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 ~~April 30,~~July 31, 2021


☐						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)

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

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 ~~May 21,~~August 20, 2021, there were 35,917,637 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
Consolidated Statements of Shareholders' Equity (unaudited)			5
Consolidated Statements of Cash Flows (unaudited)			67
Notes to Consolidated Financial Statements (unaudited)			78
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			1719
Item 3. Quantitative and Qualitative Disclosures about Market Risks			2528
Item 4. Controls and Procedures			2528

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			2629
Item 1A. Risk Factors			2629
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2630
Item 3. Defaults Upon Senior Securities			2630
Item 4. Mine Safety Disclosures			2630
Item 5. Other Information			2630
Item 6. Exhibits			2731
Signatures			2832

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAVEN INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


(dollars and shares in thousands, except per-share data)	(dollars and shares in thousands, except per-share data)	April 30, 2021		January 31, 2021		(dollars and shares in thousands, except per-share data)	July 31, 2021		January 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	17,764	$	32,938	Cash and cash equivalents	$	13,077	$	32,938

Accounts receivable, net	Accounts receivable, net	68,064		48,669		Accounts receivable, net	70,591		48,669
Inventories, net	Inventories, net	63,407		52,703		Inventories, net	75,692		52,703
Other current assets	Other current assets	7,904		5,776		Other current assets	8,550		5,776
Total current assets	Total current assets	157,139		140,086		Total current assets	167,910		140,086

Property, plant and equipment, net	Property, plant and equipment, net	107,905		106,007		Property, plant and equipment, net	108,883		106,007
Goodwill	Goodwill	109,284		107,677		Goodwill	108,574		107,677
Intangible assets, net	Intangible assets, net	46,074		44,585		Intangible assets, net	47,470		44,585
Other assets	Other assets	10,437		11,016		Other assets	11,395		11,016
TOTAL ASSETS	TOTAL ASSETS	$	430,839	$	409,371	TOTAL ASSETS	$	444,232	$	409,371

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	22,535	$	18,639	Accounts payable	$	21,588	$	18,639
Accrued liabilities	Accrued liabilities	33,836		30,401		Accrued liabilities	39,173		30,401
Other current liabilities	Other current liabilities	3,751		2,998		Other current liabilities	5,088		2,998
Total current liabilities	Total current liabilities	60,122		52,038		Total current liabilities	65,849		52,038

Long-term debt	Long-term debt	2,895		1,981		Long-term debt	2,849		1,981
Other liabilities	Other liabilities	23,837		23,997		Other liabilities	23,010		23,997
Total liabilities	Total liabilities	86,854		78,016		Total liabilities	91,708		78,016

Commitments and contingencies (see Note 11)	Commitments and contingencies (see Note 11)	0		0		Commitments and contingencies (see Note 11)	0		0

Shareholders' equity	Shareholders' equity					Shareholders' equity
Common stock, $1 par value, authorized shares 100,000; issued 67,583 and 67,533, respectively	Common stock, $1 par value, authorized shares 100,000; issued 67,583 and 67,533, respectively	67,583		67,533		Common stock, $1 par value, authorized shares 100,000; issued 67,583 and 67,533, respectively	67,583		67,533
Additional paid-in capital	Additional paid-in capital	67,266		66,670		Additional paid-in capital	69,910		66,670
Retained earnings	Retained earnings	321,296		311,676		Retained earnings	328,149		311,676
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(977)		(3,341)		Accumulated other comprehensive loss	(1,935)		(3,341)
Treasury stock at cost, 31,665 and 31,665 shares, respectively	Treasury stock at cost, 31,665 and 31,665 shares, respectively	(111,183)		(111,183)		Treasury stock at cost, 31,665 and 31,665 shares, respectively	(111,183)		(111,183)
Total shareholders' equity	Total shareholders' equity	343,985		331,355		Total shareholders' equity	352,524		331,355

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	430,839	$	409,371	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	444,232	$	409,371

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)


		Three Months Ended					Three Months Ended				Six Months Ended
(dollars in thousands, except per-share data)	(dollars in thousands, except per-share data)		April 30, 2021		April 30, 2020			(dollars in thousands, except per-share data)	July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Net sales	Net sales		$	112,486	$	86,496		Net sales	$	114,426	$	85,179	$	226,912	$	171,675
Cost of sales	Cost of sales		72,500		58,029			Cost of sales	72,257		55,047		144,757		113,076
Gross profit	Gross profit		39,986		28,467			Gross profit	42,169		30,132		82,155		58,599

Research and development expenses	Research and development expenses		11,462		10,505			Research and development expenses	12,465		10,808		23,927		21,313
Selling, general, and administrative expenses	Selling, general, and administrative expenses		16,951		14,023			Selling, general, and administrative expenses	21,370		13,181		38,321		27,204

Operating income	Operating income		11,573		3,939			Operating income	8,334		6,143		19,907		10,082

Other income (expense), net	Other income (expense), net		30		(468)			Other income (expense), net	(276)		377		(246)		(91)
Income before income taxes	Income before income taxes		11,603		3,471			Income before income taxes	8,058		6,520		19,661		9,991

Income tax expense (benefit)			1,983		(478)
Income tax expense								Income tax expense	1,205		701		3,188		223
Net income	Net income		9,620		3,949			Net income	6,853		5,819		16,473		9,768

Net loss attributable to redeemable noncontrolling interest	Net loss attributable to redeemable noncontrolling interest		0		(98)			Net loss attributable to redeemable noncontrolling interest	—		—		—		(98)

Net income attributable to Raven Industries, Inc.	Net income attributable to Raven Industries, Inc.		$	9,620	$	4,047		Net income attributable to Raven Industries, Inc.	$	6,853	$	5,819	$	16,473	$	9,866

Net income per common share:	Net income per common share:							Net income per common share:
─ Basic	─ Basic		$	0.27	$	0.11		─ Basic	$	0.19	$	0.16	$	0.46	$	0.27
─ Diluted	─ Diluted		$	0.26	$	0.11		─ Diluted	$	0.19	$	0.16	$	0.45	$	0.27

Comprehensive income:	Comprehensive income:							Comprehensive income:
Net income	Net income		$	9,620	$	3,949		Net income	$	6,853	$	5,819	$	16,473	$	9,768

Other comprehensive income (loss):	Other comprehensive income (loss):							Other comprehensive income (loss):
Foreign currency translation	Foreign currency translation		2,344		(2,579)			Foreign currency translation	(978)		1,868		1,366		(711)
Postretirement benefits, net of income tax (expense) benefit of $(5) and $1, respectively			20		(3)
Postretirement benefits, net of income tax (expense) benefit $(6), $1 and $(11) and $2, respectively								Postretirement benefits, net of income tax (expense) benefit $(6), $1 and $(11) and $2, respectively	20		(2)		40		(5)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax		2,364		(2,582)			Other comprehensive income (loss), net of tax	(958)		1,866		1,406		(716)

Comprehensive income	Comprehensive income		11,984		1,367			Comprehensive income	5,895		7,685		17,879		9,052

Comprehensive loss attributable to redeemable noncontrolling interest	Comprehensive loss attributable to redeemable noncontrolling interest		0		(98)			Comprehensive loss attributable to redeemable noncontrolling interest	—		—		—		(98)

Comprehensive income attributable to Raven Industries, Inc.	Comprehensive income attributable to Raven Industries, Inc.		$	11,984	$	1,465		Comprehensive income attributable to Raven Industries, Inc.	$	5,895	$	7,685	$	17,879	$	9,150

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)


	Three Months Ended July 31, 2021
	$1 Par Common Stock		Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
(dollars in thousands, except per-share amounts)					Treasury Stock at Cost
Balance April 30, 2021	$	67,583	$	67,266	$	(111,183)	$	321,296	$	(977)	$	343,985
Net income	—		—		—		6,853		—		6,853
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—		—		—		(978)		(978)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax expense of $(6)	—		—		—		—		20		20



Share-based compensation	—		2,644		—		—		—		2,644
Balance July 31, 2021	$	67,583	$	69,910	$	(111,183)	$	328,149	$	(1,935)	$	352,524

	Six Months Ended July 31, 2021
	$1 Par Common Stock		Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
(dollars in thousands, except per-share amounts)					Treasury Stock at Cost
Balance January 31, 2021	$	67,533	$	66,670	$	(111,183)	$	311,676	$	(3,341)	$	331,355
Net income	—		—		—		16,473		—		16,473
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—		—		—		1,366		1,366
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax expense of $(11)	—		—		—		—		40		40
Shares issued on stock options exercised, net of shares withheld for employee taxes	1		(42)		—		—		—		(41)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	49		(1,096)		—		—		—		(1,047)

Share-based compensation	—		4,378		—		—		—		4,378
Balance July 31, 2021	$	67,583	$	69,910	$	(111,183)	$	328,149	$	(1,935)	$	352,524

Three Months Ended April 30, 2020
$1 Par Common Stock Additional Paid-in Capital Treasury Stock at Cost Retained Earnings Accumulated Other Comprehen-sive Income (Loss) Total Equity Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts)
Balance January 31, 2020 $ 67,436 $ 61,508 $ (111,183) $ 302,300 $ (5,415) $ 314,646 $ 21,302
Net income (loss) — — — 4,047 — 4,047 (98)
Other comprehensive income (loss):
Cumulative foreign currency translation
     adjustment
— — — — (2,579) (2,579) —
Postretirement benefits reclassified
     from accumulated other
     comprehensive income (loss) after
     tax benefit of $1
— — — — (3) (3) —
Reclassification and redemption of noncontrolling
interest (see Note 1) — 215 — — — 215 (21,204)
Cash dividends ($0.13 per share) — 90 — (4,748) — (4,658) —
Shares issued on stock options exercised, net of
   shares withheld for employee taxes 11 (124) — — — (113) —
Shares issued on vesting of stock units, net of
   shares withheld for employee taxes 53 (680) — — — (627) —
Share-based compensation — 1,496 — — — 1,496 —
Balance April 30, 2020 $ 67,500 $ 62,505 $ (111,183) $ 301,599 $ (7,997) $ 312,424 $ 0
Three Months Ended April 30, 2021
$1 Par Common Stock Additional Paid-in Capital Treasury Stock at Cost Retained Earnings Accumulated Other Comprehen-sive Income (Loss) Total Equity Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts)
Balance January 31, 2021 $ 67,533 $ 66,670 $ (111,183) $ 311,676 $ (3,341) $ 331,355 $ 0
Net income — — — 9,620 — 9,620 0
Other comprehensive income (loss):
Cumulative foreign currency translation
     adjustment — — — — 2,344 2,344 —
Postretirement benefits reclassified
     from accumulated other
     comprehensive income (loss) after
     tax expense of $(5)
— — — — 20 20 —
Shares issued on stock options exercised, net of
   shares withheld for employee taxes 1 (42) — — — (41) —
Shares issued on vesting of stock units, net of
   shares withheld for employee taxes 49 (1,096) — — — (1,047) —
Share-based compensation — 1,734 — — — 1,734 —
Balance April 30, 2021 $ 67,583 $ 67,266 $ (111,183) $ 321,296 $ (977) $ 343,985 $ 0

