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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, 2020
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-20201031_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 20, 2020, there were 35,853,785 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
PART I - FINANCIAL INFORMATION
 
   
Item 1. Financial Statements:
 
Consolidated Balance Sheets (unaudited)
3
Consolidated Statements of Income and Comprehensive Income (unaudited)
4
5
Consolidated Statements of Cash Flows (unaudited)
7
Notes to Consolidated Financial Statements (unaudited)
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3. Quantitative and Qualitative Disclosures about Market Risks
29
Item 4. Controls and Procedures
29
   
PART II - OTHER INFORMATION
 
   
Item 1. Legal Proceedings
30
Item 1A. Risk Factors
30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
31
Item 3. Defaults Upon Senior Securities
31
Item 4. Mine Safety Disclosures
31
Item 5. Other Information
31
Item 6. Exhibits
32
Signatures
33



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,
2020 		January 31,
2020
ASSETS
Current assets
Cash and cash equivalents $ 38,217  $ 20,707 
Accounts receivable, net 54,224  62,552 
Inventories, net 44,674  53,899 
Other current assets 4,938  5,436 
Total current assets 142,053  142,594 
Property, plant and equipment, net 104,596  100,850 
Goodwill 105,925  106,509 
Intangible assets, net 44,083  46,217 
Other assets 11,123  7,087 
TOTAL ASSETS $ 407,780  $ 403,257 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,314  $ 14,893 
Accrued liabilities 22,986  20,743 
Other current liabilities 2,941  2,287 
Total current liabilities 45,241  37,923 
Long term debt 1,900  225 
Other liabilities 32,944  29,161 
Total liabilities 80,085  67,309 
Commitments and contingencies (see Note 11)
Redeemable noncontrolling interest —  21,302 
Shareholders' equity
Common stock, $1 par value, authorized shares 100,000; issued 67,516 and 67,436, respectively
67,516  67,436 
Paid-in capital 65,954  61,508 
Retained earnings 311,393  302,300 
Accumulated other comprehensive loss (5,985) (5,415)
Treasury stock at cost, 31,665 and 31,665 shares, respectively
(111,183) (111,183)
Total shareholders' equity 327,695  314,646 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 407,780  $ 403,257 

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,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Net sales $ 96,607  $ 100,533  $ 268,282  $ 296,769 
Cost of sales 62,083  70,229  175,159  200,061 
Gross profit 34,524  30,304  93,123  96,708 
Research and development expenses 10,949  7,662  32,262  22,000 
Selling, general, and administrative expenses 14,284  11,310  41,488  37,685 
Operating income 9,291  11,332  19,373  37,023 
Other income (expense), net (423) 84  (514) 398 
Income before income taxes 8,868  11,416  18,859  37,421 
Income tax expense 140  1,483  363  5,512 
Net income 8,728  9,933  18,496  31,909 
Net loss attributable to redeemable noncontrolling interest
and noncontrolling interest 		—  (1) (98) (1)
Net income attributable to Raven Industries, Inc. $ 8,728  $ 9,934  $ 18,594  $ 31,910 
Net income per common share:
─ Basic $ 0.24  $ 0.28  $ 0.52  $ 0.89 
─ Diluted $ 0.24  $ 0.28  $ 0.51  $ 0.88 
Comprehensive income:
Net income $ 8,728  $ 9,933  $ 18,496  $ 31,909 
Other comprehensive income (loss):
Foreign currency translation 148  (40) (563) (343)
Postretirement benefits, net of income tax benefit of $1, $4, $3 and $11, respectively
(2) (12) (7) (37)
Other comprehensive income (loss), net of tax 146  (52) (570) (380)
Comprehensive income 8,874  9,881  17,926  31,529 
Comprehensive loss attributable to redeemable noncontrolling interest and noncontrolling interest
—  (1) (98) (1)
Comprehensive income attributable to Raven Industries, Inc.
$ 8,874  $ 9,882  $ 18,024  $ 31,530 

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, 2020
$1 Par Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Equity Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts) Treasury Stock at Cost
Balance July 31, 2020
$ 67,510  $ 64,690  $ (111,183) $ 302,665  $ (6,131) $ 317,551  $ — 
Net income —  —  —  8,728  —  8,728  — 
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment
—  —  —  —  148  148  — 
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $1
—  —  —  —  (2) (2) — 
Shares issued on stock options exercised, net of shares withheld for employee taxes
4  (75) —  —  —  (71) — 
Shares issued on vesting of stock units, net of shares withheld for employee taxes
2  (30) —  —  —  (28) — 
Share-based compensation —  1,369  —  —  —  1,369  — 
Balance October 31, 2020
$ 67,516  $ 65,954  $ (111,183) $ 311,393  $ (5,985) $ 327,695  $ — 
Nine Months Ended October 31, 2020
$1 Par Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Equity Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts) Treasury Stock at Cost
Balance January 31, 2020 $ 67,436  $ 61,508  $ (111,183) $ 302,300  $ (5,415) $ 314,646  $ 21,302 
Net income (loss) —  —  —  18,594  —  18,594  (98)
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment
—  —  —  —  (563) (563) — 
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $3
—  —  —  —  (7) (7) — 
Reclassification and redemption of noncontrolling interest
(see Note 6) 		—  215  —  —  —  215  (21,204)
Cash dividends ($0.26 per share)
—  183  —  (9,501) —  (9,318) — 
Shares issued on stock options exercised, net of shares withheld for employee taxes
15  (199) —  —  —  (184) — 
Shares issued on vesting of stock units, net of shares withheld for employee taxes
56  (722) —  —  —  (666) — 
Director shares issued 9  (9) —  —  —  —  — 
Share-based compensation —  4,978  —  —  —  4,978  — 
Balance October 31, 2020
$ 67,516  $ 65,954  $ (111,183) $ 311,393  $ (5,985) $ 327,695  $ — 

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, 2019
$1 Par Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Raven Industries, Inc. Equity Non- controlling Interest Total Equity Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts) Treasury Stock at Cost
Balance July 31, 2019 $ 67,420  $ 59,127  $ (106,183) $ 298,496  $ (3,884) $ 314,976  $ 2  $ 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
4  (42) —  —  —  (38) —  (38) — 
Shares repurchased —  —  (5,000) —  —  (5,000) —  (5,000) (5,000) — 
Share-based compensation —  991  —  —  —  991  —  991  991  — 
Balance October 31, 2019 $ 67,424  $ 60,141  $ (111,183) $ 303,732  $ (3,936) $ 316,178  $ 1  $ 316,179  $ — 
Nine Months Ended October 31, 2019
$1 Par Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Raven Industries, Inc. Equity Non- controlling Interest Total Equity Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts) Treasury Stock at Cost
Balance January 31, 2019 $ 67,289  $ 59,655  $ (100,402) $ 285,969  $ (3,556) $ 308,955  $ 2  $ 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 —  —  (10,781) —  —  (10,781) —  (10,781) — 
Share-based compensation —  3,539  —  —  —  3,539  —  3,539  — 
Balance October 31, 2019 $ 67,424  $ 60,141  $ (111,183) $ 303,732  $ (3,936) $ 316,178  $ 1  $ 316,179  $ — 

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,
2020 		October 31,
2019
OPERATING ACTIVITIES:
Net income $ 18,496  $ 31,909 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,829  12,124 
Change in fair value of acquisition-related contingent consideration (183) 343 
Deferred income taxes (3,586) 1,706 
Share-based compensation expense 4,978  3,539 
Other operating activities, net (136) (229)
Change in operating assets and liabilities:
Accounts receivable 6,142  (8,406)
Inventories 6,556  1,932 
Other assets (130) 2,592 
Operating liabilities 10,134  1,568 
Net cash provided by operating activities 55,100  47,078 
INVESTING ACTIVITIES:
Capital expenditures (10,931) (6,143)
Proceeds from sale or maturity of investments 586  993 
Purchases of investments (227) (934)
Proceeds from sale of assets 251  3,459 
Other investing activities (272) (3,208)
Net cash used in investing activities (10,593) (5,833)
FINANCING ACTIVITIES:
Dividends paid (9,318) (14,001)
Payments for common shares repurchased —  (10,781)
Proceeds from debt 51,685  — 
Repayments of debt (50,000) — 
Payments for redeemable noncontrolling interest (17,853) — 
Payments of acquisition-related contingent liability —  (1,308)
Restricted stock unit issuances, net of taxes (666) (2,358)
Employee stock option exercises, net of shares withheld for employee taxes (184) (706)
Other financing activities (319) (716)
Net cash used in financing activities (26,655) (29,870)
Effect of exchange rate changes on cash (342) (68)
Net increase in cash and cash equivalents 17,510  11,307 
Cash and cash equivalents at beginning of year 20,707  65,787 
Cash and cash equivalents at end of period $ 38,217  $ 77,094 
Significant non-cash transactions:
Capital expenditures converted from inventories $ 2,960  $ — 

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 and defense markets. The Company is comprised of three unique operating units, or divisions, classified into reportable business segments: Applied Technology, Engineered Films, and Aerostar.

