|
|
RAVEN INDUSTRIES, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
2019
|
|
2018
|
|
2017
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
$
|
51,873
|
|
|
$
|
41,019
|
|
|
$
|
20,192
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
13,296
|
|
|
12,743
|
|
|
13,169
|
|
Amortization of intangible assets
|
1,827
|
|
|
2,059
|
|
|
2,267
|
|
Long-lived asset impairment loss
|
—
|
|
|
259
|
|
|
87
|
|
Change in fair value of acquisition-related contingent consideration
|
708
|
|
|
457
|
|
|
36
|
|
Loss from equity investments
|
—
|
|
|
114
|
|
|
72
|
|
Gain from sale of equity method investments
|
(5,785
|
)
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
953
|
|
|
(787
|
)
|
|
307
|
|
Share-based compensation expense
|
3,951
|
|
|
3,725
|
|
|
3,071
|
|
Other operating activities, net
|
(2,424
|
)
|
|
2,053
|
|
|
2,390
|
|
Change in operating assets and liabilities
|
1,553
|
|
|
(16,681
|
)
|
|
7,045
|
|
Net cash provided by operating activities
|
65,952
|
|
|
44,961
|
|
|
48,636
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
Capital expenditures
|
(14,127
|
)
|
|
(12,011
|
)
|
|
(4,796
|
)
|
Payments related to business acquisitions
|
(7,671
|
)
|
|
(13,267
|
)
|
|
—
|
|
Proceeds from sale or maturities of investments
|
7,334
|
|
|
250
|
|
|
250
|
|
Purchases of investments
|
(745
|
)
|
|
(273
|
)
|
|
(750
|
)
|
Proceeds (disbursements) from sale of assets, settlement of liabilities
|
832
|
|
|
(333
|
)
|
|
1,188
|
|
Other investing activities, net
|
(2,067
|
)
|
|
(41
|
)
|
|
(534
|
)
|
Net cash used in investing activities
|
(16,444
|
)
|
|
(25,675
|
)
|
|
(4,642
|
)
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
Dividends paid
|
(18,753
|
)
|
|
(18,685
|
)
|
|
(18,839
|
)
|
Payments for common shares repurchased
|
—
|
|
|
(10,000
|
)
|
|
(7,702
|
)
|
Payment of acquisition-related contingent liabilities
|
(1,324
|
)
|
|
(408
|
)
|
|
(354
|
)
|
Restricted stock units vested and issued
|
(840
|
)
|
|
(237
|
)
|
|
(256
|
)
|
Employee stock option exercises net of tax benefit
|
(2,637
|
)
|
|
(290
|
)
|
|
—
|
|
Other financing activities, net
|
(201
|
)
|
|
(101
|
)
|
|
—
|
|
Net cash used in financing activities
|
(23,755
|
)
|
|
(29,721
|
)
|
|
(27,151
|
)
|
Effect of exchange rate changes on cash
|
(501
|
)
|
|
322
|
|
|
23
|
|
Net increase (decrease) in cash and cash equivalents
|
25,252
|
|
|
(10,113
|
)
|
|
16,866
|
|
Cash and cash equivalents at beginning of year
|
40,535
|
|
|
50,648
|
|
|
33,782
|
|
Cash and cash equivalents at end of year
|
$
|
65,787
|
|
|
$
|
40,535
|
|
|
$
|
50,648
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|
|
|
|
|
|
|
RAVEN INDUSTRIES, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Dollars in thousands, except per-share amounts)
|
|
|
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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 conducts this business through the following direct and indirect subsidiaries: Aerostar International, Inc. (Aerostar); Aerostar Technical Solutions, Inc. (ATS), formerly named Vista Research, Inc. or "Vista;" Aerostar Integrated Systems, LLC (AIS); Raven CLI Construction, Inc.; Raven Slingshot, Inc.; Raven International Holding Company BV (Raven Holdings); Raven Industries Canada, Inc. (Raven Canada); SBG Innovatie BV (SBG); Raven Industries Australia Pty Ltd (Raven Australia); Raven Industries Holding, LLC, and Raven do Brasil Participacoes E Servicos Technicos LTDA (Raven Brazil). The Company and these subsidiaries comprise
three
unique operating units, or divisions, classified into reportable segments (Applied Technology, Engineered Films, and Aerostar).
The consolidated financial statements for the periods included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling Interest
Noncontrolling interests represent capital contributions, income and loss attributable to the owners of less than wholly-owned and consolidated entities. The Company owns
75%
of a business venture, AIS, to pursue potential product and support services contracts through agencies and instrumentalities of the United States government. This business venture, is included in the Aerostar business segment.
No
capital contributions have been made by the noncontrolling interest since the initial capitalization in fiscal year 2012. 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's interests in the net assets and operations of the business venture.
Equity Investments
In
February 2016
, the Applied Technology Division acquired an interest of approximately
5%
in
Ag-Eagle Aerial Systems, Inc.
(AgEagle). AgEagle was considered a variable interest entity (VIE) and the Company’s equity ownership interest in AgEagle was considered a variable interest. Prior to the equity interest being sold for an immaterial gain in fiscal year 2019, the Company accounted for its investment in AgEagle under the equity method of accounting as the Company had the ability to exercise significant influence over the operating policies of AgEagle through the Company's representation on AgEagle's Board of Directors and the exclusive distribution agreement between the companies. However, the Company was not the primary beneficiary as the Company did not have the power to direct the activities that most significantly impacted the VIE’s economic performance and the obligation to absorb the majority of the losses or the right to receive the majority of the benefits of the VIE.
The Company considers whether the value of any of its equity method investments has been impaired whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary (based on various factors, including historical financial results, product development activities, and the overall health of the affiliate's industry), an impairment loss would be recorded. In April 2017, the Company determined the investment in AgEagle and the related customer relationship intangible asset were fully impaired. The resulting accelerated equity method investment loss and impairment loss recorded were not material to the Company.
The Company owned an interest of approximately
22%
in
Site-Specific Technology Development Group, Inc.
(SST) before being sold in fiscal year 2019. The Company had significant influence, but there was neither a controlling interest nor a majority interest in the risks or rewards of SST. As a result, this affiliate investment was accounted for using the equity method.
The Company's proceeds from the sale of its ownership interest in SST were
$6,556
and was reported as "Proceeds from sale or maturity of investments" in the Consolidated Statements of Cash Flows in fiscal year 2019. The Company recognized a gain of
$5,785
from the sale reported as "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive
(Dollars in thousands, except per-share amounts)
Income for the fiscal year ended January 31, 2019. This amount includes a
fifteen percent
hold-back provision held in an escrow account which is expected to be settled in fiscal 2020.
The investment balances for both AgEagle and SST are included in “Other assets” on the Consolidated Balance Sheet at January 31, 2018 while the Company's share of the results of AgEagle and SST operations are included in “Other income (expense), net” for fiscal years 2019, 2018, and 2017.
Use of Estimates
Preparing the financial statements in conformity with accounting principles generally accepted in the United States of America (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. The Company's forecasts, based principally on estimates, are critical inputs to asset valuations such as those for inventory or goodwill. These assumptions and estimates require significant judgment and actual results could differ from assumed and estimated amounts.
Foreign Currency
The Company's subsidiaries that operate outside the United States use the local currency as their functional currency. The functional currency is translated into U.S. dollars for balance sheet accounts using the period-end exchange rates and average exchange rates for the Consolidated Statements of Income and Comprehensive Income. Adjustments resulting from financial statement translations are included as foreign currency translation adjustments in “Accumulated other comprehensive income (loss)” within shareholders' equity in the Consolidated Balance Sheets. Foreign currency transaction gains or losses are recognized in the period incurred and are included in “Other income (expense), net” in the Consolidated Statements of Income and Comprehensive Income. Foreign currency transaction gains or losses on intercompany notes receivable and notes payable denominated in foreign currencies for which settlement is not planned in the foreseeable future are considered part the net investment and are reported in the same manner as foreign currency translation adjustments.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities of three or fewer months to be cash equivalents. Cash and cash equivalent balances are principally concentrated in checking, money market, and savings accounts. Certificates of deposit that mature in over 90 days but less than one year are considered short-term investments. Certificates of deposit that mature in one year or more are considered to be other long-term assets and are carried at cost. The Company held cash and cash equivalents in accounts in the United States of
$61,221
and
$36,434
as of January 31, 2019 and 2018, respectively. The Company held cash and cash equivalents in accounts outside the United States of
$4,566
and
$4,101
as of January 31, 2019 and 2018, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount, do not bear interest, and are considered past due based on invoice terms. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses. This is based on historical write-off experience by segment and an estimate of the collectability of past due accounts. Unbilled receivables arise when revenues have been earned, but not billed, and are related to differences in timing. Unbilled receivables were
$1,391
and
$2,447
as of January 31, 2019 and 2018, respectively.
Inventory Valuation
Inventories are carried at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Pre-Contract Costs
From time to time, pre-contract costs are incurred, excluding start-up costs which are expensed as incurred, are deferred and included in "Inventories" on the Consolidated Balance Sheets if the Company determines that it is probable it will be awarded the specific anticipated contract. Deferred pre-contract costs are periodically reviewed and assessed for recoverability under the contract. Write-offs of pre-contract costs are charged to cost of sales when it becomes probable that such costs will not be recoverable.
No
pre-contract costs were included in "Inventories" on the Consolidated Balance Sheets at January 31, 2019 or 2018. Additionally, there were
no
pre-contract costs written-off in fiscal years 2019, 2018 or 2017.
Property, Plant and Equipment
Property, plant and equipment held for use is carried at the asset's cost and depreciated over the estimated useful life of the asset.
(Dollars in thousands, except per-share amounts)
The estimated useful lives used for computing depreciation are as follows:
|
|
|
Building and improvements
|
15 - 39 years
|
Manufacturing equipment by segment
|
|
Applied Technology
|
3 - 5 years
|
Engineered Films
|
5 - 12 years
|
Aerostar
|
3 - 5 years
|
Furniture, fixtures, office equipment, and other
|
3 - 7 years
|
The cost of maintenance and repairs is charged to expense in the period incurred, and renewals and betterments are capitalized. The cost and related accumulated depreciation of assets sold or disposed are removed from the accounts and the resulting gain or loss is reflected in the Consolidated Statements of Income and Comprehensive Income.
Fair Value Measurements
Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses the established fair value hierarchy, which classifies or prioritizes the inputs used in measuring fair value. These classifications include:
Level 1
- Observable inputs such as quoted prices in active markets.
Level 2
- Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3
- Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.
The Company's financial assets required to be measured at fair value on a recurring basis include cash and cash equivalents, short-term investments and mutual funds. The Company determines fair value of its cash equivalents, short-term investments and mutual funds through quoted market prices. Mutual funds relate to the Company's deferred compensation plan further described within Note 8 "Employee Postretirement Benefits". The fair values of accounts receivable and accounts payable approximate their carrying values because of the short-term nature of these instruments.
The Company's goodwill and long-lived assets, including intangible assets subject to amortization, are measured at fair value on a non-recurring basis. These valuations are derived from valuation techniques in which one or more significant inputs are not observable. Fair value measurements associated with goodwill and long-lived assets are further described in Note 7 "Goodwill, Long-Lived Assets, and Other Charges"
.
For all acquisitions, the Company is required to measure the fair value of the net identifiable tangible and intangible assets acquired. In addition, the Company determines the estimated fair value of contingent consideration as of the acquisition date, and subsequently at the end of each reporting period. These valuations are derived from valuation techniques in which one or more significant inputs are not observable. Fair value measurements associated with acquisitions, including acquisition-related contingent liabilities, are described in Note 6 "Acquisition of and Investments in Businesses and Technologies"
.
