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, 2021.
Financial results for the interim three and six-month periods ended July 31, 2021, are not necessarily indicative of the results that may be expected for the year ending January 31, 2022. The January 31, 2021, 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.
Proposed Transaction with CNH Industrial N.V.
On June 20, 2021, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with CNH Industrial N.V., a Netherlands public limited liability company (“CNH Industrial”). Under the terms of the agreement, CNH Industrial will acquire 100% of the capital stock of Raven for $58.00 per share. The merger is subject to shareholder approval, as well as to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of fiscal year 2022.
The Company incurred $4,863 and $5,163 of merger-related expenses in the three- and six-month period ended July 31, 2021. These costs relate primarily to professional service fees in connection with the proposed merger. The costs incurred are reported as "Selling, general, and administrative expenses" in the Consolidated Statements of Income and Comprehensive Income.
Risks and Uncertainties (COVID-19)
The COVID-19 pandemic has had, and may continue to have, an unfavorable impact on certain areas of the Company's business. Economic conditions have continued to improve during the six-months ended July 31, 2021, however, the broader implications of the COVID-19 pandemic on the Company's financial condition and results of operations remain uncertain, and will depend on certain developments, including the effectiveness of vaccines to address the COVID-19 virus, as well as potential variants or further spread of the virus. The pandemic's ongoing impact to the Company's customers and suppliers remains uncertain. The Company may continue to experience supply chain constraints that hampers the Company's ability to fulfill orders on time or reduced customer demand in certain markets could materially and adversely impact business, financial condition, results of operations, liquidity and cash flows in future periods.
Redeemable Noncontrolling Interest
The Company acquired a majority ownership in Dot Technology Corp. (DOT) in the fourth quarter of fiscal 2020. DOT, located in Regina, Saskatchewan, Canada, designs autonomous agriculture solutions and manufactures an 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 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 remaining redeemable amount, as well as
(dollars in thousands, except per-share amounts)
the liability for the noncontrolling interest redeemed in fiscal year 2020, totaling approximately $5,352, is payable in November 2021 and is classified as "Accrued Liabilities" in the Consolidated Balance Sheet at July 31, 2021.
(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, 2021, other than described below.
Software Development Costs
The Company capitalizes certain software development costs related to software to be sold, included in core autonomous products, or otherwise marketed. Capitalized software development costs include purchased materials and services, salary and benefits of our development and engineering staff, and other costs associated with the development of new products. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and the Company has the capability to manufacture the end product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to "Cost of Sales" in the Consolidated Statements of Income and Comprehensive Income over the product's estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.
The capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that is determined to be in excess of net realizable value is expensed in the period such a determination is made. The gross carrying amount of software development costs was $1,439 and $0 at July 31, 2021 and January 31, 2021 respectively and is reported in "Intangible Assets, net" on the Consolidated Balance Sheets. No amortization expense was recorded in the three- and six-month periods ended July 31, 2021.
Accounting Pronouncements
Accounting Standards Adopted
There are no significant Accounting Standard Updates (ASU's) issued that were adopted in the six-month period ended July 31, 2021.
New Accounting Standards Not Yet Adopted
There are no significant ASU's issued and not yet adopted as of July 31, 2021.
