2,092)
|
|
|
(1,380)
|
|
|
|
|
|
$
|
54,224
|
|
|
$
|
62,552
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
Finished goods
|
|
$
|
5,992
|
|
|
$
|
6,309
|
|
|
|
In process
|
|
1,356
|
|
|
3,287
|
|
|
|
Materials
|
|
37,326
|
|
|
44,303
|
|
|
|
|
|
$
|
44,674
|
|
|
$
|
53,899
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
Insurance policy benefit
|
|
$
|
—
|
|
|
$
|
38
|
|
|
|
Income tax receivable
|
|
858
|
|
|
1,370
|
|
|
|
Prepaid expenses and other
|
|
4,080
|
|
|
4,028
|
|
|
|
|
|
$
|
4,938
|
|
|
$
|
5,436
|
|
|
|
Property, plant and equipment, net:(a)
|
|
|
|
|
|
|
Land
|
|
$
|
3,117
|
|
|
$
|
3,117
|
|
|
|
Buildings and improvements
|
|
84,010
|
|
|
80,330
|
|
|
|
Machinery and equipment
|
|
164,599
|
|
|
158,354
|
|
|
|
Financing lease right-of-use assets
|
|
1,207
|
|
|
881
|
|
|
|
|
|
252,933
|
|
|
242,682
|
|
|
|
Accumulated depreciation
|
|
(148,337)
|
|
|
(141,832)
|
|
|
|
|
|
$
|
104,596
|
|
|
$
|
100,850
|
|
|
|
Other assets:
|
|
|
|
|
|
|
Equity investments
|
|
$
|
1,452
|
|
|
$
|
1,289
|
|
|
|
Operating lease right-of-use assets
|
|
7,638
|
|
|
4,275
|
|
|
|
Deferred income taxes
|
|
65
|
|
|
16
|
|
|
|
Other
|
|
1,968
|
|
|
1,507
|
|
|
|
|
|
$
|
11,123
|
|
|
$
|
7,087
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
Salaries and related
|
|
$
|
5,925
|
|
|
$
|
4,188
|
|
|
|
Benefits
|
|
5,888
|
|
|
5,339
|
|
|
|
Insurance obligations
|
|
1,935
|
|
|
1,680
|
|
|
|
Warranties
|
|
1,519
|
|
|
2,019
|
|
|
|
Income taxes
|
|
279
|
|
|
293
|
|
|
|
Other taxes
|
|
1,843
|
|
|
1,734
|
|
|
|
Acquisition-related contingent consideration
|
|
—
|
|
|
763
|
|
|
|
Lease liability
|
|
2,490
|
|
|
2,530
|
|
|
|
Other
|
|
3,107
|
|
|
2,197
|
|
|
|
|
|
$
|
22,986
|
|
|
$
|
20,743
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
Postretirement benefits
|
|
$
|
8,787
|
|
|
$
|
8,741
|
|
|
|
Acquisition-related contingent consideration
|
|
2,254
|
|
|
2,171
|
|
|
|
Lease liability
|
|
5,936
|
|
|
2,627
|
|
|
|
Deferred income taxes
|
|
2,460
|
|
|
7,080
|
|
|
|
Uncertain tax positions
|
|
2,618
|
|
|
2,606
|
|
|
|
Other
|
|
10,889
|
|
|
5,936
|
|
|
|
|
|
$
|
32,944
|
|
|
$
|
29,161
|
|
|
|
(a) Includes assets held for use and assets held for sale. The amount of assets held for sale at October 31, 2020, and January 31, 2020, 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
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Anti-dilutive options and restricted stock units
|
|
263,505
|
|
|
101,384
|
|
265,377
|
|
21,444
|
The computation of earnings per share is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Raven Industries, Inc.