Intangible Assets
Intangible assets, primarily comprised of technologies acquired through acquisitions, are recorded at cost and presented net of accumulated amortization. Amortization is computed using the method that best approximates the pattern of economic benefits which the asset provides. The Company has used both the straight-line method and the undiscounted cash flows method to appropriately allocate the cost of intangible assets to earnings in each reporting period.
The straight-line method allocates the cost of such intangible assets ratably over the asset’s life. Under the undiscounted cash flow method, the estimated cash flow attributable to each year of an intangible asset’s life is calculated as a percentage of the total of the cash flows over the asset’s life and that percentage is applied to the initial value of the asset to determine the annual amortization to be recorded.
Intangible assets also include patents, trademarks, and other product rights attained to protect the Company’s intellectual property. The estimated useful lives of the Company’s intangible assets range from
3
to
20
years.
Goodwill
The Company recognizes goodwill as the excess cost of an acquired business over the net amount assigned to assets acquired and liabilities assumed. Goodwill is allocated to the reporting units that are expected to benefit from the synergies of the business combination. Acquisition earn-out payments are accrued at fair value as of the purchase date and payments reduce the accrual
(Dollars in thousands, except per-share amounts)
without affecting goodwill. Any change in the fair value of the contingent consideration after the acquisition date is recognized in "Cost of sales" in the Consolidated Statements of Income and Comprehensive Income.
Goodwill is tested for impairment on an annual basis during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are performed at the reporting unit level. A qualitative impairment assessment over relevant events and circumstances may be assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If events and circumstances indicate the fair value of a reporting unit may be less than its carrying value, then the fair values are estimated based on discounted cash flows and are compared with the corresponding carrying value of the reporting unit. If the fair value of the reporting unit is less than the carrying amount, a goodwill impairment loss is recognized for the amount that the carrying value of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to the reporting unit.
When performing goodwill impairment testing, the fair values of reporting units are determined based on valuation techniques using the best available information, primarily discounted cash flow projections. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures).
Long-Lived Assets
The Company periodically assesses the recoverability of long-lived and intangible assets. An impairment loss is recognized when the carrying amount of an asset group exceeds the estimated undiscounted cash flows used in determining the fair value of the asset group. The amount of the impairment loss to be recorded is the excess of the carrying value of the assets within the group over their fair value. When performing long-lived asset impairment testing, the fair values of an asset 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).
Long-lived assets determined to be held for sale and classified as such in accordance with the applicable guidance are reported as long-term assets at the lower of the asset's carrying amount or fair value less the estimated cost to sell. Depreciation is not recorded once a long-lived asset has been classified as held for sale.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration represents an obligation of the Company to transfer additional assets or equity interests if specified future events occur or conditions are met. This contingency is accounted for at fair value either as a liability or equity depending on the terms of the acquisition agreement. The Company determines the estimated fair value of contingent consideration as of the acquisition date, and subsequently at the end of each reporting period. In doing so, the Company makes significant estimates and assumptions regarding future events or conditions being achieved under the subject contingent agreement as well as the appropriate discount rate to apply. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures).
Litigation and Contingencies
Legal costs are recognized as an expense in the period incurred. The Company is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of business,
some of which allege substantial monetary damages. The Company accrues for any loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate than any other amount within the range, the minimum amount of the range is recorded as a liability. Amounts recovered by insurance, if any, are recognized when they are realized.
Revenue Recognition
The Company adopted the new revenue recognition standard, Revenue from Contracts with Customers, using the modified retrospective method applied to all contracts not completed as of January 31, 2018. Results for reporting periods beginning after January 31, 2018, are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy ASC 605. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or results of operations as of the adoption date as a significant majority of our sales revenue is recognized when products are shipped from our manufacturing facilities.
Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or providing services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
When determining whether the customer has obtained control of the goods or services, the Company considers any future performance obligations. Generally, there is no post-shipment obligation on products sold other than warranty obligations in the
(Dollars in thousands, except per-share amounts)
normal and ordinary course of business. In the event significant post-shipment obligations were to exist, revenue recognition would be deferred until the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenue. Estimated returns, sales allowances, and warranty charges, if applicable, are recorded at the same time revenue is recorded.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for purposes of revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, are not distinct. For contracts with multiple performance obligations, standalone selling price is generally readily observable. The Company’s performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounts for a majority of the Company’s revenues. Revenue on these contracts is recognized when obligations under the terms of the contract with our customer are satisfied; generally this occurs with the transfer of control upon shipment.
The Company uses an input measure to determine progress towards completion for revenue generated from products and services transferred to customers over time. Under this method, net sales and gross profit are recognized as work is performed generally based on the relationship between the actual costs incurred and the total estimated costs at completion (“the cost-to-cost method”) or based on efforts for measuring progress towards completion in situations in which this approach is more representative of the progress on the contract than the cost-to-cost method. Contract costs include labor, material, overhead and, when appropriate, general and administrative expenses. Changes to the original estimates may be required during the life of the contract, and such estimates are reviewed on a regular basis. Sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs. For performance obligations related to long term contracts, when estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.
Sales returns
The right of return may exist explicitly or implicitly with our customers. The Company’s return policy allows for customer returns only upon the Company's authorization. Goods returned must be a product the Company continues to market and must be in salable condition. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future.
Shipping and handling costs
Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in net sales in the accompanying Consolidated Statements of Income and Comprehensive Income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Consolidated Statements of Income and Comprehensive Income.
Sales tax
Taxes that are collected by the Company from a customer, which are assessed by governmental authorities that are both imposed upon and concurrent with a specific revenue-producing transaction, are excluded from revenues.
Operating Expenses
The primary types of operating expenses are classified in the income statement as follows:
|
|
|
|
|
|
Cost of sales
|
|
Research and development (R&D) expenses
|
|
Selling, general, and administrative (SG&A)expenses
|
Direct material costs
Material acquisition and handling costs
Direct labor
Factory overhead including depreciation and amortization
Inventory obsolescence
Product warranties
Shipping and handling cost
|
|
Personnel costs
Professional service fees
Material and supplies
Facility allocation
|
|
Personnel costs
Professional service fees
Advertising
Promotions
Information technology equipment depreciation
Office supplies
Facility allocation
Bad debt expense
|
Total engineering costs consist of R&D and other engineering support related expenses. R&D costs are internal direct and indirect costs associated with development of technologies to support the Company's proprietary product lines in each of its divisions.
(Dollars in thousands, except per-share amounts)
These R&D costs are expensed as incurred. Engineering support related expenses may be allocated to overhead, and thus cost of sales, or R&D expenses based on the focus of the engineering effort.
General and administrative expenses included in SG&A are not allocated at the segment level. The Company's gross margin and segment operating income may not be comparable to industry peers due to variability in the classification of these expenses across the industries in which the Company operates.
Warranties
Accruals necessary for product warranties are estimated based on historical warranty costs in relation to sales and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues.
Share-Based Compensation
The Company records compensation expense related to its share-based compensation plans using the fair value method. Under this method, the fair value of share-based compensation is determined as of the grant date and the related expense is recorded over the period in which the share-based compensation vests.
Income Taxes
Deferred income taxes reflect future tax effects of temporary differences between the tax and financial reporting basis of the Company's assets and liabilities measured using enacted tax laws and statutory tax rates applicable to the periods when the temporary differences will affect taxable income. When necessary, deferred tax assets are reduced by a valuation allowance to reflect realizable value. All deferred tax balances are reported as long-term on the Consolidated Balance Sheets. Accruals are maintained for uncertain tax positions.
Accounting Pronouncements
Accounting Standards Adopted
In the fiscal 2019 fourth quarter, the Company early adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20):
Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans" (ASU 2018-14) issued in August 2018. The amendments in this guidance modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements for certain disclosures, and add disclosure requirements identified as relevant. The Company does not have a defined benefit pension plan but does have an unfunded defined benefit postretirement plan that offers postretirement medical and other benefits to certain retired and active senior executives and their spouses. The Company elected to early adopt the guidance on a retrospective basis applied to all periods. ASU 2018-14 is disclosure in nature only and as such did not significantly impact the Company's consolidated financial statements.
In the fiscal 2019 first quarter, the Company early adopted FASB ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" (ASU 2018-02) issued in February 2018. The amendments in this guidance allow for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Acts (TCJA). Consequently, the amendments eliminate the stranded tax effects resulting from the TCJA and are intended to improve the usefulness of information reported. The Company elected to apply the amendments in the period of adoption. The Company recorded a
$280
reclassification entry for the stranded tax effects in Accumulated Other Comprehensive Income related to Raven's post-retirement plan further disclosed in Note 8 "Employee Retirement Benefits". The impact of the reclassification is reported as "Reclassification due to ASU 2018-02 adoption" in the Consolidated Statements of Shareholders' Equity and Note 3 "Accumulated Other Comprehensive Income (Loss)".
In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU No. 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" (ASU 2017-09) on a prospective basis. The guidance amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards as equity instruments or liability instruments are the same immediately before and after the modification to the award. The Company did not modify any of its outstanding awards during the twelve-month period ended January 31, 2019; therefore, the adoption of this guidance had no impact on its consolidated financial statements.
In the fiscal 2019 first quarter when it became effective, the Company adopted, the FASB ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (ASU 2017-07). The guidance clarifies where the cost components of the net benefit cost should be reported in the income statement and it allows only the service cost to be capitalized. The adoption of this guidance resulted in
$28
of the net periodic
(Dollars in thousands, except per-share amounts)
benefit cost being reported as a charge to operating income and
$284
reported as a charge to non-operating income (expense) for the twelve-months ended
January 31, 2019
. The classification of this charge on the Consolidated Statements of Income and Comprehensive Income is described in Note 8 "Employee Retirement Benefits" in the Notes to the Consolidated Financial Statements. The net periodic benefit cost for the fiscal year 2018 and 2017 was not material.
In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory" (ASU 2016-16). Previous GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. This new guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. The Company did not have any intra-entity transfers of assets impacted by this guidance, as such the adoption of this guidance had no impact on its consolidated financial statements.
In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" (ASU 2016-15). The specific classification issues clarified in the guidance either were not applicable to the Company or are consistent with how the Company previously classified them, therefore the adoption of this guidance had no impact on its consolidated financial statements.
In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" (ASU 2016-01).
The updated accounting guidance requires equity securities to be measured at fair value with changes in the fair value recognized through net income. An entity’s equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this update. The impacted financial instruments held at the time of adoption were not material, as such, the adoption of this guidance and the subsequent changes to Subtopic 825-10 in ASU 2018-03 "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," did not have a material impact on the Company's consolidated financial statements.
In the fiscal 2019 first quarter, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" (ASU 2014-09). ASU 2014-09 provides a comprehensive new recognition model that requires recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. This guidance supersedes the revenue recognition requirements in FASB ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. ASU 2014-09 defines a five-step process to achieve this core principle. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The Company adopted ASU 2014-09 on a modified retrospective basis. The comparative historical information has not been adjusted and continues to be reported under ASC Topic 605 as previously presented. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements or results of operations as of the adoption date and for the three- and twelve-months ended January 31, 2019, as a significant majority of the Company's sales revenue is recognized when products are shipped from the Company's manufacturing facilities. As part of the adoption of ASU 2014-09 the Company has elected the following practical expedients: modified retrospective basis was applied for all contracts that were not completed as of February 1, 2018; shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are considered fulfillment costs included within cost of sales; and taxes that are collected by the Company from a customer, which are assessed by governmental authorities that are both imposed upon and concurrent with a specific revenue-producing transaction, are excluded from revenues. Additional disclosures related to the revenues arising from contracts with customers as required by Topic 606 are included in Note 5 "Revenue
"
.