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)


	Three Months Ended July 31, 2020
	$1 Par Common Stock		Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity		Redeemable Non-Controlling Interest
(dollars in thousands, except per-share amounts)					Treasury Stock at Cost
Balance April 30, 2020	$	67,500	$	62,505	$	(111,183)	$	301,599	$	(7,997)	$	312,424	$	—
Net income	—		—		—		5,819		—		5,819		—
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—		—		—		1,868		1,868		—
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $1	—		—		—		—		(2)		(2)		—
Cash dividends ($0.13 per share)	—		93		—		(4,753)		—		(4,660)		—

Shares issued on vesting of stock units, net of shares withheld for employee taxes	1		(12)		—		—		—		(11)		—
Director shares issued	9		(9)		—		—		—		—		—

Share-based compensation	—		2,113		—		—		—		2,113		—
Balance July 31, 2020	$	67,510	$	64,690	$	(111,183)	$	302,665	$	(6,131)	$	317,551	$	—

	Six Months Ended July 31, 2020
	$1 Par Common Stock		Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity		Redeemable 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)	—		—		—		9,866		—		9,866		(98)
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—		—		—		(711)		(711)		—
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $2	—		—		—		—		(5)		(5)		—
Reclassification and redemption of noncontrolling interest (see Note 1)	—		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	11		(124)		—		—		—		(113)		—
Shares issued on vesting of stock units, net of shares withheld for employee taxes	54		(692)		—		—		—		(638)		—
Director share issued	9		(9)		—		—		—		—		—
Share-based compensation	—		3,609		—		—		—		3,609		—
Balance July 31, 2020	$	67,510	$	64,690	$	(111,183)	$	302,665	$	(6,131)	$	317,551	$	—

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended
(dollars in thousands)	July 31, 2021			July 31, 2020
OPERATING ACTIVITIES:
Net income	$	16,473		$	9,768
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	9,100			8,478
Change in fair value of acquisition-related contingent consideration	—			(212)
Deferred income taxes	(2,521)			(2,392)
Share-based compensation expense	4,378			3,609
Other operating activities, net	266			(237)
Change in operating assets and liabilities:
Accounts receivable	(22,053)			8,669
Inventories	(22,959)			(204)
Other assets	(3,023)			(420)
Operating liabilities	15,226			3,525
Net cash provided by (used in) operating activities	(5,113)			30,584

INVESTING ACTIVITIES:
Capital expenditures	(10,044)			(7,783)
Proceeds from sale or maturities of investments	83		-4171000.00	336
Purchases of investments	(733)			(146)
Proceeds from sale of assets	263			251
Purchases of other intangibles	(1,964)			—
Other investing activities	(1,820)			24
Net cash used in investing activities	(14,215)			(7,318)

FINANCING ACTIVITIES:
Dividends paid	—			(9,318)
Proceeds from debt	10,815			50,150
Repayments of debt	(10,000)		-11580000.00	(50,000)
Payments for redeemable noncontrolling interest	—			(17,853)
Tax withholding on vesting of restricted stock	(1,047)			(638)
Employee stock option exercises, net of shares withheld for employee taxes	(41)			(113)
Other financing activities	(212)			(208)
Net cash used in financing activities	(485)			(27,980)

Effect of exchange rate changes on cash	(48)			(180)

Net decrease in cash and cash equivalents	(19,861)			(4,894)
Cash and cash equivalents at beginning of year	32,938			20,707
Cash and cash equivalents at end of period	$	13,077		$	15,813

Significant non-cash transactions:
Capital expenditures converted from inventories	$	—		$	2,774

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

~~RAVEN INDUSTRIES, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~
Three Months Ended
(dollars in thousands) April 30,
2021 April 30,
2020
OPERATING ACTIVITIES:
Net income $ 9,620 $ 3,949
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 4,511 4,176
Change in fair value of acquisition-related contingent consideration 0 (55)
Deferred income taxes 49 (1,060)
Share-based compensation expense 1,734 1,496
Other operating activities, net (178) (159)
Change in operating assets and liabilities:
Accounts receivable (20,706) 937
Inventories (10,592) (4,008)
Other assets (2,168) (715)
Operating liabilities 9,951 7,290
Net cash provided by (used in) operating activities (7,779) 11,851
INVESTING ACTIVITIES:
Capital expenditures (5,605) (4,434)
Purchases of investments (587) (98)
Proceeds from sale of assets 263 251
Other investing activities (1,112) (9)
Net cash used in investing activities (7,041) (4,290)
FINANCING ACTIVITIES:
Dividends paid 0 (4,658)
Proceeds from debt 815 50,150
Tax withholding on vesting of restricted stock (1,047) (627)
Employee stock option exercises, net of shares withheld for employee taxes (41) (113)
Other financing activities (116) (104)
Net cash provided by (used in) financing activities (389) 44,648
Effect of exchange rate changes on cash 35 (335)
Net increase (decrease) in cash and cash equivalents (15,174) 51,874
Cash and cash equivalents at beginning of year 32,938 20,707
Cash and cash equivalents at end of period $ 17,764 $ 72,581

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

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 3 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-month period~~three and six-month periods ended ~~April 30,~~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 ~~three-months~~six-months ended ~~April 30,~~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 ~~the prior~~ fiscal year 2020, totaling approximately ~~$5,438,~~$5,352, is payable in November 2021 and is classified as "Accrued Liabilities" in the Consolidated Balance Sheet at ~~April 30,~~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.

~~(dollars in thousands, except per-share amounts)~~

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 ~~$795~~$1,439 and $0 at ~~April 30,~~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-month period~~three- and six-month periods ended ~~April 30, 2021, as none of the software development costswere available for general release to the public.~~July 31, 2021.

Accounting Pronouncements

Accounting Standards Adopted

There are no significant Accounting Standard Updates (ASU's) issued that were adopted in the ~~three-month~~six-month period ended ~~April 30,~~July 31, 2021.

New Accounting Standards Not Yet Adopted

There are no significant ASU's issued and not yet adopted as of ~~April 30,~~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:


		April 30, 2021		January 31, 2021			July 31, 2021		January 31, 2021
Accounts receivable, net:	Accounts receivable, net:					Accounts receivable, net:
Trade accounts	Trade accounts	$	63,788	$	47,879	Trade accounts	$	71,413	$	47,879
Unbilled receivables	Unbilled receivables	6,157		2,734		Unbilled receivables	1,084		2,734
Allowance for credit losses	Allowance for credit losses	(1,881)		(1,944)		Allowance for credit losses	(1,906)		(1,944)
		$	68,064	$	48,669		$	70,591	$	48,669
Inventories, net:	Inventories, net:					Inventories, net:
Finished goods	Finished goods	$	12,535	$	7,684	Finished goods	$	12,788	$	7,684
In process	In process	1,270		759		In process	1,849		759
Materials	Materials	49,602		44,260		Materials	61,055		44,260
		$	63,407	$	52,703		$	75,692	$	52,703
Other current assets:	Other current assets:					Other current assets:
Income tax receivable	Income tax receivable	876		1,440		Income tax receivable	$	701	$	1,440
Prepaid expenses and other	Prepaid expenses and other	7,028		4,336		Prepaid expenses and other	7,849		4,336
		$	7,904	$	5,776		$	8,550	$	5,776
Property, plant and equipment, net:(a)	Property, plant and equipment, net:(a)					Property, plant and equipment, net:(a)
Land	Land	$	3,117	$	3,117	Land	$	3,117	$	3,117
Buildings and improvements	Buildings and improvements	86,785		84,651		Buildings and improvements	87,444		84,651
Machinery and equipment	Machinery and equipment	172,808		169,252		Machinery and equipment	176,381		169,252
Financing lease right-of-use assets	Financing lease right-of-use assets	1,245		1,282		Financing lease right-of-use assets	1,561		1,282
		263,955		258,302			268,503		258,302
Accumulated depreciation	Accumulated depreciation	(156,050)		(152,295)		Accumulated depreciation	(159,620)		(152,295)
		$	107,905	$	106,007		$	108,883	$	106,007
Other assets:	Other assets:					Other assets:
Equity investments	Equity investments	$	1,748	$	1,595	Equity investments	$	1,835	$	1,595
Operating lease right-of-use assets	Operating lease right-of-use assets	6,216		6,850		Operating lease right-of-use assets	5,816		6,850
Deferred income taxes	Deferred income taxes	352		360		Deferred income taxes	2,038		360
Other	Other	2,121		2,211		Other	1,706		2,211
		$	10,437	$	11,016		$	11,395	$	11,016
Accrued liabilities:	Accrued liabilities:					Accrued liabilities:
Salaries and related	Salaries and related	$	6,588	$	4,881	Salaries and related	$	6,953	$	4,881
Benefits	Benefits	6,508		6,255		Benefits	6,597		6,255
Insurance obligations	Insurance obligations	1,746		1,896		Insurance obligations	1,700		1,896
Warranties	Warranties	2,655		2,068		Warranties	3,085		2,068
Income taxes	Income taxes	1,406		238		Income taxes	1,370		238
Other taxes	Other taxes	1,838		2,386		Other taxes	1,996		2,386
Acquisition-related contingent consideration	Acquisition-related contingent consideration	2,000		2,000		Acquisition-related contingent consideration	2,000		2,000
Lease liability	Lease liability	2,135		2,482		Lease liability	1,916		2,482
Other	Other	8,960		8,195		Other	13,556		8,195
		$	33,836	$	30,401		$	39,173	$	30,401
Other liabilities:	Other liabilities:					Other liabilities:
Postretirement benefits	Postretirement benefits	$	8,999	$	8,996	Postretirement benefits	$	9,012	$	8,996
Lease liability	Lease liability	4,989		5,426		Lease liability	4,898		5,426
Deferred income taxes	Deferred income taxes	2,264		2,091		Deferred income taxes	1,345		2,091
Uncertain tax positions	Uncertain tax positions	2,759		2,692		Uncertain tax positions	2,823		2,692
Other	Other	4,826		4,792		Other	4,932		4,792
		$	23,837	$	23,997		$	23,010	$	23,997

(a) Includes assets held for use and assets held for sale. The amount of assets held for sale at ~~April 30,~~July 31, 2021, and January 31, 2021, were not material.