|
|
$
|
8,728
|
|
|
$
|
9,934
|
|
|
$
|
18,594
|
|
|
$
|
31,910
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
35,849,310
|
|
|
35,785,460
|
|
|
35,828,586
|
|
|
35,893,714
|
|
Weighted average fully vested stock units outstanding
|
|
151,971
|
|
|
128,604
|
|
|
146,377
|
|
|
120,691
|
|
Denominator for basic calculation
|
|
36,001,281
|
|
|
35,914,064
|
|
|
35,974,963
|
|
|
36,014,405
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
35,849,310
|
|
|
35,785,460
|
|
|
35,828,586
|
|
|
35,893,714
|
|
Weighted average fully vested stock units outstanding
|
|
151,971
|
|
|
128,604
|
|
|
146,377
|
|
|
120,691
|
|
Dilutive impact of stock options and restricted stock units
|
|
150,097
|
|
|
176,850
|
|
|
142,708
|
|
|
236,222
|
|
Denominator for diluted calculation
|
|
36,151,378
|
|
|
36,090,914
|
|
|
36,117,671
|
|
|
36,250,627
|
|
|
|
|
|
|
|
|
|
|
Net income per share ─ basic
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
0.52
|
|
|
$
|
0.89
|
|
Net income per share ─ diluted
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
0.51
|
|
|
$
|
0.88
|
|
(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 October 31, 2020
|
|
Three Months Ended October 31, 2019
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
$
|
—
|
|
$
|
14,849
|
|
$
|
—
|
|
$
|
14,849
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
11,071
|
|
$
|
—
|
|
$
|
11,071
|
|
International
|
—
|
|
—
|
|
2
|
|
—
|
|
2
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Plastic Films &
Sheeting
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
40,466
|
|
—
|
|
(6)
|
|
40,460
|
|
|
—
|
|
54,673
|
|
—
|
|
(33)
|
|
54,640
|
|
International
|
—
|
|
3,299
|
|
—
|
|
—
|
|
3,299
|
|
|
—
|
|
1,733
|
|
—
|
|
—
|
|
1,733
|
|
Precision Agriculture
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
27,599
|
|
—
|
|
—
|
|
—
|
|
27,599
|
|
|
22,957
|
|
—
|
|
—
|
|
(1)
|
|
22,956
|
|
International
|
7,239
|
|
—
|
|
—
|
|
—
|
|
7,239
|
|
|
5,543
|
|
—
|
|
—
|
|
—
|
|
5,543
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
—
|
|
3,158
|
|
—
|
|
3,158
|
|
|
—
|
|
—
|
|
4,577
|
|
—
|
|
4,577
|
|
International
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
|
—
|
|
—
|
|
13
|
|
—
|
|
13
|
|
Totals
|
$
|
34,838
|
|
$
|
43,765
|
|
$
|
18,010
|
|
$
|
(6)
|
|
$
|
96,607
|
|
|
$
|
28,500
|
|
$
|
56,406
|
|
$
|
15,661
|
|
$
|
(34)
|
|
$
|
100,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31, 2020
|
|
Nine Months Ended October 31, 2019
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
$
|
—
|
|
$
|
30,939
|
|
$
|
—
|
|
$
|
30,939
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
26,230
|
|
$
|
—
|
|
$
|
26,230
|
|
International
|
—
|
|
—
|
|
48
|
|
—
|
|
48
|
|
|
—
|
|
—
|
|
49
|
|
—
|
|
49
|
|
Plastic Films & Sheeting
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
103,500
|
|
—
|
|
(104)
|
|
103,396
|
|
|
—
|
|
151,278
|
|
—
|
|
(80)
|
|
151,198
|
|
International
|
—
|
|
9,915
|
|
—
|
|
—
|
|
9,915
|
|
|
—
|
|
6,936
|
|
—
|
|
—
|
|
6,936
|
|
Precision Agriculture Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
86,460
|
|
—
|
|
—
|
|
(2)
|
|
86,458
|
|
|
72,915
|
|
—
|
|
—
|
|
(1)
|
|
72,914
|
|
International
|
25,887
|
|
—
|
|
—
|
|
—
|
|
25,887
|
|
|
24,681
|
|
—
|
|
—
|
|
—
|
|
24,681
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
—
|
|
11,633
|
|
—
|
|
11,633
|
|
|
—
|
|
—
|
|
14,665
|
|
—
|
|
14,665
|
|
International
|
—
|
|
—
|
|
6
|
|
—
|
|
6
|
|
|
—
|
|
—
|
|
96
|
|
—
|
|
96
|
|
Totals
|
$
|
112,347
|
|
$
|
113,415
|
|
$
|
42,626
|
|
$
|
(106)
|
|
$
|
268,282
|
|
|
$
|
97,596
|
|
$
|
158,214
|
|
$
|
41,040
|
|
$
|
(81)
|
|
$
|
296,769
|
|
(a) Intersegment sales for both fiscal 2021 and 2020 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.
