Quarterly Report (10-q)

Date : 11/27/2019 @ 5:45PM
Source : Edgar (US Regulatory)
Stock : Raven Industries Inc (RAVN)
Quote : 33.81  0.0 (0.00%) @ 1:29PM

Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2019
OR
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
RAVN-20191031_G1.JPG
SD 46-0246171
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
205 East 6th Street, P.O. Box 5107 Sioux Falls , SD  57117-5107
(Address of principal executive offices)
(605) 336-2750
(Registrant’s telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $1 par value RAVN NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    þ Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).        þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ No
As of November 22, 2019, there were 35,760,477 shares of common stock, $1 par value, of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.




RAVEN INDUSTRIES, INC.
INDEX
  PAGE
 
   
 
3
4
5
7
8
22
31
31
   
 
   
32
32
32
33
Item 4. Mine Safety Disclosures
33
33
34
35




PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars and shares in thousands, except per-share data) October 31,
2019
January 31,
2019
ASSETS
Current assets
Cash and cash equivalents    $ 77,094    $ 65,787   
Accounts receivable, net    62,057    54,472   
Inventories    51,981    54,076   
Other current assets 5,095    8,736   
Total current assets 196,227    183,071   
Property, plant and equipment, net 101,487    106,615   
Goodwill 50,834    50,942   
Amortizable intangible assets, net 14,933    16,293   
Other assets 8,795    3,324   
TOTAL ASSETS $ 372,276    $ 360,245   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 11,045    $ 8,272   
Accrued liabilities 20,906    23,478   
Other current liabilities 2,177    1,303   
Total current liabilities 34,128    33,053   
Other liabilities 21,969    18,235   
Commitments and contingencies (see Note 12) —    —   
Shareholders' equity
Common stock, $1 par value, authorized shares 100,000; issued 67,424 and 67,289, respectively
67,424    67,289   
Paid-in capital 60,141    59,655   
Retained earnings 303,732    285,969   
Accumulated other comprehensive income (loss) (3,936)   (3,556)  
Treasury stock at cost, 31,665 and 31,332 shares, respectively
(111,183)   (100,402)  
Total Raven Industries, Inc. shareholders' equity 316,178    308,955   
Noncontrolling interest    
Total shareholders' equity 316,179    308,957   
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 372,276    $ 360,245   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
3

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Three Months Ended Nine Months Ended
(dollars in thousands, except per-share data) October 31,
2019
October 31,
2018
October 31,
2019
October 31,
2018
Net sales $ 100,533    $ 104,833    $ 296,769    $ 318,646   
Cost of sales 70,229    72,180    200,061    211,387   
Gross profit 30,304    32,653    96,708    107,259   
Research and development expenses 7,662    6,478    22,000    17,914   
Selling, general, and administrative expenses 11,310    12,563    37,685    37,573   
Operating income 11,332    13,612    37,023    51,772   
Other income (expense), net 84    674    398    6,214   
Income before income taxes 11,416    14,286    37,421    57,986   
Income tax expense 1,483    1,230    5,512    9,062   
Net income 9,933    13,056    31,909    48,924   
Net income (loss) attributable to the noncontrolling interest (1)   24    (1)   80   
Net income attributable to Raven Industries, Inc. $ 9,934    $ 13,032    $ 31,910    $ 48,844   
Net income per common share:
      ─ Basic $ 0.28    $ 0.36    $ 0.89    $ 1.36   
      ─ Diluted $ 0.28    $ 0.36    $ 0.88    $ 1.34   
Comprehensive income (loss):
Net income $ 9,933    $ 13,056    $ 31,909    $ 48,924   
Other comprehensive income (loss):
Foreign currency translation (40)   (325)   (343)   (1,162)  
Postretirement benefits, net of income tax benefit of $4, $2, $11, and $6 respectively
(12)   (6)   (37)   (18)  
Other comprehensive income (loss), net of tax (52)   (331)   (380)   (1,180)  
Comprehensive income (loss) 9,881    12,725    31,529    47,744   
Comprehensive income (loss) attributable to noncontrolling interest
(1)   24    (1)   80   
Comprehensive income (loss) attributable to Raven Industries, Inc.
$ 9,882    $ 12,701    $ 31,530    $ 47,664   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
4

