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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2021
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
ravn-20210131_g1.jpg
SD46-0246171
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
205 E. 6th Street, P.O. Box 5107Sioux Falls,SD57117-5107
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (605) 336-2750
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $1 par valueRAVNNasdaqGlobal Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.            þ Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.          Yes þNo
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 definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes þ No
The aggregate market value of the registrant's common stock held by non-affiliates at July 31, 2020, was approximately $763,599,982. The aggregate market value was computed by reference to the closing price as reported on the Nasdaq Global Select Market, $21.61, on July 31, 2020, which was the last business day of the registrant's most recently completed second fiscal quarter. The number of shares outstanding on March 19, 2021, was 35,869,499
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 25, 2021, is incorporated by reference into Part III to the extent described therein.





PART I
Item 1.BUSINESS
Item 1A.RISK FACTORS
Item 1B.UNRESOLVED STAFF COMMENTS
Item 2.PROPERTIES
Item 3.LEGAL PROCEEDINGS
Item 4.MINE SAFETY DISCLOSURES
PART II
Item 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Company Stock Performance
Dividends
Issuer Purchases of Equity Securities
Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
Results of Operations - Segment Analysis
Liquidity and Capital Resources
Off-Balance Sheet Arrangements and Contractual Obligations
Critical Accounting Policies and Estimates
Accounting Pronouncements
Forward-Looking Statements
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm - Deloitte & Touche LLP
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A.CONTROLS AND PROCEDURES
Item 9B.OTHER INFORMATION
PART III
Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11.EXECUTIVE COMPENSATION
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULE
Item 16.FORM 10-K SUMMARY
SIGNATURES
SCHEDULE II





PART I
ITEM 1.BUSINESS

Raven Industries, Inc. (the Company or Raven) was incorporated in February 1956 under the laws of the State of South Dakota and began operations later that same year. The Company 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 markets its products around the world and has its principal operations in the United States of America. Raven began operations as a manufacturer of high-altitude research balloons before diversifying into product lines that extended from technologies and production methods of this original balloon business. The Company employs 1,363 permanent and temporary employees and is headquartered at 205 E. 6th Street, Sioux Falls, SD 57104 - telephone (605) 336-2750. The Company's Internet address is http://www.ravenind.com and its common stock trades on the Nasdaq Global Select Market under the ticker symbol RAVN. The Company has adopted a Code of Conduct applicable to all officers, directors and employees, which is available on its website. Information on the Company's website is not incorporated into this filing.

The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports available, free of charge, in the "Investor Relations" section of the Company's website as soon as reasonably practicable after the Company electronically files these materials with, or furnishes these materials to, the Securities and Exchange Commission (SEC).

These materials are also found on the SEC website at www.sec.gov. This site contains reports, proxy statements and other information regarding issuers that file electronically with the SEC.

This Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-K are forward-looking statements. Forward-looking statements give the Company's current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance, and business. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that the Company expected. Important factors that could cause actual results to differ materially from the Company's expectations and other important information about forward-looking statements are disclosed under Item 1A, "Risk Factors" and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations, Forward-Looking Statements" in this Form 10-K.

COVID-19

In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic. The COVID-19 pandemic has had, and may continue to have, an unfavorable impact on certain areas of our business. The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, and the availability, distribution, and effectiveness of vaccines to address the COVID-19 virus. The impact on our customers and suppliers and the range of governmental and community reactions to the pandemic are uncertain. The Company may continue to experience reduced customer demand or constrained supply that could materially adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods.

BUSINESS SEGMENTS

The Company has three unique operating units, or divisions, that are also its reportable business segments ("segment" or "segments"): Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films), and Aerostar Division (Aerostar). Product lines have been generally grouped in these segments based on technology, manufacturing processes, and end-use application; however, a segment may serve more than one of the product markets identified above. The Company measures profitability and performance of its segments primarily based on their operating income excluding general and administrative expenses. Other income or expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets. Segment information is reported consistent with the Company's management reporting structure.




3

Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools, which are collectively referred to as precision agriculture equipment, that focus on machine automation to help farmers reduce costs, more precisely control inputs, and improve farm yields for the global agriculture market. The Applied Technology product families include application controls, GPS-guidance steering systems, field computers, automatic boom controls, advanced machine automation including autonomous agriculture technology and platforms, information management tools, and injection systems. Applied Technology's services include high-speed in-field internet connectivity and cloud-based data management.

Applied Technology sells its precision agriculture equipment to both original equipment manufacturers (OEMs) and through aftermarket distribution partners within agricultural markets both domestically and internationally. Applied Technology competes with other technology-based companies in a number of its product families and may compete with OEMs if they develop their own precision agriculture technology rather than purchase it from a third-party such as Raven. The Company's competitive advantage in this segment is designing and selling innovative, reliable, easy-to-use, and value-add products that are supported by an industry-leading service and support team.