(dollars in thousands, except per-share amounts)
During the nine months ended October 31, 2020, the Company’s contract assets decreased by $3,747 while contract liabilities increased by $653, respectively. The change 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2020
|
|
January 31,
2020
|
|
$ Change
|
|
% Change
|
Contract assets
|
|
$
|
3,778
|
|
|
$
|
7,525
|
|
|
$
|
(3,747)
|
|
|
(49.8)
|
%
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
2,941
|
|
$
|
2,288
|
|
|
$
|
653
|
|
|
28.5
|
%
|
Remaining Performance Obligations
As of October 31, 2020, the Company has no remaining performance obligations related to customer contracts with an original expected duration of one year or more. Revenue recognized from performance obligations satisfied in the prior period during the three- and nine-month periods ending October 31, 2020, were not material.
(6) ACQUISITIONS AND DIVESTITURES OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Fiscal year 2021
There were no significant business acquisitions or divestitures in the three- and nine-month periods ended October 31, 2020.
Fiscal year 2020
On November 1, 2019, the Company acquired Smart Ag, Inc. (Smart Ag). Smart Ag is a technology company located in Ames, Iowa, that develops autonomous farming solutions for agriculture. Smart Ag offers aftermarket retrofit kits to automate farm equipment as well as a platform to connect, manage, and safely operate autonomous agricultural machinery.
On November 13, 2019, the Company acquired a majority ownership in DOT. Simultaneously with acquiring this majority ownership, the Company contributed cash to DOT in exchange for additional equity, making the majority ownership percentage in DOT 60% when the transaction closed. DOT, located in Regina, Saskatchewan, Canada, designs autonomous agriculture solutions and manufactures a unique U-shaped agriculture platform to semi-autonomously handle a large variety of agriculture implements. The acquisition provided noncontrolling interest shareholders various put options that, if exercised, obligated the Company to purchase their outstanding DOT shares. Due to the redemption features, the noncontrolling interest was classified as a redeemable noncontrolling interest in the Company’s Consolidated Balance Sheet as of January 31, 2020.
Both acquisitions aligned under the Company's Applied Technology Division and complement the division's suite of precision ag products and solutions. The aggregate purchase price was approximately $54,000 in the fourth quarter of fiscal 2020, excluding the noncontrolling interest.
During the first quarter of fiscal 2021, certain minority interest shareholders in DOT exercised their put options, requiring the Company to redeem the remaining noncontrolling interest in DOT. The Company closed on the transaction to purchase the shares of the largest minority shareholder for $17,853 in the second quarter of fiscal 2021. The remaining redeemable amount, as well as the liability for the noncontrolling interest redeemed in the prior fiscal year, totaling approximately $5,087, is payable in November 2021 and is classified as "Other Liabilities" in the Consolidated Balance Sheet at October 31, 2020.
The Company completed the valuation of intangible assets and pre-acquisition tax filings during the first and second quarters of fiscal 2021. The following adjustments were made to the purchase price allocation during the six months ended July 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
Measurement Period Adjustments
|
|
Adjusted Balance
|
Goodwill
|
|
$
|
56,022
|
|
|
$
|
(440)
|
|
|
$
|
55,582
|
|
Intangibles, net
|
|
31,800
|
|
|
(600)
|
|
|
31,200
|
|
Deferred income taxes
|
|
(4,158)
|
|
|
1,005
|
|
|
(3,153)
|
|
Accounts payable and other current liabilities
|
|
(1,462)
|
|
|
35
|
|
|
(1,427)
|
|
|
|
|
|
$
|
—
|
|
|
|
Identifiable intangible assets acquired were primarily indefinite-lived intangible assets for in-process research and development.