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
Three Months Ended October 31, 2019
$1 Par Common Stock    Paid-in Capital    Treasury Stock    Retained Earnings    Accumulated Other Comprehensive Income (Loss)   Raven Industries, Inc. Equity    Non- controlling Interest    Total Equity   
(dollars in thousands, except per-share amounts) Shares    Cost   
Balance July 31, 2019 $ 67,420    $ 59,127    31,496    $ (106,183)   $ 298,496    $ (3,884)   $ 314,976    $   $ 314,978   
Net income —    —    —    —    9,934    —    9,934    (1)   9,933   
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment
—    —    —    —    —    (40)   (40)   —    (40)  
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4
—    —    —    —    —    (12)   (12)   —    (12)  
Cash dividends ($0.13 per share)
—    50    —    —    (4,698)   —    (4,648)   —    (4,648)  
Shares issued on stock options exercised, net of shares withheld for employee taxes
—    15    —    —    —    —    15    —    15   
Shares issued on vesting of stock units, net of shares withheld for employee taxes
  (42)   —    —    —    —    (38)   —    (38)  
Shares repurchased —    —    169    (5,000)   —    —    (5,000)   —    (5,000)  
Share-based compensation —    991    —    —    —    —    991    —    991   
Balance October 31, 2019 $ 67,424    $ 60,141    31,665    $ (111,183)   $ 303,732    $ (3,936)   $ 316,178    $   $ 316,179   
Nine Months Ended October 31, 2019
$1 Par Common Stock    Paid-in Capital    Treasury Stock    Retained Earnings    Accumulated Other Comprehensive Income (Loss)   Raven Industries, Inc. Equity    Non- controlling Interest    Total Equity   
(dollars in thousands, except per-share amounts) Shares    Cost   
Balance January 31, 2019 $ 67,289    $ 59,655    31,332    $ (100,402)   $ 285,969    $ (3,556)   $ 308,955    $   $ 308,957   
Net income —    —    —    —    31,910    —    31,910    (1)   31,909   
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment
—    —    —    —    —    (343)   (343)   —    (343)  
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $11
—    —    —    —    —    (37)   (37)   —    (37)  
Cash dividends ($0.39 per share)
—    146    —    —    (14,147)   —    (14,001)   —    (14,001)  
Shares issued on stock options exercised, net of shares withheld for employee taxes
29    (735)   —    —    —    —    (706)   —    (706)  
Shares issued on vesting of stock units, net of shares withheld for employee taxes
106    (2,464)   —    —    —    —    (2,358)   —    (2,358)  
Shares repurchased —    —    333    (10,781)   —    —    (10,781)   —    (10,781)  
Share-based compensation —    3,539    —    —    —    —    3,539    —    3,539   
Balance October 31, 2019 $ 67,424    $ 60,141    31,665    $ (111,183)   $ 303,732    $ (3,936)   $ 316,178    $   $ 316,179   

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






5

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
Three Months Ended October 31, 2018
$1 Par Common Stock    Paid-in Capital    Treasury Stock    Retained Earnings    Accumulated Other Comprehensive Income (Loss)   Raven Industries, Inc. Equity    Non- controlling Interest    Total Equity   
(dollars in thousands, except per-share amounts) Shares    Cost   
Balance July 31, 2018 $ 67,229    $ 59,489    31,332    $ (100,402)   $ 279,438    $ (3,702)   $ 302,052    $ 58    $ 302,110   
Net income —    —    —    —    13,032    —    13,032    24    13,056   
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment
—    —    —    —    —    (325)   (325)   —    (325)  
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $2
—    —    —    —    —    (6)   (6)   —    (6)  
Cash dividends ($0.13 per share)
—    51    —    —    (4,725)   —    (4,674)   —    (4,674)  
Shares issued on stock options exercised, net of shares withheld for employee taxes
50    (1,434)   —    —    —    —    (1,384)   —    (1,384)  
Shares issued on vesting of stock units, net of shares withheld for employee taxes
  (101)   —    —    —    —    (95)   —    (95)  
Share-based compensation —    827    —    —    —    —    827    —    827   
Balance October 31, 2018 $ 67,285    $ 58,832    31,332    $ (100,402)   $ 287,745    $ (4,033)   $ 309,427    $ 82    $ 309,509   
Nine Months Ended October 31, 2018
$1 Par Common Stock    Paid-in Capital    Treasury Stock    Retained Earnings    Accumulated Other Comprehensive Income (Loss)   Raven Industries, Inc. Equity    Non- controlling Interest    Total Equity   
(dollars in thousands, except per-share amounts) Shares    Cost   
Balance January 31, 2018 $ 67,124    $ 59,143    31,332    $ (100,402)   $ 252,772    $ (2,573)   $ 276,064    $   $ 276,066   
Net income —    —    —    —    48,844    —    48,844    80    48,924   
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment
—    —    —    —    —    (1,162)   (1,162)   —    (1,162)  
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $6
—    —    —    —    —    (18)   (18)   —    (18)  
Reclassification due to ASU 2018-02 adoption