The accompanying interim unaudited consolidated financial statements, which includes the accounts of Raven and its wholly-owned or controlled subsidiaries, net of intercompany balances and transactions, has been prepared by the Company in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present this financial information have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020.

Financial results for the interim three- and nine-month periods ended October 31, 2020, are not necessarily indicative of the results that may be expected for the year ending January 31, 2021. The January 31, 2020, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required in an annual report on Form 10-K. Preparing financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Redeemable noncontrolling interest
The Company acquired a majority ownership in Dot Technology Corp. (DOT) in the fourth quarter of fiscal 2020. Due to the redemption features provided to the minority shareholders in the acquisition, the 36% remaining noncontrolling interest was classified as a redeemable noncontrolling interest in the Company’s Consolidated Balance Sheets as of January 31, 2020. During the second quarter of fiscal 2021, the Company closed on the transaction to purchase the shares of the largest minority interest shareholder for $17,853, giving the Company full voting control of DOT. The majority ownership in DOT and redeemable noncontrolling interest is further described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies," and aligns under the Applied Technology segment.

Related Party Transactions
Following the acquisition of DOT, the Company sold products to, paid rent to, and purchased services for manufacturing, research and development (R&D), selling, and administration from a business owned by the largest minority interest shareholder of DOT. All of the shares formerly held by this minority interest shareholder were acquired in the second quarter of fiscal 2021 and are owned by Raven; therefore, no transactions with this previous shareholder during the three-month period ended October 31, 2020 are considered related party transactions. The total of the related party transactions was $1,954 for the six-month period ended July 31, 2020, none of which was in accounts payable at October 31, 2020.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020, other than described in the Accounting Standards Adopted section below.
Accounting Pronouncements
Accounting Standards Adopted
In the first quarter of fiscal 2021, the Company adopted, Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13), when it became effective. The amendments in ASU 2018-13 remove, modify, and add required disclosures for companies related to recurring and nonrecurring fair value measurements under Topic 820. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The amendments in ASU 2018-13 only related to financial statement disclosures and did not have a significant
8

(dollars in thousands, except per-share amounts)

impact on the Company's consolidated financial statements or its note disclosures.

In the first quarter of fiscal 2021, the Company adopted FASB ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), when it became effective along with all subsequent amendments to Topic 326 issued by FASB. Current GAAP generally delays recognition of the full amount of credit losses until the loss is deemed probable of occurring. The amendments in this guidance eliminate the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. At adoption, the Company did not have any financial instruments in scope under ASU 2016-13 other than trade accounts receivables. In accordance with ASU 2016-13, the Company updated its current expected credit loss model for its trade accounts receivable and remeasured its allowance for doubtful accounts as of February 1, 2020. The remeasurement impact was immaterial and no cumulative accounting adjustment was recorded to retained earnings in the first quarter of fiscal 2021.

New Accounting Standards Not Yet Adopted
There are no significant ASU's issued and not yet adopted as of October 31, 2020.
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, 2020 January 31, 2020
Accounts receivable, net:
Trade accounts $ 53,099  $ 56,978 
Unbilled receivables 3,217  6,954 
Allowance for doubtful accounts (2,092) (1,380)
$ 54,224  $ 62,552 
Inventories, net:
Finished goods $ 5,992  $ 6,309 
In process 1,356  3,287 
Materials 37,326  44,303 
$ 44,674  $ 53,899 
Other current assets:
Insurance policy benefit $ —  $ 38 
Income tax receivable 858  1,370 
Prepaid expenses and other 4,080  4,028 
$ 4,938  $ 5,436 
Property, plant and equipment, net:(a)
Land $ 3,117  $ 3,117 
Buildings and improvements 84,010  80,330 
Machinery and equipment 164,599  158,354 
Financing lease right-of-use assets 1,207  881 
252,933  242,682 
Accumulated depreciation (148,337) (141,832)
$ 104,596  $ 100,850 
Other assets:
Equity investments $ 1,452  $ 1,289 
Operating lease right-of-use assets 7,638  4,275 
Deferred income taxes 65  16 
Other 1,968  1,507 
$ 11,123  $ 7,087 
Accrued liabilities:
Salaries and related $ 5,925  $ 4,188 
Benefits 5,888  5,339 
Insurance obligations 1,935  1,680 
Warranties 1,519  2,019 
Income taxes 279  293 
Other taxes 1,843  1,734 
Acquisition-related contingent consideration —  763 
Lease liability 2,490  2,530 
Other 3,107  2,197 
$ 22,986  $ 20,743 
Other liabilities:
Postretirement benefits $ 8,787  $ 8,741 
Acquisition-related contingent consideration 2,254  2,171 
Lease liability 5,936  2,627 
Deferred income taxes 2,460  7,080 
Uncertain tax positions 2,618  2,606 
Other 10,889  5,936 
$ 32,944  $ 29,161 
(a) Includes assets held for use and assets held for sale. The amount of assets held for sale at October 31, 2020, and January 31, 2020, were not material.
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,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Anti-dilutive options and restricted stock units 263,505  101,384 265,377 21,444

The computation of earnings per share is presented below:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Numerator:
Net income attributable to Raven Industries, Inc. $ 8,728  $ 9,934  $ 18,594  $ 31,910 
Denominator:
Weighted average common shares outstanding 35,849,310  35,785,460  35,828,586  35,893,714 
Weighted average fully vested stock units outstanding 151,971  128,604  146,377  120,691 
Denominator for basic calculation 36,001,281  35,914,064  35,974,963  36,014,405 
Weighted average common shares outstanding 35,849,310  35,785,460  35,828,586  35,893,714 
Weighted average fully vested stock units outstanding 151,971  128,604  146,377  120,691 
Dilutive impact of stock options and restricted stock units 150,097  176,850  142,708  236,222 
Denominator for diluted calculation 36,151,378  36,090,914  36,117,671  36,250,627 
Net income per share ─ basic $ 0.24  $ 0.28  $ 0.52  $ 0.89 
Net income per share ─ diluted $ 0.24  $ 0.28  $ 0.51  $ 0.88 

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

(dollars in thousands, except per-share amounts)

Revenue by Product Category
Three Months Ended October 31, 2020 Three Months Ended October 31, 2019
ATD EFD AERO
ELIM(a)
Total ATD EFD AERO
ELIM(a)
Total
Lighter-than-Air
Domestic $ —  $ —  $ 14,849  $ —  $ 14,849  $ —  $ —  $ 11,071  $ —  $ 11,071 
International —  —  2  —  2  —  —  —  —  — 
Plastic Films &
  Sheeting
Domestic —  40,466  —  (6) 40,460  —  54,673  —  (33) 54,640 
International —  3,299  —  —  3,299  —  1,733  —  —  1,733 
Precision Agriculture
  Equipment
Domestic 27,599  —  —  —  27,599  22,957  —  —  (1) 22,956 
International 7,239  —  —  —  7,239  5,543  —  —  —  5,543 
Other
Domestic —  —  3,158  —  3,158  —  —  4,577  —  4,577 
International —  —  1  —  1  —  —  13  —  13 
Totals $ 34,838  $ 43,765  $ 18,010  $ (6) $ 96,607  $ 28,500  $ 56,406  $ 15,661  $ (34) $ 100,533 
Nine Months Ended October 31, 2020 Nine Months Ended October 31, 2019
ATD EFD AERO
ELIM(a)
Total ATD EFD AERO
ELIM(a)
Total
Lighter-than-Air
    Domestic $ —  $ —  $ 30,939  $ —  $ 30,939  $ —  $ —  $ 26,230  $ —  $ 26,230 
    International —  —  48  —  48  —  —  49  —  49 
Plastic Films & Sheeting
    Domestic —  103,500  —  (104) 103,396  —  151,278  —  (80) 151,198 
    International —  9,915  —  —  9,915  —  6,936  —  —  6,936 
Precision Agriculture Equipment
    Domestic 86,460  —  —  (2) 86,458  72,915  —  —  (1) 72,914 
    International 25,887  —  —  —  25,887  24,681  —  —  —  24,681 
Other
    Domestic —  —  11,633  —  11,633  —  —  14,665  —  14,665 
    International —  —  6  —  6  —  —  96  —  96 
Totals $ 112,347  $ 113,415  $ 42,626  $ (106) $ 268,282  $ 97,596  $ 158,214  $ 41,040  $ (81) $ 296,769 
(a) Intersegment sales for both fiscal 2021 and 2020 were primarily sales from Engineered Films to Aerostar.

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

12

(dollars in thousands, except per-share amounts)

During the nine months ended October 31, 2020, the Company’s contract assets decreased by $3,747 while contract liabilities increased by $653, respectively. The change was primarily a result of the contract terms which include timing of customer payments, timing of invoicing, and progress made on open contracts. Due to the short-term nature of the Company’s contracts, substantially all contract liabilities are recognized as revenue during the twelve months thereafter. Changes in our contract assets and liabilities were as follows:
October 31,
2020 		January 31,
2020 		$ Change % Change
Contract assets $ 3,778  $ 7,525  $ (3,747) (49.8) %
Contract liabilities 2,941 $ 2,288  $ 653  28.5  %

Remaining Performance Obligations
As of October 31, 2020, the Company has no remaining performance obligations related to customer contracts with an original expected duration of one year or more. Revenue recognized from performance obligations satisfied in the prior period during the three- and nine-month periods ending October 31, 2020, were not material.