The Company's Applied Technology Division continues to expand its Slingshot® communications platform. Slingshot improves logistics, communications, and application execution, driving business efficiencies for its agriculture retail partners. In January 2019, Applied Technology acquired the assets of AgSync, Inc. (AgSync), an agriculture logistics software company. This acquisition enhanced the division's Slingshot platform by delivering a logistics solution for ag retailers, custom applicators, and enterprise farms.

The Company announced Raven Autonomy™ as a strategic growth initiative in November 2019 to become an industry leader in autonomous agricultural solutions through both technology and autonomous platforms. Raven Autonomy™ is the Company's expansion of its existing machine control technology through autonomous smart machine platforms and implements used in farming. The Company began executing on this strategic growth initiative in the fourth quarter of fiscal 2020 by acquiring Smart Ag, Inc. (Smart Ag®) and Dot Technology Corp. (DOT®). In fiscal 2021, the Company continued to make progress toward its goal to commercialize its first autonomous solutions in ag technology, allowing ag professionals to be more efficient in running their operations with less reliance on human decision making:

acquired full voting control of DOT in the first quarter
invested approximately $17 million in research and development and selling activities to drive commercialization
performed significant field testing, preparing for initial product launches for both the Dot® Power Platform and tractor autonomous power units (APUs) in fiscal 2022;
began accepting pre-orders for its first commercially available autonomous ag technology, AutoCart®, and established a new headquarters for Raven's business in Canada

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.

Engineered Films has various fabrication facilities in the United States (U.S.) to provide a heightened level of service and faster product delivery to customers of its geomembrane and construction products. In January 2020, the division expanded its fabrication capabilities to the East Coast, leasing a facility in Waynesboro, Virginia.

Engineered Films sells direct to end-customers and through independent third-party distributors. The majority of products sold into the construction and agriculture markets are sold through distributors, while sales into the geomembrane and industrial markets are generally sold to end-customers. The Company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest sheeting converters in the United States in the markets it serves. Engineered Films' ability to extrude and convert films, along with offering installation services for its geomembrane products, allows it to provide a more customized solution to customers. A number of film manufacturers compete with the Company on both price and product availability.

In November 2019, the Company announced Raven Composites™ as a strategic growth platform for Engineered Films. Raven Composites™ is expected to build on the division's core strengths and expand Engineered Films to become an industry leader in the adjacent reinforced composites market. By leveraging the division's reinforced materials expertise, Engineered Films will develop a range of thinner, lighter, stronger rigid composite material that will include laminated layers of the division's surface films, resulting in superior finish characteristics on rigid materials for the transportation, construction, and industrial market
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segments. The Company invested approximately $5 million in research and development equipment in fiscal 2021 to support new product development efforts for Raven Composites™. Larger scale manufacturing equipment to advance Raven Composites™ is on order and expected to be operational during the third quarter of fiscal 2022.

Aerostar
Aerostar serves the aerospace and defense and commercial lighter-than-air markets. Aerostar's core products include high-altitude stratospheric platforms, technical services, and radar systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. Aerostar’s growth strategy emphasizes the design and manufacture of proprietary products in these markets. Aerostar also pursues product and support services contracts with U.S. government agencies as well as sales of advanced radar systems in international markets.
Aerostar sells to government agencies as both a prime contractor and subcontractor and to commercial users primarily as a sub-contractor. Aerostar competes with other technology companies that specialize in aerospace and defense and commercial products and services based on price, performance, and service.

MARKET CONDITIONS AND OUTLOOK

In fiscal 2021, the Company made key advances across the enterprise and through the strategic platforms for growth. In response to the pandemic, the Company identified four priorities for the year that included upholding the Raven Way, emphasizing cash flow, protecting the core business, and aggressively investing in Raven Autonomy™. The Company successfully achieved these goals while managing the business through adverse economic conditions, supply chain constraints, and changing the Company's production processes to promote the health and well-being of team members.

The Company expects to advance on key milestones in fiscal 2022 within Raven Autonomy™, Raven Composites™, and Raven Thunderhead Balloon Systems, while leveraging the strength of our underlying businesses. The Company is focused on aggressively investing in its strategic platforms for growth, and the Company expects to make significant progress on the multi-year plan to drive a step-change in long-term growth.