—    —    —    —    280    (280)   —    —    —   
Cash dividends ($0.39 per share)
—    151    —    —    (14,151)   —    (14,000)   —    (14,000)  
Shares issued on stock options exercised, net of shares withheld for employee taxes
113    (2,748)   —    —    —    —    (2,635)   —    (2,635)  
Shares issued on vesting of stock units, net of shares withheld for employee taxes
48    (822)   —    —    —    —    (774)   —    (774)  
Share-based compensation —    3,108    —    —    —    —    3,108    —    3,108   
Balance October 31, 2018 $ 67,285    $ 58,832    31,332    $ (100,402)   $ 287,745    $ (4,033)   $ 309,427    $ 82    $ 309,509   

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

6

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
(dollars in thousands) October 31,
2019
October 31,
2018
OPERATING ACTIVITIES:
Net income $ 31,909    $ 48,924   
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,124    11,273   
Change in fair value of acquisition-related contingent consideration 343    585   
Gain from sale of equity method investment —    (5,785)  
Deferred income taxes 1,706    869   
Share-based compensation expense 3,539    3,108   
Other operating activities, net (229)   (2,327)  
Change in operating assets and liabilities:
Accounts receivable (8,406)   (11,456)  
Inventories 1,932    1,932   
Other assets 2,592    428   
Operating liabilities 1,568    4,757   
Net cash provided by operating activities 47,078    52,308   
INVESTING ACTIVITIES:
Capital expenditures (6,143)   (10,421)  
Proceeds from sale or maturity of investments 993    7,334   
Purchases of investments (934)   (502)  
Proceeds (disbursements) from sale of assets, settlement of liabilities 3,459    832   
Other investing activities (3,208)   (2,042)  
Net cash used in investing activities (5,833)   (4,799)  
FINANCING ACTIVITIES:
Dividends paid (14,001)   (14,000)  
Payments for common shares repurchased (10,781)   —   
Payments of acquisition-related contingent liability (1,308)   (1,220)  
Restricted stock unit issuances (2,358)   (774)  
Employee stock option exercises (706)   (2,635)  
Other financing activities (716)   (151)  
Net cash used in financing activities (29,870)   (18,780)  
Effect of exchange rate changes on cash (68)   (571)  
Net increase in cash and cash equivalents 11,307    28,158   
Cash and cash equivalents at beginning of year 65,787    40,535   
Cash and cash equivalents at end of period $ 77,094    $ 68,693   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
7


RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands, except per-share amounts)

(1) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

Raven Industries, Inc. ("the Company" or "Raven") is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air and aerospace/defense markets. The Company is comprised of three unique operating units, or divisions, classified into reportable segments: Applied Technology, Engineered Films, and Aerostar.

The accompanying interim unaudited consolidated financial statements, which includes the accounts of Raven and its wholly-owned or controlled subsidiaries, net of intercompany balances and transactions, has been prepared by the Company in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present this financial information have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019.