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

Fiscal year 2021
There were no significant business acquisitions or divestitures in the three- and nine-month periods ended October 31, 2020.

Fiscal year 2020
On November 1, 2019, the Company acquired Smart Ag, Inc. (Smart Ag). Smart Ag is a technology company located in Ames, Iowa, that develops autonomous farming solutions for agriculture. Smart Ag offers aftermarket retrofit kits to automate farm equipment as well as a platform to connect, manage, and safely operate autonomous agricultural machinery.

On November 13, 2019, the Company acquired a majority ownership in DOT. Simultaneously with acquiring this majority ownership, the Company contributed cash to DOT in exchange for additional equity, making the majority ownership percentage in DOT 60% when the transaction closed. DOT, located in Regina, Saskatchewan, Canada, designs autonomous agriculture solutions and manufactures a unique U-shaped agriculture platform to semi-autonomously handle a large variety of agriculture implements. The acquisition provided noncontrolling interest shareholders various put options that, if exercised, obligated the Company to purchase their outstanding DOT shares. Due to the redemption features, the noncontrolling interest was classified as a redeemable noncontrolling interest in the Company’s Consolidated Balance Sheet as of January 31, 2020.

Both acquisitions aligned under the Company's Applied Technology Division and complement the division's suite of precision ag products and solutions. The aggregate purchase price was approximately $54,000 in the fourth quarter of fiscal 2020, excluding the noncontrolling interest.

During the first quarter of fiscal 2021, certain minority interest shareholders in DOT exercised their put options, requiring the Company to redeem the remaining noncontrolling interest in DOT. The Company closed on the transaction to purchase the shares of the largest minority shareholder for $17,853 in the second quarter of fiscal 2021. The remaining redeemable amount, as well as the liability for the noncontrolling interest redeemed in the prior fiscal year, totaling approximately $5,087, is payable in November 2021 and is classified as "Other Liabilities" in the Consolidated Balance Sheet at October 31, 2020.

The Company completed the valuation of intangible assets and pre-acquisition tax filings during the first and second quarters of fiscal 2021. The following adjustments were made to the purchase price allocation during the six months ended July 31, 2020:
Previously Reported Measurement Period Adjustments Adjusted Balance
Goodwill $ 56,022  $ (440) $ 55,582 
Intangibles, net 31,800  (600) 31,200 
Deferred income taxes (4,158) 1,005  (3,153)
Accounts payable and other current liabilities (1,462) 35  (1,427)
$ — 

Identifiable intangible assets acquired were primarily indefinite-lived intangible assets for in-process research and development.
13

(dollars in thousands, except per-share amounts)

Amortization of these indefinite-lived intangible assets will start when the current in-process research and development project is complete and the product is commercialized. Amortization of the indefinite-lived intangibles will be on a straight-line basis over the remaining estimated useful lives of these assets. The Company expects the useful lives will range from seven to ten years.

The following pro forma consolidated condensed financial results of operations are presented as if the acquisitions described above had been included in the Company's consolidated financial statements for the prior year comparative period (unaudited):
(Unaudited)
Three Months Ended Nine Months Ended
October 31, 2019 October 31, 2019
Net sales $ 100,905  $ 297,651 
Net income attributable to Raven Industries, Inc. $ 7,864  $ 25,862 
Earnings per common share
Basic $ 0.22  $ 0.72 
Diluted $ 0.22  $ 0.71 

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

Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Beginning balance $ 2,459  $ 3,579  $ 2,934  $ 4,172 
Fair value of contingent consideration acquired
—  —  —  310 
Change in fair value of the liability
29  100  (183) 343 
Contingent consideration earn-out paid
(234) (723) (497) (1,869)
Ending balance $ 2,254  $ 2,956  $ 2,254  $ 2,956 
Classification of liability in the consolidated balance sheet
Accrued liabilities
$ —  $ 813  $ —  $ 813 
Other liabilities, long-term
2,254  2,143  2,254  2,143 
Balance at October 31
$ 2,254  $ 2,956  $ 2,254  $ 2,956 

For the acquisition of AgSync, the Company entered into a contingent earn-out agreement, not to exceed $3,500. The earn-out is to be paid annually over three years after the purchase date, contingent upon achieving certain revenue milestones. The Company has made no payments on this potential earn-out liability as of October 31, 2020.

In the acquisition of CLI, the Company entered into a contingent earn-out agreement, not to exceed $2,000. The earn-out is paid annually for three years after the purchase date, contingent upon achieving certain revenue milestones and operational synergies. The Company made its final payment related to this agreement in the third quarter of fiscal 2021 and has no further contingent obligations related to the acquisition of CLI. Cumulatively, the Company paid a total of $1,567 related to this earn-out liability.

14

(dollars in thousands, except per-share amounts)

In connection with the acquisition of Raven Europe, the Company entered into a contingent earn-out agreement, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date, contingent upon achieving certain revenue milestones. All revenue milestones under the agreement were achieved by Raven Europe in fiscal 2021. The Company paid a total of $2,500 to-date and has no further contingent obligations related to the acquisition of Raven Europe.

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

Goodwill
Management assesses goodwill for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are done at the reporting unit level. There were no goodwill impairment losses reported in the three- and nine-month periods ending October 31, 2020 and 2019, respectively.

The changes in the carrying amount of goodwill by reporting unit were as follows:
Applied Technology (excluding Autonomy) Autonomy Engineered
Films 		Aerostar Total
Balance at January 31, 2020
$ 16,943  $ 55,700  $ 33,232  $ 634  $ 106,509 
Changes due to business combinations
—  (440) —  —  (440)
Foreign currency translation adjustment
145  (289) —  —  (144)
Balance at October 31, 2020
$ 17,088  $ 54,971  $ 33,232  $ 634  $ 105,925 

Long-lived Assets and Other Intangibles
The Company assesses the recoverability of long-lived assets, including definite-lived intangibles and property, plant, and equipment, if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, management performs impairment reviews by asset group. Management periodically assesses for triggering events and discusses any significant changes in the utilization of long-lived assets. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

When performing long-lived asset testing, the fair values of assets are determined based on valuation techniques using the best available information. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures). An impairment loss is recognized when the carrying amount is not recoverable and exceeds the fair value of the asset.

The following table summarizes the components of intangible assets, which are reported net on the Consolidated Balance Sheets:
October 31, 2020 January 31, 2020
Accumulated Accumulated
Amount amortization Net Amount amortization Net
Existing technology $ 8,821  $ (8,137) $ 684  $ 9,190  $ (7,706) $ 1,484 
Customer relationships 16,102  (7,901) 8,201  16,067  (6,868) 9,199 
Patents and other intangibles
7,198  (2,945) 4,253  6,678  (2,444) 4,234 
In-process research and development(a)
30,945  —  30,945  31,300  —  31,300 
Total $ 63,066  $ (18,983) $ 44,083  $ 63,235  $ (17,018) $ 46,217 
(a) Refer to Note 6 "Acquisitions and Divestitures Of and Investments in Businesses and Technologies" for a more detailed description of these indefinite-lived intangible assets acquired in business combinations in fiscal 2020. A portion of these intangible assets are denominated in a foreign currency and subject to exchange rate fluctuations.

There were no long-lived asset impairment losses reported in the three- and nine-month periods ending October 31, 2020 and 2019, respectively.

15

(dollars in thousands, except per-share amounts)

(8) EMPLOYEE POSTRETIREMENT BENEFITS

The Company provides postretirement medical and other benefits to certain current and past senior executive officers and senior managers. These plan obligations are unfunded. The components of the net periodic benefit cost for postretirement benefits are as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Service cost $ 9  $ 7  $ 27  $ 21 
Interest cost 70  83  210  250 
Amortization of actuarial losses 43  24  129  72 
Amortization of unrecognized gains in prior service cost (40) (40) (120) (120)
Net periodic benefit cost $ 82  $ 74  $ 246  $ 223 

Postretirement benefit cost components are reclassified in their entirety from accumulated other comprehensive loss to net periodic benefit cost. Service cost is reported in net income as "Cost of sales" or "Selling, general, and administrative expenses" in a manner consistent with the classification of direct labor and personnel costs of the eligible employees. The components of the net periodic benefit cost, other than the service cost component, are classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.

(9) WARRANTIES

Accruals necessary for product warranties are estimated based on historical warranty costs and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues. Changes in the warranty accrual were as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Beginning balance $ 1,609  $ 1,739  $ 2,019  $ 890 
Change in provision
299  1,184  1,299  3,038 
Settlements made
(389) (939) (1,799) (1,944)
Ending balance $ 1,519  $ 1,984  $ 1,519  $ 1,984 

(10) DEBT

Credit Facility
On September 20, 2019, the Company entered into a credit facility with Bank of America, N. A., as administrative agent, and Wells Fargo Bank, National Association (the Credit Agreement). The Credit Agreement provides for a syndicated senior revolving credit facility up to $100,000 with a maturity date of September 20, 2022. Loans or borrowings defined under the Credit Agreement accrue interest and fees at varying rates. The Credit Agreement includes an annual administrative fee as well as an unborrowed capacity fee. Debt under the agreement is subject to customary affirmative and negative covenants, including financial covenants. These financial covenants include a consolidated interest coverage ratio and consolidated leverage ratio, both of which are defined in the Credit Agreement. As of October 31, 2020, the Company has no outstanding borrowings under the Credit Agreement. The Company has $100,000 in availability under the Credit Agreement as of October 31, 2020.