(dollars in thousands, except per-share amounts)
Amortization of these indefinite-lived intangible assets will start when the current in-process research and development project is complete and the product is commercialized. Amortization of the indefinite-lived intangibles will be on a straight-line basis over the remaining estimated useful lives of these assets. The Company expects the useful lives will range from seven to ten years.
The following pro forma consolidated condensed financial results of operations are presented as if the acquisitions described above had been included in the Company's consolidated financial statements for the prior year comparative period (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31, 2019
|
|
October 31, 2019
|
Net sales
|
|
$
|
100,905
|
|
|
$
|
297,651
|
|
Net income attributable to Raven Industries, Inc.
|
|
$
|
7,864
|
|
|
$
|
25,862
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
0.72
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
0.71
|
|
Acquisition-related Contingent Consideration
The Company has a contingent liability related to the acquisition of AgSync, Inc. (AgSync) in fiscal 2019. The Company also had contingent liabilities related to the acquisitions of Colorado Lining International, Inc. (CLI) in fiscal 2018; and Raven Europe B.V. (Raven Europe), formerly named SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), in fiscal 2015; both of which were settled in the current fiscal year. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires the Company to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the particular contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable (Level 3 fair value measures).
Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Beginning balance
|
|
$
|
2,459
|
|
|
$
|
3,579
|
|
|
$
|
2,934
|
|
|
$
|
4,172
|
|
Fair value of contingent consideration acquired
|
|
—
|
|
|
—
|
|
|
—
|
|
|
310
|
|
Change in fair value of the liability
|
|
29
|
|
|
100
|
|
|
(183)
|
|
|
343
|
|
Contingent consideration earn-out paid
|
|
(234)
|
|
|
(723)
|
|
|
(497)
|
|
|
(1,869)
|
|
Ending balance
|
|
$
|
2,254
|
|
|
$
|
2,956
|
|
|
$
|
2,254
|
|
|
$
|
2,956
|
|
|
|
|
|
|
|
|
|
|
Classification of liability in the consolidated balance sheet
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
—
|
|
|
$
|
813
|
|
|
$
|
—
|
|
|
$
|
813
|
|
Other liabilities, long-term
|
|
2,254
|
|
|
2,143
|
|
|
2,254
|
|
|
2,143
|
|
Balance at October 31
|
|
$
|
2,254
|
|
|
$
|
2,956
|
|
|
$
|
2,254
|
|
|
$
|
2,956
|
|
For the acquisition of AgSync, the Company entered into a contingent earn-out agreement, not to exceed $3,500. The earn-out is to be paid annually over three years after the purchase date, contingent upon achieving certain revenue milestones. The Company has made no payments on this potential earn-out liability as of October 31, 2020.
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. The Company made its final payment related to this agreement in the third quarter of fiscal 2021 and has no further contingent obligations related to the acquisition of CLI. Cumulatively, the Company paid a total of $1,567 related to this earn-out liability.
(dollars in thousands, except per-share amounts)
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. All revenue milestones under the agreement were achieved by Raven Europe in fiscal 2021. The Company paid a total of $2,500 to-date and has no further contingent obligations related to the acquisition of Raven Europe.
(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 nine-month periods ending October 31, 2020 and 2019, respectively.
The changes in the carrying amount of goodwill by reporting unit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applied Technology (excluding Autonomy)
|
|
Autonomy
|
|
Engineered
Films
|
|
Aerostar
|
|
Total
|
Balance at January 31, 2020
|
|
$
|
16,943
|
|
|
$
|
55,700
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
106,509
|
|
Changes due to business combinations
|
|
—
|
|
|
(440)
|
|
|
—
|
|
|
—
|
|
|
(440)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
145
|
|
|
(289)
|
|
|
—
|
|
|
—
|
|
|
(144)
|
|
Balance at October 31, 2020
|
|
$
|
17,088
|
|
|
$
|
54,971
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
105,925
|
|
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 carrying amount is not recoverable and exceeds the fair value of the asset.