Financial results for the interim three- and nine-month period ended October 31, 2019, are not necessarily indicative of the results that may be expected for the year ending January 31, 2020. The January 31, 2019, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required in an annual report on Form 10-K. Preparing financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Noncontrolling interests represent capital contributions, income and loss attributable to the owners of less than wholly-owned consolidated entities. The Company owns a 75% interest in an entity consolidated under the Aerostar business segment. Given the Company's controlling financial interest, the accounts of the business venture have been consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for the noncontrolling investor interest in the net assets and operations of the business venture.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019, other than described in the Accounting Standards Adopted section below.
Accounting Pronouncements
Accounting Standards Adopted
In the fiscal 2020 first quarter, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)" (ASU 2016-02), issued in February 2016 and the subsequently-issued codification improvements to Topic 842. The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and liabilities by lessees for leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize a lease liability (to make lease payments) and a right-of-use asset (representing its right to use the underlying asset for the lease term) on the balance sheet with terms greater than 12 months. The Company adopted ASU 2016-02 on a modified retrospective basis for all agreements existing as of February 1, 2019. Prior comparative periods have not been adjusted and continue to be reported and disclosed under ASC Topic 840. This adoption did not have a material impact to the Company. As of February 1, 2019, the Company recognized a right-of-use asset for finance leases and operating leases of $233 and $3,807, respectively and a current and non-current lease liability of $1,446 and $2,571, respectively. As part of the adoption of ASU 2016-02, the Company elected the following practical expedient: short-term recognition exemption for all leases that qualify. Note disclosures required in Topic 842 are reported in Note 11 Leases of the Notes to the Consolidated Financial Statements in this Form 10-Q.

New Accounting Standards Not Yet Adopted
In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606" (ASU 2018-18). The amendments in ASU 2018-18 clarify that certain transactions between
8


(dollars in thousands, except per-share amounts)

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 in its final stages of evaluating the impact the adoption of this new guidance will have on the Company's consolidated financial statements.  

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13). The amendments in ASU 2018-13 remove, modify and add disclosures for companies required to make disclosures about recurring or nonrecurring fair value measurements under Topic 820. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of this guidance is permitted. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The amendments in ASU 2018-13 are disclosure-related only and as such the Company does not expect the adoption of this guidance to have a significant impact on the balances reported in the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). Current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring. The amendments in this guidance eliminate the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new standard is effective for annual reporting periods beginning after December 15, 2019. All entities may elect to early adopt ASU 2016-13 for annual reporting periods beginning after December 15, 2018. The adoption of ASU 2016-13 is not expected to have a significant impact on the Company's consolidated financial statements or its note disclosures.

9


(dollars in thousands, except per-share amounts)

(3) SELECTED BALANCE SHEET INFORMATION

Following are the components of selected items from the Consolidated Balance Sheets:
October 31, 2019 January 31, 2019
Accounts receivable, net:
     Trade accounts $ 56,894    $ 53,820   
     Unbilled receivables 6,421    1,391   
     Allowance for doubtful accounts (1,258)   (739)  
$ 62,057    $ 54,472   
Inventories:
Finished goods 6,997    7,629   
In process 1,268    1,103   
Materials 43,716    45,344   
$ 51,981    $ 54,076   
Other current assets:
Insurance policy benefit 73    336   
     Income tax receivable 1,624    1,045   
Receivable from sale of investment —    1,055   
     Prepaid expenses and other 3,398    6,300   
$ 5,095    $ 8,736   
Property, plant and equipment, net:(a)
Land $ 3,117    $ 3,234   
Buildings and improvements 79,719    81,381   
Machinery and equipment 156,530    155,463   
Financing lease right-of-use assets 879    —   
     Accumulated depreciation (138,758)   (133,724)  
101,487    106,354   
Property, plant and equipment subject to capital leases:
Machinery and equipment —    510   
Accumulated amortization for capitalized leases —    (249)  
$ 101,487    $ 106,615   
Other assets:
Equity investments $ 1,200    $ 345   
Operating lease right-of-use assets 2,782    —   
Deferred income taxes 17    16   
Other 4,796    2,963   
$ 8,795    $ 3,324   
Accrued liabilities:
Salaries and related $ 4,884    $ 8,244   
Benefits 5,229    4,751   
Insurance obligations 1,976    1,963   
Warranties 1,984    890   
Income taxes 352    328   
Other taxes 1,474    2,434   
Acquisition-related contingent consideration 813    1,796   
Lease liability 2,065    —   
Other 2,129    3,072   
$ 20,906    $ 23,478   
Other liabilities:
Postretirement benefits $ 7,703    $ 7,678   
Acquisition-related contingent consideration 2,143    2,376   
Lease liability 1,776    —   
Deferred income taxes 3,357    1,659   
Uncertain tax positions 2,701    2,670   
Other 4,289    3,852   
$ 21,969    $ 18,235   
(a) The amount of assets held for sale at October 31, 2019, and January 31, 2019, were not material.