The unamortized debt issuance costs associated with the Credit Agreement were as follows:
October 31, 2020 January 31, 2020
Unamortized debt issuance costs(a)
$ 154  $ 215 
(a) Unamortized debt issuance costs are amortized over the term of the Credit Agreement and are reported as "Other assets" in the Consolidated Balance Sheets.

16

(dollars in thousands, except per-share amounts)

Letters of credit (LOC) issued and outstanding were as follows:
October 31, 2020 January 31, 2020
Letters of credit outstanding(a)
$ 50  $ 50 
(a) Any draws required under the LOC would be settled with available cash or borrowings under the Credit Agreement.

Long-Term Notes
The Company assumed certain long-term notes pursuant to the acquisition of a majority ownership in DOT in fiscal year 2020 as described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies". The related financial assistance agreement (Agreement) is between DOT and Western Economic Diversification Canada (WEDC), a government agency in Canada, that was entered into in August 2019. Under the Agreement, the WEDC agrees to contribute up to $5,000 in Canadian dollars, approximately $4,000 in US dollars, over a three-year period for costs incurred to develop a cloud-based distribution and service channel for a particular product being developed by DOT. DOT is eligible to receive contributions for costs incurred for purposes specified in the Agreement. The Company is required to repay the funds contributed by WEDC in 60 monthly installments beginning April 1, 2023, plus interest that begins on April 1, 2023, based on an average bank rate plus 3%. As of October 31, 2020, the Company had received $1,900 in contributions from WEDC and no repayments have been made. The outstanding liability balance is reported as "Long-term debt" on the Consolidated Balance Sheets. No interest expense is being recorded prior to the interest start date.

At October 31, 2020, the Company's debt maturities based on outstanding principal were as follows:

2021 2022 2023 2024 2025 Thereafter
Maturities of debt $ —  $ —  $ —  $ 1,900  $ —  $ — 

(11) COMMITMENTS AND CONTINGENCIES

The Company is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its business, the potential costs and liabilities of which cannot be determined at this time. Management does not believe the ultimate outcomes of its legal proceedings are likely to be material to its results of operations, financial position, or cash flows. In addition, the Company has insurance policies that provide coverage to various degrees for potential liabilities arising from legal proceedings.
The Company entered into a Gift Agreement ("the Agreement") effective in January 2018 with the South Dakota State University Foundation, Inc. ("the Foundation"). This gift will be used for the establishment of a precision agriculture facility to support South Dakota State University's Precision Agriculture degrees and curriculum. The Agreement states that the Company will make a $5,000 gift to the Foundation, conditional on certain actions. The fair value of this contingency at October 31, 2020, was $2,682 (measured based on the present value of the expected future cash outflows), of which $710 was classified as "Accrued liabilities" and $1,972 was classified as "Other liabilities." As of October 31, 2020, the Company has made payments related to the commitment totaling $2,145.

In addition to commitments disclosed elsewhere in the Notes to the Consolidated Financial Statements, the Company has other unconditional purchase obligations that arise in the normal course of business operations. The majority of these obligations are related to the purchase of raw material inventory for the Applied Technology and Engineered Films divisions.

(12) INCOME TAXES

The Company’s effective tax rate varies from the federal statutory rate primarily due to state and local taxes, R&D tax credit, foreign-derived intangible income deduction, and tax-exempt insurance premiums. The Company’s effective tax rates were as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Effective tax rate 1.6  % 13.0  % 1.9  % 14.7  %
The decrease in the effective tax rate year-over-year was driven primarily by an increase in the R&D tax credit as a percentage of estimated pre-tax income in the current fiscal year.
17

(dollars in thousands, except per-share amounts)

The Company's discrete tax benefit was as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Discrete tax benefit $ 303  $ 268  $ 580  $ 1,336 

The Company operates both domestically and internationally. As of October 31, 2020, undistributed earnings from the Company's foreign subsidiaries were considered to have been reinvested indefinitely.

(13) DIVIDENDS AND TREASURY STOCK

On August 26, 2020, the Company announced that the board of directors indefinitely suspended the Company’s regular quarterly cash dividend on its common stock.

Dividends paid to Raven shareholders were as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Dividends paid(a)
$ —  $ 4,648  $ 9,318  $ 14,001 
 
Dividends paid per share (in cents per share)(a)
—  13.0  26.0  39.0 
(a)There were no declared and unpaid shareholder dividends at October 31, 2020 or 2019.

On November 3, 2014, the Company announced that its Board of Directors ("Board") had authorized a $40,000 stock buyback program. Since that time, the Board has provided additional authorizations to increase the total amount authorized under the program to $75,000. This authorization remains in place until the authorized spending limit is reached or such authorization is revoked by the Board.

The Company had no share repurchases in the three- and nine-month periods ended October 31, 2020. Pursuant to the aforementioned authorizations, the Company repurchased 169,474 and 332,651 shares in the three- and nine-month periods ended October 31, 2019. These purchases totaled $5,000 and $10,781, respectively. There were no share repurchases unpaid at October 31, 2020 or 2019. The remaining dollar value authorized for share repurchases at October 31, 2020 is $17,179.

(14) SHARE-BASED COMPENSATION

Share-based compensation expense is recognized based on the fair value of the share-based awards expected to vest during the period.

The share-based compensation expense was as follows:
Three Months Ended Nine Months Ended
October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019
Cost of sales $ 64  $ 98  $ 182  $ 273 
Research and development expenses 369  41  1,126  122 
Selling, general, and administrative expenses 936  852  3,670  3,144 
Total share-based compensation expense $ 1,369  $ 991  $ 4,978  $ 3,539 

18

(dollars in thousands, except per-share amounts)

(15) SEGMENT REPORTING

The Company's operating segments, which are also its reportable segments, are defined by their product lines which have been generally grouped based on technology, manufacturing processes, and end-use application. The Company's reportable segments are Applied Technology Division, Engineered Films Division, and Aerostar Division. Separate financial information is available for each reportable segment and regularly evaluated by the Company's chief operating decision-maker, the President and Chief Executive Officer, in making resource allocation decisions for the Company's reportable segments. The Company measures the performance of its segments based on their operating income excluding administrative and general expenses. Other income, interest expense, and income taxes are not allocated to individual operating segments. Segment information is reported consistent with the Company's management reporting structure.

Business segment financial performance and other information is as follows:
Three Months Ended Nine Months Ended
October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Net sales
Applied Technology $ 34,838  $ 28,500  $ 112,347  $ 97,596 
Engineered Films
43,765  56,406  113,415  158,214 
Aerostar 18,010  15,661  42,626  41,040 
Intersegment eliminations(a)
(6) (34) (106) (81)
Consolidated net sales $ 96,607  $ 100,533  $ 268,282  $ 296,769 
Operating income(b)
Applied Technology
$ 5,797  $ 7,035  $ 21,247  $ 25,120 
Engineered Films 7,321  8,474  13,393  24,987 
Aerostar 2,777  2,488  4,821  7,427 
Intersegment eliminations
9  (12) 60  (10)
Total reportable segment income 15,904  17,985  39,521  57,524 
General and administrative expenses(b)
(6,613) (6,653) (20,148) (20,501)
Consolidated operating income $ 9,291  $ 11,332  $ 19,373  $ 37,023 
(a) Intersegment sales for both fiscal 2021 and 2020 were primarily sales from Engineered Films to Aerostar.
(b) At the segment level, operating income does not include an allocation of general and administrative expenses and, as a result, "General and administrative expenses" are reported as a deduction from "Total reportable segment income" to reconcile to "Operating income" reported in the Consolidated Statements of Income and Comprehensive Income.


(16) SUBSEQUENT EVENTS

The Company has evaluated events up to the filing date of this Quarterly Report on Form 10-Q and concluded that no subsequent events have occurred that would require recognition or disclosure in the Notes to the Consolidated Financial Statements.


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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary on the operating results, liquidity, capital resources, and financial condition of Raven Industries, Inc. (the Company or Raven) should be read in conjunction with the unaudited Consolidated Financial Statements in Item 1 of Part 1 of this Quarterly Report on Form 10-Q (Form 10-Q) and the Company's Annual Report on Form 10-K for the year ended January 31, 2020.

The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is organized as follows:
•Executive Summary
•Results of Operations - Segment Analysis
•Market Conditions and Outlook
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements and Contractual Obligations
•Critical Accounting Policies and Estimates
•Accounting Pronouncements

EXECUTIVE SUMMARY

Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air, and aerospace and defense markets. The Company is comprised of three unique operating units, classified into reportable segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films), and Aerostar Division (Aerostar). Segment information is reported consistent with the Company's management reporting structure.