910

(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
April 30,
2021 April 30,
2020
Anti-dilutive options and restricted stock units 110,906 321,454

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					Three Months Ended				Six Months Ended
			April 30, 2021		April 30, 2020				July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Numerator:	Numerator:							Numerator:
Net income attributable to Raven Industries, Inc.	Net income attributable to Raven Industries, Inc.		$	9,620	$	4,047		Net income attributable to Raven Industries, Inc.	$	6,853	$	5,819	$	16,473	$	9,866

Denominator:	Denominator:							Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding		35,885,444		35,797,939			Weighted average common shares outstanding	35,917,637		35,838,509		35,901,540		35,818,224
Weighted average fully vested stock units outstanding	Weighted average fully vested stock units outstanding		151,971		129,672			Weighted average fully vested stock units outstanding	167,874		157,488		159,923		143,580
Denominator for basic calculation	Denominator for basic calculation		36,037,415		35,927,611			Denominator for basic calculation	36,085,511		35,995,997		36,061,463		35,961,804

Weighted average common shares outstanding	Weighted average common shares outstanding		35,885,444		35,797,939			Weighted average common shares outstanding	35,917,637		35,838,509		35,901,540		35,818,224
Weighted average fully vested stock units outstanding	Weighted average fully vested stock units outstanding		151,971		129,672			Weighted average fully vested stock units outstanding	167,874		157,488		159,923		143,580
Dilutive impact of stock options and restricted stock units	Dilutive impact of stock options and restricted stock units		412,579		138,613			Dilutive impact of stock options and restricted stock units	384,432		85,991		385,952		117,485
Denominator for diluted calculation	Denominator for diluted calculation		36,449,994		36,066,224			Denominator for diluted calculation	36,469,943		36,081,988		36,447,415		36,079,289

Net income per share ─ basic	Net income per share ─ basic		$	0.27	$	0.11		Net income per share ─ basic	$	0.19	$	0.16	$	0.46	$	0.27
Net income per share ─ diluted	Net income per share ─ diluted		$	0.26	$	0.11		Net income per share ─ diluted	$	0.19	$	0.16	$	0.45	$	0.27

1011

(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 April 30, 2021 Three Months Ended April 30, 2020
ATD EFD AERO
ELIM(a)
Total ATD EFD AERO
ELIM(a)
Total
Lighter-than-Air
    Domestic $ — $ — $ 4,499 $ — $ 4,499 $ — $ — $ 6,082 $ — $ 6,082
    International — — 597 — 597 — — 12 — 12
Plastic Films & Sheeting
    Domestic — 45,402 — (34) 45,368 — 30,556 — (60) 30,496
    International — 3,363 — 0 3,363 — 2,842 — 0 2,842
Precision Agriculture Equipment
    Domestic 35,652 — — 0 35,652 30,861 — — 0 30,861
    International 19,216 — — — 19,216 11,146 — — — 11,146
Other
    Domestic — — 3,767 — 3,767 — — 5,052 — 5,052
    International — — 24 — 24 — — 5 — 5
Totals $ 54,868 $ 48,765 $ 8,887 $ (34) $ 112,486 $ 42,007 $ 33,398 $ 11,151 $ (60) $ 86,496


	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 ~~three~~six months ended ~~April 30,~~July 31, 2021, the Company’s contract assets ~~and~~decreased by $1,679 while contract liabilities increased ~~by $3,418 and $753, respectively.~~$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:


		April 30, 2021		January 31, 2021		$ Change		% Change			July 31, 2021		January 31, 2021		$ Change		% Change
Contract assets	Contract assets	$	6,674	$	3,256	$	3,418	105.0	%	Contract assets	$	1,577	$	3,256	$	(1,679)	(51.6)	%

Contract liabilities	Contract liabilities	3,751		$	2,998	$	753	25.1	%	Contract liabilities	$	5,088	$	2,998	$	2,090	69.7	%

Remaining Performance Obligations

As of ~~April 30,~~July 31, 2021, the Company has 0no 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-month~~six-month period ending ~~April 30,~~July 31, 2021, were not material.

~~(dollars in thousands, except per-share amounts)~~

(6) ACQUISITIONS AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES

Fiscal year 2022 and 2021

There were 0no material business acquisitions in the ~~three-month~~three- and six-month periods ended ~~April 30,~~July 31, 2021 and ~~April 30,~~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					Three Months Ended				Six Months Ended
			April 30, 2021		April 30, 2020				July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Beginning balance	Beginning balance		$	2,000	$	2,934		Beginning balance	$	2,000	$	2,778	$	2,000	$	2,934

Change in fair value of the liability	Change in fair value of the liability		0		(55)			Change in fair value of the liability	—		(157)		—		(212)
Contingent consideration earn-out paid	Contingent consideration earn-out paid		0		(101)			Contingent consideration earn-out paid	—		(162)		—		(263)
Ending balance	Ending balance		$	2,000	$	2,778		Ending balance	$	2,000	$	2,459	$	2,000	$	2,459

Classification of liability in the consolidated balance sheet	Classification of liability in the consolidated balance sheet							Classification of liability in the consolidated balance sheet
Accrued liabilities	Accrued liabilities		$	2,000	$	580		Accrued liabilities	$	2,000	$	233	$	2,000	$	233
Other liabilities, long-term	Other liabilities, long-term		0		2,198			Other liabilities, long-term	—		2,226		—		2,226
Balance at April 30			$	2,000	$	2,778
Balance at July 31								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 0no payments on this potential earn-out liability as of ~~April 30,~~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 0no goodwill impairment losses reported in the ~~three-month~~three- and six-month periods ended ~~April 30,~~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			Applied Technology		Engineered Films		Aerostar		Total
Balance at January 31, 2021	Balance at January 31, 2021	$	73,811	$	33,232	$	634	$	107,677	Balance at January 31, 2021	$	73,811	$	33,232	$	634	$	107,677

Foreign currency translation adjustment	Foreign currency translation adjustment	1,607		0		0		1,607		Foreign currency translation adjustment	897		—		—		897
Balance at April 30, 2021		$	75,418	$	33,232	$	634	$	109,284
Balance at July 31, 2021										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 0no impairment charges in the ~~three-month~~three- and six-month periods ended ~~April 30,~~July 31, 2021 and ~~April 30,~~July 31, 2020, respectively.

~~(dollars in thousands, except per-share amounts)~~

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. ~~No amortization has been recorded on these indefinite-lived intangible assets~~The IPR&D project for OMNiDRIVE™ was commercialized during the current quarter and $6,400 of acquired IPR&D was placed in ~~the three-month periods ended April 30, 2021~~service and ~~April 30, 2020, respectively.~~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:


		April 30, 2021						January 31, 2021						July 31, 2021						January 31, 2021
				Accumulated						Accumulated								Accumulated						Accumulated
		Amount		amortization		Net		Amount		amortization		Net				Amount		amortization		Net		Amount		amortization		Net
Existing technology	Existing technology	$	9,257	$	(8,424)	$	833	$	9,263	$	(8,304)	$	959		Existing technology	$	15,639	$	(8,607)	$	7,032	$	9,263	$	(8,304)	$	959
Customer relationships	Customer relationships	16,125		(8,578)		7,547		16,128		(8,248)		7,880			Customer relationships	16,113		(8,903)		7,210		16,128		(8,248)		7,880
Software development	Software development	795		0		795		0		0		0			Software development	1,439		—		1,439		—		—		—
Patents and other intangibles	Patents and other intangibles	7,495		(3,188)		4,307		7,297		(3,126)		4,171			Patents and other intangibles	9,381		(3,369)		6,012		7,297		(3,126)		4,171
In-process research and development(a)	In-process research and development(a)	32,592		0		32,592		31,575		0		31,575			In-process research and development(a)	25,777		—		25,777		31,575		—		31,575
Total	Total	$	66,264	$	(20,190)	$	46,074	$	64,263	$	(19,678)	$	44,585		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.	(a) A portion of these intangible assets are denominated in a foreign currency and subject to exchange rate fluctuations.														(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					Three Months Ended				Six Months Ended
			April 30, 2021		April 30, 2020				July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Service cost	Service cost		$	9	$	9		Service cost	$	8	$	9	$	17	$	18
Interest cost	Interest cost		67		70			Interest cost	67		70		134		140
Amortization of actuarial losses	Amortization of actuarial losses		49		43			Amortization of actuarial losses	49		43		98		86
Amortization of unrecognized gains in prior service cost	Amortization of unrecognized gains in prior service cost		(24)		(40)			Amortization of unrecognized gains in prior service cost	(23)		(40)		(47)		(80)
Net periodic benefit cost	Net periodic benefit cost		$	101	$	82		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					Three Months Ended				Six Months Ended
			April 30, 2021		April 30, 2020				July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Beginning balance	Beginning balance		$	2,068	$	2,019		Beginning balance	$	2,655	$	1,606	$	2,068	$	2,019
Change in provision	Change in provision		704		390			Change in provision	659		497		1,363		1,000
Settlements made	Settlements made		(117)		(803)			Settlements made	(229)		(494)		(346)		(1,410)
Ending balance	Ending balance		$	2,655	$	1,606		Ending balance	$	3,085	$	1,609	$	3,085	$	1,609

~~(dollars in thousands, except per-share amounts)~~

(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 ~~April 30,~~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 ~~April 30,~~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:

April 30, 2021 January 31, 2021
Unamortized debt issuance costs(a)
$ 113 $ 133


	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:

April 30, 2021 January 31, 2021
Letters of credit outstanding(a)
$ 50 $ 50



	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 ~~April 30,~~July 31, 2021, the Company has received ~~$2,895~~$2,849 in contributions from WEDC and 0no repayments have been made. The outstanding liability balance is reported as "Long-term debt" on the Consolidated Balance Sheets. ~~NaN~~No interest expense is being recorded prior to the interest start date.