The following table summarizes the components of intangible assets, which are reported net on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Amount
|
amortization
|
Net
|
|
Amount
|
amortization
|
Net
|
|
|
|
|
Existing technology
|
|
$
|
8,821
|
|
$
|
(8,137)
|
|
$
|
684
|
|
|
$
|
9,190
|
|
$
|
(7,706)
|
|
$
|
1,484
|
|
|
|
|
|
Customer relationships
|
|
16,102
|
|
(7,901)
|
|
8,201
|
|
|
16,067
|
|
(6,868)
|
|
9,199
|
|
|
|
|
|
Patents and other intangibles
|
|
7,198
|
|
(2,945)
|
|
4,253
|
|
|
6,678
|
|
(2,444)
|
|
4,234
|
|
|
|
|
|
In-process research and development(a)
|
|
30,945
|
|
—
|
|
30,945
|
|
|
31,300
|
|
—
|
|
31,300
|
|
|
|
|
|
Total
|
|
$
|
63,066
|
|
$
|
(18,983)
|
|
$
|
44,083
|
|
|
$
|
63,235
|
|
$
|
(17,018)
|
|
$
|
46,217
|
|
|
|
|
|
(a) Refer to Note 6 "Acquisitions and Divestitures Of and Investments in Businesses and Technologies" for a more detailed description of these indefinite-lived intangible assets acquired in business combinations in fiscal 2020. A portion of these intangible assets are denominated in a foreign currency and subject to exchange rate fluctuations.
|
|
|
|
|
There were no long-lived asset impairment losses reported in the three- and nine-month periods ending October 31, 2020 and 2019, respectively.
(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
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Service cost
|
|
$
|
9
|
|
|
$
|
7
|
|
|
$
|
27
|
|
|
$
|
21
|
|
Interest cost
|
|
70
|
|
|
83
|
|
|
210
|
|
|
250
|
|
Amortization of actuarial losses
|
|
43
|
|
|
24
|
|
|
129
|
|
|
72
|
|
Amortization of unrecognized gains in prior service cost
|
|
(40)
|
|
|
(40)
|
|
|
(120)
|
|
|
(120)
|
|
Net periodic benefit cost
|
|
$
|
82
|
|
|
$
|
74
|
|
|
$
|
246
|
|
|
$
|
223
|
|
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. The components of the net periodic benefit cost, other than the service cost component, are classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.
(9) WARRANTIES
Accruals necessary for product warranties are estimated based on historical warranty costs and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues. Changes in the warranty accrual were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Beginning balance
|
|
$
|
1,609
|
|
|
$
|
1,739
|
|
|
$
|
2,019
|
|
|
$
|
890
|
|
Change in provision
|
|
299
|
|
|
1,184
|
|
|
1,299
|
|
|
3,038
|
|
Settlements made
|
|
(389)
|
|
|
(939)
|
|
|
(1,799)
|
|
|
(1,944)
|
|
Ending balance
|
|
$
|
1,519
|
|
|
$
|
1,984
|
|
|
$
|
1,519
|
|
|
$
|
1,984
|
|
(10) DEBT
Credit Facility
On September 20, 2019, the Company entered into a credit facility with Bank of America, N. A., as administrative agent, and Wells Fargo Bank, National Association (the Credit Agreement). The Credit Agreement provides for a syndicated senior revolving credit facility up to $100,000 with a maturity date of September 20, 2022. Loans or borrowings defined under the Credit Agreement accrue interest and fees at varying rates. The Credit Agreement includes an annual administrative fee as well as an unborrowed capacity fee. Debt under the agreement is subject to customary affirmative and negative covenants, including financial covenants. These financial covenants include a consolidated interest coverage ratio and consolidated leverage ratio, both of which are defined in the Credit Agreement. As of October 31, 2020, the Company has no outstanding borrowings under the Credit Agreement. The Company has $100,000 in availability under the Credit Agreement as of October 31, 2020.