Management uses a number of metrics to assess the Company's performance:

•Consolidated net sales, gross margin, operating income, operating margin, net income, and diluted earnings per share.
•Cash flow from operations and shareholder returns.
•Return on sales, average assets, and average equity.
•Segment net sales, gross profit, gross margin, operating income, and operating margin. At the segment level, operating income and margin does not include an allocation of general and administrative expenses.

Vision and Strategy
Raven's purpose is to solve great challenges. Great challenges require great solutions. Raven’s three unique divisions share resources, ideas, and a passion to create technology that helps the world grow more food, produce more energy, protect the environment, and live safely.

The Raven business model is our platform for success. Raven's business model is defensible, sustainable, and gives us a consistent approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three business segments, is summarized as follows:

•Intentionally serve market segments with strong growth prospects in both the near and long term.
•Consistently manage a pipeline of growth initiatives within our market segments.
•Aggressively compete on quality, service, innovation, and peak performance.
•Attract and develop exceptional leaders who understand business deeply and can thrive in the Raven Way.
•On a path of continuous improvement, consistently taking actions to streamline processes, improve efficiencies, and increase value delivered to our customers.
•Value our balance sheet as a source of strength and stability.
•Corporate responsibility is a top priority.

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The following discussion highlights the consolidated operating results for the three- and nine-month periods ended October 31, 2020 and 2019. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.
  Three Months Ended Nine Months Ended
(dollars in thousands, except per-share data) October 31,
2020 		October 31,
2019 		% Change October 31,
2020 		October 31,
2019 		% Change
Net sales $ 96,607  $ 100,533  (3.9) % $ 268,282  $ 296,769  (9.6) %
Gross profit 34,524  30,304  13.9  % 93,123  96,708  (3.7) %
Gross margin (a)
35.7  % 30.1  % 34.7  % 32.6  %
Operating income $ 9,291  $ 11,332  (18.0) % $ 19,373  $ 37,023  (47.7) %
Operating margin (a)
9.6  % 11.3  % 7.2  % 12.5  %
Other income (expense), net
$ (423) $ 84  $ (514) $ 398 
Net income attributable to Raven Industries, Inc.
$ 8,728  $ 9,934  (12.1) % $ 18,594  $ 31,910  (41.7) %
Diluted earnings per share $ 0.24  $ 0.28  $ 0.51  $ 0.88 
Cash flow from operating activities $ 24,516  $ 20,918  17.2  % $ 55,100  $ 47,078  17.0  %
Cash outflow for capital expenditures $ (3,148) $ (2,359) 33.4  % $ (10,931) $ (6,143) 77.9  %
Cash dividends $ —  $ (4,648) $ (9,318) $ (14,001) (33.4) %
Common share repurchases $ —  $ (5,000) $ —  $ (10,781)
(a) The Company's gross and operating margins may not be comparable to industry peers due to variability in the classification of expenses across industries in which the Company operates.

Three Months Ended October 31, 2020 and 2019:
Consolidated Results
For the fiscal 2021 third quarter, net sales were $96.6 million, down $3.9 million, or 3.9%, from $100.5 million in last year’s third quarter. Significant year-over-year growth in Applied Technology and Aerostar was offset by a decline in Engineered Films. Strong growth in OEM sales drove the increase in Applied Technology. The growth in year-over-year revenue for Aerostar was achieved by completing the delivery of aerostats on its current contract and executing on a record number of successful stratospheric balloon flight campaigns. The global pandemic continued to present challenges for Engineered Films' end-markets, leading to the year-over-year decline in revenue.

The Company's operating income for the third quarter of fiscal 2021 was $9.3 million, down 18.0% from $11.3 million in the third quarter of fiscal 2020. The results for the third quarter included incremental research and development and selling expenses to advance Raven Autonomy™ of $4.6 million. The strong profitability in this year's third quarter was driven by improved gross profit margin, which increased from 30.1 percent to 35.7 percent year-over-year. Applied Technology and Engineered Films improved gross margins versus the prior year, on improved volume and overhead reduction measures, respectively. Prior year third quarter operating income included a pre-tax gain of $1.9 million on the sale of an Applied Technology facility in Austin, Texas.

Net income for the third quarter of fiscal 2021 was $8.7 million, or $0.24 per diluted share, compared to net income of $9.9 million, or $0.28 per diluted share, in the prior year comparative period. The Company's investment in Raven Autonomy™ reduced net income attributable to Raven by $3.6 million, or $0.10 per diluted share, in the third quarter of fiscal 2021.

Applied Technology Division Results
Applied Technology's net sales in the third quarter of fiscal 2021 were $34.8 million, up $6.3 million, or 22.2%, versus last year's third quarter. The year-over-year sales growth was driven by higher volumes to OEM's, both domestically and internationally. The growth included last-time buy activity associated with the division's strategic decision to exit a commercial relationship. Excluding the benefit of the last-time buy activity, the division achieved growth over the prior year while overcoming certain production inefficiencies caused by process changes in response to the pandemic.

Division operating income in the third quarter of fiscal 2021 was $5.8 million, down $1.2 million, or 17.6% versus the third quarter of fiscal 2020. The profitability of the division was very strong and included an incremental investment of $4.5 million year-over-year into Raven Autonomy™. The prior year third quarter operating income included a pre-tax gain of $1.9 million on the sale of the division's facility in Austin, Texas.

21

Engineered Films Division Results
Engineered Films’ fiscal 2021 third quarter net sales were $43.8 million, a decrease of $12.6 million, or 22.4%, compared to fiscal 2020 third quarter net sales of $56.4 million. Engineered Films continued to face weak demand in the third quarter across a majority of its end-markets, resulting in the year-over-year decline in revenue. However, the division saw an increase in demand and a recapture of market share within its industrial market that led to year-over-year growth. Geomembrane (including the energy sub-market) experienced the largest declines as rig counts in the Permian Basin remained down approximately 70 percent year-over-year. The construction market also experienced reduced demand as non-residential construction starts decreased significantly versus the prior year. Partially offsetting these declines was the delivery of the remaining $2.4 million of film-based medical supplies associated with a FEMA contract to aid in the pandemic response.

Operating income for Engineered Films in the third quarter of fiscal 2021 decreased 13.6% to $7.3 million as compared to $8.5 million in the prior year third quarter. The division achieved an improved operating margin year-over-year from 15.0 percent to 16.7 percent, driven by operational efficiency improvements and expense reductions as the division mitigated the impact of negative operating leverage on division profit margin and continued to invest in Raven Composites™. In addition, the division generated strong cash flows as it continues to effectively manage working capital levels.

Aerostar Division Results
Aerostar's net sales in the third quarter of fiscal 2021 were $18.0 million, an increase of $2.3 million, or 15.0%, compared to fiscal 2020 third quarter net sales of $15.7 million. The year-over-year growth was driven by the delivery of aerostat systems and the completion of a record number of successful stratospheric flight campaigns for the Department of Defense throughout the quarter.

Division operating income in the third quarter of fiscal 2021 was $2.8 million, up $0.3 million, or 11.6%, versus the third quarter of fiscal 2020. The year-over-year increase in operating income was driven by increased sales volume.

Nine Months Ended October 31, 2020 and 2019:
Consolidated Results
For the nine-month period ended October 31, 2020, net sales were $268.3 million compared to $296.8 million, down 9.6% versus the prior year comparative period. Year-over-year growth in Applied Technology and Aerostar was more than offset by a decline in Engineered Films. Applied Technology leveraged its new products and strong customer relationships to drive sales growth versus the prior year. Economic conditions resulting from the pandemic led to weak end-market demand across Engineered Films' markets, resulting in a sharp decline in year-over-year net sales. Aerostar achieved growth in net sales year-over-year for the nine-month period, overcoming pandemic related challenges that included Department of Defense travel restrictions which limited Aerostar's ability to fulfill contracts and conduct customer flight campaigns the first half of the fiscal year.

The Company's operating income was $19.4 million, down 47.7% from $37.0 million in the prior year nine-month period. The year-to-date results included $12.4 million of investment in Raven Autonomy™, primarily research and development and selling expenses to drive commercialization of the Company's autonomous ag solutions.

Net income for the first nine months of fiscal 2021 was $18.6 million, or $0.51 per diluted share, compared to net income of $31.9 million, or $0.88 per diluted share, in the prior year comparative period. The investment in Raven Autonomy™ reduced net income attributable to Raven by $9.6 million, or $0.26 per diluted share, in the first nine months of fiscal 2021.

Applied Technology Division Results
Net sales for Applied Technology in the first nine months of fiscal 2021 were $112.3 million, up $14.8 million, or 15.1%, compared to the first nine months of fiscal 2020. Applied Technology achieved sales growth despite economic challenges that included low commodity prices for much of the year and overall weak conditions within the ag industry. The growth included last-time buy activity associated with the exit of a commercial relationship.