10


(dollars in thousands, except per-share amounts)

(4) NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average common shares and fully vested stock units outstanding. Diluted net income per share is computed by dividing net income by the weighted average common and common equivalent shares outstanding, which includes the shares issuable upon exercise of employee stock options (net of shares assumed purchased with the option proceeds), stock units and restricted stock units outstanding. Performance share awards are included in the diluted calculation based upon what would be issued if the end of the most recent reporting period was the end of the term of the award.
Certain outstanding options and restricted stock units were excluded from the diluted net income per share calculations because their effect would have been anti-dilutive under the treasury stock method. The options and restricted stock units excluded from the diluted net income per share calculation were as follows:
Three Months Ended Nine Months Ended
October 31,
2019
October 31,
2018
October 31,
2019
October 31,
2018
Anti-dilutive options and restricted stock units 101,384    21,444 50,699

The computation of earnings per share is presented below:
Three Months Ended Nine Months Ended
October 31,
2019
October 31,
2018
October 31,
2019
October 31,
2018
Numerator:
Net income attributable to Raven Industries, Inc. $ 9,934    $ 13,032    $ 31,910    $ 48,844   
Denominator:
Weighted average common shares outstanding 35,785,460    35,952,688    35,893,714    35,890,638   
Weighted average fully vested stock units outstanding 128,604    104,649    120,691    98,235   
Denominator for basic calculation 35,914,064    36,057,337    36,014,405    35,988,873   
Weighted average common shares outstanding 35,785,460    35,952,688    35,893,714    35,890,638   
Weighted average fully vested stock units outstanding 128,604    104,649    120,691    98,235   
Dilutive impact of stock options and restricted stock units 176,850    414,542    236,222    450,429   
Denominator for diluted calculation 36,090,914    36,471,879    36,250,627    36,439,302   
Net income per share ─ basic $ 0.28    $ 0.36    $ 0.89    $ 1.36   
Net income per share ─ diluted $ 0.28    $ 0.36    $ 0.88    $ 1.34   

(5) REVENUE
Disaggregation of Revenues
Revenue is disaggregated by major product category and geography, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following table includes a reconciliation of the disaggregated revenue by reportable segments. Service revenues are not material and are not separately disclosed.
11


(dollars in thousands, except per-share amounts)

Revenue by Product Category
Three Months Ended October 31, 2019 Three Months Ended October 31, 2018
ATD EFD AERO
ELIM(a)
Total ATD EFD AERO
ELIM(a)
Total
Lighter-than-Air
    Domestic $ —    $ —    $ 11,071    $ —    $ 11,071    $ —    $ —    $ 14,152    $ —    $ 14,152   
    International —    —    —    —    —    —    —    298    —    298   
Plastic Films & Sheeting
    Domestic —    54,673    —    (33)   54,640    —    52,841    —    (177)   52,664   
    International —    1,733    —    —    1,733    —    5,398    —    —    5,398   
Precision Agriculture Equipment
    Domestic 22,957    —    —    (1)   22,956    23,764    —    —    —    23,764   
    International 5,543    —    —    —    5,543    5,976    —    —    —    5,976   
Other
    Domestic —    —    4,577    —    4,577    —    —    2,578    —    2,578   
    International —    —    13    —    13    —    —      —     
Totals $ 28,500    $ 56,406    $ 15,661    $ (34)   $ 100,533    $ 29,740    $ 58,239    $ 17,031    $ (177)   $ 104,833   
Nine Months Ended October 31, 2019 Nine Months Ended October 31, 2018
ATD EFD AERO
ELIM(a)
Total ATD EFD AERO
ELIM(a)
Total
Lighter-than-Air
    Domestic $ —    $ —    $ 26,230    $ —    $ 26,230    $ —    $ —    $ 31,899    $ —    $ 31,899   
    International —    —    49    —    49    —    —    834    —    834   
Plastic Films & Sheeting
    Domestic —    151,278    —    (80)   151,198    —    163,059    —    (441)   162,618   
    International —    6,936    —    —    6,936    —    14,047    —    —    14,047   
Precision Agriculture Equipment
    Domestic 72,915    —    —    (1)   72,914    76,881    —    —    —    76,881   
    International 24,681    —    —    —    24,681    23,651    —    —    —    23,651   
Other
    Domestic —    —    14,665    —    14,665    —    —    8,698    —    8,698   
    International —    —    96    —    96    —    —    18    —    18   
Totals $ 97,596    $ 158,214    $ 41,040    $ (81)   $ 296,769    $ 100,532    $ 177,106    $ 41,449    $ (441)   $ 318,646   
(a) Intersegment sales for both fiscal 2020 and 2019 were primarily sales from Engineered Films to Aerostar.