The unamortized debt issuance costs associated with the Credit Agreement were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
Unamortized debt issuance costs(a)
|
|
$
|
154
|
|
|
$
|
215
|
|
(a) Unamortized debt issuance costs are amortized over the term of the Credit Agreement and are reported as "Other assets" in the Consolidated Balance Sheets.
(dollars in thousands, except per-share amounts)
Letters of credit (LOC) issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
January 31, 2020
|
|
|
Letters of credit outstanding(a)
|
|
$
|
50
|
|
|
$
|
50
|
|
|
|
(a) Any draws required under the LOC would be settled with available cash or borrowings under the Credit Agreement.
Long-Term Notes
The Company assumed certain long-term notes pursuant to the acquisition of a majority ownership in DOT in fiscal year 2020 as described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies". The related financial assistance agreement (Agreement) is between DOT and Western Economic Diversification Canada (WEDC), a government agency in Canada, that was entered into in August 2019. Under the Agreement, the WEDC agrees to contribute up to $5,000 in Canadian dollars, approximately $4,000 in US dollars, over a three-year period for costs incurred to develop a cloud-based distribution and service channel for a particular product being developed by DOT. DOT is eligible to receive contributions for costs incurred for purposes specified in the Agreement. The Company is required to repay the funds contributed by WEDC in 60 monthly installments beginning April 1, 2023, plus interest that begins on April 1, 2023, based on an average bank rate plus 3%. As of October 31, 2020, the Company had received $1,900 in contributions from WEDC and no repayments have been made. The outstanding liability balance is reported as "Long-term debt" on the Consolidated Balance Sheets. No interest expense is being recorded prior to the interest start date.
At October 31, 2020, the Company's debt maturities based on outstanding principal were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
Maturities of debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,900
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its business, the potential costs and 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 for the establishment of a precision agriculture facility to support South Dakota State University's Precision Agriculture degrees and curriculum. The Agreement states that the Company will make a $5,000 gift to the Foundation, conditional on certain actions. The fair value of this contingency at October 31, 2020, was $2,682 (measured based on the present value of the expected future cash outflows), of which $710 was classified as "Accrued liabilities" and $1,972 was classified as "Other liabilities." As of October 31, 2020, the Company has made payments related to the commitment totaling $2,145.
In addition to commitments disclosed elsewhere in the Notes to the Consolidated Financial Statements, the Company has other unconditional purchase obligations that arise in the normal course of business operations. The majority of these obligations are related to the purchase of raw material inventory for the Applied Technology and Engineered Films divisions.
(12) INCOME TAXES
The Company’s effective tax rate varies from the federal statutory rate primarily due to state and local taxes, R&D tax credit, foreign-derived intangible income deduction, and tax-exempt insurance premiums. The Company’s effective tax rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Effective tax rate
|
|
1.6
|
%
|
|
13.0
|
%
|
|
1.9
|
%
|
|
14.7
|
%
|
The decrease in the effective tax rate year-over-year was driven primarily by an increase in the R&D tax credit as a percentage of estimated pre-tax income in the current fiscal year.
(dollars in thousands, except per-share amounts)
The Company's discrete tax benefit was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Discrete tax benefit
|
|
$
|
303
|
|
|
$
|
268
|
|
|
$
|
580
|
|
|
$
|
1,336
|
|
The Company operates both domestically and internationally. As of October 31, 2020, undistributed earnings from the Company's foreign subsidiaries were considered to have been reinvested indefinitely.
(13) DIVIDENDS AND TREASURY STOCK
On August 26, 2020, the Company announced that the board of directors indefinitely suspended the Company’s regular quarterly cash dividend on its common stock.