Applied Technology is expected to capitalize on the momentum generated during fiscal 2021 and drive continued revenue growth as the division leverages its industry-leading product portfolio and customer relationships. Order activity strengthened in the fourth quarter of fiscal 2021 and helped build momentum going into fiscal 2022. In addition, the Company is seeing strength in the agriculture industry as increasing commodity prices have created optimism in the ag market for the first time in several years. Through Raven Autonomy™, the Company expects to deliver AutoCart® systems in advance of the fall harvest and commercialize the Dot® Power Platform in fiscal 2022. The Company will continue to aggressively invest in Raven Autonomy™ as the Company builds the foundation for long-term growth.

In Engineered Films, the Company has experienced improving conditions over the past few months. As conditions continue to improve, the Company expects to experience market share gains and drive meaningful year-over-year revenue growth. In fiscal 2022, the Company expects to pursue growth through acquisition as part of the strategy within Engineered Films to deliver high-value films and composites.

In Aerostar, the division significantly advanced the technology and capabilities of its stratospheric balloon systems over the past eight years as Alphabet's design partner for Loon. The relationship helped deliver connectivity to rural areas of the world and showcased the capabilities of its Thunderhead platform. Moving forward, the division is focused on bringing its stratospheric balloon platform to U.S. government agencies, providing a propriety solution for a variety of applications. In fiscal 2022, the division expects to build on the technology milestones it has achieved over recent months while executing on government contracts. Momentum around utilizing the stratosphere continues to grow, and as the leader in stratospheric technology, Aerostar is well-positioned to capitalize on the substantial opportunity.

MAJOR CUSTOMER INFORMATION

Sales to CNH Industrial, an OEM customer in the Applied Technology Division, accounted for 10% of the Company's consolidated net sales in fiscal year 2021. No customers accounted for 10% or more of consolidated net sales in fiscal years 2020 or 2019.

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SEASONAL WORKING CAPITAL REQUIREMENTS

Some seasonal demand exists in both the Applied Technology and Engineered Films divisions, primarily due to their respective exposure to the agricultural market. However, given the overall diversification of the Company, the seasonal fluctuations in net working capital (accounts receivable, net plus inventories less accounts payable) are not usually significant.
FINANCIAL INSTRUMENTS

The principal financial instruments the Company maintains include cash, cash equivalents, short-term investments, marketable equity securities (related to the Company's deferred compensation plan liability), accounts receivable, accounts payable, accrued liabilities, and acquisition-related contingent payments. The Company manages the interest rate, credit, and market risks associated with these accounts through periodic reviews of the carrying value of assets and liabilities and establishment of appropriate allowances in accordance with Company policies.

The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company uses derivative financial instruments to manage foreign currency balance sheet risk. The use of these financial instruments has had no material effect on consolidated results of operations, financial condition, or cash flows.

RAW MATERIALS

The Company sources raw materials from a wide variety of suppliers, including numerous domestic and international vendors. The Company's principal raw materials include electronic components for Applied Technology and Aerostar, various polymeric resins for Engineered Films, and fabrics and film for Aerostar. The Company has experienced some volatility in raw material prices over the past three years. These price increases, including increased material costs or tariffs, could not always be passed on to customers due to weak demand and/or a competitive pricing environment. However, the overall impact was not material to the Company's financial position.

PATENTS

The Company owns a number of patents and also owns licenses that allow the Company to gain access to certain patents of other companies. The Company does not believe that its business, as a whole, is materially dependent on any one patent or related group of patents. The Company focuses its significant research and development (R&D) efforts to develop technology-based offerings. As such, the protection of the Company’s intellectual property is an important strategic objective. Along with an aggressive posture toward patenting new technology and protecting trade secrets, the Company has restrictions on the disclosure of its technology to industry and business partners to ensure that its intellectual property is maintained and protected.

RESEARCH AND DEVELOPMENT

The three business segments conduct ongoing R&D efforts to improve their product offerings and develop new products. R&D investment is particularly strong within Applied Technology and Aerostar. New technology development and product enhancements within Applied Technology are a competitive differentiator and central to its long-term strategy. Engineered Films also utilizes R&D spending to develop new products, value engineer, and reformulate its current products. These R&D investments deliver high-value film solutions to the markets it serves, lower raw material consumption, and improve the quality of existing product lines. Aerostar's investment in the development of new technology has a particular emphasis on its core stratospheric balloon and radar platforms. The Company's total R&D costs are presented in the Consolidated Statements of Income and Comprehensive Income.

GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS

The Company is subject to a wide variety of local, state, and federal laws and regulations in the countries where it conducts business. Compliance with these laws and regulations requires training and dedication of time and effort by the Company's employees, as well as financial resources. In fiscal 2021, compliance with the regulations applicable to Raven did not have a material effect on the Company's capital expenditures, earnings, or competitive position. Additional information about the impact of government regulations on the Company's business is included in Item 1A. “Risk Factors” under the heading Legal, Regulatory and Compliance Risks.