Contract Balances
Contract balances consist of contract assets and contract liabilities. Contract assets primarily relate to the Company’s rights to consideration for work completed but not yet billed for at the reporting date, or retainage provisions on billings that have been issued. Contract liabilities primarily relate to consideration received from customers prior to transferring goods or services to the customer. Contract assets and contract liabilities are reported in "Accounts receivable, net" and "Other current liabilities" in the Consolidated Balance Sheets, respectively. 

12


(dollars in thousands, except per-share amounts)

During the nine months ended October 31, 2019, the Company’s contract assets and liabilities increased by $4,971 and $874, respectively. The increase was primarily a result of the contract terms which include timing of customer payments, timing of invoicing, and progress made on open contracts. Due to the short-term nature of the Company’s contracts, substantially all contract liabilities are recognized as revenue during the twelve months thereafter. Changes in our contract assets and liabilities were as follows:
October 31,
2019
January 31,
2019
$ Change % Change
Contract assets $ 6,998    $ 2,027    $ 4,971    245.2  %
Contract liabilities $ 2,177    $ 1,303    $ 874    67.1  %

Remaining Performance Obligations
As of October 31, 2019, the Company has no remaining performance obligations related to customer contracts with an original expected duration of one year or more. Revenue recognized from performance obligations satisfied in the prior period during the three- and nine-month period ending October 31, 2019, were not material.

(6) ACQUISITIONS AND DIVESTITURES OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES

Fiscal year 2020
There were no significant business acquisitions and divestitures or purchases of technologies in the three- and nine-month period ended October 31, 2019.

On October 31, 2019, the Company entered into an agreement to acquire a majority ownership of Dot Technology Corp., ("DOT®"). DOT® is located in Regina, Saskatchewan, Canada, and designs autonomous agriculture solutions and manufactures a unique U-shaped agriculture platform to autonomously handle a large variety of agriculture implements. The Company has the option to purchase the remaining noncontrolling interest of DOT® in ten years following the close of the transaction. The Company deposited approximately $3,000 towards the purchase price of DOT® in the third quarter of fiscal 2020 and the deposit is reported in "Other assets" and "Other investing activities" on the Consolidated Balance Sheet and Consolidated Statements of Cash Flows, respectively. This transaction closed on November 13, 2019.

In addition, subsequent to October 31, 2019, the Company acquired Smart Ag, Inc., ("Smart Ag®"). Smart Ag® is a technology company located in Ames, Iowa, that develops autonomous farming solutions for agriculture. This transaction closed on November 1, 2019.

Both acquisitions will align under the Company's Applied Technology Division and will complement the division's suite of precision ag products and solutions. The aggregate purchase price was approximately $62,000 and will primarily be allocated to intangible assets and goodwill. The Company anticipates completing a majority of the purchase accounting for both acquisitions in the fourth quarter of fiscal 2020.

Fiscal year 2019
On January 1, 2019, the Company completed the acquisition of substantially all of the assets ("AgSync Acquisition") of AgSync Inc. ("AgSync"), an Indiana corporation, headquartered in Wakarusa, Indiana. This acquisition is aligned under the Company’s Applied Technology Division and is expected to enhance its Slingshot® platform by delivering a more seamless logistics solution for ag retailers, aerial applicators, custom applicators and enterprise farms. The AgSync Acquisition constitutes a business and, as such, was accounted for as a business combination; however, the business combination was not significant enough to warrant pro-forma financial information.