Dividends paid to Raven shareholders were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Dividends paid(a)
|
|
$
|
—
|
|
|
$
|
4,648
|
|
|
$
|
9,318
|
|
|
$
|
14,001
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share (in cents per share)(a)
|
|
—
|
|
|
13.0
|
|
|
26.0
|
|
|
39.0
|
|
(a)There were no declared and unpaid shareholder dividends at October 31, 2020 or 2019.
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.
The Company had no share repurchases in the three- and nine-month periods ended October 31, 2020. Pursuant to the aforementioned authorizations, the Company repurchased 169,474 and 332,651 shares in the three- and nine-month periods ended October 31, 2019. These purchases totaled $5,000 and $10,781, respectively. There were no share repurchases unpaid at October 31, 2020 or 2019. The remaining dollar value authorized for share repurchases at October 31, 2020 is $17,179.
(14) 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
|
|
Nine Months Ended
|
|
|
October 31, 2020
|
|
October 31, 2019
|
|
October 31, 2020
|
|
October 31, 2019
|
Cost of sales
|
|
$
|
64
|
|
|
$
|
98
|
|
|
$
|
182
|
|
|
$
|
273
|
|
Research and development expenses
|
|
369
|
|
|
41
|
|
|
1,126
|
|
|
122
|
|
Selling, general, and administrative expenses
|
|
936
|
|
|
852
|
|
|
3,670
|
|
|
3,144
|
|
Total share-based compensation expense
|
|
$
|
1,369
|
|
|
$
|
991
|
|
|
$
|
4,978
|
|
|
$
|
3,539
|
|
(dollars in thousands, except per-share amounts)
(15) SEGMENT REPORTING
The Company's operating segments, which are also its reportable segments, are defined by their product lines which have been generally grouped 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.
Business segment financial performance and other information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 31,
2020
|
|
October 31,
2019
|
|
October 31,
2020
|
|
October 31,
2019
|
Net sales
|
|
|
|
|
|
|
|
|
Applied Technology
|
|
$
|
34,838
|
|
|
$
|
28,500
|
|
|
$
|
112,347
|
|
|
$
|
97,596
|
|
Engineered Films
|
|
43,765
|
|
|
56,406
|
|
|
113,415
|
|
|
158,214
|
|
Aerostar
|
|
18,010
|
|
|
15,661
|
|
|
42,626
|
|
|
41,040
|
|
Intersegment eliminations(a)
|
|
(6)
|
|
|
(34)
|
|
|
(106)
|
|
|
(81)
|
|
Consolidated net sales
|
|
$
|
96,607
|
|
|
$
|
100,533
|
|
|
$
|
268,282
|
|
|
$
|
296,769
|
|
|
|
|
|
|
|
|
|
|
Operating income(b)
|
|
|
|
|
|
|
|
|
Applied Technology
|
|
$
|
5,797
|
|
|
$
|
7,035
|
|
|
$
|
21,247
|
|
|
$
|
25,120
|
|
Engineered Films
|
|
7,321
|
|
|
8,474
|
|
|
13,393
|
|
|
24,987
|
|
Aerostar
|
|
2,777
|
|
|
2,488
|
|
|
4,821
|
|
|
7,427
|
|
Intersegment eliminations
|
|
9
|
|
|
(12)
|
|
|
60
|
|
|
(10)
|
|
Total reportable segment income
|
|
15,904
|
|
|
17,985
|
|
|
39,521
|
|
|
57,524
|
|
General and administrative expenses(b)
|
|
(6,613)
|
|
|
(6,653)
|
|
|
(20,148)
|
|
|
(20,501)
|
|
Consolidated operating income
|
|
$
|
9,291
|
|
|
$
|
11,332
|
|
|
$
|
19,373
|
|
|
$
|
37,023
|
|
(a) Intersegment sales for both fiscal 2021 and 2020 were primarily sales from Engineered Films to Aerostar.
(b) 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.
(16) SUBSEQUENT EVENTS
The Company has evaluated events up to the filing date of this Quarterly Report on Form 10-Q and concluded that no subsequent events have occurred that would require recognition or disclosure in the Notes to the Consolidated Financial Statements.