(dollars in thousands, except per-share amounts)
(3) SELECTED BALANCE SHEET INFORMATION
Following are the components of selected items from the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 31, 2021
|
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
Trade accounts
|
|
$
|
71,413
|
|
|
$
|
47,879
|
|
|
|
Unbilled receivables
|
|
1,084
|
|
|
2,734
|
|
|
|
Allowance for credit losses
|
|
(1,906)
|
|
|
(1,944)
|
|
|
|
|
|
$
|
70,591
|
|
|
$
|
48,669
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
Finished goods
|
|
$
|
12,788
|
|
|
$
|
7,684
|
|
|
|
In process
|
|
1,849
|
|
|
759
|
|
|
|
Materials
|
|
61,055
|
|
|
44,260
|
|
|
|
|
|
$
|
75,692
|
|
|
$
|
52,703
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
Income tax receivable
|
|
$
|
701
|
|
|
$
|
1,440
|
|
|
|
Prepaid expenses and other
|
|
7,849
|
|
|
4,336
|
|
|
|
|
|
$
|
8,550
|
|
|
$
|
5,776
|
|
|
|
Property, plant and equipment, net:(a)
|
|
|
|
|
|
|
Land
|
|
$
|
3,117
|
|
|
$
|
3,117
|
|
|
|
Buildings and improvements
|
|
87,444
|
|
|
84,651
|
|
|
|
Machinery and equipment
|
|
176,381
|
|
|
169,252
|
|
|
|
Financing lease right-of-use assets
|
|
1,561
|
|
|
1,282
|
|
|
|
|
|
268,503
|
|
|
258,302
|
|
|
|
Accumulated depreciation
|
|
(159,620)
|
|
|
(152,295)
|
|
|
|
|
|
$
|
108,883
|
|
|
$
|
106,007
|
|
|
|
Other assets:
|
|
|
|
|
|
|
Equity investments
|
|
$
|
1,835
|
|
|
$
|
1,595
|
|
|
|
Operating lease right-of-use assets
|
|
5,816
|
|
|
6,850
|
|
|
|
Deferred income taxes
|
|
2,038
|
|
|
360
|
|
|
|
Other
|
|
1,706
|
|
|
2,211
|
|
|
|
|
|
$
|
11,395
|
|
|
$
|
11,016
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
Salaries and related
|
|
$
|
6,953
|
|
|
$
|
4,881
|
|
|
|
Benefits
|
|
6,597
|
|
|
6,255
|
|
|
|
Insurance obligations
|
|
1,700
|
|
|
1,896
|
|
|
|
Warranties
|
|
3,085
|
|
|
2,068
|
|
|
|
Income taxes
|
|
1,370
|
|
|
238
|
|
|
|
Other taxes
|
|
1,996
|
|
|
2,386
|
|
|
|
Acquisition-related contingent consideration
|
|
2,000
|
|
|
2,000
|
|
|
|
Lease liability
|
|
1,916
|
|
|
2,482
|
|
|
|
Other
|
|
13,556
|
|
|
8,195
|
|
|
|
|
|
$
|
39,173
|
|
|
$
|
30,401
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
Postretirement benefits
|
|
$
|
9,012
|
|
|
$
|
8,996
|
|
|
|
Lease liability
|
|
4,898
|
|
|
5,426
|
|
|
|
Deferred income taxes
|
|
1,345
|
|
|
2,091
|
|
|
|
Uncertain tax positions
|
|
2,823
|
|
|
2,692
|
|
|
|
Other
|
|
4,932
|
|
|
4,792
|
|
|
|
|
|
$
|
23,010
|
|
|
$
|
23,997
|
|
|
|
(a) Includes assets held for use and assets held for sale. The amount of assets held for sale at July 31, 2021, and January 31, 2021, were not material.
(dollars in thousands, except per-share amounts)
(4) NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average common shares and fully vested stock units outstanding. Diluted net income per share is computed by dividing net income by the weighted average common and common equivalent shares outstanding, which includes the shares issuable upon exercise of employee stock options (net of shares assumed purchased with the option proceeds), stock units, and restricted stock units outstanding. Performance share awards are included in the diluted calculation based upon what would be issued if the end of the most recent reporting period was the end of the term of the award.
Certain outstanding options and restricted stock units were excluded from the diluted net income per share calculations because their effect would have been anti-dilutive under the treasury stock method. The options and restricted stock units excluded from the diluted net income per share calculation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Anti-dilutive options and restricted stock units
|
|
934
|
|
|
321,613
|
|
610
|
|
321,534
|
The computation of earnings per share is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Raven Industries, Inc.