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 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
(Dollars in thousands, except per-share amounts)
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 February 2016 the FASB issued ASU No. 2016-02, "Leases (Topic 842)" (ASU 2016-02). The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those 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. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. In July 2018 the FASB amended Topic 842 to provide entities additional guidance on transition to adopt using either a modified retrospective approach for leases that exist upon adoption and in the comparative periods presented, or an optional approach to initially apply the new lease guidance upon the adoption date without adjusting the comparative periods presented. The Company has designed necessary internal controls to facilitate the adoption of this new standard. Using the modified retrospective approach, the Company expects to recognize a right-of-use asset and lease liability of approximately
$3,900
in the first quarter of fiscal 2020. The adoption of this standard is not expected to have a significant impact on the Company's consolidated results of operations.
(Dollars in thousands, except per-share amounts)
|
|
|
NOTE 2
|
SELECTED BALANCE SHEET INFORMATION
|
Following are the components of selected balance sheet items:
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
2019
|
|
2018
|
Accounts receivable, net:
|
|
|
|
|
Trade accounts
|
|
$
|
53,820
|
|
|
$
|
57,063
|
|
Unbilled receivables
|
|
1,391
|
|
|
2,447
|
|
Allowance for doubtful accounts
|
|
(739
|
)
|
|
(978
|
)
|
|
|
$
|
54,472
|
|
|
$
|
58,532
|
|
Inventories:
|
|
|
|
|
Finished goods
|
|
$
|
7,629
|
|
|
$
|
8,054
|
|
In process
|
|
1,103
|
|
|
961
|
|
Materials
|
|
45,344
|
|
|
46,336
|
|
|
|
$
|
54,076
|
|
|
$
|
55,351
|
|
Other current assets:
|
|
|
|
|
Insurance policy benefit
|
|
$
|
336
|
|
|
$
|
759
|
|
Federal income tax receivable
|
|
1,045
|
|
|
1,397
|
|
Receivable from sale of investment
|
|
1,055
|
|
|
—
|
|
Prepaid expenses and other
|
|
6,300
|
|
|
3,705
|
|
|
|
$
|
8,736
|
|
|
$
|
5,861
|
|
Property, plant and equipment, net:
|
|
|
|
|
Assets held for use and assets held for sale
(a)
:
|
|
|
|
|
Land
|
|
$
|
3,234
|
|
|
$
|
3,234
|
|
Buildings and improvements
|
|
81,381
|
|
|
80,299
|
|
Machinery and equipment
|
|
155,463
|
|
|
149,847
|
|
Accumulated depreciation
|
|
(133,724
|
)
|
|
(127,523
|
)
|
|
|
$
|
106,354
|
|
|
$
|
105,857
|
|
Property, plant and equipment subject to capital leases:
|
|
|
|
|
Machinery and equipment
|
|
$
|
510
|
|
|
$
|
488
|
|
Accumulated amortization for capitalized leases
|
|
(249
|
)
|
|
(65
|
)
|
|
|
261
|
|
|
423
|
|
|
|
$
|
106,615
|
|
|
$
|
106,280
|
|
Other assets:
|
|
|
|
|
Equity investments
|
|
$
|
345
|
|
|
$
|
1,955
|
|
Deferred income taxes
|
|
16
|
|
|
19
|
|
Other
|
|
2,963
|
|
|
976
|
|
|
|
$
|
3,324
|
|
|
$
|
2,950
|
|
Accrued liabilities:
|
|
|
|
|
Salaries and related
|
|
$
|
8,244
|
|
|
$
|
9,409
|
|
Benefits
|
|
4,751
|
|
|
4,225
|
|
Insurance obligations
|
|
1,963
|
|
|
1,992
|
|
Warranties
|
|
890
|
|
|
1,163
|
|
Income taxes
|
|
328
|
|
|
226
|
|
Other taxes
|
|
2,434
|
|
|
1,880
|
|
Acquisition-related contingent consideration
|
|
1,796
|
|
|
1,036
|
|
Other
|
|
3,072
|
|
|
2,015
|
|
|
|
$
|
23,478
|
|
|
$
|
21,946
|
|
Other liabilities:
|
|
|
|
|
Postretirement benefits
|
|
$
|
7,678
|
|
|
$
|
8,264
|
|
Acquisition-related contingent consideration
|
|
2,376
|
|
|
2,010
|
|
Deferred income taxes
|
|
1,659
|
|
|
615
|
|
Uncertain tax positions
|
|
2,670
|
|
|
2,634
|
|
Other
|
|
3,852
|
|
|
272
|
|
|
|
$
|
18,235
|
|
|
$
|
13,795
|
|
(a)
The amount of assets and liabilities held for sale as of January 31, 2019 and 2018 were not material.
(Dollars in thousands, except per-share amounts)
|
|
|
NOTE 3
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders' equity but are excluded from net income. The changes in the components of accumulated other comprehensive income (loss) (AOCI) are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative foreign currency translation adjustment
|
|
Postretirement benefits
|
|
Total
|
Balance at January 31, 2017
|
|
$
|
(2,427
|
)
|
|
$
|
(1,249
|
)
|
|
$
|
(3,676
|
)
|
Other comprehensive income before reclassifications
|
|
1,234
|
|
|
$
|
—
|
|
|
1,234
|
|
Amounts reclassified from accumulated other comprehensive income (loss) after tax benefit of $44
|
|
—
|
|
|
(131
|
)
|
|
(131
|
)
|
Balance at January 31, 2018
|
|
$
|
(1,193
|
)
|
|
$
|
(1,380
|
)
|
|
$
|
(2,573
|
)
|
Other comprehensive (loss) before reclassifications
|
|
(1,045
|
)
|
|
—
|
|
|
(1,045
|
)
|
Reclassification due to ASU 2018-02 adoption
|
|
—
|
|
|
(280
|
)
|
|
(280
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss) after tax (expense) of ($99)
|
|
—
|
|
|
342
|
|
|
342
|
|
Balance at January 31, 2019
|
|
$
|
(2,238
|
)
|
|
$
|
(1,318
|
)
|
|
$
|
(3,556
|
)
|
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" (ASU 2017-07) further described in Note 1 "Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements. 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 is classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.
|
|
|
NOTE 4
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
3,938
|
|
|
$
|
(7,014
|
)
|
|
$
|
(5,361
|
)
|
Inventories
|
|
1,092
|
|
|
(11,062
|
)
|
|
1,215
|
|
Prepaid expenses and other assets
|
|
(2,440
|
)
|
|
(2,445
|
)
|
|
228
|
|
Accounts payable
|
|
(4,517
|
)
|
|
1,280
|
|
|
2,558
|
|
Accrued and other liabilities
|
|
3,480
|
|
|
2,560
|
|
|
8,405
|
|
|
|
$
|
1,553
|
|
|
$
|
(16,681
|
)
|
|
$
|
7,045
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
8,225
|
|
|
$
|
19,854
|
|
|
$
|
6,618
|
|
Interest paid
|
|
$
|
227
|
|
|
$
|
186
|
|
|
$
|
190
|
|
|
|
|
|
|
|
|
Significant non-cash transactions:
|
|
|
|
|
|
|
Capital expenditures and other intangibles included in accounts payable
|
|
$
|
655
|
|
|
$
|
418
|
|
|
$
|
84
|
|
Assets acquired under capital leases
|
|
$
|
38
|
|
|
$
|
79
|
|
|
$
|
—
|
|
(Dollars in thousands, except per-share amounts)
Nature of goods and services
The Company is comprised of
three
unique operating divisions, classified into reportable segments: Applied Technology, Engineered Films, and Aerostar. The following is a description of principal activities, separated by reportable segment, from which the Company generates revenue. Service revenues and contract losses are not material and are not separately disclosed. Furthermore, the Company acts as a principal in transactions and recognizes revenue on a gross basis for which it entitled from its customers.
Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools, which are collectively referred to as precision agriculture equipment, that help farmers reduce costs, more precisely control inputs, and improve farm yields for the global agriculture market. Customers can purchase precision agriculture equipment individually or in large quantities. For purchases made in large quantities, the Company accounts for each piece of equipment separately, as each is a distinct performance obligation from which the customer derives benefit. The stand-alone selling prices are determined based on the prices at which the Company charges other customers for similar products in similar circumstances. Kits or bundles, which can consist of various pieces of equipment, are shipped together and therefore allocation of transaction price does not impact timing of revenue recognition. In the normal course of business the customer agrees to a fixed price and revenue is recognized when control has transferred to the customer.
Engineered Films
Engineered Films produces high-performance plastic films and sheeting for geomembrane, agricultural, construction, and industrial applications and also offers design-build and installation services of these plastic films and sheeting. Plastic film and sheeting can be purchased separately or together with installation services. The majority of transactions within Engineered Films are considered non-customized product-only sales. The Company accounts for each product separately, as each is a distinct performance obligation from which the customer derives benefit. The stand-alone selling prices are determined based on the prices at which the Company charges other customers for similar products in similar circumstances. In the normal course of business the customer agrees to a fixed price and revenue is recognized when control has transferred to the customer.
The remaining transactions within Engineered Films are related to installation and/or customized product sales. Installation revenues are recognized over time using the cost incurred input method (i.e., costs incurred to date relative to total estimated costs at completion) because of continuous transfer of control to customers. For customized product-only sales, the Company recognizes revenue over time by applying an output method, such as units delivered, to measure progress.
Aerostar
Aerostar serves the aerospace/defense and commercial lighter-than-air markets. Aerostar's core products include high-altitude stratospheric balloons and radar systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. Aerostar pursues product and support services contracts with agencies and instrumentalities of the U.S. government. Product sales to customers for which the division does not continuously transfer control are recognized based on a point-in-time. Contracts with customers which include elements of service, and are considered to be single performance obligations, are recognized over time. The stand-alone selling prices are determined based on the prices at which the Company charges other customers for similar products or services in similar circumstances. In the normal course of business the customer agrees to a fixed price. For revenues recognized at a point-in-time, the Company recognizes revenue when control has transferred to the customer. Certain lighter-than-air contracts are recognized over time using the cost incurred input method. The remaining transactions are recognized over time applying an output method, such as units delivered, to measure progress.
Disaggregation of Revenues
In the following table, revenue is disaggregated by major product category and geography as the Company believes these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The table also includes a reconciliation of the disaggregated revenue with reportable segments.