At ~~April 30,~~July 31, 2021, the Company's debt maturities based on outstanding principal were as follows:

2022 2023 2024 2025 2026 Thereafter
Maturities of debt $ 0 $ 0 $ 2,895 $ 0 $ 0 $ 0


	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.

~~(dollars in thousands, except per-share amounts)~~

(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
April 30,
2021 April 30,
2020
Effective tax rate 17.1 % (13.8) %


	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 ~~April 30,~~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 0no dividends were paid to Raven shareholders in the ~~three-month period~~three-and six-month periods ended ~~April 30,~~July 31, 2021. Dividends paid to Raven shareholders for the ~~three months~~three- and six-months periods ended ~~April 30,~~July 3l, 2020 were ~~$4,658.~~$4,660 and $9,318, respectively. There were 0no declared and unpaid shareholder dividends at ~~April 30,~~July 31, 2021 or 2020.

The Company has a stock buyback program approved by the Board in November 2014. The Company had 0no share repurchases in the three and ~~three-month~~six-month periods ended ~~April 30,~~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 ~~April 30,~~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					Three Months Ended				Six Months Ended
			April 30, 2021		April 30, 2020				July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Cost of sales	Cost of sales		$	76	$	80		Cost of sales	$	86	$	38	$	162	$	118
Research and development expenses	Research and development expenses		273		374			Research and development expenses	353		383		626		757
Selling, general, and administrative expenses	Selling, general, and administrative expenses		1,385		1,042			Selling, general, and administrative expenses	2,205		1,692		3,590		2,734
Total share-based compensation expense	Total share-based compensation expense		$	1,734	$	1,496		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.

~~(dollars in thousands, except per-share amounts)~~

Business segment financial performance and other information is as follows:


		Three Months Ended					Three Months Ended				Six Months Ended
			April 30, 2021		April 30, 2020				July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Net sales	Net sales							Net sales
Applied Technology	Applied Technology		$	54,868	$	42,007		Applied Technology	$	44,601	$	35,502	$	99,469	$	77,509
Engineered Films	Engineered Films		48,765		33,398			Engineered Films	57,087		36,252		105,852		69,650
Aerostar	Aerostar		8,887		11,151			Aerostar	12,787		13,465		21,674		24,616
Intersegment eliminations(a)	Intersegment eliminations(a)		(34)		(60)			Intersegment eliminations(a)	(49)		(40)		(83)		(100)
Consolidated net sales	Consolidated net sales		$	112,486	$	86,496		Consolidated net sales	$	114,426	$	85,179	$	226,912	$	171,675

Operating income(b)	Operating income(b)							Operating income(b)
Applied Technology	Applied Technology		$	13,187	$	8,939		Applied Technology	$	8,505	$	6,511	$	21,692	$	15,450
Engineered Films	Engineered Films		6,767		1,607			Engineered Films	12,357		4,465		19,124		6,072
Aerostar	Aerostar		589		293			Aerostar	1,962		1,751		2,551		2,044
Intersegment eliminations	Intersegment eliminations		(7)		40			Intersegment eliminations	5		11		(2)		51
Total reportable segment income	Total reportable segment income		20,536		10,879			Total reportable segment income	22,829		12,738		43,365		23,617
General and administrative expenses(b)	General and administrative expenses(b)		(8,963)		(6,940)			General and administrative expenses(b)	(14,495)		(6,595)		(23,458)		(13,535)
Consolidated operating income	Consolidated operating income		$	11,573	$	3,939		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.

1618

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, 2021.

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, Engineered Films, and 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, integrate sustainability with our operations by 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.

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 per share, representing a $2.1 billion enterprise value. 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 acquisition builds upon a long partnership between the two companies. The combination of Raven’s technologies and CNH Industrial’s strong current and new product portfolio will provide our customers with novel, connected technologies, allowing

them to be more productive and efficient.

The Company incurred $4.9 million, or $0.13 per share before tax ($3.8 million, or $0.10 per share after tax) and $5.2 million, or $0.14 per share before tax ($4.1 million, or $0.11 per share after tax) of merger-related expenses in the three- and six-month periods ended July 31, 2021, respectively. These costs related primarily to professional service fees in connection with the proposed merger and are reported as "Selling, general, and administrative expenses" in the Consolidated Statements of Income and Comprehensive Income.

The following discussion highlights the consolidated operating results for the ~~three-month~~three- and six-month periods ended ~~April 30,~~July 31, 2021 and 2020. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.


		Three Months Ended					Three Months Ended										Six Months Ended
(dollars in thousands, except per-share data)	(dollars in thousands, except per-share data)			April 30, 2021				April 30, 2020			% Change		(dollars in thousands, except per-share data)	July 31, 2021				July 31, 2020			% Change		July 31, 2021			July 31, 2020			% Change
Net sales	Net sales			$	112,486			$	86,496		30.0	%	Net sales	$	114,426			$	85,179		34.3	%	$	226,912		$	171,675		32.2	%
Gross profit	Gross profit			$	39,986			$	28,467		40.5	%	Gross profit	42,169				30,132			39.9	%	$	82,155		$	58,599		40.2	%
Gross margin (a)	Gross margin (a)			35.5		%		32.9		%			Gross margin (a)	36.9		%		35.4		%			36.2		%	34.1		%
Operating income	Operating income			$	11,573			$	3,939		193.8	%	Operating income	$	8,334			$	6,143		35.7	%	$	19,907		$	10,082		97.5	%
Operating margin (a)	Operating margin (a)			10.3		%		4.6		%			Operating margin (a)	7.3		%		7.2		%			8.8		%	5.9		%
Other income (expense), net	Other income (expense), net			$	30			$	(468)				Other income (expense), net	$	(276)			$	377				$	(246)		$	(91)
Net income attributable to Raven Industries, Inc.	Net income attributable to Raven Industries, Inc.			$	9,620			$	4,047		137.7	%	Net income attributable to Raven Industries, Inc.	$	6,853			$	5,819		17.8	%	$	16,473		$	9,866		67.0	%
Diluted earnings per share	Diluted earnings per share			$	0.26			$	0.11				Diluted earnings per share	$	0.19			$	0.16				$	0.45		$	0.27

Cash flow from (used in) operating activities	Cash flow from (used in) operating activities			$	(7,779)			$	11,851		(165.6)	%	Cash flow from (used in) operating activities	$	2,666			$	18,733		(85.8)	%	$	(5,113)		$	30,584		(116.7)	%
Cash outflow for capital expenditures	Cash outflow for capital expenditures			$	(5,605)			$	(4,434)		26.4	%	Cash outflow for capital expenditures	$	(4,439)			$	(3,349)		32.5	%	$	(10,044)		$	(7,783)		29.1	%

Cash Dividends													Cash Dividends	$	—			$	(4,660)		(100.0)	%	$	—		$	(9,318)		(100.0)	%
(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.	(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.		(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 July 31, 2021 and July 31, 2020

Consolidated Results

For the fiscal 2022 ~~first~~second quarter, net sales were ~~$112.5~~$114.4 million, an increase of ~~$26.0~~$29.2 million, or ~~30.0%~~34.3%, from ~~$86.5~~$85.2 million in ~~last~~the prior year’s ~~first~~second quarter. The year-over-year growth was driven by increased sales in both Applied Technology and Engineered Films. In Applied Technology, ~~reported record quarterly revenue while overcoming supply chain constraints, as the~~ demand for its ~~industry-leading~~precision ag technology ~~solutions was amplified by improved market conditions.~~remained robust, leading to strong year-over-year growth despite global supply chain constraints. In Engineered Films, the ~~division's end-markets continue to recover from the adverse impacts of the global pandemic, leading to an increase in year-over-year volume and revenue~~division experienced growth across all end-markets, led by construction, agriculture and ~~agriculture. Aerostar~~geomembrane (including the energy sub-market), as market conditions continued to improve. Aerostar's growth in core stratospheric and radar platforms was ~~impacted~~offset by the conclusion of Loon activity and a decrease in aerostat sales ~~leading~~due to ~~a year-over-year decline in revenue.~~timing of contracts.

The Company's operating income for the ~~first~~second quarter of fiscal 2022 was ~~$11.6~~$8.3 million, up ~~193.8%~~35.7% from ~~$3.9~~$6.1 million in the ~~first~~second quarter of fiscal 2021. ~~The strong profitability performance in this year's first quarter was driven by increased sales volume and corresponding positive operating leverage.~~ Included in the results for the ~~first~~second quarter of fiscal 2022 were ~~$4.6~~$5.2 million of research and development and selling expenses to advance Raven Autonomy™, compared to ~~$3.8~~$4.0 million in the prior fiscal year. The second quarter of fiscal 2022 results also included $4.9 million of expenses associated with the proposed merger with CNH Industrial. The Company generated significant year-over-year operating income growth within its core businesses driven by increased sales volume and corresponding operating leverage.

Net income for the ~~first~~second quarter of fiscal 2022 was ~~$9.6~~$6.9 million, or ~~$0.26~~$0.19 per diluted share, compared to net income of ~~$4.0~~$5.8 million, or ~~$0.11~~$0.16 per diluted share, in last year's ~~first~~second quarter. The Company's strategic investment in Raven Autonomy™ reduced net income attributable to Raven by ~~$3.6~~$4.1 million, or ~~$0.10~~$0.11 per diluted share, in the ~~first~~second quarter of fiscal 2022 compared to ~~$2.9~~$3.1 million, or ~~$0.08~~$0.09 per diluted share, in the prior year. Merger related expenses reduced net income attributable to Raven by $3.8 million, or $0.10 per diluted share in the current year's second quarter.