|
|
$
|
6,853
|
|
|
$
|
5,819
|
|
|
$
|
16,473
|
|
|
$
|
9,866
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
35,917,637
|
|
|
35,838,509
|
|
|
35,901,540
|
|
|
35,818,224
|
|
Weighted average fully vested stock units outstanding
|
|
167,874
|
|
|
157,488
|
|
|
159,923
|
|
|
143,580
|
|
Denominator for basic calculation
|
|
36,085,511
|
|
|
35,995,997
|
|
|
36,061,463
|
|
|
35,961,804
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
35,917,637
|
|
|
35,838,509
|
|
|
35,901,540
|
|
|
35,818,224
|
|
Weighted average fully vested stock units outstanding
|
|
167,874
|
|
|
157,488
|
|
|
159,923
|
|
|
143,580
|
|
Dilutive impact of stock options and restricted stock units
|
|
384,432
|
|
|
85,991
|
|
|
385,952
|
|
|
117,485
|
|
Denominator for diluted calculation
|
|
36,469,943
|
|
|
36,081,988
|
|
|
36,447,415
|
|
|
36,079,289
|
|
|
|
|
|
|
|
|
|
|
Net income per share ─ basic
|
|
$
|
0.19
|
|
|
$
|
0.16
|
|
|
$
|
0.46
|
|
|
$
|
0.27
|
|
Net income per share ─ diluted
|
|
$
|
0.19
|
|
|
$
|
0.16
|
|
|
$
|
0.45
|
|
|
$
|
0.27
|
|
(dollars in thousands, except per-share amounts)
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Product Category
|
|
Three Months Ended July 31, 2021
|
|
Three Months Ended July 31, 2020
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
$
|
—
|
|
$
|
9,479
|
|
$
|
—
|
|
$
|
9,479
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10,008
|
|
$
|
—
|
|
$
|
10,008
|
|
International
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
34
|
|
—
|
|
34
|
|
Plastic Films &
Sheeting
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
52,337
|
|
—
|
|
(49)
|
|
52,288
|
|
|
—
|
|
32,478
|
|
—
|
|
(38)
|
|
32,440
|
|
International
|
—
|
|
4,750
|
|
—
|
|
—
|
|
4,750
|
|
|
—
|
|
3,774
|
|
—
|
|
—
|
|
3,774
|
|
Precision Agriculture
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
32,209
|
|
—
|
|
—
|
|
—
|
|
32,209
|
|
|
28,000
|
|
—
|
|
—
|
|
(2)
|
|
27,998
|
|
International
|
12,392
|
|
—
|
|
—
|
|
—
|
|
12,392
|
|
|
7,502
|
|
—
|
|
—
|
|
—
|
|
7,502
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
—
|
|
3,306
|
|
—
|
|
3,306
|
|
|
—
|
|
—
|
|
3,423
|
|
—
|
|
3,423
|
|
International
|
—
|
|
—
|
|
2
|
|
—
|
|
2
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Totals
|
$
|
44,601
|
|
$
|
57,087
|
|
$
|
12,787
|
|
$
|
(49)
|
|
$
|
114,426
|
|
|
$
|
35,502
|
|
$
|
36,252
|
|
$
|
13,465
|
|
$
|
(40)
|
|
$
|
85,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31, 2021
|
|
Six Months Ended July 31, 2020
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
|
ATD
|
EFD
|
AERO
|
ELIM(a)
|
Total
|
Lighter-than-Air
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
$
|
—
|
|
$
|
13,978
|
|
$
|
—
|
|
$
|
13,978
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
16,090
|
|
$
|
—
|
|
$
|
16,090
|
|
International
|
—
|
|
—
|
|
597
|
|
—
|
|
597
|
|
|
—
|
|
—
|
|
46
|
|
—
|
|
46
|
|
Plastic Films & Sheeting
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
97,739
|
|
—
|
|
(83)
|
|
97,656
|
|
|
—
|
|
63,034
|
|
—
|
|
(98)
|
|
62,936
|
|
International
|
—
|
|
8,113
|
|
—
|
|
—
|
|
8,113
|
|
|
—
|
|
6,616
|
|
—
|
|
—
|
|
6,616
|
|
Precision Agriculture Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
67,861
|
|
—
|
|
—
|
|
—
|
|
67,861
|
|
|
58,861
|
|
—
|
|
—
|
|
(2)
|
|
58,859
|
|
International
|
31,608
|
|
—
|
|
—
|
|
—
|
|
31,608
|
|
|
18,648
|
|
—
|
|
—
|
|
—
|
|
18,648
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
—
|
|
7,073
|
|
—
|
|
7,073
|
|
|
—
|
|
—
|
|
8,475
|
|
—
|
|
8,475
|
|
International
|
—
|
|
—
|
|
26
|
|
—
|
|
26
|
|
|
—
|
|
—
|
|
5
|
|
—
|
|
5
|
|
Totals
|
$
|
99,469
|
|
$
|
105,852
|
|
$
|
21,674
|
|
$
|
(83)
|
|
$
|
226,912
|
|
|
$
|
77,509
|
|
$
|
69,650
|
|
$
|
24,616
|
|
$
|
(100)
|
|
$
|
171,675
|
|
(a) Intersegment sales for both fiscal 2022 and 2021 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
(dollars in thousands, except per-share amounts)
the Consolidated Balance Sheets, respectively.