(Dollars in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Product Category
|
|
|
Twelve months ended January 31, 2019
|
|
|
ATD
|
|
EFD
|
|
AERO
|
|
ELIM
(a)
|
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,866
|
|
|
$
|
—
|
|
|
$
|
37,866
|
|
International
|
|
—
|
|
|
—
|
|
|
932
|
|
|
—
|
|
|
932
|
|
Plastic Films & Sheeting
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
—
|
|
|
208,882
|
|
|
—
|
|
|
(512
|
)
|
|
208,370
|
|
International
|
|
—
|
|
|
17,692
|
|
|
—
|
|
|
—
|
|
|
17,692
|
|
Precision Agriculture Equipment
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
100,051
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
100,041
|
|
International
|
|
29,698
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,698
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
—
|
|
|
—
|
|
|
12,062
|
|
|
—
|
|
|
12,062
|
|
International
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
Totals
|
|
$
|
129,749
|
|
|
$
|
226,574
|
|
|
$
|
50,867
|
|
|
$
|
(522
|
)
|
|
$
|
406,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended January 31, 2018
|
|
|
ATD
|
|
EFD
|
|
AERO
|
|
ELIM
(a)
|
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,956
|
|
|
$
|
—
|
|
|
$
|
24,956
|
|
International
|
|
—
|
|
|
—
|
|
|
93
|
|
|
—
|
|
|
93
|
|
Plastic Films & Sheeting
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
—
|
|
|
201,330
|
|
|
—
|
|
|
(584
|
)
|
|
200,746
|
|
International
|
|
—
|
|
|
11,968
|
|
|
—
|
|
|
—
|
|
|
11,968
|
|
Precision Agriculture Equipment
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
95,249
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95,249
|
|
International
|
|
29,439
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,439
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
—
|
|
|
—
|
|
|
14,810
|
|
|
—
|
|
|
14,810
|
|
International
|
|
—
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
56
|
|
Totals
|
|
$
|
124,688
|
|
|
$
|
213,298
|
|
|
$
|
39,915
|
|
|
$
|
(584
|
)
|
|
$
|
377,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended January 31, 2017
|
|
|
ATD
|
|
EFD
|
|
AERO
|
|
ELIM
(a)
|
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,117
|
|
|
$
|
—
|
|
|
$
|
17,117
|
|
International
|
|
—
|
|
|
—
|
|
|
357
|
|
|
—
|
|
|
357
|
|
Plastic Films & Sheeting
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
—
|
|
|
132,704
|
|
|
—
|
|
|
(789
|
)
|
|
131,915
|
|
International
|
|
—
|
|
|
6,151
|
|
|
—
|
|
|
—
|
|
|
6,151
|
|
Precision Agriculture Equipment
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
76,205
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
76,204
|
|
International
|
|
29,012
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,012
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
—
|
|
|
—
|
|
|
16,631
|
|
|
—
|
|
|
16,631
|
|
International
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Totals
|
|
$
|
105,217
|
|
|
$
|
138,855
|
|
|
$
|
34,113
|
|
|
$
|
(790
|
)
|
|
$
|
277,395
|
|
(a)
Intersegment sales for fiscal years 2019, 2018 and 2017 were primarily sales from Engineered Films to Aerostar.
(Dollars in thousands, except per-share amounts)
Contract Balances
Contract balances include contract assets and contract liabilities that are recorded when the Company enters into a contract with a customer. Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed (unbilled receivables) at the reporting date, or retainage provisions on billings that have been issued. Contract assets are converted to receivables when the right to collect becomes unconditional. The Company's contract assets reported at January 31, 2019 and 2018 primarily relate to Engineered Films' geomembrane installation services and service contracts for Aerostar's lighter-than air products and radar processing systems. Contract assets are reported in "Accounts receivable, net" in the Consolidated Balance Sheets.
Contract liabilities consist of customer advances and deferred revenue. Contract liabilities primarily relate to consideration received from customers prior to transferring goods or services to the customer. Contract liabilities are reported in "Other current liabilities" in the Consolidated Balance Sheets.
The changes in contract assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2019
|
|
January 31,
2018
|
|
$
Change
|
|
% Change
|
Contract assets
|
|
$
|
2,027
|
|
|
$
|
3,119
|
|
|
$
|
(1,092
|
)
|
|
(35.0
|
)%
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
$
|
1,303
|
|
|
$
|
1,890
|
|
|
$
|
(587
|
)
|
|
(31.1
|
)%
|
During the twelve months ended
January 31, 2019
, the Company’s contract assets decreased by
$1,092
and contract liabilities decreased by
$587
, primarily as a result of the contract terms which include timing of customer payments, timing of invoicing, and progress made on open contracts. The Company's contract assets at January 31, 2019, are primarily unbilled receivables that will convert to billed receivables in first quarter of next year. The Company's contract liabilities at January 31, 2019, include customer advances that will substantially all convert to revenue recognized during the next fiscal year. Due to the short-term nature of the Company’s contracts, substantially all of the contract assets that existed as of January 31, 2018, were converted to accounts receivable. In addition the Company's contract liabilities that existed as of January 31, 2018, were recognized as revenue during fiscal 2019.
Remaining performance obligations
As of January 31, 2019, the Company did not have any remaining performance obligations related to customer contracts that had an original expected duration of one year or more.
|
|
|
NOTE 6
|
ACQUISITIONS AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
|
Fiscal year 2019 acquisition
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 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
$9,400
which includes potential earn-out payments with an estimated fair value of
$1,742
. The earn-out is contingent upon achieving certain revenue milestones. Based on the initial acquisition accounting 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 estimated goodwill and identifiable intangible assets recorded as part of the purchase price allocation at January 31, 2019, were
$4,559
and
$5,400
, respectively. The Company expects to complete the purchase price allocation by the end of fiscal 2020.
Fiscal year 2018 acquisition
On
September 1, 2017
, the Company completed the acquisition of substantially all of the assets ("CLI Acquisition") of
Colorado Lining International, Inc.
(CLI), a Colorado corporation headquartered in Parker, CO. This acquisition was aligned under the Company’s Engineered Films Division. The acquisition enhanced the Company’s geomembrane market position through extended service and product offerings with the addition of new design-build and installation service components, and advanced Engineered
(Dollars in thousands, except per-share amounts)
Films’ business model into a vertically-integrated, full-service solutions provider for the geomembrane market. The CLI 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 CLI Acquisition included a working capital adjustment that was settled in January 2018. The final working capital adjustment was
$566
which brought the total purchase price to
$14,938
. This purchase price included potential earn-out payments with an estimated fair value of
$1,256
which are contingent upon achieving certain revenues and operational synergies.
The fair value 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 was reflected as goodwill. Goodwill recorded as part of the purchase price allocation was
$5,714
, all of which is tax deductible.
Acquisition-related contingent consideration
The Company has contingent liabilities related to the current fiscal year acquisition of AgSync, as well as the prior acquisitions of CLI in September 2017, SBG in May 2014 and ATS in January 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:
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
Beginning balance
|
|
$
|
3,046
|
|
|
$
|
1,741
|
|
Fair value of contingent consideration acquired
|
|
1,742
|
|
|
1,256
|
|
Change in fair value of the liability
|
|
708
|
|
|
457
|
|
Contingent consideration earn-out paid
|
|
(1,324
|
)
|
|
(408
|
)
|
Ending balance
|
|
$
|
4,172
|
|
|
$
|
3,046
|
|
|
|
|
|
|
Classification of liability in the Consolidated Balance Sheets
|
|
|
|
|
Accrued Liabilities
|
|
$
|
1,796
|
|
|
$
|
1,036
|
|
Other Liabilities, long-term
|
|
2,376
|
|
|
2,010
|
|
Ending balance
|
|
$
|
4,172
|
|
|
$
|
3,046
|
|
As part of the AgSync Acquisition in the current fiscal year, 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 January 31, 2019.
Related to the CLI Acquisition in the prior fiscal year, 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. As of January 31, 2019, the Company has paid a total of
$667
of this potential earn-out liability.
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. As of January 31, 2019, the Company has paid a total of
$1,336
of this potential earn-out liability.
Related to the acquisition of ATS in 2012, the Company is committed to making annual payments based upon earn-out percentages on specific revenue streams for
seven years
after the purchase date. To date, the Company has paid a total of
$1,783
of this contingent liability and will make its final annual payment in first quarter of fiscal 2020.
|
|
|
NOTE 7
|
GOODWILL, LONG-LIVED ASSETS, AND OTHER CHARGES
|
Goodwill
For goodwill, the Company performs impairment reviews by reporting unit. At the end of fiscal 2019 and 2018, the Company determined it had
three
reporting units: Engineered Films Division, Applied Technology Division, and Aerostar Division.
(Dollars in thousands, except per-share amounts)
The changes in the carrying amount of goodwill by reporting unit are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applied
Technology
|
|
Engineered
Films
|
|
Aerostar
|
|
Total
|
Balance at January 31, 2017
|
|
$
|
12,342
|
|
|
$
|
27,518
|
|
|
$
|
789
|
|
|
$
|
40,649
|
|
Additions due to business combinations
|
|
—
|
|
|
5,714
|
|
|
—
|
|
|
5,714
|
|
Divestiture of business
|
|
—
|
|
|
—
|
|
|
(52
|
)
|
|
(52
|
)
|
Foreign currency translation adjustment
|
|
399
|
|
|
—
|
|
|
—
|
|
|
399
|
|
Balance at January 31, 2018
|
|
12,741
|
|
|
33,232
|
|
|
737
|
|
|
46,710
|
|
Additions due to business combinations
|
|
4,559
|
|
|
—
|
|
|
—
|
|
|
4,559
|
|
Divestiture of business
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
(103
|
)
|
Foreign currency translation adjustment
|
|
(224
|
)
|
|
—
|
|
|
—
|
|
|
(224
|
)
|
Balance at January 31, 2019
|
|
$
|
17,076
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
50,942
|
|
Goodwill gross and net of accumulated impairment losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
2019
|
|
2018
|
Gross goodwill
|
|
$
|
62,439
|
|
|
$
|
58,207
|
|
Accumulated impairment loss
|
|
(11,497
|
)
|
|
(11,497
|
)
|
Net goodwill
|
|
$
|
50,942
|
|
|
$
|
46,710
|
|
Goodwill is tested for impairment on an annual basis and between annual tests whenever a triggering event indicates there may be an impairment. The annual impairment tests were completed for each reporting unit in the fourth quarter based on a November 30th valuation date.
Fiscal 2019 Goodwill Impairment Testing
In fiscal 2019 no triggering events were deemed to have occurred in any of the quarterly periods and
no
impairments were recorded as a result of the annual impairment testing. In its annual impairment testing, the Company concluded a quantitative analysis was not required for any of its reporting units based on the Company's qualitative analysis.
Fiscal 2018 Goodwill Impairment Testing
In fiscal 2018 no triggering events were deemed to have occurred in any of the quarterly periods and
no
impairments were recorded as a result of the annual impairment testing. In its annual impairment testing, the Company concluded a quantitative analysis was not required for the Applied Technology and Engineered Films reporting units. This was based on the Company's qualitative analysis and the fact that the estimated fair value in the Company's most recent impairment test substantially exceeded its carrying value for each of these reporting units.
For the Aerostar reporting unit, the Company determined the excess of the fair value of the reporting unit over its carry value in the previous year's annual impairment assessment was not significant enough based on the current macroeconomic conditions to perform a qualitative analysis. As such, the Company performed a quantitative analysis for the annual impairment assessment of the Aerostar reporting unit. In determining the estimated fair value of the Aerostar reporting unit, the Company was required to estimate a number of factors, including future revenues and expenses, projected capital expenditures, changes in net working capital and the discount rate. On the basis of these estimates, the November 30, 2017, analysis indicated that the estimated fair value of the Aerostar reporting unit exceeded the reporting unit carrying value by approximately
$11,600
or approximately
41%
, as such there were
no
goodwill impairment losses reported in the year ended January 31, 2018.