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The Company believes that, in all material respects, it is in compliance with applicable federal, state and local environmental laws and regulations. Expenditures incurred in the past relating to compliance for operating facilities have not significantly affected the Company's capital expenditures, earnings, or competitive position. The Company is unaware of any potential liabilities as of January 31, 2021, for any environmental matters that would have a material effect on the Company's results of operations, financial position, or cash flows.

BACKLOG

The Company's backlog represents open customer orders and funded portions of signed government contracts. As of February 1, 2021, the Company's backlog totaled approximately $64 million. Backlog amounts as of February 1, 2020 and 2019, were approximately $60 million and $38 million, respectively. Because the length of time between order and shipment varies considerably by segment and customers can change delivery schedules or potentially cancel orders, the Company does not believe that backlog, as of any particular date, is necessarily indicative of actual net sales for any future period. However, the Company expects that any revenue generated from its backlog, as of February 1, 2021, will be recognized during fiscal year 2022.

HUMAN CAPITAL

Raven believes its employees are essential to the organization’s success in solving great challenges. The Company depends on its highly skilled engineering, sales and service, and manufacturing teams to develop and deliver solutions to its customers. Raven has approximately 1,290 permanent employees as of January 31, 2021. Employees are primarily located throughout the United States with 6% of the Company’s workforce located internationally throughout Canada, Brazil, the Netherlands and Australia.

Talent
Raven’s talent strategy is focused on attracting the best talent, then recognizing and rewarding their performance, while continually developing, engaging, and retaining them. In fiscal 2021, Raven became Great Place to Work-Certified™. Using validated employee feedback gathered with Great Place to Work’s rigorous, data-driven methodology, certification confirms at least 7 out of 10 employees have a consistently positive experience at Raven. Surveyed in August 2020 on topics including their coworkers, their leaders, and their jobs, 85 percent of employees said that Raven is a great place to work, versus 59 percent at a typical company. Raven has a goal to be the employer of choice within the markets and communities it serves, and the Company strives to grow and develop the different capabilities and skills that are needed for the future, while also maintaining a robust pipeline of talent throughout the organization.

Raven is committed to promoting and cultivating an inclusive and diverse culture that welcomes and celebrates everyone without bias. The Company believes culture is the result of its behaviors, its commitment to personal accountability, its continuous improvement mindset, how its teams collaborate, and its employee’s ability appreciate one another’s contributions.

Total Rewards
Raven believes that the Company must offer a comprehensive total rewards program for its employees to attract and retain a talented and experienced workforce. Raven regularly reviews its compensation and benefit plans to ensure they are competitive, align to Raven’s strategic priorities, and support company values. These programs not only include base wages and incentives in support of the Company's pay for performance culture, but also health, welfare, and retirement benefits. Raven focuses many programs on employee wellness and has implemented solutions including onsite wellness centers, onsite and virtual mental health support, telemedicine, and health and nutrition programs. Raven believes that these solutions have helped the Company successfully manage healthcare and prescription drug costs for its employee population. These solutions also promote a culture of Peak Performance — the Company’s commitment to prepare its employees as individuals as well as a corporation to be the best — and reinforce Raven’s belief that every individual is worthy and deserving of good mental well-being and health.