Operating income for the first nine months of fiscal 2021 was $21.2 million, down $3.9 million or 15.4%, compared to the first nine months of fiscal 2020. Operating income in the first nine months was reduced by $12.3 million of strategic investment in research and development activities for Raven Autonomy™.

Engineered Films Division Results
Net sales for Engineered Films in the first nine months of fiscal 2021 were $113.4 million, a decrease of $44.8 million, or 28.3%, compared to the year-to-date nine-month period of fiscal 2020. Economic conditions as a result of the global pandemic have created weak demand across a majority of Engineered Films' end markets, resulting in the year-over-year decline in
22

revenue.

Operating income for the first nine months of fiscal 2021 decreased 46.4% to $13.4 million as compared to $25.0 million in the prior year comparative period. The year-over-year decrease in operating income was driven by negative operating leverage resulting from the sharp decline in revenues.

Aerostar Division Results
Net sales for Aerostar in the first nine months of fiscal 2021 were $42.6 million, an increase of $1.6 million, or 3.9%, compared to the first nine months of fiscal 2020. Delivery of aerostat systems, partially offset by a decline in radar products, drove the year-over-year increase in net sales.

Operating income for the nine-month year-to-date period of fiscal 2021 was $4.8 million compared to operating income of $7.4 million in the prior year comparative period. The year-over-year performance was driven by lower margins due to increased material and overhead expenses, as well as a strategic increase in investment in the division's stratospheric and radar systems.

RESULTS OF OPERATIONS - SEGMENT ANALYSIS

Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products, autonomous solutions, and information management tools, which are collectively referred to as precision agriculture equipment, that help farmers reduce costs, more precisely control inputs, and improve yields for the global agriculture market.

  Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2020 		October 31,
2019 		$ Change % Change October 31,
2020 		October 31,
2019 		$ Change % Change
Net sales $ 34,838  $ 28,500  $ 6,338  22.2  % $ 112,347  $ 97,596  $ 14,751  15.1  %
Gross profit 18,535  13,205  5,330  40.4  % 57,328  47,539  9,789  20.6  %
Gross margin 53.2  % 46.3  % 51.0  % 48.7  %
Operating expenses $ 12,738  $ 6,170  $ 6,568  106.5  % $ 36,081  $ 22,419  $ 13,662  60.9  %
Operating expenses as % of sales
36.6  % 21.6  % 32.1  % 23.0  %
Operating income(a)
$ 5,797  $ 7,035  $ (1,238) (17.6) % $ 21,247  $ 25,120  $ (3,873) (15.4) %
Operating margin 16.6  % 24.7  % 18.9  % 25.7  %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.

The following factors were the primary drivers of the three- and nine-month year-over-year changes:

•Market conditions. The North American ag market has been negatively impacted by low commodity prices, and the ongoing pandemic has driven further uncertainty in the marketplace. Unfavorable oil prices and demand have caused a reduction in ethanol production which has an unfavorable impact on corn prices. These factors have reduced expected farm income, and OEMs have responded with lower production of new machines. Improving commodity prices have provided optimism that the ag market conditions will improve, however, the Company anticipates uncertainty from the pandemic will hamper any further improvement throughout the remainder of fiscal 2021. The Company does not model comparative market share position for its divisions, but the Company believes Applied Technology maintained or increased its market share in the first nine months of fiscal 2021.
•Sales volume and selling prices. Third quarter fiscal 2021 net sales increased $6.3 million or 22.2%, to $34.8 million compared to $28.5 million in the prior year. Year-to-date sales increased $14.8 million, or 15.1%, to $112.3 million compared to the prior year. Higher sales volume, rather than a change in selling price, was the primary driver of this increase. For the three- and nine-month periods, domestic sales were up 20.2% and 18.6% year-over-year, respectively. Domestic sales include $5.0 million and $15.6 million of last time buy activity to a non-strategic OEM customer for the three- and nine-month periods, an increase of $4.3 million and $12.3 million year-over-year, respectively.
•International sales. For the third quarter of fiscal 2021, international sales totaled $7.2 million, up 30.6% from $5.5 million in the prior year comparative period. International sales represented 20.8% of segment revenue compared to 19.4% of segment revenue in the prior year comparative period. Year-to-date, international sales totaled $25.9 million, an increase of $1.2 million from the prior year. Year-to-date international sales represented 23.0% of segment sales compared to 25.3% in the prior year comparative period. Increased demand in Latin America and Canada drove an
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increase in international sales during the third quarter. Sales to Europe, up approximately 20%, drove the increase in international sales for the nine-month period.
•Gross margin. Gross margin increased from 46.3% in the prior year third quarter of fiscal 2020 to 53.2% in the third quarter of fiscal 2021. Year-to-date fiscal 2021 gross margin increased from 48.7% to 51.0% compared to the prior year comparative period. The year-over-year increase in profitability was driven by positive operating leverage from higher sales volume and favorable product mix.
•Operating expenses. Fiscal 2021 third quarter operating expenses as a percentage of net sales was 36.6%, up from 21.6% in the prior year comparative period. Year-to-date operating expenses as a percentage of net sales was up from 23.0% to 32.1%. These increases were driven by $4.5 million and $12.1 million of Raven AutonomyTM related expenses, for the three- and nine-month periods, respectively. These expenses primarily consisted of investment in research and development to drive the commercialization of autonomous ag solutions.

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.

  Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2020 		October 31,
2019 		$ Change % Change October 31,
2020 		October 31,
2019 		$ Change % Change
Net sales $ 43,765  $ 56,406  $ (12,641) (22.4) % $ 113,415  $ 158,214  $ (44,799) (28.3) %
Gross profit 9,986  10,714  (728) (6.8) % 20,890  32,258  (11,368) (35.2) %
Gross margin 22.8  % 19.0  % 18.4  % 20.4  %
Operating expenses $ 2,665  $ 2,240  $ 425  19.0  % $ 7,497  $ 7,271  $ 226  3.1  %
Operating expenses as % of sales 6.1  % 4.0  % 6.6  % 4.6  %
Operating income(a)
$ 7,321  $ 8,474  $ (1,153) (13.6) % $ 13,393  $ 24,987  $ (11,594) (46.4) %
Operating margin 16.7  % 15.0  % 11.8  % 15.8  %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.
The following factors were the primary drivers of the three and nine-month year-over-year changes:

•Market conditions. In the third quarter, the ongoing pandemic and related economic slowdown continued to significantly impact demand in the geomembrane (including the energy sub-market) and construction markets. Rig counts within the Permian Basin were down approximately 70 percent versus the third quarter of fiscal 2020. In addition, delays in large-scale projects due to the pandemic has led to declines in demand within the construction and installation markets. The Company expects that demand in the aforementioned markets will continue to be impacted by the ongoing economic slowdown throughout fiscal 2021. The Company does not model comparative market share position for its divisions, but the Company believes Engineered Films maintained its market share in most of its end markets in the first nine months of fiscal 2021.
•Sales volume and selling prices. Third quarter net sales were $43.8 million, a decrease of $12.6 million, or 22.4%, compared to net sales of $56.4 million in the third quarter fiscal 2020. Year-to-date net sales were down $44.8 million, or 28.3%, to $113.4 million compared to $158.2 million in the prior year. Declines in rig counts within the Permian Basin, as well as delays in large-scale projects have led to decreases in sales volumes within the energy, construction and installation markets during the current year. In addition, this decline in demand in certain end-markets, as well as product mix, have caused selling prices to continue to decline in the third quarter of fiscal 2021 compared to the prior year. Sales volume, measured in pounds sold, decreased approximately 14% and 24% year-over-year for the three- and nine-month periods ending October 31, 2020, respectively.
•Gross margin. For the three-month period, gross margin was 22.8%, increasing from 19.0% in the prior year comparative period. The completion of a $4.8 million FEMA contract during the quarter and operational efficiency improvements drove the increased gross margin for three-month period. For the nine-month period ending October 31, 2020, gross margin was down from 20.4% in the prior year to 18.4% in the current year. Negative operating leverage from lower sales volume along with lower selling prices drove the year-to-date decrease in gross margin.
•Operating expenses. As a percentage of net sales, operating expenses were 6.1% in the current year three-month period as compared to 4.0% in the prior year comparative period. As a percentage of net sales, operating expenses were 6.6% in the current year nine-month period as compared to 4.6% in the prior year comparative period. Despite ongoing efforts to reduce costs due to the uncertainty of the pandemic, lower sales and focused research and development expenditures to improve quality and production efficiencies to support Raven Composites™, drove the increase in
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operating expenses as a percentage of net sales. In addition, the division increased their allowance for uncollectible accounts, contributing to the increase in operating expenses.

Aerostar
Aerostar serves the commercial lighter-than-air and aerospace and defense 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.

  Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2020 		October 31,
2019 		$ Change % Change October 31,
2020 		October 31,
2019 		$ Change % Change
Net sales $ 18,010  $ 15,661  $ 2,349  15.0  % $ 42,626  $ 41,040  $ 1,586  3.9  %
Gross profit 5,994  6,397  (403) (6.3) % 14,845  16,921  (2,076) (12.3) %
Gross margin 33.3  % 40.8  % 34.8  % 41.2  %
Operating expenses $ 3,217  $ 3,909  $ (692) (17.7) % $ 10,024  $ 9,494  $ 530  5.6  %
Operating expenses as % of sales
17.9  % 25.0  % 23.5  % 23.1  %
Operating income(a)
$ 2,777  $ 2,488  $ 289  11.6  % $ 4,821  $ 7,427  $ (2,606) (35.1) %
Operating margin 15.4  % 15.9  % 11.3  % 18.1  %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.