Fiscal 2017 Goodwill Impairment Testing
In the fiscal 2017 third quarter, the Company determined that a triggering event occurred for its Aerostar reporting unit, which had
$789
of goodwill as of October 31, 2016. The triggering event was caused by lowering the financial expectations for net sales and operating income of the reporting unit and certain asset groups due to delays and uncertainties regarding the reporting unit’s pursuit of certain opportunities, including aerostat orders, certain classified stratospheric balloon pursuits, and radar pursuits. Aerostar was still actively pursuing these opportunities and some were in active negotiations, but the timing of certain aerostat and classified stratospheric balloon opportunities were being delayed more than previously expected and the likelihood of radar sales is lower due to the Company's decision to no longer actively pursue certain radar product opportunities
.
(Dollars in thousands, except per-share amounts)
A quantitative impairment analysis was completed using fair value techniques as of October 31, 2016. In determining the estimated fair value of the Aerostar reporting unit, the Company was required to estimate a number of factors, including projected revenue growth rates, projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. On the basis of these estimates, the October 31, 2016, analysis indicated that the estimated fair value of the Aerostar reporting unit exceeded the reporting unit carrying value by approximately
$9,000
, or approximately
30%
.
There were no other triggering events during fiscal 2017 for any of the three reporting units, and
no
impairments were recorded as a result of the annual impairment testing for fiscal 2017.
Intangible Assets
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
Amount
|
amortization
|
Net
|
|
Amount
|
amortization
|
Net
|
Existing technology
|
|
$
|
9,203
|
|
$
|
(7,216
|
)
|
$
|
1,987
|
|
|
$
|
7,290
|
|
$
|
(6,996
|
)
|
$
|
294
|
|
Customer relationships
|
|
15,791
|
|
(5,508
|
)
|
10,283
|
|
|
13,264
|
|
(4,834
|
)
|
8,430
|
|
Patents and other intangibles
|
|
5,908
|
|
(1,885
|
)
|
4,023
|
|
|
4,241
|
|
(2,381
|
)
|
1,860
|
|
Total
|
|
$
|
30,902
|
|
$
|
(14,609
|
)
|
$
|
16,293
|
|
|
$
|
24,795
|
|
$
|
(14,211
|
)
|
$
|
10,584
|
|
The estimated future amortization expense for these definite-lived intangible assets during the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
Estimated amortization expense
|
|
$
|
2,425
|
|
|
$
|
2,358
|
|
|
$
|
2,300
|
|
|
$
|
2,235
|
|
|
$
|
1,711
|
|
Long-lived assets
The Company assesses the recoverability of long-lived assets, including definite-lived intangibles, equity method investments, and property plant and equipment if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, the Company performs impairment reviews by asset groups. 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 measured and recognized when the carrying amount of an asset exceeds the estimated discounted cash flows.
Fiscal 2019 Long-lived Assets Impairment Assessment
The Company did not identify any triggering events for any of its assets groups during fiscal 2019 and as such there were
no
impairment losses reported in the year ended January 31, 2019, for any of the Company's long-lived assets.
Fiscal 2018 Long-lived Assets Impairment Assessment
During first quarter of fiscal 2018, the Company determined the customer relationship intangible asset related to the AgEagle investment was fully impaired. This is more fully described in Note 1 "Significant Accounting Policies". The Company did not identify any additional triggering events for any of its asset groups for the remainder of fiscal 2018.
Fiscal 2017 Long-lived Assets Impairment Assessment
The Company evaluated the triggering events described in the goodwill impairment analysis for fiscal 2017 and determined there were also triggering events with respect to the assets associated with the aerostat and stratospheric programs (Lighter-than-Air) and the radar product and radar services (Radar) asset groups in the Aerostar reporting unit in the third quarter of fiscal 2017, which resulted in an asset impairment test.
Using the sum of the undiscounted cash flows associated with each of the two asset groups, a quantitative test was performed for each asset group. The undiscounted cash flows for the Lighter-than-Air asset group exceeded the carrying value of the long-lived assets by approximately
$110,000
, or
800%
, and no discounted quantitative analysis was deemed necessary based on the
(Dollars in thousands, except per-share amounts)
recoverability of the long-lived assets. For the Radar asset group, however, the undiscounted cash flows did not exceed the carrying value of the long-lived assets and the Company performed a discounted quantitative analysis for the long-lived assets.
In this discounted quantitative impairment analysis, the fair value determined was allocated to the assets and liabilities of the Radar asset group. The resulting estimated fair value of the Radar asset group long-lived assets was
$175
compared to the carrying value of
$262
for the asset group. The shortfall of
$87
was recorded in the fiscal 2017 third quarter as an impairment charge to operating income reported as "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income. The total impairment loss related to property, plant, and equipment and patents was
$62
and
$25
, respectively.
Other Charges
Inventory Write-downs
Due to the Company's decision to no longer actively pursue certain radar opportunities, during the fiscal 2017 third quarter the Company wrote-down radar inventory, purchased primarily during fiscal 2016. The decision to write-down this inventory is consistent with the triggering event identified during the fiscal 2017 third quarter relating to the Aerostar reporting unit and the Radar asset group. This radar-specific inventory write-down increased "Cost of sales" by
$2,278
in fiscal 2017. There were
no
significant inventory write-downs in fiscal 2019 or 2018.
|
|
|
NOTE 8
|
EMPLOYEE POSTRETIREMENT BENEFITS
|
Defined contribution 401(k) plan
The Company has
one
401(k) plan covering substantially all employees and this plan matches employee contributions up to
5%
. Prior to January 1, 2018, the plan matched contributions up to
4%
. Under this plan all account balances and future contributions and related earnings can be invested in several investment alternatives as well as the Company's common stock in accordance with each participant's elections. Participants may choose to make separate investment choices for current account balances and for future contributions. Participants may elect to direct up to
10%
of their contributions and the employers matching contributions to the 401(k) plan into the Company's common stock. In addition, the plan does not allow a participant to exchange more than
10%
of their existing account balance into the Company’s common stock or permit exchanges that would cause the participant’s investment in the Company’s common stock to exceed
10%
of the participant's total balance in the 401(k) plan. Officers of the Company may not include Raven's common stock in their 401(k) plan elections.
Total contribution expense to all such plans was
$3,006
,
$2,263
, and
$2,030
for fiscal
2019
,
2018
, and
2017
, respectively, and all of these contributions were to the 401(k) plan.
Deferred compensation plan
Effective January 1, 2018, the Company established a section 409A non-qualified deferred compensation plan and associated
rabbi trust
for participants approved by the Board of Director's Personnel and Compensation Committee. The purpose of the deferred compensation plan is to attract and retain key employees by providing them with an opportunity to defer a portion of their compensation. The plan's
rabbi trust
is funded from the participant's deferred compensation
as the Company does not contribute or match participant contributions. Any assets held in
rabbi trust
are part of the Company's general assets and are subject to creditor's claims. The Company's common stock is not an investment option under this Plan as all contributions to the
rabbi trust
are invested in open-end mutual funds registered with the Securities and Exchange Commission based on the participant's investment elections.
The Company reports these financial instruments at fair value using level 1 observable inputs. The fair value of the liability and financial instruments held at January 31, 2019, were not material. Changes in the fair value of these financial instruments, realized gains and losses, dividends, and interest income were reported in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income and were not material for fiscal 2019.
(Dollars in thousands, except per-share amounts)
Defined benefit postretirement plan
In addition, the Company provides postretirement medical and other benefits to certain senior executive officers and senior managers. These plan obligations are unfunded and therefore have
no
assets as of January 31, 2019, and 2018. The accumulated benefit obligation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
Benefit obligation at beginning of year
|
|
$
|
8,571
|
|
|
$
|
8,416
|
|
Service cost
|
|
28
|
|
|
74
|
|
Interest cost
|
|
316
|
|
|
312
|
|
Actuarial (gain) loss and assumption changes
|
|
(473
|
)
|
|
112
|
|
Retiree benefits paid
|
|
(441
|
)
|
|
(343
|
)
|
Benefit obligation at end of year
|
|
$
|
8,001
|
|
|
$
|
8,571
|
|
The following tables set forth the plan's pre-tax adjustment to accumulated other comprehensive income/loss:
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
Amounts not yet recognized in net periodic benefit cost:
|
|
|
|
|
Net actuarial loss
|
|
$
|
2,114
|
|
|
$
|
2,714
|
|
Prior service cost
|
|
(413
|
)
|
|
(572
|
)
|
Total pre-tax accumulated other comprehensive loss
|
|
$
|
1,701
|
|
|
$
|
2,142
|
|
|
|
|
|
|
Pre-tax accumulated other comprehensive loss - beginning of year related to benefit obligation
|
|
$
|
2,142
|
|
|
$
|
1,967
|
|
Reclassification adjustments recognized in benefit cost:
|
|
|
|
|
Recognized net (loss)
|
|
(128
|
)
|
|
(96
|
)
|
Amortization of prior service cost
|
|
160
|
|
|
159
|
|
Amounts recognized in AOCI during the year:
|
|
|
|
|
Net actuarial (gain) loss
|
|
(473
|
)
|
|
112
|
|
Pre-tax accumulated other comprehensive loss - end of year related to benefit obligation
|
|
$
|
1,701
|
|
|
$
|
2,142
|
|
The net actuarial gain for fiscal year
2019
was the result of an increase in the discount rate by
50
basis points and unfavorable medical cost trends. The net actuarial loss for fiscal year
2018
was the result of a decrease in the discount rate and unfavorable demographic experience partially offset by medical costs trending lower than expected. The liability and net periodic benefit cost reflected in the Consolidated Balance Sheets and Consolidated Statements of Income and Comprehensive Income were as follows:
(Dollars in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
Beginning liability balance
|
|
$
|
8,571
|
|
|
$
|
8,416
|
|
Net periodic benefit cost
|
|
312
|
|
|
323
|
|
Other comprehensive (gain) loss
|
|
(441
|
)
|
|
175
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
(129
|
)
|
|
498
|
|
Retiree benefits paid
|
|
(441
|
)
|
|
(343
|
)
|
Ending liability balance
|
|
$
|
8,001
|
|
|
$
|
8,571
|
|
|
|
|
|
|
Current portion in accrued liabilities
|
|
$
|
323
|
|
|
$
|
307
|
|
Long-term portion in other liabilities
|
|
$
|
7,678
|
|
|
$
|
8,264
|
|
|
|
|
|
|
Assumptions used to calculate benefit obligation:
|
|
|
|
|
Discount rate
|
|
4.25
|
%
|
|
3.75
|
%
|
Rate of compensation increase
|
|
4.00
|
%
|
|
4.00
|
%
|
Health care cost trend rates:
|
|
|
|
|
Health care cost trend rate assumed for next year
|
|
6.33
|
%
|
|
6.50
|
%
|
Ultimate health care cost trend rate
|
|
4.50
|
%
|
|
4.50
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
2030
|
|
|
2030
|
|
Assumptions used to calculated the net periodic benefit cost:
|
|
|
|
|
Discount rate
|
|
3.75
|
%
|
|
4.00
|
%
|
Rate of compensation increase
|
|
4.00
|
%
|
|
4.00
|
%
|
The discount rate is based on matching rates of return on high-quality fixed-income investments with the timing and amount of expected benefit payments. No material fluctuations in retiree benefit payments are expected in future years.