Applied Technology Division Results

Applied Technology's net sales in the ~~first~~second quarter of fiscal 2022 were ~~$54.9~~$44.6 million, up ~~$12.9~~$9.1 million, or ~~30.6%~~25.6%, compared to ~~fiscal 2021 first~~the prior year's second quarter net sales of ~~$42.0~~$35.5 million. ~~The~~Demand across the division's product portfolio remained very strong in the second quarter as favorable ag market conditions continued. These market conditions, combined with the division's industry-leading portfolio, led to year-over-year ~~sales~~revenue growth ~~was driven by increased sales~~ in both the OEM and aftermarket ~~channels, both domestically and internationally, with substantial growth in Europe.~~channels.

Division operating income in the ~~first~~second quarter of fiscal 2022 was ~~$13.2~~$8.5 million, up ~~$4.2~~$2.0 million, or ~~47.5%~~30.6% versus the ~~first~~second quarter of fiscal 2021. ~~The year-over-year growth in~~Division operating income in the second quarter was ~~driven~~adversely impacted by increased ~~sales volumes and associated operating leverage, partially offset by rising~~ input costs ~~related to global~~associated with challenging supply chain ~~dynamics.~~conditions and material shortages. Included in the results was ~~an incremental~~ investment in research and development and selling expenses into advance Raven Autonomy™ of ~~$4.6~~$5.2 million on a pre-tax basis, an increase of ~~$0.8~~$1.2 million year-over-year.

Engineered Films Division Results

Engineered Films’ net sales in the ~~first~~second quarter of fiscal 2022 were ~~$48.8~~$57.1 million, an increase of ~~$15.4~~$20.8 million, or ~~46.0%~~57.5%, compared to ~~fiscal 2021 first~~prior year's second quarter net sales of ~~$33.4~~$36.3 million. The division generated year-over-year sales growth across all end-markets ~~with~~led by construction, agriculture, industrial, and ~~construction serving as~~geomembrane (including the ~~largest drivers, as the recovery from the adverse effects of the global pandemic~~energy submarket). The year-over-year growth was driven by market conditions that continued to ~~strengthen. Due~~rebound, leading to ~~volatility~~improved sales year-over-year in ~~the resin market, the division has adjusted~~all markets, along with intentional pricing ~~commensurate with the changes in the market~~actions implemented to offset rising input costs.

Division operating income in the ~~first~~second quarter of fiscal 2022 was ~~$6.8~~$12.4 million, up ~~$5.2~~$7.9 million, or ~~321.1%~~176.8% versus the ~~first~~second quarter of fiscal 2021. The year-over-year increase was driven mainly by higher sales volume ~~resulting in~~and the corresponding positive operating ~~leverage, and partially offset by rising input costs.~~leverage.

Aerostar Division Results

Aerostar's net sales in the ~~first~~second quarter of fiscal 2022 were ~~$8.9~~$12.8 million, a decrease of ~~$2.3~~$0.7 million, or ~~20.3%~~5.0%, compared to ~~fiscal 2021 first~~the prior year's second quarter net sales of ~~$11.2~~$13.5 million. ~~Year-over-year~~The division generated strong year-over-year revenue growth for defense related stratospheric balloon systems as it conducted multiple successful flight campaigns for Department of Defense customers. This growth in stratospheric balloon systems was offset by the conclusion of Loon activity announced in the fourth quarter of fiscal 2021 and a decrease in aerostat ~~revenue. Aerostar's financial performance is driven by the~~revenue due to timing of government ~~contracts, which can fluctuate on a quarterly basis. As such, it is beneficial to analyze the division over a longer period of time.~~contracts.

Division operating income in the ~~first~~second quarter of fiscal 2022 was ~~$0.6~~$2.0 million, up ~~$0.3~~$0.2 million, or ~~101.0%~~12.1%, versus the ~~first~~second quarter of fiscal 2021. The year-over-year improvement was driven by product mix and effective cost control measures.

Six Months Ended July 31, 2021 and 2020:

Consolidated Results

For the six-month period ended July 31, 2021, net sales were $226.9 million compared to $171.7 million, up 32.2% versus the prior year comparative period. Significant year-over-year growth in Applied Technology and Engineered Films drove the increase in net sales. Applied Technology leveraged its new products, strong customer relationships, and favorable ag conditions to drive sales growth versus the prior year. For Engineered Films, economic recovery post-pandemic continued to improve, leading to increased sales year-over-year in all markets. In Aerostar, year-over-year revenue growth for defense related stratospheric balloon systems was more than offset by the conclusion of Loon activity, announced in the fourth quarter of fiscal 2021, and a decrease in aerostat revenue.

The Company's operating income was $19.9 million, up 97.5% from $10.1 million in the prior year six-month period. The year-to-date results included $9.7 million of investment in Raven Autonomy™, consisting of research and development and selling expenses to advance the Company's autonomous ag solutions, compared to $7.8 million in the prior year. The results also included $5.2 million of expenses associated with the proposed merger with CNH Industrial.

Net income for the first six months of fiscal 2022 was $16.5 million, or $0.45 per diluted share, compared to net income of $9.9 million, or $0.27 per diluted share, in the prior year comparative period. The investment in Raven Autonomy™ reduced net income attributable to Raven by $7.6 million, or $0.21 per diluted share, in the first six months of fiscal 2022, compared to $6.0 million, or $0.17 per share in the prior year. Merger related expenses reduced net income attributable to Raven by $4.1 million, or $0.11 per diluted share in the current year's first two quarters of fiscal 2022.

Applied Technology Division Results

Net sales for Applied Technology in the first six months of fiscal 2022 were $99.5 million, up $22.0 million, or 28.3%, compared to the first six months of fiscal 2021. The year-over-year sales growth was driven by increased sales in the OEM and aftermarket channels, both domestically and internationally, with substantial growth in North America and Europe. Improved

market conditions within the ag industry continue to drive higher demand for the division's products.

Operating income for the first six months of fiscal 2022 was $21.7 million, up $6.2 million or 40.4%, compared to the first six months of fiscal 2021. Operating income in the first six months was reduced by $9.7 million of strategic investment in research and development activities for Raven Autonomy™ compared to $7.8 million in the prior year.

Engineered Films Division Results

Net sales for Engineered Films in the first six months of fiscal 2022 were $105.9 million, an increase of $36.2 million, or 52.0%, compared to the year-to-date six-month period of fiscal 2021. Year-over-year increase in revenue was driven by improved market conditions, which have continued to rebound from prior year pandemic lows.

Operating income for the first six months of fiscal 2022 increased 215.0% to $19.1 million as compared to $6.1 million in the prior year comparative period. The year-over-year increase in operating income was driven by favorable operating leverage resulting from the sharp increase in revenues.

Aerostar Division Results

Net sales for Aerostar in the first six months of fiscal 2022 were $21.7 million, a decrease of $2.9 million or 12.0%, compared to the first six months of fiscal 2021. Year-over-year revenue growth for defense related stratospheric balloon systems was more than offset by the conclusion of Loon activity, announced in the fourth quarter of fiscal 2021, and a decrease in aerostat revenue.

Operating income for the six-month year-to-date period of fiscal 2022 was $2.6 million compared to operating income of $2.0 million in the prior year comparative period. The year-over-year increase was driven by higher margins due to sales mix and cost cutting measures implemented to reduce overhead.

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					Three Months Ended									Six Months Ended
(dollars in thousands)	(dollars in thousands)			April 30, 2021				April 30, 2020			$ Change		% Change		(dollars in thousands)	July 31, 2021			July 31, 2020			$ Change		% Change		July 31, 2021			July 31, 2020			$ Change		% Change
Net sales	Net sales			$	54,868			$	42,007		$	12,861	30.6	%	Net sales	$	44,601		$	35,502		$	9,099	25.6	%	$	99,469		$	77,509		$	21,960	28.3	%
Gross profit	Gross profit			26,227				20,330			5,897		29.0	%	Gross profit	21,901			18,463			3,438		18.6	%	48,128			38,793			9,335		24.1	%
Gross margin	Gross margin			47.8		%		48.4		%					Gross margin	49.1		%	52.0		%					48.4		%	50.0		%
Operating expenses	Operating expenses			$	13,040			$	11,391		$	1,649	14.5	%	Operating expenses	$	13,396		$	11,952		$	1,444	12.1	%	$	26,436		$	23,343		$	3,093	13.3	%
Operating expenses as % of sales	Operating expenses as % of sales			23.8		%		27.1		%					Operating expenses as % of sales	30.0		%	33.7		%					26.6		%	30.1		%

Operating income(a)	Operating income(a)			$	13,187			$	8,939		$	4,248	47.5	%	Operating income(a)	$	8,505		$	6,511		$	1,994	30.6	%	$	21,692		$	15,450		$	6,242	40.4	%
Operating margin	Operating margin			24.0		%		21.3		%					Operating margin	19.1		%	18.3		%					21.8		%	19.9		%
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.	(a) At the segment level, operating income does not include an allocation of general and administrative expenses.		(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-month~~three- and six-month year-over-year changes:

•Market conditions. Grain commodity prices reached levels not seen since 2014 during the first ~~quarter~~half of fiscal 2022, ~~and the prior year fourth quarter,~~ providing optimism within the ag market. These improved conditions, along with more normalized economic activity, has improved both domestic and international ag markets, leading to an increase in demand from both OEMs and aftermarket retailers. 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 ~~three~~six months of fiscal 2022.