During the six months ended July 31, 2021, the Company’s contract assets decreased by $1,679 while contract liabilities increased $2,090. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2021
|
|
January 31,
2021
|
|
$ Change
|
|
% Change
|
Contract assets
|
|
$
|
1,577
|
|
|
$
|
3,256
|
|
|
$
|
(1,679)
|
|
|
(51.6)
|
%
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
$
|
5,088
|
|
|
$
|
2,998
|
|
|
$
|
2,090
|
|
|
69.7
|
%
|
Remaining Performance Obligations
As of July 31, 2021, 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 six-month period ending July 31, 2021, were not material.
(6) ACQUISITIONS AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Fiscal year 2022 and 2021
There were no material business acquisitions in the three- and six-month periods ended July 31, 2021 and July 31, 2020, respectively.
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; which were settled in the second and third quarters of the prior fiscal year, respectively. 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
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Beginning balance
|
|
$
|
2,000
|
|
|
$
|
2,778
|
|
|
$
|
2,000
|
|
|
$
|
2,934
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of the liability
|
|
—
|
|
|
(157)
|
|
|
—
|
|
|
(212)
|
|
Contingent consideration earn-out paid
|
|
—
|
|
|
(162)
|
|
|
—
|
|
|
(263)
|
|
Ending balance
|
|
$
|
2,000
|
|
|
$
|
2,459
|
|
|
$
|
2,000
|
|
|
$
|
2,459
|
|
|
|
|
|
|
|
|
|
|
Classification of liability in the consolidated balance sheet
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
2,000
|
|
|
$
|
233
|
|
|
$
|
2,000
|
|
|
$
|
233
|
|
Other liabilities, long-term
|
|
—
|
|
|
2,226
|
|
|
—
|
|
|
2,226
|
|
Balance at July 31
|
|
$
|
2,000
|
|
|
$
|
2,459
|
|
|
$
|
2,000
|
|
|
$
|
2,459
|
|
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 July 31, 2021.
(dollars in thousands, except per-share amounts)
(7) GOODWILL, LONG-LIVED ASSETS, AND OTHER CHARGES
Goodwill
Management assesses goodwill for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are done at the reporting unit level. There were no goodwill impairment losses reported in the three- and six-month periods ended July 31, 2021 and 2020, respectively.
The changes in the carrying amount of goodwill by reporting segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applied Technology
|
|
|
|
Engineered
Films
|
|
Aerostar
|
|
Total
|
Balance at January 31, 2021
|
|
$
|
73,811
|
|
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
107,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
897
|
|
|
|
|
—
|
|
|
—
|
|
|
897
|
|
Balance at July 31, 2021
|
|
$
|
74,708
|
|
|
|
|
$
|
33,232
|
|
|
$
|
634
|
|
|
$
|
108,574
|
|
Long-lived assets, including definite-lived 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. There were no impairment charges in the three- and six-month periods ended July 31, 2021 and July 31, 2020, respectively.
Indefinite-lived intangible assets
Indefinite-lived intangible assets relate to in-process R&D (IPR&D) and are capitalized and subject to annual impairment testing using a fair-value based test. Amortization of the IPR&D will start when the current in-process research and development project is complete and the product is commercialized. Amortization of the IPR&D will be on a straight-line basis over the remaining estimated useful lives of these assets. The IPR&D project for OMNiDRIVE™ was commercialized during the current quarter and $6,400 of acquired IPR&D was placed in service and reclassified to "Existing Technology." These costs are being amortized over a 7 year useful life.