The Company expects to make
$330
in postretirement medical and other benefit payments in fiscal
2020
. The following postretirement other than pension benefit payments, which reflect expected future service as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025 - 2029
|
Expected postretirement medical and other benefit payments
|
|
$
|
330
|
|
|
$
|
341
|
|
|
$
|
349
|
|
|
$
|
352
|
|
|
$
|
354
|
|
|
$
|
1,888
|
|
Changes in the warranty accrual were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance
|
|
$
|
1,163
|
|
|
$
|
1,547
|
|
|
$
|
1,835
|
|
Change in provision
|
|
1,449
|
|
|
1,762
|
|
|
1,597
|
|
Settlements made
|
|
(1,722
|
)
|
|
(2,146
|
)
|
|
(1,885
|
)
|
Ending balance
|
|
$
|
890
|
|
|
$
|
1,163
|
|
|
$
|
1,547
|
|
(Dollars in thousands, except per-share amounts)
The reconciliation of income tax computed at the federal statutory rate to the Company's effective income tax rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Tax at U.S. federal statutory rate
|
|
21.0
|
%
|
|
33.8
|
%
|
|
35.0
|
%
|
Impact of the Tax Cuts and Jobs Act
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
State and local income taxes, net of U.S. federal tax benefit
|
|
1.7
|
|
|
1.6
|
|
|
0.7
|
|
Tax credit for research activities
|
|
(2.3
|
)
|
|
(1.8
|
)
|
|
(3.7
|
)
|
Tax benefit on qualified production activities
|
|
—
|
|
|
(3.0
|
)
|
|
(2.8
|
)
|
Tax benefit from foreign-derived intangible income
|
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
Tax benefit on insurance premiums
|
|
(0.8
|
)
|
|
(1.3
|
)
|
|
(1.5
|
)
|
Change in uncertain tax positions
|
|
—
|
|
|
0.1
|
|
|
(0.3
|
)
|
Foreign tax rate difference
|
|
0.1
|
|
|
—
|
|
|
(0.3
|
)
|
Impact of settlement of stock-based awards
|
|
(2.4
|
)
|
|
1.2
|
|
|
—
|
|
Other, net
|
|
(0.8
|
)
|
|
—
|
|
|
0.4
|
|
Effective Tax Rate
|
|
15.7
|
%
|
|
30.5
|
%
|
|
27.5
|
%
|
The TCJA was enacted on December 22, 2017, and reduced the U.S. federal statutory tax rate to
21 percent
effective January 1, 2018. In addition, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the TCJA, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. The Company completed its accounting for the transition tax during this measurement period in fiscal 2019 and has also determined that it will elect to recognize Global Intangible Low Taxed Income as a period cost if, and when, incurred.
The decrease in the effective tax rate for fiscal 2019 is primarily due to the decrease in the federal statutory tax rate pursuant to the TCJA and the recognition of net favorable discrete items. Excluding these net favorable discrete items, the Company's effective tax rate decreased approximately
10
percentage points resulting in tax savings of
$6,218
in fiscal year 2019. Including these net favorable discrete items, the Company's effective tax rate decreased approximately
15
percentage points resulting in tax savings of
$9,112
in fiscal year 2019.
The increase in the fiscal 2018 effective tax rate compared to fiscal 2017 is primarily due to higher pre-tax income in fiscal 2018, net discrete tax items from the settlement of stock-based awards, and the TCJA.
The expense (benefit) for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31, 2019
|
|
|
2019
|
|
2018
|
|
2017
|
Current expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
$
|
6,910
|
|
|
$
|
17,057
|
|
|
$
|
6,375
|
|
State
|
|
1,099
|
|
|
1,549
|
|
|
591
|
|
Foreign
|
|
735
|
|
|
148
|
|
|
388
|
|
|
|
8,744
|
|
|
18,754
|
|
|
7,354
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
1,018
|
|
|
(613
|
)
|
|
330
|
|
State
|
|
73
|
|
|
(13
|
)
|
|
14
|
|
Foreign
|
|
(138
|
)
|
|
(161
|
)
|
|
(37
|
)
|
|
|
953
|
|
|
(787
|
)
|
|
307
|
|
Income tax expense
|
|
$
|
9,697
|
|
|
$
|
17,967
|
|
|
$
|
7,661
|
|
(Dollars in thousands, except per-share amounts)
Deferred Tax Assets (Liabilities)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
147
|
|
|
$
|
184
|
|
Inventories
|
|
1,110
|
|
|
664
|
|
Accrued vacation
|
|
695
|
|
|
647
|
|
Insurance obligations
|
|
187
|
|
|
137
|
|
Warranty obligations
|
|
200
|
|
|
262
|
|
Postretirement benefits
|
|
1,800
|
|
|
1,929
|
|
Uncertain tax positions
|
|
487
|
|
|
491
|
|
Share-based compensation
|
|
1,834
|
|
|
1,761
|
|
Other accrued liabilities
|
|
913
|
|
|
54
|
|
|
|
7,373
|
|
|
6,129
|
|
|
|
|
|
|
Deferred tax (liabilities):
|
|
|
|
|
Depreciation and amortization
|
|
(8,498
|
)
|
|
(6,082
|
)
|
Other
|
|
(518
|
)
|
|
(643
|
)
|
|
|
(9,016
|
)
|
|
(6,725
|
)
|
Net deferred tax (liability)
|
|
$
|
(1,643
|
)
|
|
$
|
(596
|
)
|
Uncertain Tax Positions
A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Gross unrecognized tax benefits at beginning of year
|
|
$
|
2,216
|
|
|
$
|
2,110
|
|
|
$
|
2,327
|
|
Increases in tax positions related to the current year
|
|
415
|
|
|
426
|
|
|
279
|
|
Decreases in tax positions related to prior years
|
|
—
|
|
|
—
|
|
|
(193
|
)
|
Decreases as a result of lapses in applicable statutes of limitation
|
|
(403
|
)
|
|
(320
|
)
|
|
(303
|
)
|
Gross unrecognized tax benefits at end of year
|
|
$
|
2,228
|
|
|
$
|
2,216
|
|
|
$
|
2,110
|
|
Fiscal year 2019 and 2018 changes to uncertain tax positions related to prior years resulted from lapses of applicable statutes of limitations.
The total unrecognized tax benefits (including interest and penalty) that, if recognized, would affect the Company's effective tax rate were
$2,183
,
$2,143
, and
$1,806
as of
January 31, 2019
, 2018, and 2017, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At
January 31, 2019
, 2018 and 2017, accrued interest and penalties were
$442
,
$418
, and
$500
, respectively. The Company does not expect any significant change in the amount of unrecognized tax benefits in the next fiscal year.
Additional Tax Information
The Company files tax returns, including returns for its subsidiaries, with various federal, state, and local jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. As of
January 31, 2019
, federal tax returns filed in the U.S. for fiscal years ended January 31,
2016
through
January 31, 2018
remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31,
2013
through
January 31, 2018
remain subject to examination by state and local tax authorities. International jurisdictions have open tax years varying by location beginning in fiscal 2014.
Pre-tax book income for the U.S. companies and the foreign subsidiaries was $
59,774
and $
1,796
, respectively. As of January 31, 2019, the Company has
no
deferred tax liability recognized relating to the Company’s investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The TCJA generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and as a result, the accumulated undistributed earnings would only be subject to other taxes, such as withholding
(Dollars in thousands, except per-share amounts)
taxes and state income taxes, on distribution of such earnings. No additional withholding or income taxes has been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it is the Company’s intention for these amounts to continue to be indefinitely reinvested in foreign operations.
|
|
|
NOTE 11
|
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 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.
Simultaneous with execution of the Credit Agreement, Raven, Aerostar and ATS 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:
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
2019
|
|
2018
|
Unamortized debt issuance costs
(a)
|
|
$
|
132
|
|
|
$
|
242
|
|
(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. Such fees were
$212
,
$211
and
$215
for the years ended
January 31, 2019
, 2018 and 2017, respectively.
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. The Company is in compliance with all covenants as of January 31, 2019.
Letters of credit (LOC) issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
2019
|
|
2018
|
Letters of credit outstanding
(a)
|
|
$
|
514
|
|
|
$
|
1,097
|
|
(a)
Any draws required under the LOC' would be settled with available cash or borrowings under the Credit Agreement.
There have been
no
borrowings under any of the credit agreements and there were
no
borrowings outstanding for any of the fiscal periods covered by this Annual Report on Form 10-K. Availability under the Credit Agreement for borrowings as of
January 31, 2019
was
$124,536
.
Capital leases
The Company's capital leases include a fleet of vehicles to support business operations. Future minimum lease payments under capital leases and the present value of the net minimum lease payments as of January 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
Minimum lease payments
|
|
$
|
182
|
|
|
$
|
102
|
|
|
$
|
44
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing estimated executory costs such as taxes, license and insurance including profit thereon.
|
|
(14
|
)
|
Net minimum lease payments
|
|
316
|
|
Less amounts representing interest
|
|
(32
|
)
|
Present value of net minimum lease payments
|
|
$
|
284
|
|
(Dollars in thousands, except per-share amounts)
At January 31, 2019, the present value of net minimum lease payments due within one year is
$154
. Amortization and interest expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Amortization expense
|
|
$
|
200
|
|
|
$
|
65
|
|
|
$
|
—
|
|
Interest expense
|
|
39
|
|
|
13
|
|
|
—
|
|
Operating leases
The Company leases certain vehicles, equipment and facilities under operating leases. Total rent and lease expense was
$2,897
,
$2,104
and
$2,028
in fiscal
2019
,
2018
and
2017
, respectively.
Future minimum lease payments under noncancelable operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
Minimum lease payments
|
|
$
|
2,213
|
|
|
$
|
1,939
|
|
|
$
|
728
|
|
|
$
|
356
|
|
|
$
|
140
|
|
|
$
|
—
|
|
|
|
|
NOTE 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, the potential costs and liability 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.
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). The Agreement states that the Company will make a
$5,000
gift to the Foundation, conditional on certain other actions. Management concluded contingencies related to this gift were substantially met during the first quarter of fiscal 2019 and a liability had been incurred. As such,
$4,503
of contribution expense was recognized in first quarter with interest expense to be recognized in periods thereafter. The fair value of this contingency at January 31, 2019, was
$3,199
(measured based on the present value of the expected future cash outflows) of which
$691
was classified as "Accrued liabilities" and
$2,509
was classified as "Other liabilities" on the Consolidated Balance Sheet. For the twelve-month period ended January 31, 2019, the Company reported
$4,503
of selling, general, and administrative expenses and
$127
of interest expense related to this gift. As of January 31, 2019, the Company has made payments related to the commitment totaling
$1,430
. 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.
In addition to commitments disclosed elsewhere in the Notes to the Consolidated Financial Statements, the Company has unconditional purchase obligations for inventory and other obligations that arise in the normal course of business operations. The majority of these obligations are related to the Applied Technology and Engineered Films divisions and arise from the purchase of raw materials inventory.
|
|
|
NOTE 13
|
SHARE-BASED COMPENSATION
|
At
January 31, 2019
, the Company had
two
shareholder approved share-based compensation plans, which are described below. The compensation cost and related income tax benefit for these plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Share-based compensation cost
|
|
$
|
3,951
|
|
|
$
|
3,725
|
|
|
$
|
3,071
|
|
Tax benefit
|
|
736
|
|
|
1,275
|
|
|
1,103
|
|
Share-based compensation cost capitalized as part of inventory is not significant.
(Dollars in thousands, except per-share amounts)
Equity Compensation Plans
The Company reserved shares of its common stock for issuance to directors, officers, employees and certain advisors of the Company through incentive stock options and non-statutory stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units (RSUs) and performance awards to be granted under the Amended and Restated 2010 Stock Incentive Plan (the Plan) which was approved by shareholders on May 22, 2012. The aggregate number of shares initially available for grant under the Plan was
2,000,000
. As of January 31,
2019
, the number of shares available for grant was
1,030,973
. Option exercises under the Plan are settled in newly issued common shares.