•Sales volume and selling prices. ~~First~~Second quarter fiscal 2022 net sales increased ~~$12.9~~$9.1 million or ~~30.6%~~25.6%, to ~~$54.9~~$44.6 million compared to ~~$42.0~~$35.5 million in the prior year. Year-to-date sales increased $22.0 million, or 28.3%, to $99.5 million. compared to $77.5 million in the prior year. Higher sales volume, rather than a change in selling price, was the primary driver of this increase. Aftermarket sales were up 54.7% and 48.4% year-over-year for the three- and six-month periods, respectively. OEM sales were up ~~43.8%~~2.8% and ~~16.6%~~9.8% year-over-year for the three- and six-month periods, respectively. For the ~~three-month period,~~three- and six-month periods, domestic sales were up ~~$4.8~~$4.2 million ~~year-over-year~~ and ~~international~~$9.0 million year-over-

year, respectively. International sales were up ~~$8.1~~$4.9 million ~~year-over-year. Domestic OEM net sales in the first quarter of fiscal 2022 included a decrease in last time buy activity to a non-strategic OEM customer of $2.5~~and $13.0 million ~~year-over-year.~~year-over-year, respectively.

•International sales. For the ~~first~~second quarter of fiscal 2022, international sales totaled ~~$19.2~~$12.4 million, up ~~72.4%~~65.2% from ~~$11.1~~$7.5 million in the prior year comparative period. International sales represented ~~35.0%~~27.8% of segment revenue compared to ~~26.5%~~21.1% of segment revenue in the prior year comparative period. Year-to-date, international totaled $31.6 million,an increase of $13.0 millionfrom a year ago. International sales represented 31.8% of segment revenue compared to 24.1% of segment revenue in the prior year comparative period. Increased demand in Europe and ~~Australia drove an~~Latin America led the increase in international sales ~~during~~in the ~~first quarter.~~current quarter and year-to date.

•Gross margin. Gross margin decreased from ~~48.4%~~52.0% in the prior year ~~first~~second quarter of fiscal 2021 to ~~47.8%~~49.1% in the ~~first~~second quarter of fiscal 2022. Year-to-date fiscal 2022 gross margin decreased from 50.0% to 48.4% compared to the prior year comparative period. The year-over-year decrease in profitability was driven by higher material costs and production inefficiencies as a result of supply chain constraints caused by ~~supply chain constraints.~~the pandemic.

•Operating expenses. Fiscal 2022 ~~first~~second quarter operating expenses as a percentage of net sales were ~~23.8%~~30.0%, down from ~~27.1%~~33.7% in the prior year comparative period. ~~The decrease~~Year-to-dateoperating expenses as a percentage of net sales were down from30.1% to 26.6%. Operating expenses increased year-over-year led by increased spending related to Raven Autonomy™; however this increase was ~~primarily driven~~more than offset by the significant increase in sales compared to the prior year. Operating expenses included $5.2 million and $9.6 million of Raven Autonomy

related expenses for the three- and six-month periods, respectively, compared to $4.0 million and $7.6 million in the prior year. These expenses primarily consisted of research and development investment to advance the division's 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							Three Months Ended									Six Months Ended
(dollars in thousands)	(dollars in thousands)			April 30, 2021			April 30, 2020			$ Change		% Change		(dollars in thousands)	July 31, 2021			July 31, 2020			$ Change		% Change		July 31, 2021			July 31, 2020			$ Change		% Change
Net sales	Net sales			$	48,765		$	33,398		$	15,367	46.0	%	Net sales	$	57,087		$	36,252		$	20,835	57.5	%	$	105,852		$	69,650		$	36,202	52.0	%
Gross profit	Gross profit			10,036			4,263			5,773		135.4	%	Gross profit	15,274			6,641			8,633		130.0	%	25,310			10,904			14,406		132.1	%
Gross margin	Gross margin			20.6		%	12.8		%					Gross margin	26.8		%	18.3		%					23.9		%	15.7		%
Operating expenses	Operating expenses			$	3,269		$	2,656		$	613	23.1	%	Operating expenses	$	2,917		$	2,176		$	741	34.1	%	$	6,186		$	4,832		$	1,354	28.0	%
Operating expenses as % of sales	Operating expenses as % of sales			6.7		%	8.0		%					Operating expenses as % of sales	5.1		%	6.0		%					5.8		%	6.9		%
Operating income(a)	Operating income(a)			$	6,767		$	1,607		$	5,160	321.1	%	Operating income(a)	$	12,357		$	4,465		$	7,892	176.8	%	$	19,124		$	6,072		$	13,052	215.0	%
Operating margin	Operating margin			13.9		%	4.8		%					Operating margin	21.6		%	12.3		%					18.1		%	8.7		%
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.	(a) At the segment level, operating income does not include an allocation of general and administrative expenses.		(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-month~~three- and six-month year-over-year changes:

•Market conditions. In the ~~first~~second quarter, Engineered ~~films~~Films continued to see improved demand that started in the fourth quarter of the prior year. Demand was up across all markets, led by the construction, agricultural, industrial, and ~~construction~~geomembrane markets. In addition, the geomembrane market (including the energy sub-market) is showing signs of improvement, with oil prices having rebounded from lows experienced in the prior year and rig counts within the Permian Basin continuing to increase. The Company does not model comparative market share position for its divisions, but the Company believes Engineered Films maintained or increased its market share in most of its end markets in the first ~~three~~six months of fiscal 2022.

•Sales volume and selling prices. ~~First~~Second quarter net sales were ~~$48.8~~$57.1 million, an increase of ~~$15.4~~$20.8 million, or ~~46.0%~~57.5%, compared to net sales of ~~$33.4~~$36.3 million in the ~~first~~second quarter fiscal 2021. Year-to-date net sales were up $36.2 million, or 52.0%, to $105.9 million compared to $69.7 million in the prior year. The division saw an increase in demand across all markets, as ~~uncertainty caused by the global~~conditions improved from pandemic ~~continues to fall, leading to improved market conditions.~~lows. While the division adjusted selling prices to recover increasing input costs caused by volatility in the resin market, the primary driver of the increase in sales was an increase in sales volume. Sales volume, measured in pounds sold, increased ~~approximately 45.7% compared to~~over 40% year-over-year in the ~~prior year comparative period.~~three- and six-month periods.

•Gross margin. For the three-month period, gross margin was ~~20.6%~~26.8%, increasing from ~~12.8%~~18.3% in the prior year comparative period. For the six-month period ending July 31, 2021, gross margin was up from 15.7% in the prior year to 23.9% in the current year. Higher sales volumes, ~~and~~ operational efficiency gains from improved capacity utilization and increases in selling prices to offset higher input costs drove the significant increase in gross margin compared to the prior year ~~first quarter.~~three- and six-months.

•Operating expenses. As a percentage of net sales, operating expenses were ~~6.7%~~5.1% in the current year three-month period as compared to ~~8.0%~~6.0% in the prior year comparative period. As a percentage of net sales, operating expenses were 5.8% in the current year six-month period as compared to 6.9% in the prior year comparative period. The decrease was

primarily driven by the increase in sales compared to the prior ~~year.~~year, partially offset by higher selling and legal costs.

Aerostar

Aerostar serves the commercial lighter-than-air and aerospace and defense markets. Aerostar's core products include high-altitude stratospheric balloon systems 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
(dollars in thousands) April 30,
2021 April 30,
2020 $ Change % Change
Net sales $ 8,887 $ 11,151 $ (2,264) (20.3) %
Gross profit 3,730 3,834 (104) (2.7) %
Gross margin 42.0 % 34.4 %
Operating expenses $ 3,141 $ 3,541 $ (400) (11.3) %
Operating expenses as % of sales 35.3 % 31.8 %
Operating income(a)
$ 589 $ 293 $ 296 101.0 %
Operating margin 6.6 % 2.6 %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.


	Three Months Ended										Six Months Ended
(dollars in thousands)	July 31, 2021			July 31, 2020			$ Change		% Change		July 31, 2021			July 31, 2020			$ Change		% Change
Net sales	$	12,787		$	13,465		$	(678)	(5.0)	%	$	21,674		$	24,616		$	(2,942)	(12.0)	%
Gross profit	4,989			5,017			(28)		(0.6)	%	8,719			8,851			(132)		(1.5)	%
Gross margin	39.0		%	37.3		%					40.2		%	36.0		%
Operating expenses	$	3,027		$	3,266		$	(239)	(7.3)	%	$	6,168		$	6,807		$	(639)	(9.4)	%
Operating expenses as % of sales	23.7		%	24.3		%					28.5		%	27.7		%
Operating income(a)	$	1,962		$	1,751		$	211	12.1	%	$	2,551		$	2,044		$	507	24.8	%
Operating margin	15.3		%	13.0		%					11.8		%	8.3		%
(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-month~~three- and six-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 its market share in the first ~~three~~six months of fiscal 2022.

•Sales volume. Net sales decreased ~~20.3%~~5.0% from ~~$11.2~~$13.5 million for the three-month period ended ~~April 30,~~July 31, 2020, to ~~$8.9~~$12.8 million for the three-month period ended ~~April 30,~~July 31, 2021. ~~The division saw~~Year-to-date sales were $21.7 million, down $2.9 million year-over-year, or 12.0%. Year-over-year revenue growth for defense related stratospheric balloon systems ~~however, this~~ was more than offset by the conclusion of Loon activity, announced in the fourth quarter of fiscal 2021, and a decrease in aerostat revenue. ~~There was no aerostat revenue in the first quarter of the current year compared to $0.9 million in the first quarter of the prior year.~~

•Gross margin. For the three-month period, gross margin increased from ~~34.4%~~37.3% to ~~42.0%~~39.0% and for the six-month period increased from 36.0% to 40.2%. Sales mix and cost control measures implemented during ~~the quarter~~fiscal 2022 to reduce overhead expenses drove the improvement in gross margin.

•Operating expenses. ~~First~~Second quarter fiscal 2022 operating ~~expense was $3.1~~expenses were $3.0 million, or ~~35.3%~~23.7% of net sales, ~~an increase~~a decrease from ~~31.8%~~24.3% of net sales in the ~~first~~second quarter of fiscal 2021. Year-to-date operating expenses as a percentage of net sales were 28.5%, up from 27.7% in the prior year. Despite the ~~$0.4~~$0.6 million year-over year decrease in operating expenses in the ~~significant~~six-month period, the decrease in ~~revenues~~net sales drove operating expenses as a percentage toof sales higher. The division continues to make focused investments in research and development and selling activities to drive growth and secure contract awards.