Development
Raven is growing and intends to do so every year. As the Company solves great challenges, Raven will continue to have a strong need for dynamic and successful leaders to carry out the expansion of the business. To meet this great need, Raven designed a system entitled "THRIVE" that allows teams, businesses, and leaders to thrive. THRIVE delivers a sustainable solution, wholly integrated into Raven’s culture and business model. Using several modes of development, THRIVE is designed to leverage the Company’s strong culture, clear set of values, and strategy of growth. THRIVE is intentionally built around three key areas — Raven, Business, and Leadership. THRIVE’s robust approach incorporates business skills and experiential learning, intentionally building competencies with specific Raven context. Incorporating business skills, university-level coursework, and relevant on-the-job experiences, THRIVE operates on a model of continual learning.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Name, Age, and PositionBiographical Data
Daniel A. Rykhus, 56Mr. Rykhus became the Company's President and Chief Executive Officer in 2010. He joined the Company in 1990 as Director of World Class Manufacturing, was General Manager of the Applied Technology Division from 1998 through 2009, and served as Executive Vice President from 2004 through 2010.
President and Chief Executive Officer
Steven E. Brazones, 47Mr. Brazones was named Division Vice President and General Manager of the Applied Technology Division in January 2021. Mr. Brazones joined the Company in December 2014 and served as its Vice President, Chief Financial Officer, and Treasurer. From 2002 to 2014, Mr. Brazones held a variety of positions with H.B. Fuller Company. Most recently, he served as H.B. Fuller's Americas Region Finance Director. Previously, he served as the Assistant Treasurer and the Director of Investor Relations. Prior to his tenure with H.B. Fuller, Mr. Brazones held various roles at Northwestern Growth.
Division Vice President and General Manager - Applied Technology Division and Vice President and Chief Financial Officer
Taimur Sharih, 47
Mr. Sharih was named Vice President and Chief Financial Officer effective March 1, 2021. Prior to joining the Company Mr. Sharih served as Senior Vice President and CFO of A&R Logistics, a chemical supply chain services company, from October 2019 to January 2021. Prior to that, Mr. Sharih spent two years as CFO for Acetyl Intermediates, a division of Celanese Corporation and 14 years at Praxair in various financial roles, including most recently, Vice President of Finance, U.S. Industrial Gases.
Vice President and Chief Financial Officer
Scott W. Wickersham, 47Mr. Wickersham was named Division Vice President and General Manager of the Aerostar Division in January 2018. Effective February 1, 2021, Mr. Wickersham was named Division Vice President and General Manager of the Engineered Films Division. He joined the Company in 2010 as the Director of Product Development and Engineering Manager and has been the General Manager for the Aerostar Division since November 2015. Prior to joining the Company, Mr. Wickersham held a range of engineering and operational roles with various technology companies.
Division Vice President and General Manager - Aerostar Division
Lee A. Magnuson, 65Mr. Magnuson joined the Company in June 2017, as Vice President and General Counsel and also became the Company's Secretary in August 2017. Prior to joining the Company, Mr. Magnuson was managing partner of Lindquist and Vennum Law Firm in the Sioux Falls, SD, office for five years, practicing in the areas of commercial transactions, mergers and acquisitions, corporate matters, real estate and regulatory matters.
Vice President, General Counsel, and Corporate Secretary
Nicole Freesemann, 38Ms. Freesemann was named Vice President of Human Resources in January 2019. She started at Raven in 2008 and served in several human resources roles, including most recently as Director of Human Resources since January 2014. During her tenure at Raven, Ms. Freesemann developed and executed a new performance management strategy, implemented staffing strategies and programs to identify talent for all levels within the company, and led human resource efforts for acquisition due diligence and integrations.
Vice President of Human Resources

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ITEM 1A.RISK FACTORS

RISKS RELATING TO THE COMPANY

The Company's business is subject to many risks, which by their nature are unpredictable or unquantifiable and may be unknown. In an attempt to provide the reader with information on potential risks the Company may encounter, the Company has provided below, what it believes are the most material risks the Company could potentially face, based on its knowledge, experience, information and assumptions. The risks provided below should be assessed contemporaneously with other information contained in this Form 10-K, including Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the risks and uncertainties addressed under "Forward-Looking Statements," the Notes to the Consolidated Financial Statements, and other information presented in or incorporated by reference into this Form 10-K. The risks contained herein, as well as other statements in this Form 10-K, may include forward-looking statements and, as such, are uncertain. Such statements are not guarantees of future performance and undue reliance should not be placed on them. The indeterminate nature of risk factors makes them subject to change, and certain risks and uncertainties could potentially cause material changes to actual results. Some of these risks may affect the entire Company, where others may only affect particular segments of the Company's business, or may have no material effect at all.

The Company, except as required by law, disclaims any obligation to update or revise the information contained herein, regardless of changes, whether as a result of new information, developments or otherwise. The risks provided in this Form 10-K and in other documents filed with the SEC are not exclusive in nature and, as such, there are other potential risks and uncertainties that the Company is not aware of, or does not presently consider material in nature that could cause actual results to vary materially from expectations.

Operational Risks
The novel coronavirus (COVID-19) has adversely impacted, and could continue to impact the Company, including possible material adverse effects on our business, financial position, and cash flow. Further spread of COVID-19, as well as outbreaks or epidemics of other infectious diseases, may have a similar or worse impact on the Company.
Global pandemics, including the current COVID-19 pandemic and variants of COVID-19, represent significant risks to the Company, our employees, suppliers, and customers and may adversely impact the Company's operations and financial results. The COVID-19 pandemic has caused disruption in capital markets and led to a global economic slowdown. The continuing duration, severity, and scope of the COVID-19 outbreak and the actions taken to contain or treat the outbreak (including the effectiveness and availability of vaccines) remain uncertain at this time.

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

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

To the extent the COVID-19 pandemic may adversely affect our business, financial condition, and cash flows, it may also heighten many of the other risks described in the “Risk Factors” section.