The Plan is administered by the Personnel and Compensation Committee of the Board of Directors (the Committee), consisting of
two
or more independent directors of the Company. The Committee determines the option exercise prices and the term of each grant. The Committee may accelerate the exercisability of awards under the Plan or extend the term of such awards to the extent allowed by the Plan to a maximum term of
ten years
.
Two
types of awards were granted under the Plan in fiscal 2019, stock options and restricted stock units.
Stock Option Awards
The Company granted
55,810
non-qualified stock options during fiscal
2019
. Options are granted with exercise prices not less than the market value of the Company's common stock at the date of grant. The stock options vest over a four-year period and expire after
five years
. Options contain retirement and change-in-control provisions that may accelerate the vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company uses historical data to estimate option exercises, employee terminations and volatility within this valuation model.
The weighted average assumptions used for the Black-Scholes option pricing model by grant year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Risk-free interest rate
|
|
2.51
|
%
|
|
1.68
|
%
|
|
1.05
|
%
|
Expected dividend yield
|
|
1.48
|
%
|
|
1.78
|
%
|
|
3.33
|
%
|
Expected volatility factor
|
|
35.20
|
%
|
|
33.87
|
%
|
|
32.61
|
%
|
Expected option term (in years)
|
|
4.25
|
|
|
4.25
|
|
|
4.00
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value
|
|
$
|
9.83
|
|
|
$
|
7.35
|
|
|
$
|
3.05
|
|
Outstanding stock options as of
January 31, 2019
, and activity for the year then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options
|
|
Weighted average exercise price
|
|
Aggregate intrinsic value
|
|
Weighted
average
remaining
contractual
term
(years)
|
Outstanding, January 31, 2018
|
|
702,950
|
|
|
$
|
22.34
|
|
|
|
|
|
Granted
|
|
55,810
|
|
|
35.05
|
|
|
|
|
|
Exercised
|
|
(390,630
|
)
|
|
23.48
|
|
|
|
|
|
Outstanding, January 31, 2019
|
|
368,130
|
|
|
$
|
23.06
|
|
|
$
|
5,130
|
|
|
2.41
|
|
|
|
|
|
|
|
|
|
Outstanding exercisable, January 31, 2019
|
|
70,545
|
|
|
$
|
23.08
|
|
|
$
|
981
|
|
|
1.71
|
|
|
|
|
|
|
|
|
|
Options vested, or expected to vest, January 31, 2019
|
|
368,130
|
|
|
$
|
23.06
|
|
|
$
|
5,130
|
|
|
2.41
|
The intrinsic value of a stock award is the amount by which the fair value of the underlying stock exceeds the exercise price of the award. The total intrinsic value of options exercised was
$7,568
,
$1,036
, and
$0
during the years ended January 31,
2019
,
2018
and
2017
, respectively. The total fair value of options vested was
$892
,
$1,312
and
$1,323
, during the years ended January 31, 2019, 2018 and 2017, respectively. As of
January 31, 2019
, the total unrecognized compensation cost for non-vested awards was
$612
. This amount is expected to be recognized over a weighted average period of
2.13
years.
Restricted Stock Unit Awards
The Company granted
49,438
time-vested RSUs during the year ended
January 31, 2019
. The fair value of a time-vested RSU is measured based upon the closing market price of the Company's common stock on the day prior to the date of grant. Time-vested RSUs will vest if, at the end of the vesting period, the employee remains employed by the Company. RSUs contain retirement
(Dollars in thousands, except per-share amounts)
and change-in-control provisions that may accelerate the vesting period. Dividends are cumulatively earned on the time-vested RSUs over the vesting period and are forfeited if such RSUs do not vest.
Activity for time-vested RSUs under the Plan in fiscal 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of restricted stock units
|
|
Weighted
average grant date fair value per share
|
Outstanding, January 31, 2018
|
|
146,849
|
|
|
$
|
21.81
|
|
Granted
|
|
49,438
|
|
|
35.15
|
|
Vested
|
|
(26,510
|
)
|
|
19.34
|
|
Forfeited
|
|
(3,752
|
)
|
|
25.72
|
|
Outstanding, January 31, 2019
|
|
166,025
|
|
|
$
|
26.09
|
|
|
|
|
|
|
Cumulative dividends, January 31, 2019
|
|
5,547
|
|
|
|
The Company also granted performance-based RSUs during the year ended
January 31, 2019
. The exact number of performance shares to be issued will vary from
0%
to
150%
of the target award, depending on the Company's actual performance over the vesting period in comparison to the target award. The target awards for the fiscal 2019, 2018 and 2017 grants are based on return on equity (ROE), which is defined as net income divided by the average of beginning and ending shareholders' equity for the fiscal year. The performance-based RSUs will vest if, at the end of the performance period, the Company has achieved certain performance goals and the employee remains employed by the Company. Performance-based RSUs contain retirement and change-in-control provisions that may accelerate the vesting period. Dividends are cumulatively earned on performance-based RSUs over the vesting period and are forfeited if such RSUs do not vest.
The fair value of the performance-based restricted stock units is based upon the closing market price of the Company's common stock on the day prior to the grant date. The number of restricted stock units granted is based on
100%
of the target award. The number of RSUs that will vest is determined by the estimated ROE target over the performance period. The estimated performance factor used to estimate the number of restricted stock units expected to vest is evaluated quarterly. The number of restricted stock units issued at the vesting date will be based on actual results.
Activity for performance-based RSUs under the Plan in fiscal 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of restricted stock units expected to vest
|
|
Weighted
average grant date fair value per share
|
Outstanding, January 31, 2018
|
|
179,729
|
|
|
$
|
19.40
|
|
Granted
|
|
23,213
|
|
|
35.05
|
|
Vested
|
|
(44,091
|
)
|
|
20.10
|
|
Forfeited
|
|
(795
|
)
|
|
31.30
|
|
Performance-based adjustment
|
|
6,244
|
|
|
30.37
|
|
Outstanding, January 31, 2019
|
|
164,300
|
|
|
$
|
22.44
|
|
|
|
|
|
|
Cumulative dividends, January 31, 2019
|
|
4,581
|
|
|
|
The weighted average grant date fair values of the time-based and performance-based RSUs by grant year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Weighted average grant date fair value: time-based RSUs
|
|
$
|
35.15
|
|
|
$
|
29.33
|
|
|
$
|
15.94
|
|
Weighted average grant date fair value: performance-based RSUs
|
|
$
|
35.05
|
|
|
$
|
29.20
|
|
|
$
|
15.61
|
|
(Dollars in thousands, except per-share amounts)
The total intrinsic value of RSUs vested (or converted to shares) was
$2,468
,
$685
, and
$754
during the years ended January 31, 2019, 2018 and 2017, respectively. The total fair value of RSUs vested (or converted to shares) was
$2,477
,
$678
, and
$761
, during the years ended January 31, 2019, 2018 and 2017, respectively. As of January 31, 2019, there were
330,325
outstanding RSUs expected to vest with a weighted average term of
1.80
years and an aggregate intrinsic value of
$12,219
. None of the outstanding RSUs are vested as of January 31, 2019. The total unrecognized compensation cost for nonvested RSU awards at January 31, 2019, was
$3,334
. This amount is expected to be recognized over a weighted average period of
1.80
years.
Deferred Stock Compensation Plan for Directors
The Company issues common stock to certain members of its Board of Directors under the Deferred Stock Compensation Plan for Directors of Raven Industries, Inc. (the Director Plan). The Director Plan is administered by the Personnel and Compensation Committee of the Board of Directors. Under the Director Plan, any non-employee director receives a grant of a number of stock units as deferred compensation to be converted into common stock after retirement from the Board of Directors and may elect to have a specified percentage of their annual retainer converted to stock units. Under the Director Plan, a stock unit is the right to receive
one
share of the Company's common stock as deferred compensation, to be distributed from an account established by the Company in the name of the non-employee director. Stock units have the same value as a share of common stock but cannot be sold. Stock units are a component of the Company's equity.
Stock units granted under the Director Plan vest immediately and are expensed at the date of grant. When dividends are paid on the Company's common shares, stock units are added to the directors' balances and a corresponding amount is removed from retained earnings. The intrinsic value of a stock unit is the fair value of the underlying shares.
Outstanding stock units as of January 31,
2019
, and changes during the year then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
Number
of stock units
|
|
Weighted
average price
|
Outstanding, January 31, 2018
|
|
87,614
|
|
|
$
|
19.35
|
|
Granted
|
|
13,713
|
|
|
39.25
|
|
Deferred retainers
|
|
2,560
|
|
|
39.05
|
|
Dividends
|
|
1,338
|
|
|
38.99
|
|
Outstanding, January 31, 2019
|
|
105,225
|
|
|
$
|
22.67
|
|
|
|
|
NOTE 14
|
NET INCOME PER SHARE
|
Basic net income per share is computed by dividing net income by the weighted average common shares and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Anti-dilutive options and restricted stock units
|
|
54,631
|
|
|
344,774
|
|
|
884,099
|
|
(Dollars in thousands, except per-share amounts)
The computation of earnings per share is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
Net income attributable to Raven Industries, Inc.
|
|
$
|
51,794
|
|
|
$
|
41,022
|
|
|
$
|
20,191
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
35,907,041
|
|
|
35,945,225
|
|
|
36,142,416
|
|
Weighted average stock units outstanding
|
|
99,922
|
|
|
104,980
|
|
|
100,019
|
|
Denominator for basic calculation
|
|
36,006,963
|
|
|
36,050,205
|
|
|
36,242,435
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
35,907,041
|
|
|
35,945,225
|
|
|
36,142,416
|
|
Weighted average stock units outstanding
|
|
99,922
|
|
|
104,980
|
|
|
100,019
|
|
Dilutive impact of stock options and RSUs
|
|
431,595
|
|
|
399,620
|
|
|
129,480
|
|
Denominator for diluted calculation
|
|
36,438,558
|
|
|
36,449,825
|
|
|
36,371,915
|
|
|
|
|
|
|
|
|
Net income per share - basic
|
|
$
|
1.44
|
|
|
$
|
1.14
|
|
|
$
|
0.56
|
|
Net income per share - diluted
|
|
$
|
1.42
|
|
|
$
|
1.13
|
|
|
$
|
0.56
|
|
|
|
|
NOTE 15
|
BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION
|
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. Segment information is reported consistent with the Company's management reporting structure.
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools, which are collectively referred to as precision agriculture equipment, that help farmers reduce costs, more precisely control inputs, and improve farm yields for the global agriculture market. The Applied Technology product families include application controls, GPS-guidance steering systems, field computers, automatic boom controls, information management tools, and injection systems. Applied Technology's services include high-speed in-field Internet connectivity and cloud-based data management. The Company's investment in the continued build-out of the Slingshot® platform has also positioned Applied Technology as an information platform that improves decision-making and achieves business efficiencies for its agriculture retail partners. Applied Technology acquired the assets of AgSync, Inc. (AgSync), an agriculture logistics software company, in January 2019. This acquisition enhances the division's Slingshot® platform by delivering a logistics solution for ag retailers, custom applicators and enterprise farms.
Engineered Films produces high-performance plastic films and sheeting for geomembrane, agricultural, construction, and industrial applications and also offers design-build and installation services of these plastic films and sheeting. Plastic film and sheeting can be purchased separately or together with installation services. Engineered Films sells both direct to end-customers and through independent third-party distributors. The majority of product sold into the construction and agriculture markets is through distributors, while sales into the geomembrane and industrial markets are more direct in nature. The Company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest sheeting converters in the United States in the markets it serves. Engineered Films' ability to extrude and convert films, along with offering installation services for its geomembrane products, allows it to provide a more customized solution to customers. A number of film manufacturers compete with the Company on both price and product availability.