Corporate Expenses (administrative expenses; other income (expense), net; and effective tax rate)


		Three Months Ended							Three Months Ended								Six Months Ended
(dollars in thousands)	(dollars in thousands)		April 30, 2021			April 30, 2020				(dollars in thousands)	July 31, 2021			July 31, 2020				July 31, 2021			July 31, 2020
Administrative expenses	Administrative expenses		$	8,963		$	6,940			Administrative expenses	$	14,495		$	6,595			$	23,458		$	13,535
Administrative expenses as a % of sales	Administrative expenses as a % of sales		8.0		%	8.0		%		Administrative expenses as a % of sales	12.7		%	7.7		%		10.3		%	7.9		%
Other income (expense), net	Other income (expense), net		$	30		$	(468)			Other income (expense), net	$	(276)		$	377			$	(246)		$	(91)
Effective tax rate	Effective tax rate		17.1		%	(13.8)		%		Effective tax rate	15.0		%	10.8		%		16.2		%	2.2		%

Administrative spending for the ~~three-month period~~three- and six-month periods of fiscal 2022 ~~was~~were up ~~29.1%~~119.8% and 73.3% compared to fiscal 2021. ~~Improved profitability during~~Professional service costs associated with the ~~quarter drove higher incentives,~~merger of Raven and CNH Industrial, announced in June 2021, of $4.9 million and $5.2 million for the three- and six-month periods, respectively, along with ~~continued spending for Project Atlas, an ongoing project~~higher head count and incentives, due to improved profitability, were the ~~replace~~primary drivers of the ~~Company's ERP system.~~increase administration expenses in both 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. There were no significant items in other income (expense), net for the ~~three-month period~~

three- and six-month periods in fiscal 2022 and 2021.

The Company’s effective tax rates for the three-month periods ended ~~April 30,~~July 31, 2021 and 2020, were ~~17.1%~~15.0% and ~~(13.8)%~~10.8%, respectively. The Company’s effective tax rates for the six-month periods ended July 31, 2021 and 2020, were 16.2% and 2.2%, respectively. The year-over-year volatility in the effective tax rate for the ~~three-month period~~three and six-month periods was driven primarily by an increase in the current year profitability.

MARKET CONDITIONS AND OUTLOOK

The ~~Company is off to a good start~~Company's strong performance in fiscal 2022, with Applied Technology breaking its previous quarterly record for revenue, while also making significant progress on the strategic platforms for growth. The Company saw improving demand during the first quarter ~~within~~continued into the second quarter with strong sales growth in the Applied Technology and Engineered Films divisions.

Demand across Applied Technology's product portfolio remained very strong in the second quarter resulting in year-over-year revenue growth in both the OEM and ~~is well-positioned to drive revenue and earnings growth for the Company. The Company expects~~aftermarket channels despite navigating global supply chain ~~constraints to persist throughout~~constraints. Additionally in Raven Autonomy™ the ~~year, but remain confident in the management team's ability to continue to manage these challenges.~~

Company achieved significant milestones while executing on its strategy. Applied Technology ~~was able~~commercialized the OMNiDRIVE™ system and is on track to overcome supply chain constraints experienced across the world to generate record revenue for the first quarter. The momentum and demand in the market continues to grow for the Company's ag technology solutions. Order activity remained strongsell its limited release out in the first quarter of fiscal 2022. In Raven Autonomy, the Company is on track for commercialization goals in the current year. The division has secured 36 orders for OMNiDRIVE™ (formerly known as AutoCart®), the Company's advanced Driverless Ag Technology solution. In addition, the division expects to release OMNiDRIVE™ system compatible with Case IH Magnum and New Holland tractors this fall, ahead of the targeted date. For OMNiPOWER™ (formerly known as Dot®), the Company expects to sell out its current manufacturing capacity in the fiscal year. ~~To meet future demand, Applied Technology is planning with a strategic partner to significantly expand production capacity for~~

OMNiPOWER™. Demand for autonomous ag solutions is strong, and the limited commercial releases of OMNiDRIVE™ and OMNiPOWER™ in fiscal 2022 will provide valuable customer engagement and insight as the Company executes on its strategy of advancing technology that improves agriculture practices globally. The solutions being developed are significant advancements in ag technology that will help solve labor shortages, provide greater efficiencies and enhance sustainability in agriculture across the world.

Engineered Films generated substantial year-over-year growth across all of its end-markets, as ~~their end-markets continued their~~the global economy continues its recovery from the ~~global pandemic. Rising prices and~~prior year. Despite challenges created by volatility in ~~the~~ resin ~~market presented challenges in~~pricing the first ~~quarter~~half of the year. However, the division's offering of highly engineered, high-value films provides flexibility to be able to mitigate rising input costs and maintain strong profitability within the division. In Raven Composites™,fiscal year, the division ~~continued to build out its composites production operations in~~navigated through these challenges and improved operating income year-over-year by capitalizing on the ~~first quarter.~~economic rebound. The ~~Company began installation of its composites equipment and expects to have operations running by the end of the second quarter. In addition, the~~ division continues to build relationships with strategic customers as it executes on its strategy of supplying thinner, lighter and stronger ~~materials that combine high-value films with rigid composites that provide superior value across multiple end-markets.~~materials.

Aerostar continued to advance the capabilities of it industry-leading technology for the division's stratospheric and radar solutions induring the second quarter. Aerostar carried out multiple flight campaigns for its Department of Defense customers and increased its operating income year-over year for the first quarter, while improving profitability year-over-year and sequentially. The momentum around utilizing the division's technology in defense applications continues to grow, and the management team is working to advance solutions down the pathway of becoming a program of record. Over the remaindersix months of the year, despite the ~~division has a significant number~~conclusion of ~~flight campaigns scheduled with multiple Department~~Loon in first quarter.

On June 21, 2021 CNH Industrial N.V. entered into an agreement to acquire 100% of ~~Defense agencies as~~ the ~~division continues~~capital stock of Raven Industries, Inc. This partnership will further accelerate our ability to ~~showcase~~advance the ~~industry-leading capability for stratospheric balloon systems.~~Company's autonomous ag technology while also maximizing shareholder value. The process of completing the transaction is going well, and remains on track to close during the fourth quarter of the current year.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet continues to reflect significant liquidity. 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)	(dollars in thousands)	April 30, 2021		January 31, 2021		April 30, 2020		(dollars in thousands)	July 31, 2021		January 31, 2021		July 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	17,764	$	32,938	$	72,581	Cash and cash equivalents	$	13,077	$	32,938	$	15,813


		Three Months Ended					Three Months Ended				Six Months Ended
(dollars in thousands)	(dollars in thousands)		April 30, 2021		April 30, 2020			(dollars in thousands)	July 31, 2021		July 31, 2020		July 31, 2021		July 31, 2020
Cash provided by (used in) operating activities	Cash provided by (used in) operating activities		$	(7,779)	$	11,851		Cash provided by (used in) operating activities	$	2,666	$	18,733	$	(5,113)	$	30,584
Cash used in investing activities	Cash used in investing activities		(7,041)		(4,290)			Cash used in investing activities	(7,174)		(3,028)		(14,215)		(7,318)
Cash provided by (used in) financing activities			(389)		44,648
Cash used in financing activities								Cash used in financing activities	(96)		(72,628)		(485)		(27,980)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents		35		(335)			Effect of exchange rate changes on cash and cash equivalents	(83)		155		(48)		(180)
Net change in cash and cash equivalents	Net change in cash and cash equivalents		$	(15,174)	$	51,874		Net change in cash and cash equivalents	$	(4,687)	$	(56,768)	$	(19,861)	$	(4,894)

Cash and cash equivalents totaled ~~$17.8~~$13.1 million at ~~April 30,~~July 31, 2021, a sequential decrease of ~~$15.2~~$19.9 million from January 31, 2021. The decrease in cash was driven by an increase in net working capital needs due to the significant increase in revenue in Applied Technology and Engineered Films operating segments, as well as investments to advance Raven Autonomy™ ~~and Raven Composites™~~. Cash and cash equivalents as of ~~April 30,~~July 31, 2020 was ~~$72.6~~$15.8 million.In the first quarter of the prior year, during the early stages of the pandemic, the Company made a $50.0 million draw on its credit facility. No draws were made on the credit facility in the first quarter of fiscal 2022.

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 used in operating activities was ~~$7.8~~$5.1 million for the first ~~three~~six months of fiscal 2022 compared with cash provided by operating activities of ~~$11.9~~$30.6 million in the first ~~three~~six months of fiscal 2021. The decrease in operating cash flows year-over-year was driven by the increase in net working capital in the current year to support the significant increase in sales orders in Applied Technology and Engineered Films. In the prior year first quarter, the Company took significant steps to reduce working capital due to the economic downturn caused by pandemic. There was a sequential increase in net working capital of $26.2 million in the three months ended April 30, 2021, but as a percentage of sales, net working capital declined. Net working capital for the three months ended April 30, 2020 decreased $4.5 million.

The Company's net working capital for the comparative periods was as follows:


(dollars in thousands)	(dollars in thousands)	April 30, 2021			April 30, 2020			(dollars in thousands)	July 31, 2021			July 31, 2020
Accounts receivable, net	Accounts receivable, net	$	68,064		$	60,336		Accounts receivable, net	$	70,591		$	53,032
Plus: Inventories, net	Plus: Inventories, net	63,407			57,101			Plus: Inventories, net	75,692			51,302
Less: Accounts payable	Less: Accounts payable	22,535			20,392			Less: Accounts payable	21,588			17,960
Net working capital(a)	Net working capital(a)	$	108,936		$	97,045		Net working capital(a)	$	124,695		$	86,374

Annualized net sales(b)	Annualized net sales(b)	449,944			345,984			Annualized net sales(b)	457,704			340,716
Net working capital percentage(c)	Net working capital percentage(c)	24.2		%	28.0		%	Net working capital percentage(c)	27.2		%	25.4		%
(a) Net working capital is defined as accounts receivable, (net) plus inventories, (net) less accounts payable.	(a) Net working capital is defined as accounts receivable, (net) plus inventories, (net) less accounts payable.							(a) Net working capital is defined as accounts receivable, (net) plus inventories, (net) 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.	(b) Annualized net sales is defined as the most recent quarter net sales times four for each of the fiscal periods, respectively.							(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.	(c) Net working capital percentage is defined as net working capital divided by annualized net sales.							(c) Net working capital percentage is defined as net working capital divided by annualized net sales.