The following table summarizes the components of intangible assets, which are reported net on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 31, 2021
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Amount
|
amortization
|
Net
|
|
Amount
|
amortization
|
Net
|
|
|
|
|
Existing technology
|
|
$
|
15,639
|
|
$
|
(8,607)
|
|
$
|
7,032
|
|
|
$
|
9,263
|
|
$
|
(8,304)
|
|
$
|
959
|
|
|
|
|
|
Customer relationships
|
|
16,113
|
|
(8,903)
|
|
7,210
|
|
|
16,128
|
|
(8,248)
|
|
7,880
|
|
|
|
|
|
Software development
|
|
1,439
|
|
—
|
|
1,439
|
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
Patents and other intangibles
|
|
9,381
|
|
(3,369)
|
|
6,012
|
|
|
7,297
|
|
(3,126)
|
|
4,171
|
|
|
|
|
|
In-process research and development(a)
|
|
25,777
|
|
—
|
|
25,777
|
|
|
31,575
|
|
—
|
|
31,575
|
|
|
|
|
|
Total
|
|
$
|
68,349
|
|
$
|
(20,879)
|
|
$
|
47,470
|
|
|
$
|
64,263
|
|
$
|
(19,678)
|
|
$
|
44,585
|
|
|
|
|
|
(a) A portion of these intangible assets are denominated in a foreign currency and subject to exchange rate fluctuations.
|
|
|
|
|
The estimated future amortization expense for these definite-lived intangible assets during the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
2027 and Thereafter
|
Estimated amortization expense
|
|
$
|
1,675
|
|
|
$
|
3,257
|
|
|
$
|
2,771
|
|
|
$
|
2,762
|
|
|
$
|
2,494
|
|
|
$
|
7,296
|
|
The estimated future amortization expense table above does not reflect the expected amortization associated with indefinite-lived in-process R&D assets for R&D projects not completed and capitalized software development costs not available for release to the public. Amortization of these indefinite-lived intangible assets will start upon completion of the current R&D projects, on a straight-line basis over their remaining estimated useful life. The applicable table will be updated at such time these intangible assets are placed into service.
(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
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Service cost
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
17
|
|
|
$
|
18
|
|
Interest cost
|
|
67
|
|
|
70
|
|
|
134
|
|
|
140
|
|
Amortization of actuarial losses
|
|
49
|
|
|
43
|
|
|
98
|
|
|
86
|
|
Amortization of unrecognized gains in prior service cost
|
|
(23)
|
|
|
(40)
|
|
|
(47)
|
|
|
(80)
|
|
Net periodic benefit cost
|
|
$
|
101
|
|
|
$
|
82
|
|
|
$
|
202
|
|
|
$
|
164
|
|
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 "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
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Beginning balance
|
|
$
|
2,655
|
|
|
$
|
1,606
|
|
|
$
|
2,068
|
|
|
$
|
2,019
|
|
Change in provision
|
|
659
|
|
|
497
|
|
|
1,363
|
|
|
1,000
|
|
Settlements made
|
|
(229)
|
|
|
(494)
|
|
|
(346)
|
|
|
(1,410)
|
|
Ending balance
|
|
$
|
3,085
|
|
|
$
|
1,609
|
|
|
$
|
3,085
|
|
|
$
|
1,609
|
|
(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 July 31, 2021, the Company has no outstanding borrowings under the Credit Agreement. The Company has $100,000 in availability under the Credit Agreement as of July 31, 2021. The credit facility may be utilized for strategic business purposes such as business acquisitions, and for net working capital needs.
The unamortized debt issuance costs associated with the Credit Agreement were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 31, 2021
|
Unamortized debt issuance costs(a)
|
|
$
|
92
|
|
|
$
|
133
|
|
(a) Unamortized debt issuance costs are amortized over the term of the Credit Agreement and are reported as "Other assets" in the Consolidated Balance Sheets.
(dollars in thousands, except per-share amounts)
Letters of credit (LOC) issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 31, 2021
|
|
|
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 has a long-term note related to a financial assistance agreement (Agreement) with 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. The Company is eligible to receive contributions for costs incurred for purposes specified in the Agreement and 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 July 31, 2021, the Company has received $2,849 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 July 31, 2021, the Company's debt maturities based on outstanding principal were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
Thereafter
|
Maturities of debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,849
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(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.