Aerostar serves the aerospace/defense and commercial lighter-than-air markets. Aerostar's core products include high-altitude stratospheric balloons and radar systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. Aerostar’s growth strategy emphasizes the design and manufacture of proprietary products in these markets. Aerostar also pursues product and support services contracts with agencies and instrumentalities of the U.S. government as well as sales of advanced radar systems in international markets.
(Dollars in thousands, except per-share amounts)
The Company measures the performance of its segments based on their operating income excluding administrative and general expenses. The accounting policies of the operating segments are the same as those described in Note 1
"
Summary of Significant Accounting Policies". Other income, interest expense, and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment financial performance and other information is as follows:
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
APPLIED TECHNOLOGY DIVISION
|
|
|
|
|
|
|
Sales
|
|
$
|
129,749
|
|
|
$
|
124,688
|
|
|
$
|
105,217
|
|
Operating income
(a)
|
|
39,044
|
|
|
31,257
|
|
|
26,643
|
|
Assets
(b)
|
|
79,742
|
|
|
66,555
|
|
|
67,911
|
|
Capital expenditures
|
|
2,050
|
|
|
1,489
|
|
|
1,017
|
|
Depreciation and amortization
|
|
3,433
|
|
|
3,365
|
|
|
3,828
|
|
ENGINEERED FILMS DIVISION
|
|
|
|
|
|
|
Sales
(c)
|
|
$
|
226,574
|
|
|
$
|
213,298
|
|
|
$
|
138,855
|
|
Operating income
(a)
|
|
39,714
|
|
|
47,324
|
|
|
22,966
|
|
Assets
(b)
|
|
159,592
|
|
|
168,797
|
|
|
133,309
|
|
Capital expenditures
|
|
9,544
|
|
|
8,128
|
|
|
2,768
|
|
Depreciation and amortization
|
|
9,149
|
|
|
8,761
|
|
|
8,580
|
|
AEROSTAR DIVISION
|
|
|
|
|
|
|
Sales
(d)
|
|
$
|
50,867
|
|
|
$
|
39,915
|
|
|
$
|
34,113
|
|
Operating income (loss)
(a)(f)
|
|
8,179
|
|
|
4,122
|
|
|
(1,560
|
)
|
Assets
(b)
|
|
21,515
|
|
|
22,127
|
|
|
23,515
|
|
Capital expenditures
|
|
168
|
|
|
343
|
|
|
547
|
|
Depreciation and amortization
|
|
891
|
|
|
1,386
|
|
|
1,720
|
|
INTERSEGMENT ELIMINATIONS
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
Applied Technology Division
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
Engineered Films Division
|
|
(512
|
)
|
|
(584
|
)
|
|
$
|
(789
|
)
|
Operating income
(a)
|
|
(35
|
)
|
|
20
|
|
|
(12
|
)
|
Assets
(b)
|
|
(104
|
)
|
|
(3,380
|
)
|
|
(69
|
)
|
REPORTABLE SEGMENTS TOTAL
|
|
|
|
|
|
|
Sales
(c)(d)
|
|
$
|
406,668
|
|
|
$
|
377,317
|
|
|
$
|
277,395
|
|
Operating income
(a)(f)
|
|
86,902
|
|
|
82,723
|
|
|
48,037
|
|
Assets
(b)
|
|
260,745
|
|
|
254,099
|
|
|
224,666
|
|
Capital expenditures
|
|
11,762
|
|
|
9,960
|
|
|
4,332
|
|
Depreciation and amortization
|
|
13,473
|
|
|
13,512
|
|
|
14,128
|
|
CORPORATE & OTHER
|
|
|
|
|
|
|
Operating (loss) from administrative expenses
(a)(e)
|
|
$
|
(31,769
|
)
|
|
$
|
(23,553
|
)
|
|
$
|
(19,624
|
)
|
Assets
(b)(g)
|
|
99,500
|
|
|
72,704
|
|
|
76,843
|
|
Capital expenditures
|
|
2,365
|
|
|
2,051
|
|
|
464
|
|
Depreciation and amortization
|
|
1,650
|
|
|
1,290
|
|
|
1,308
|
|
TOTAL COMPANY
|
|
|
|
|
|
|
Sales
(c)(d)
|
|
$
|
406,668
|
|
|
$
|
377,317
|
|
|
$
|
277,395
|
|
Operating income
(e)(f)
|
|
55,133
|
|
|
59,170
|
|
|
28,413
|
|
Assets
|
|
360,245
|
|
|
326,803
|
|
|
301,509
|
|
Capital expenditures
|
|
14,127
|
|
|
12,011
|
|
|
4,796
|
|
Depreciation and amortization
|
|
15,123
|
|
|
14,802
|
|
|
15,436
|
|
(a)
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 "Operating (loss) from administrative expenses" in Corporate & Other.
(b)
Certain facilities owned by the Company are shared by more than one reporting segment. All facilities are reported as an asset based on the segment that acquired the asset as the Company believes this most appropriately reflects the total assets of each business segment. Expenses and costs related to these facilities, including depreciation expense, are allocated and reported in each reporting segment's operating income for each fiscal year presented.
(c)
In September of fiscal year 2018, the Company acquired CLI. For the first seven months of fiscal 2019 CLI contributed a total of
$21,568
in sales and for the first seven months of fiscal 2018 the division generated
$4,109
in sales to CLI as a customer. Additionally, sales of hurricane recovery film in fiscal years 2019 and 2018 were
$14,494
and
$24,225
, respectively.
(d)
Aerostar divested its client private business in the first quarter of fiscal 2019. Net sales from the client private business were
$283
,
$5,592
, and
$5,886
in fiscal
(Dollars in thousands, except per-share amounts)
years 2019, 2018 and 2017, respectively. Operating profits for the client private business were not material for these periods.
(e)
Fiscal 2019 administrative expenses included a
$4,503
expense related to the previously announced gift to SDSU and approximately
$4,000
of expenses related to Project Atlas. Project Atlas related expenses in fiscal 2018 were approximately
$900
.
(f)
Fiscal year 2017 included inventory write-downs of
$2,278
for Aerostar as a result of discontinuing sales activities for a specific radar product line within its business.
(g)
Assets are principally cash, investments, deferred taxes, and other receivables.
No
customers accounted for
10%
or more of consolidated net sales in fiscal
2019
,
2018
or
2017
.
Substantially all of the Company's long-lived assets are located in the United States. Foreign sales are attributed to countries based on location of the customer. Net sales to customers outside the United States were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Canada
|
|
$
|
12,492
|
|
|
$
|
12,940
|
|
|
$
|
13,969
|
|
Europe
|
|
15,786
|
|
|
13,864
|
|
|
13,924
|
|
Latin America
|
|
5,950
|
|
|
4,439
|
|
|
3,402
|
|
Asia
|
|
7,240
|
|
|
4,074
|
|
|
1,535
|
|
Other foreign sales
|
|
6,861
|
|
|
6,239
|
|
|
2,698
|
|
Total foreign sales
|
|
48,329
|
|
|
41,556
|
|
|
35,528
|
|
United States
|
|
358,339
|
|
|
335,761
|
|
|
241,867
|
|
|
|
$
|
406,668
|
|
|
$
|
377,317
|
|
|
$
|
277,395
|
|
|
|
|
NOTE 16
|
QUARTERLY INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
Gross Profit
|
Operating Income
|
Pre-tax Income
|
Net Income Attributable to Raven
(d)
|
Net Income Per Share
(a)
|
|
Cash Dividends Per Share
|
|
Basic
|
Diluted
|
|
FISCAL 2019
|
|
|
|
|
|
|
|
|
|
First Quarter
(b)(c)(e)(f)
|
$
|
111,129
|
|
$
|
39,998
|
|
$
|
21,531
|
|
$
|
27,210
|
|
$
|
22,135
|
|
$
|
0.62
|
|
$
|
0.61
|
|
|
$
|
0.13
|
|
Second Quarter
(c)
|
102,684
|
|
34,608
|
|
16,629
|
|
16,490
|
|
13,677
|
|
0.38
|
|
0.38
|
|
|
0.13
|
|
Third Quarter
(c)(e)
|
104,833
|
|
32,653
|
|
13,612
|
|
14,286
|
|
13,032
|
|
0.36
|
|
0.36
|
|
|
0.13
|
|
Fourth Quarter
(e)
|
88,022
|
|
25,290
|
|
3,361
|
|
3,584
|
|
2,950
|
|
0.08
|
|
0.08
|
|
|
0.13
|
|
Total Year
|
$
|
406,668
|
|
$
|
132,549
|
|
$
|
55,133
|
|
$
|
61,570
|
|
$
|
51,794
|
|
$
|
1.44
|
|
$
|
1.42
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL 2018
|
|
|
|
|
|
|
|
|
|
First Quarter
(c)
|
$
|
93,535
|
|
$
|
31,956
|
|
$
|
18,219
|
|
$
|
17,989
|
|
$
|
12,348
|
|
$
|
0.34
|
|
$
|
0.34
|
|
|
$
|
0.13
|
|
Second Quarter
(c)
|
86,610
|
|
26,513
|
|
11,700
|
|
11,637
|
|
8,235
|
|
0.23
|
|
0.23
|
|
|
0.13
|
|
Third Quarter
(c)(e)
|
101,349
|
|
33,333
|
|
17,829
|
|
17,795
|
|
11,998
|
|
0.33
|
|
0.33
|
|
|
0.13
|
|
Fourth Quarter
(e)
|
95,823
|
|
29,763
|
|
11,422
|
|
11,565
|
|
8,441
|
|
0.24
|
|
0.23
|
|
|
0.13
|
|
Total Year
|
$
|
377,317
|
|
$
|
121,565
|
|
$
|
59,170
|
|
$
|
58,986
|
|
$
|
41,022
|
|
$
|
1.14
|
|
$
|
1.13
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Net income per share is computed discretely by quarter and may not add to the full year.
(b)
In the first quarter of fiscal 2019, the Company sold its ownership interest in SST and recognized a gain on sale of
$5,785
reported as nonoperating income in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income.
(c)
In September of fiscal year 2018, the Company acquired CLI. For the first seven months of fiscal 2019 CLI contributed a total of
$21,568
in sales and for the first seven months of fiscal 2018 the division generated
$4,109
in sales to CLI as a customer.
(d)
The TCJA, effective January 1, 2018, had a favorable impact to the Company's effective tax rate. Excluding discrete items, the Company's effective tax rate decreased approximately
10
percentages points resulting in tax savings of
$6,218
in fiscal year 2019.
(e)
In the third and fourth quarter of fiscal year 2018 hurricane recovery film net sales were
$8,424
and
$15,801
, respectively. Sales of hurricane recovery film in fiscal year 2019 were
$8,919
,
$1,510
and
$4,065
for the first, third, and fourth quarters, respectively.
(f)
In the first quarter of fiscal 2019, the Company incurred a
$4,503
operating expense related to the previously announced gift to SDSU.
(Dollars in thousands, except per-share amounts)
|
|
|
NOTE 17
|
SUBSEQUENT EVENTS
|
The Company has evaluated events up to the filing date of this Annual Report on Form 10-K and concluded that no subsequent events have occurred that would require recognition or disclosure in the Notes to the Consolidated Financial Statements.
|
|
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.