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The loss, disruption, or material change in the Company's business relationship with single source suppliers for particular materials, components, or services, could cause a disruption in supply, or substantial increase in cost of any such products or services, and therefore could result in harm to the Company's sales, profitability, cash flows and financial condition.
The Company obtains certain materials, components, or services from suppliers that serve as the only source of supply, or that supply the majority of the Company’s requirements of the particular material, component, or service. While these materials, components, services, or suitable replacements, could potentially be sourced from other suppliers, in the event of a disruption or loss of supply of relevant materials, components, or services for any reason, the Company may not be able to immediately find alternative sources of supply, or if found, may not be found on similar terms. If the Company’s relationship with any of these single source suppliers became challenged, or is terminated, the Company could have difficulty replacing these sources without causing disruption to the business.

Price fluctuations in, and shortages of, raw materials could have a significant impact on the Company's ability to sustain and grow earnings.
The Company's Engineered Films Division utilizes significant amounts of polymeric resin, the cost of which depends upon market prices for natural gas and oil and other market forces. These prices are subject to worldwide supply and demand as well as other factors beyond the Company's control. Although the Engineered Films Division is sometimes able to pass on price increases to its customers, significant variations in the cost of polymeric resins can affect the Company's operating results from period to period. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. Unusual supply disruptions, such as one caused by a natural disaster, could cause suppliers to invoke "force majeure" clauses in their supply agreements, causing shortages in supply of material. If the Company is not able to fully offset the effects of adverse availability of materials or higher costs, financial results could be adversely affected, which in turn could adversely affect the Company's results of operations, financial condition, liquidity, and cash flows.

Electronic components used by both the Applied Technology Division and Aerostar Division are sometimes in short supply, which may impact the ability to meet customer demand or provide products at a price the customer prefers. If a supplier of raw materials or electronic components were to significantly increase pricing or was unable to deliver due to shortage or financial difficulty, any of the Company's segments could be adversely affected.

Failure to develop and market new technologies and products could impact the Company's competitive position and have an adverse effect on the Company's financial results.
The Company's operating results in Applied Technology, Engineered Films, and Aerostar depend upon the ability to renew the pipeline of new technologies and products, including autonomous technologies, and to bring these to market. This ability could be adversely affected by difficulties or delays in product development, such as the inability to identify viable new products, successfully complete R&D projects, obtain relevant regulatory approvals, obtain intellectual property protection, or gain market acceptance of new products and services. Because of the lengthy development process, technological challenges, and competition, there can be no assurance that any of the products the Company is currently developing, or could begin to develop in the future, will achieve commercial success. Technical advancements in products may also increase the risk of product failure, increasing product returns or warranty claims and settlements. In addition, sales of the Company's new products could replace sales of some of its current products, offsetting the benefit of a successful new product introduction.

Failure to develop and maintain partnerships, alliances, and other distribution or supplier relationships could adversely impact the Company's financial results.
In certain areas of the Company’s business, continued success depends on developing and maintaining relationships with other industry participants, such as original equipment manufacturers, ag retailers, dealers and distributors. If the Company fails to develop and maintain such relationships, or if there is disruption of current business relationships due to actions of the Company, the ability to effectively market and sell certain products could be harmed. The Company’s relationships with other industry participants are complex and multifaceted, and evolve over time. Often, these relationships contribute to substantial ongoing business and operations in particular markets; therefore, changes in these relationships could have an adverse impact on sales and revenue.

Additionally, the Company uses dealer/distributor networks, some of which are affiliated with strategic and industry partners. Enlisting and retaining qualified dealers/distributors and training them in the use and selling of product offerings requires substantial time and resources. If the Company were to lose a significant dealer or distributor relationship, and were forced to identify new channels, the time and expense of training new dealers or distributors may make new-product introduction difficult. This may hinder end-user sales and adoption, which could result in decreased revenues. Additionally, the interruption of dealer coverage within specific regions or markets could cause difficulties in marketing, selling or servicing the Company's products and could harm the Company’s business, operating results or financial condition.

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The Company's sales of products that are specialized and highly technical in nature are subject to uncertainties, start-up costs and inefficiencies, as well as market, competitive, and compliance risks.
The Company’s growth strategy relies on the design and manufacture of proprietary products. Highly technical, specialized product inventories may be more susceptible to fluctuations in market demand. If demand is unexpectedly low, write-downs or impairments of such inventory may become necessary. Either of these outcomes could adversely affect the Company's results of operations. Start-up costs and inefficiencies can adversely affect operating results and such costs may not be recoverable in a proprietary product environment because the Company may not receive reimbursement from its customers for such costs.

Competition in agriculture markets, including the market for autonomous ag technologies, could come from the Company's current customers. If OEMs develop and integrate precision agriculture technology products themselves rather than purchasing from third parties, this would reduce demand for Applied Technology’s products.