Year-over-year, net working capital increased ~~$11.9~~$38.3 million, to ~~$108.9~~$124.7 million at ~~April 30,~~July 31, 2021. The Company increased inventory in Applied Technology and Engineered Films to meet increased demand ~~in fiscal 2022~~ and mitigate supply chain constraints, while accounts receivable increased as sales were up significantly year-over-year. Although net working capital increased, net working capital percentage was down year-over-year in the first quarter of fiscal 2022. The decline in net working capital percentage was due to a significant increase in sales, indicating working capital is within the appropriate range for normalized operations.

Inventory levels increased ~~$6.3~~$24.4 million, or ~~11.0%~~47.5%, year-over-year from ~~$57.1~~$51.3 million at ~~April 30,~~July 31, 2020, to ~~$63.4~~$75.7 million at ~~April 30,~~July 31, 2021. ~~In comparison, consolidated net sales increased $26.0 million, or 30.0%, year-over-year in the first quarter.~~ The increase in inventory was primarily driven by strategic actions within Applied Technology and Engineered Films divisions to fulfill the increase in sales order backlog. In addition, the divisions saw an increase in input costs due to supply chain constraints globally.

Accounts receivable increased ~~$7.8~~$17.6 million, or ~~12.8%~~33.1%, year-over-year to ~~$68.1~~$70.6 million at ~~April 30,~~July 31, 2021, from ~~$60.3~~$53.0 million at ~~April 30,~~July 31, 2020. In comparison, consolidated net sales increased ~~$26.0~~$29.2 million, or ~~30.0%~~34.3%, year-over-year in the ~~first~~second quarter. Higher sales volume was the primary driver of the year-over-year increase in accounts receivable.

Accounts payable increased ~~$2.1~~$3.6 million, or ~~10.5%~~20.2%, year-over-year from ~~$20.4~~$18.0 million at ~~April 30,~~July 31, 2020, to ~~$22.5~~$21.6 million at ~~April 30,~~July 31, 2021. The increase in accounts payable year-over-year was primarily due to timing of purchases and increase in raw materials and finished goods inventory to support increased demand.

Investing Activities

Cash used by investing activities was ~~$7.0~~$14.2 million for the first ~~three~~six months of fiscal 2022 compared with cash used of ~~$4.3~~$7.3 million in the first ~~three~~six months of fiscal 2021. Capital expenditure spending increased ~~$1.2~~$2.3 million compared to the prior year ~~three-month~~six-month period primarily due to investments in equipment for ~~Engineered Films~~Applied Technology to support Raven ~~Composites™.~~Autonomy™ and equipment for Engineered Films. In the first ~~quarter~~six months of fiscal 2022, capitalized spending for intangibles included ~~approximately $0.8~~$1.4 million for capitalized software development costs in Applied Technology and $1.6 million for technology rights acquired by Aerostar to support its stratospheric balloon platform, compared to none in the prior fiscal year.

Financing Activities

Cash ~~provided by~~used for financing activities for the first ~~three~~six months of fiscal 2022 decreased ~~$45.0~~$27.5 million compared to the first ~~three~~six months of fiscal 2021. P Inayments of $17.9 million related to the ~~first quarter~~redemption of the ~~current year, the Company made no draws on its credit facility, compared to the $50.0 million draw made on its credit facility during the early stages of the pandemic~~noncontrolling interest in ~~the prior year. Offsetting this decrease was~~DOT and $~~4.7~~9.3 million ~~cash outflows~~ for dividends were made in first ~~three~~six months of the prior fiscal year, ~~compared to no dividend payments in~~with none made during the current year. On August 26, 2020, the Company announced that the board of directors indefinitely suspended the Company’s regular quarterly cash

2326

~~Company’s regular quarterly cash~~ dividend on its common stock. The Company has reallocated this capital to supplement and accelerate investments in the Company's Strategic Platforms for Growth; Raven Autonomy™, Raven Composites™, and Raven Thunderhead Balloon Systems.

Other Liquidity and Capital Resources

The Company ~~entered into~~has a three-year, $100 million senior revolving credit facility which includes a $100 million ~~credit agreement on September 20, 2019, with a maturity date of September 20, 2022.~~borrowing availability expansion feature. Availability under the Credit Agreement for borrowings as of ~~April 30,~~July 31, 2021, was $100.0 million. This credit facility has a maturity date of September 20, 2022. 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.

Debt under the Credit 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. Non-financial covenants, include 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. The Company is in compliance with all financial covenants set forth in the Credit Agreement.

Letters of credit (LOCs) totaling $0.1 million were outstanding at both ~~April 30,~~July 31, 2021 and ~~April 30,~~July 31, 2020. 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, 2021.

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, 2021, filed with the SEC. There have been no material changes to our critical accounting policies and estimates during the ~~three-month~~six-month period ended ~~April 30,~~July 31, 2021.

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, 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~~This includes the risk of the occurrence of any event, change, or other circumstance that could delay or prevent closing of the proposed transaction, or the merger, or give rise to the termination of the Agreement and Plan of Merger between the Company and CNH Industrial N.V. In addition, other 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, 2021. 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, cash equivalents and short-term investments. The Company's outstanding debt relates to a long-term note that bears no interest until April 2023, with an outstanding balance of ~~$2.9~~$2.8 million and $2.0 million as of ~~April 30,~~July 31, 2021 and January 31, 2021, respectively. The Company also has finance lease obligations of ~~$0.7~~$1.0 million and $0.8 million as of ~~April 30,~~July 31, 2021 and January 31, 2021. 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 ~~$2.2~~$1.8 million and $2.1 million at ~~April 30,~~July 31, 2021 and January 31, 2021, 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 ~~April 30,~~July 31, 2021. 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 ~~April 30,~~July 31, 2021.

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-month~~three- and six-month period ended ~~April 30,~~July 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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, 2021, 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, 2021, to include additional information.

There can be no assurance that the conditions to close our proposed merger with CNH Industrial will be satisfied or that the merger will be completed. In addition, the proposed transaction could have adverse effects on our business, and any failure to consummate the proposed merger could materially impact our business.

On June 20, 2021, the Company entered into an agreement with CNH Industrial pursuant to which, subject to certain conditions to closing, the Company will become a wholly owned subsidiary of CNH Industrial. The Company has filed all premerger notifications with the Federal Trade Commission and the Antitrust Division of the Justice Department and the waiting period has expired under the Hart-Scott-Rodina Act with no comments. In addition, the shareholder meeting to vote whether to approve the merger will be held on September 15, 2021. However, consummation of the Merger is subject to certain closing conditions, including shareholder approval at the special meeting of the shareholders scheduled for September 15, 2021 and other regulatory approval, which are not within the Company's control, and may prevent, delay, or otherwise materially adversely affect the completion of the transaction. The Company cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if another uncertainty may arise and cannot assure you that the Company will be able to successfully consummate the proposed merger as currently contemplated under the Merger Agreement or at all.

Risks related to the proposed merger, including the potential failure of the merger to be consummated include, but are not limited to, the following:

•if the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee to CNH Industrial of $64.0 million;

•the Company will remain liable for significant transaction costs, including legal, accounting, financial advisory, and other costs relating to the merger regardless of whether the merger is completed;

•the trading price of our stock may decline to the extent that the current market price for our stock reflects a market assumption that the merger will be completed;

•the Company could be subject to litigation related to any failure to complete the merger;

•the diversion of management time on transaction-related issues that may disrupt their attention from ongoing business operations; and

•the risk that the proposed transaction could have an adverse affect on the Company's ability to retain customers and retain and hire key personnel and maintain relationships with suppliers and customers.

The occurrence of any of these events individually or in combination could materially and adversely affect our business, results of operations, financial condition, and our stock price.

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
31.1						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.

31.2						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.

32.1						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.

32.2						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/ Taimur Sharih

Taimur Sharih

Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: ~~May~~August 25, 2021

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	Three Months Ended April 30, 2020
	$1 Par Common Stock		Additional Paid-in Capital		Treasury Stock at Cost		Retained Earnings		Accumulated Other Comprehen-sive Income (Loss)		Total Equity		Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts)
Balance January 31, 2020	$	67,436	$	61,508	$	(111,183)	$	302,300	$	(5,415)	$	314,646	$	21,302
Net income (loss)	—		—		—		4,047		—		4,047		(98)
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—		—		—		(2,579)		(2,579)		—
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $1	—		—		—		—		(3)		(3)		—
Reclassification and redemption of noncontrolling interest (see Note 1)	—		215		—		—		—		215		(21,204)
Cash dividends ($0.13 per share)	—		90		—		(4,748)		—		(4,658)		—
Shares issued on stock options exercised, net of shares withheld for employee taxes	11		(124)		—		—		—		(113)		—
Shares issued on vesting of stock units, net of shares withheld for employee taxes	53		(680)		—		—		—		(627)		—
Share-based compensation	—		1,496		—		—		—		1,496		—
Balance April 30, 2020	$	67,500	$	62,505	$	(111,183)	$	301,599	$	(7,997)	$	312,424	$	0

	Three Months Ended April 30, 2021
	$1 Par Common Stock		Additional Paid-in Capital		Treasury Stock at Cost		Retained Earnings		Accumulated Other Comprehen-sive Income (Loss)		Total Equity		Redeem-able Non-Controlling Interest
(dollars in thousands, except per-share amounts)
Balance January 31, 2021	$	67,533	$	66,670	$	(111,183)	$	311,676	$	(3,341)	$	331,355	$	0
Net income	—		—		—		9,620		—		9,620		0
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—		—		—		2,344		2,344		—
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax expense of $(5)	—		—		—		—		20		20		—
Shares issued on stock options exercised, net of shares withheld for employee taxes	1		(42)		—		—		—		(41)		—
Shares issued on vesting of stock units, net of shares withheld for employee taxes	49		(1,096)		—		—		—		(1,047)		—

Share-based compensation	—		1,734		—		—		—		1,734		—
Balance April 30, 2021	$	67,583	$	67,266	$	(111,183)	$	321,296	$	(977)	$	343,985	$	0