The following factors were the primary drivers of the three and nine-month year-over-year changes:

•Market conditions. Aerostar’s markets are subject to significant variability in demand due to government spending uncertainties and the timing of contract awards. The Company does not model comparative market share position for its divisions, but the Company believes Aerostar has maintained or increased its market share in the first nine months of fiscal 2021.
•Sales volume. Net sales increased 15.0% from $15.7 million for the three-month period ended October 31, 2019, to $18.0 million for the three-month period ended October 31, 2020. Year-to-date sales were $42.6 million, up $1.6 million year-over-year, or 3.9%. The increase in net sales during the third quarter was driven by the delivery of systems on the division's current aerostat contract that was awarded in the prior year. The division has realized $4.7 million and $7.9 million in revenue from the contract for the three- and nine-months year-to-date. The final deliverables on the contract were completed during the third quarter of fiscal 2021. In addition, the division completed a record number of stratospheric balloon flight campaigns during the third quarter. The nine-month increase in net sales was driven by deliveries on the aerostat contract partially offset by a decline in the delivery of radar products.
•Gross margin. For the three-month period, gross margin decreased from 40.8% to 33.3%, and for the nine-month period decreased from 41.2% to 34.8%. The decrease in gross margin was predominately driven by $0.5 million of inventory write downs primarily for radar products that have been replaced by the division's new technology along with higher materials and overhead expenses for both periods.
•Operating expenses. Third quarter fiscal 2021 operating expense was $3.2 million, or 17.9% of net sales, a decrease from 25.0% of net sales in the third quarter of fiscal 2020. Year-to-date operating expense as a percentage of net sales was 23.5%, up from 23.1% in the prior year. The division allocated research and development resources to assist in the completion of stratospheric flight campaigns, delayed due to the pandemic, during the third quarter of fiscal 2021, resulting in lower research and development expenses compared to the prior year third quarter. For the year-to-date, increased investment in research and development drove the increase in operating expenses as the division continues investing in stratospheric and radar systems that will drive long-term growth.

Corporate Expenses (administrative expenses; other income (expense), net; and income taxes)
`
  Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2020 		October 31,
2019 		October 31,
2020 		October 31,
2019
Administrative expenses $ 6,613  $ 6,653  $ 20,148  $ 20,501 
Administrative expenses as a % of sales 6.8  % 6.6  % 7.5  % 6.9  %
Other income (expense), net $ (423) $ 84  $ (514) $ 398 
Effective tax rate 1.6  % 13.0  % 1.9  % 14.7  %
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Administrative spending for the three-month period of fiscal 2021 was down 0.6% compared to fiscal 2020. Administrative spending for the nine-month period of fiscal 2021 was down 1.7% compared to fiscal 2020. Continued focus on reducing expenditures in response to the pandemic drove down costs, including lower travel expenses due to company-wide travel restrictions and lower consulting and professional services, for the three- and nine-month periods.

Other income (expense), net consists primarily of activity related to the Company's equity investments, interest income and expense, and foreign currency transaction gains or losses. Lower returns on cash and interest expense on borrowings contributed to the decrease in other income (expense) during the three and nine-month periods in fiscal 2021. There were no significant items in other income (expense), net for the three- and nine-month periods in fiscal 2020.

The Company’s effective tax rates for the three-month periods ended October 31, 2020 and 2019, were 1.6% and 13.0%, respectively. The Company’s effective tax rates for the nine-month periods ended October 31, 2020 and 2019, were 1.9% and 14.7%, respectively. The year-over-year volatility in the effective tax rate for the three- and nine-month periods was driven primarily by an increase in the R&D tax credit.

MARKET CONDITIONS AND OUTLOOK

The third quarter of fiscal 2021 results were strong, from both a financial performance perspective and when taking into account the investments the Company made to advance its strategic platforms for growth. Despite continued challenging economic conditions, the Company achieved strong profitability and increased cash and cash equivalents by $22.4 million during the current quarter while making significant investments in Raven Autonomy™, advancing greenfield operations in Raven Composites™, and executing on contracts for Thunderhead Balloon Systems.

Applied Technology generated significant profitability while continuing to aggressively invest in Raven Autonomy™ during the third quarter as the Company drives towards commercialization of its autonomous technologies. In Raven Autonomy™, the Company continues to further develop the Raven Autonomy™ Platform framework, performing field validation trials with farmers to ensure enhanced customer value with autonomous applications. The Company also continued to advance its core technology, as evidenced by enhancements and new product releases, including Hawkeye® 2 and VSN® full canopy guidance. These products solve problems for customers and generate strong returns for end users.

Engineered Films end markets continue to be suppressed by adverse economic challenges related to the pandemic. Rig counts within the Permian Basin were down approximately 70 percent compared to the third quarter of fiscal 2020, leading to a decline in sales in the geomembrane market. Additionally, large-scale projects continue to be delayed which impacts both the geomembrane and construction markets. The Company expects these conditions to persist throughout the remainder of the current fiscal year and into the next fiscal year. However, Engineered Films is effectively managing through these challenges and the health and long-term prospects of Engineered Films' core business and the Raven Composites™ strategic growth initiative are very promising.

Aerostar achieved mission success on a record number of flight campaigns, leading to strong financial performance in the quarter. The division continues to see growing momentum surrounding the Thunderhead Balloon Systems, and believes this market will grow substantially over the coming years. The Company is the clear leader in this space, and the team continues to enhance the capabilities of the technology.


LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet continues to reflect significant liquidity and a strong capital base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been the Company's primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows, will be sufficient to fund the Company's normal operating, investing, and financing activities beyond the next twelve months. In addition, the Company has a three-year, $100 million senior revolving credit facility which includes a $100 million borrowing availability expansion feature. If executed, this allows the Company’s total borrowing capacity to reach $200 million. This credit facility has a maturity date of September 20, 2022.

The Company’s cash balances and cash flows were as follows:
(dollars in thousands) October 31,
2020 		January 31,
2020 		October 31,
2019
Cash and cash equivalents $ 38,217  $ 20,707  $ 77,094 
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Three Months Ended Nine Months Ended
(dollars in thousands) October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019
Cash provided by operating activities $ 24,516  $ 20,918  $ 55,100  $ 47,078 
Cash used in investing activities (3,275) (2,155) (10,593) (5,833)
Cash provided by (used in) financing activities 1,325  (10,778) (26,655) (29,870)
Effect of exchange rate changes on cash and cash equivalents (162) (22) (342) (68)
Net increase in cash and cash equivalents $ 22,404  $ 7,963  $ 17,510  $ 11,307 

Cash and cash equivalents totaled $38.2 million at October 31, 2020, an increase of $17.5 million from $20.7 million at January 31, 2020. The sequential increase in cash was driven by an increased focus on lower net working capital during the pandemic, as well as the Company's decision to indefinitely suspend the quarterly cash dividend on its common stock. Cash and cash equivalents as of October 31, 2019 was $77.1 million.

Operating Activities
Cash provided by operating activities was primarily derived from cash received from customers, offset by cash payments for inventories, services, and employee compensation. Cash provided by operating activities was $55.1 million for the first nine months of fiscal 2021 compared with $47.1 million in the first nine months of fiscal 2020. The increase in operating cash flows year-over-year was driven primarily by an increased focus on lower net working capital during the pandemic.

The Company's cash needs have minimal seasonal trends. As a result, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in net working capital. Net working capital and net working capital percentage are metrics used by management as a guide in measuring the efficient use of cash resources to support business activities and growth. The Company's net working capital for the comparative periods was as follows:
(dollars in thousands) October 31, 2020 October 31, 2019
Accounts receivable, net $ 54,224  $ 62,057 
Plus: Inventories 44,674  51,981 
Less: Accounts payable 19,314  11,045 
Net working capital(a)
$ 79,584  $ 102,993 
Annualized net sales(b)
386,428  402,132 
Net working capital percentage(c)
20.6  % 25.6  %
(a) Net working capital is defined as accounts receivable, (net) plus inventories less accounts payable.
(b) Annualized net sales is defined as the most recent quarter net sales times four for each of the fiscal periods, respectively.
(c) Net working capital percentage is defined as net working capital divided by annualized net sales.

Net working capital percentage was down year-over-year in the third quarter of fiscal 2021. Net working capital decreased $23.4 million year-over-year in the third quarter. The Company's continued focus on maintaining lower net working capital during the pandemic drove the year-over-year change. The Company lowered inventory levels at Engineered Films to align with expected sales while the decrease in accounts receivable was driven by lower sales volume year-over-year.