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 and R&D tax credits. The Company’s effective tax rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Effective tax rate
|
|
15.0
|
%
|
|
10.8
|
%
|
|
16.2
|
%
|
|
2.2
|
%
|
The increase in the effective tax rate year-over-year was driven primarily by an increase in estimated pre-tax income in the current fiscal year. The Company operates both domestically and internationally. As of July 31, 2021, 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 ("Board") indefinitely suspended the Company’s regular quarterly cash dividend on its common stock, therefore no dividends were paid to Raven shareholders in the three-and six-month periods ended July 31, 2021. Dividends paid to Raven shareholders for the three- and six-months periods ended July 3l, 2020 were $4,660 and $9,318, respectively. There were no declared and unpaid shareholder dividends at July 31, 2021 or 2020.
The Company has a stock buyback program approved by the Board in November 2014. The Company had no share repurchases in the three and six-month periods ended July 31, 2021 and 2020. The total amount authorized under the program is $75,000
(dollars in thousands, except per-share amounts)
and the remaining dollar value authorized for share repurchases at July 31, 2021 is $17,179. This authorization remains in place until the authorized spending limit is reached or such authorization is revoked by the Board.
(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
|
|
Six Months Ended
|
|
|
July 31, 2021
|
|
July 31, 2020
|
|
July 31, 2021
|
|
July 31, 2020
|
Cost of sales
|
|
$
|
86
|
|
|
$
|
38
|
|
|
$
|
162
|
|
|
$
|
118
|
|
Research and development expenses
|
|
353
|
|
|
383
|
|
|
626
|
|
|
757
|
|
Selling, general, and administrative expenses
|
|
2,205
|
|
|
1,692
|
|
|
3,590
|
|
|
2,734
|
|
Total share-based compensation expense
|
|
$
|
2,644
|
|
|
$
|
2,113
|
|
|
$
|
4,378
|
|
|
$
|
3,609
|
|
(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
|
|
Six Months Ended
|
|
|
July 31,
2021
|
|
July 31,
2020
|
|
July 31,
2021
|
|
July 31,
2020
|
Net sales
|
|
|
|
|
|
|
|
|
Applied Technology
|
|
$
|
44,601
|
|
|
$
|
35,502
|
|
|
$
|
99,469
|
|
|
$
|
77,509
|
|
Engineered Films
|
|
57,087
|
|
|
36,252
|
|
|
105,852
|
|
|
69,650
|
|
Aerostar
|
|
12,787
|
|
|
13,465
|
|
|
21,674
|
|
|
24,616
|
|
Intersegment eliminations(a)
|
|
(49)
|
|
|
(40)
|
|
|
(83)
|
|
|
(100)
|
|
Consolidated net sales
|
|
$
|
114,426
|
|
|
$
|
85,179
|
|
|
$
|
226,912
|
|
|
$
|
171,675
|
|
|
|
|
|
|
|
|
|
|
Operating income(b)
|
|
|
|
|
|
|
|
|
Applied Technology
|
|
$
|
8,505
|
|
|
$
|
6,511
|
|
|
$
|
21,692
|
|
|
$
|
15,450
|
|
Engineered Films
|
|
12,357
|
|
|
4,465
|
|
|
19,124
|
|
|
6,072
|
|
Aerostar
|
|
1,962
|
|
|
1,751
|
|
|
2,551
|
|
|
2,044
|
|
Intersegment eliminations
|
|
5
|
|
|
11
|
|
|
(2)
|
|
|
51
|
|
Total reportable segment income
|
|
22,829
|
|
|
12,738
|
|
|
43,365
|
|
|
23,617
|
|
General and administrative expenses(b)
|
|
(14,495)
|
|
|
(6,595)
|
|
|
(23,458)
|
|
|
(13,535)
|
|
Consolidated operating income
|
|
$
|
8,334
|
|
|
$
|
6,143
|
|
|
$
|
19,907
|
|
|
$
|
10,082
|
|
(a) Intersegment sales for both fiscal 2022 and 2021 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.