The purchase price was approximately $9,700, which included potential earn-out payments with an estimated fair value of $2,052. The earn-out is contingent upon achieving certain revenue milestones. The purchase price of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed is reflected as goodwill, which is fully tax deductible. The Company completed the valuation and the purchase price allocation during the first quarter of fiscal 2020. This resulted in an adjustment in the fiscal 2020 first quarter that increased the purchase price and the estimated fair value of the contingent earn-out payments by approximately $300. The goodwill and identifiable intangible assets recorded as part of the purchase price allocation at October 31, 2019, were $4,526 and $5,700, respectively.

13


(dollars in thousands, except per-share amounts)

During the first quarter of fiscal 2019, Aerostar sold its client private business for $832, which resulted in an immaterial gain in the three-months ended April 30, 2018. In fiscal 2018, Aerostar actively marketed the sale of its client private business and as such, classified it as held for sale.

In the first quarter of fiscal 2019, the Company sold its ownership interest of approximately 22 percent in Site-Specific Technology Development Group, Inc. (SST) with a carrying value of $1,937. This investment was being accounted for as an equity method investment. Raven received $6,556 in cash at closing which was reported as "Proceeds from sale or maturity of investments" in the Consolidated Statements of Cash Flows. The Company recognized a gain on the sale of $5,785 for the three-months ended April 30, 2018. The gain was reported in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income. The gain included a fifteen percent hold-back provision held in an escrow account which was received in the second quarter of fiscal 2020.

Acquisition-related Contingent Consideration
The Company has contingent liabilities related to the acquisition of AgSync in fiscal 2019 as well as prior acquisitions of Colorado Lining International, Inc. (CLI) in fiscal 2018; Raven Europe B.V. (Raven Europe), formerly named SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), in fiscal 2015; and Aerostar Technical Solutions, Inc. (ATS), formerly named Vista Research, Inc. (Vista), completed in fiscal 2012. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires the Company to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable (Level 3 fair value measures).

Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:
Three Months Ended Nine Months Ended
October 31,
2019
October 31,
2018
October 31,
2019
October 31,
2018
Beginning balance $ 3,579    $ 2,950    $ 4,172    $ 3,046   
Fair value of contingent consideration acquired
—    —    310    —   
Change in fair value of the liability
100    182    343    585   
Contingent consideration earn-out paid
(723)   (721)   (1,869)   (1,220)  
Ending balance $ 2,956    $ 2,411    $ 2,956    $ 2,411   
Classification of liability in the consolidated balance sheet
Accrued liabilities
$ 813    $ 1,764    $ 813    $ 1,764   
Other liabilities, long-term
2,143    647    2,143    647   
Balance at October 31 $ 2,956    $ 2,411    $ 2,956    $ 2,411   

For the AgSync Acquisition, the Company entered into a contingent earn-out agreement, not to exceed $3,500. The earn-out is to be paid annually over three years after the purchase date, contingent upon achieving certain revenue milestones. The Company has made no payments on this potential earn-out liability as of October 31, 2019.

In the acquisition of CLI, the Company entered into a contingent earn-out agreement, not to exceed $2,000. The earn-out is paid annually for three years after the purchase date, contingent upon achieving certain revenue milestones and operational synergies. To date, the Company has paid a total of $1,333 of this potential earn-out liability.

In connection with the acquisition of Raven Europe, the Company entered into a contingent earn-out agreement, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date, contingent upon achieving certain revenue milestones. To date, the Company has paid a total of $2,146 of this potential earn-out liability.

Related to the acquisition of ATS in 2012, the Company was committed to making annual payments based upon earn-out percentages on specific revenue streams for seven years after the purchase date. The Company made the final payment in the first quarter of fiscal 2020 and has no further contingent obligations related to acquisition of ATS.

14


(dollars in thousands, except per-share amounts)

(7) GOODWILL, LONG-LIVED ASSETS, AND OTHER CHARGES

Goodwill
Management assesses goodwill for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are done at the reporting unit level. There were no goodwill impairment losses reported in the three- and nine-month periods ending October 31, 2019 and 2018, respectively.

The changes in the carrying amount of goodwill by reporting unit were as follows:
Applied
Technology
Engineered
Films
Aerostar Total
Balance at January 31, 2019 $ 17,076    $ 33,232    $ 634    $ 50,942   
Changes due to business combinations
(33)   —    —    (33)  
Foreign currency translation adjustment
(75)   —    —    (75)  
Balance at October 31, 2019 $