Inventory levels decreased $7.3 million, or 14.1%, year-over-year from $52.0 million at October 31, 2019, to $44.7 million at October 31, 2020. In comparison, consolidated net sales decreased $3.9 million, or 3.9%, year-over-year in the third quarter. The decrease in inventory was primarily driven by the Engineered Films division improving operational efficiency and aligning inventory levels with corresponding expected sales.

Accounts receivable decreased $7.9 million or 12.6%, year-over-year to $54.2 million at October 31, 2020, from $62.1 million at October 31, 2019. In comparison, consolidated net sales decreased $3.9 million, or 3.9%, year-over-year in the third quarter. Lower sales volume was the primary driver of the year-over-year decrease in accounts receivable.

Accounts payable increased $8.3 million, or 74.9%, year-over-year from $11.0 million at October 31, 2019, to $19.3 million at October 31, 2020. The increase in accounts payable year-over-year was primarily due to timing of purchases and optimization of payment terms.
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Investing Activities
Cash used by investing activities was $10.6 million for the first nine months of fiscal 2021 compared with cash used of $5.8 million in the first nine months of fiscal 2020. Capital expenditure spending increased $4.8 million compared to the prior year nine-month period primarily due to current year investments in property by Engineered Films and investments in equipment to support Raven Composites™.

Financing Activities
Cash used for financing activities for the first nine months of fiscal 2021 increased $3.2 million compared to the first nine months of fiscal 2020. In the current year, payment of $17.9 million related to the redemption of the noncontrolling interest in DOT was included in financing cash flows. No such activity occurred in the prior year. Offsetting this increase was $10.8 million of share repurchases in the first nine months of the prior year compared to no share repurchases in the current year. On August 26, 2020, the Company announced that the board of directors indefinitely suspended the Company’s regular quarterly cash dividend on its common stock. The Company intends to reallocate this capital to supplement and accelerate investments in the Company's Strategic Platforms for Growth; Raven Autonomy™ and Raven Composites™. Dividends per share for the first nine months of fiscal 2021 and 2020 were 26.0 cents per share and 39.0 cents per share, respectively. Total cash outflows for dividends in the nine-month periods ended October 31, 2020 and 2019, were $9.3 million and $14.0 million, respectively.

Other Liquidity and Capital Resources
The Company entered into a $100 million credit agreement on September 20, 2019, with a maturity date of September 20, 2022. Availability under the Credit Agreement for borrowings as of October 31, 2020, was $100.0 million. This agreement (Credit Agreement) is more fully described in Note 10 Debt of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q.

The Credit Agreement 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 financial covenants set forth in the Credit Agreement.

Letters of credit (LOCs) totaling $0.1 million and $0.3 million were outstanding at October 31, 2020 and October 31, 2019, respectively. Any draws required under the LOCs would be settled with available cash or borrowings under the Credit Agreement.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

There have been no material changes in the Company’s known off-balance sheet debt and other unrecorded obligations since the fiscal year ended January 31, 2020.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that require the application of judgment when valuing assets and liabilities on the Company's balance sheet. For a description of our critical accounting policies and estimates, see Critical Accounting Policies and Estimates in Item 7 of our Annual Report on Form 10-K for the year ended January 31, 2020, filed with the SEC. There have been no material changes to our critical accounting policies and estimates during the nine-month period ended October 31, 2020.

ACCOUNTING PRONOUNCEMENTS

See Note 2 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for a summary of recent accounting pronouncements.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future, not past or historical events. Without limiting the foregoing, the words "anticipates," "believes," "expects," "intends," "may," "plans," "should," "estimate," "predict," "project," "would," "will," "potential," and similar expressions are intended to identify forward-looking statements. However,
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the absence of these words or similar expressions does not mean that a statement is not forward-looking. The Company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act.

Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions when made, there is no assurance that such assumptions are correct or that these expectations will be achieved. Assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to weather conditions, which could affect sales and profitability in some of the Company's primary markets, such as agriculture and construction and oil and gas drilling; or changes in raw material availability, commodity prices, competition, technology or relationships with the Company's largest customers, risks and uncertainties relating to the impacts of the COVID-19 pandemic, development of new technologies to satisfy customer requirements, possible development of competitive technologies, ability to scale production of new products without negatively impacting quality and cost, risks of operating in foreign markets, risks relating to acquisitions, including risks of integration or unanticipated liabilities or contingencies, and ability to finance investment and net working capital needs for new development projects, any of which could adversely impact any of the Company's product lines, risks of litigation, as well as other risks described in Item 1A., Risk Factors, of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020. The foregoing list is not exhaustive and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents, and short-term investments. The Company also has an immaterial amount of outstanding debt and finance lease obligations as of October 31, 2020 and January 31, 2020. The Company does not expect operating results or cash flows to be significantly affected by changes in interest rates.

The Company's subsidiaries that operate outside the United States use their local currency as the 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 statement of income. Cash and cash equivalents held in foreign currency (primarily Euros and Canadian dollars) totaled $3.7 million and $5.3 million at October 31, 2020 and January 31, 2020, respectively. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in "Accumulated other comprehensive income (loss)" within shareholders' equity. 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 fluctuations had no material effect on the Company's financial condition, results of operations, or cash flows.

The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, the Company does utilize derivative financial instruments to manage the economic impact of fluctuation in foreign currency exchange rates on those transactions that are denominated in a currency other than its functional currency, which is the U.S. dollar. Such transactions are principally Canadian dollar-denominated transactions. The use of these financial instruments had no material effect on the Company's financial condition, results of operations, or cash flows.


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Our management, under the supervision of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2020. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of
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October 31, 2020.

Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three- and nine-month periods ended October 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

RAVEN INDUSTRIES, INC.
PART II — OTHER INFORMATION

Item 1. Legal Proceedings:

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 significant 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.

Item 1A. Risk Factors:

The Company’s business is subject to a number of risks, including those identified in Item 1A "Risk Factors" of the Company’s Annual Report on Form 10-K for the year ended January 31, 2020, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from fiscal period to fiscal period. The risks described in the Annual Report on Form 10-K are not exhaustive and additional risks we currently deem to be immaterial or are unknown to us at this time also could materially affect our business, results of operations, financial condition, and/or liquidity. The risk factor described below updates the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended January 31, 2020, to include additional information.

The novel coronavirus (COVID-19) has adversely impacted, and could continue to impact the Company, including possible material adverse effects on our business, financial position, and cash flow. Further spread of COVID-19, as well as outbreaks or epidemics of other infectious diseases, may have a similar or worse impact on the Company.

Global pandemics, including the current COVID-19 pandemic, represent significant risks to the Company, our employees, suppliers, and customers and may adversely impact the Company's operations and financial results. The COVID-19 pandemic has caused significant volatility and disruption in capital markets and led to a global economic slowdown. The duration, severity, and scope of the COVID-19 outbreak and the actions taken to contain or treat the outbreak (including the availability of an effective vaccine) remain highly uncertain at this time. The extent to which COVID-19 impacts the Company's operations will depend on future developments.

The potential effects on the Company of outbreaks of infectious disease, including COVID-19, include, but are not limited to the following:

•Economic uncertainty and the potential short-term closures of customer facilities could result in reduced business and consumer spending, as well as customers in weakened financial condition. As a result, the Company may see a slowdown in customer orders, order cancellations, or the inability to collect on delivered orders, adversely affecting our financial condition.
•Instability and volatility in the credit and financial markets could increase the cost of capital and/or limit its availability and adversely affect our ability to borrow and our financial condition.
•Potential disruptions to our supply chain, or further government actions, including shelter-in-place orders, could impact our ability to source materials, produce product, and fulfill customer orders, adversely impacting our financial condition.
•The Company could continue to be adversely impacted by travel restrictions and limitations, resulting in the inability to start or complete projects. It could also continue to restrict the Company’s ability to market new products to customers, delaying the sales launch of these products, and potentially limiting sales. Continuing or further travel restrictions and limitations could adversely impact the Company’s financial condition.
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•The Company has taken proactive steps to prevent the spread of COVID-19 amongst employees and has been effective at limiting the spread of COVID-19 amongst employees. However, further spread of the COVID-19 virus to employees, contracted either at work or from the public, could result in the Company slowing or stopping production, impacting the ability to fulfill orders, and adversely affecting the Company’s financial condition.

To the extent the COVID-19 pandemic may adversely affect our business, financial condition, and cash flows, it may also heighten many of the other risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:

Issuer purchases of equity securities
On November 3, 2014, the Company's Board of Directors (Board) authorized a $40.0 million stock buyback program. Since that time, the Board has provided additional authorizations to increase the total amount authorized under the program to $75.0 million. There is $17.2 million still available for share repurchases under this Board-authorized program which remains in place until such time as the authorized spending limit is reached or is revoked by the Board.

Item 3. Defaults Upon Senior Securities: None

Item 4. Mine Safety Disclosures: None

Item 5. Other Information: None

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Item 6. Exhibits:

Exhibit
Number 		Description
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104  Cover page Interactive Data File is formatted in Inline XBRL and is contained in Exhibits 101

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  RAVEN INDUSTRIES, INC.  
  /s/ Steven E. Brazones  
  Steven E. Brazones  
  Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  		 
Date: November 24, 2020
33
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