Regulatory restrictions could be placed on hydraulic fracturing activities as a result of environmental and health concerns, reducing demand for Engineered Film’s products. For Engineered Films, the development of alternative technologies, such as closed loop drilling processes that reduce the need for pit liners in energy exploration, could also reduce demand for the Company’s products.

Aerostar’s future growth includes sales of high-altitude stratospheric platforms, technical services, and radar systems to international markets. In limited cases, such sales may be direct commercial sales to foreign governments rather than foreign military sales through the U.S. government. Direct commercial sales to foreign governments often involve large contracts subject to frequent delays because of budget uncertainties, regional military conflicts, political instability, and protracted negotiation processes. Such delays could adversely affect the Company's results of operations. The nature of these markets impact Aerostar's advanced radar systems and aerostats as these products are particularly susceptible to fluctuations in market demand. Demand fluctuations and the likelihood of delays in sales involving large contracts for such products also increase the risk of these products becoming obsolete, increasing the risk associated with expected sales of such products. To the extent products become obsolete or anticipated sales are not realized, expected future cash flows could be adversely impacted. This could also lead to an impairment, which could adversely impact the Company's results of operations and financial condition.

The Company's Aerostar segment depends on the U.S. government for a significant portion of its sales, creating uncertainty in the timing of and funding for projected contracts.
A significant portion of Aerostar's sales are to the U.S. government or U.S. government agencies as a prime or sub-contractor. Government spending has historically been cyclical. A decrease in U.S. government defense or near-space research spending or changes in spending allocations could result in one or more of the Company's programs being reduced, delayed, or terminated. Reductions in the Company's existing programs, unless offset by other programs and opportunities, could adversely affect its ability to sustain and grow its future sales and earnings. The Company's U.S. government sales are funded by the federal budget, which operates on an October-to-September fiscal year. Changes in congressional schedules, negotiations for program funding levels, reduced program funding due to U.S government debt limitations, automatic budget cuts, extended government shutdowns or unforeseen world events can interrupt the funding for a program or contract. Funds for multi-year contracts can be changed in subsequent years in the appropriations process.

In addition, many U.S. government contracts are subject to a competitive bidding and funding process even after the award of the basic contract, adding an additional element of uncertainty to future funding levels. Delays in the funding process or changes in funding are common and can impact the timing of available funds or can lead to changes in program content or termination at the government's convenience. The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on the Company's future sales and earnings.

The Company derives a portion of its revenues from foreign markets, which subjects the Company to business risks, including risk of changes in government policies, laws, regulation compliance, or changes in worldwide economic conditions.
The Company's consolidated net sales to locations outside of the U.S. were $45.7 million in fiscal 2021, representing approximately 13% of consolidated net sales. The Company's financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations, along with changes in worldwide economic conditions. These conditions include, but are not limited to, changes in a country's or region's economic or political condition; trade regulations affecting production, pricing, and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights in some countries; changes in the regulatory or legal environment; restrictions on currency exchange activities; the impact of fluctuations in foreign currency exchange rates, which may affect product demand and may adversely affect the profitability of the Company's products in U.S. dollars in foreign markets where payments are made in the local currency; taxes and tariffs that may not be necessarily passed on to the customers; and other trade barriers. International risks and uncertainties also include changing social and economic
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conditions, terrorism, political hostilities and war, difficulty in enforcing agreements or collecting receivables, and increased transportation or other shipping costs. Any of these such risks could lead to reduced sales and reduced profitability associated with such sales.

The Company’s global operations must comply with all applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. The anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage, regardless of whether those practices are legal or culturally expected in a particular jurisdiction.

The Company’s continued expansion, whether by business locations or increased international sales, in areas that may not have comparable levels of compliance integrity as the United States increases the compliance risk associated with regulations such as the Foreign Corrupt Practices Act, as well as others.

Sales of certain Aerostar products into international markets increase the compliance risk associated with regulations such as International Traffic in Arms Regulations (ITAR) and Foreign Corrupt Practices Act (FCPA), as well as others.

Although Raven has a compliance program in place designed to reduce the likelihood of potential violations of such laws, violations of these laws could result in criminal or civil sanctions and have an adverse effect on Raven’s reputation, business, and results of operations and financial condition.

The Company may pursue or complete acquisitions, which represent additional risk and could impact future financial results.
The Company's business strategy includes pursuing future acquisitions. Acquisitions involve a number of risks, including integration of the acquired company with the Company's operations and unanticipated liabilities or contingencies related to the acquired company. Further, business strategies supported by the acquisition may be in perceived, or actual, opposition to strategies of certain of the Company's customers and the Company's business could be materially adversely affected if those relationships are terminated and the expected strategic benefits are delayed or are not achieved. The Company cannot ensure that the expected benefits of any acquisition will be realized. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close, which could significantly impact the operating results, financial condition, or cash flows.

Additionally, after the acquisition, unforeseen issues could arise, which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Other acquisition risks include delays in realizing benefits from the acquired companies or products; difficulties due to lack of or limited prior experience in any new product or geographic markets entered; unforeseen adjustments, charges or write-offs; unforeseen losses of customers of, or suppliers to, acquired businesses; difficulties in retaining key employees of the acquired businesses; or challenges arising from increased geographic diversity and complexity of operations and information technology systems.

Total goodwill and intangible assets accounted for $152.3 million, or approximately 37%, of the Company's total assets as of January 31, 2021. The Company evaluates goodwill and intangible assets for impairment annually, or when evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Principally, a significant decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or intangible assets. These expected future cash flows are dependent on several factors, including revenue growth in certain product lines, and could be adversely impacted if anticipated revenue growth is not realized. Reductions in cash flows could result in an impairment of goodwill and/or intangible assets, which could adversely impact the Company's results of operations and financial condition.

The Company’s business strategy for the Engineered Films Division includes expanding into the adjacent composites market; this expansion may be facilitated through an acquisition. Entering an expanded adjacent market may pose risks to the Company. This expansion may also divert management time or focus from standard Engineered Films Division operations, which may cause disruption or diverted resources and have an adverse effect on existing Engineered Films operations. There is always risk that expansion may not have the anticipated results or may involve unforeseen operating difficulties or expenditures.

The Company’s business strategy for the Applied Technology Division includes semi-autonomous and autonomous farm equipment. The Company has and plans to continue extensive investment into this strategic platform; however, there is a risk that the products may not perform as expected or may experience unexpected development issues. Additionally, expanding into autonomous farm equipment poses potential safety or regulatory issues, which may result in product liability or other claims against the Company. There is a higher level of risk with this technology as the Company is at the forefront of the market. It is
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possible that the Company's autonomous technology offering is too early to the market and the market is not ready for this technology. The Company's significant investment in R&D related to autonomy does not guarantee marketability of its products. Competition in the autonomy landscape and competitive intellectual property could slow down the Company's development and sale of autonomous products.

The Company may fail to continue to attract, develop, and retain key management and other key employees, which could negatively impact operating results.
The Company depends on the performance of its Board of Directors, senior management team and other key employees, including experienced and skilled technical personnel. The loss of certain members of its Board of Directors, senior management, including the Chief Executive Officer, or other key employees, could negatively impact operating results and the ability to execute the Company's business strategy. Future success of the Company will also depend, in part, upon the ability to attract, train, motivate, and retain qualified board members, senior management and other key personnel.

Macroeconomic and Financial Risks
Weather conditions or natural disasters could affect certain Company markets, such as agriculture, construction, geomembrane installation, or the Company's primary manufacturing facilities.
The Company's Applied Technology Division is largely dependent on the ability of growers, agricultural service providers, and custom applicators to purchase agricultural equipment, including its products. If such growers, agricultural service providers, or custom applicators experience weather conditions or natural disasters resulting in unfavorable field conditions, crop prices, or farm incomes, sales in the Applied Technology Division may be adversely affected.

Weather conditions and natural disasters may also adversely affect sales in the Company's Engineered Films Division. To the extent weather conditions or natural disasters impact agriculture, construction, or geomembrane installation activity, sales of the division's plastic sheeting would likely decrease.

Seasonal and weather-related variation could also affect quarterly results. If expected sales are deferred in a fiscal quarter and inventory has been built while operating expenses incurred, financial results could be negatively impacted.

The Company’s primary manufacturing facilities for each of its operating divisions are located on contiguous properties in Sioux Falls, South Dakota. If weather-related natural disasters such as tornadoes or flooding were to occur in the area, such conditions could impede the manufacturing and shipping of products and potentially adversely affect the Company’s sales and transaction processing. The Company has disaster recovery plans in place to manage the Company’s risks to these vulnerabilities, but these measures may not be adequate, implemented properly, or executed timely to ensure that the Company’s operations are not disrupted. Such consequences could adversely affect the Company's results of operations, financial condition, liquidity, and cash flows.

Fluctuations in commodity prices can increase the Company's costs and decrease sales.
Agricultural income levels are affected by agricultural commodity prices (primarily corn, beans, and grains) and input costs. As a result, changes in commodity prices or input costs that reduce agricultural income levels could have a negative effect on the ability of farmers and their service providers to purchase the Company's precision agriculture products manufactured by its Applied Technology Division.

Exploration for oil and natural gas fluctuates with their price and energy market conditions are subject to volatility. Certain plastic sheeting manufactured and sold by the Engineered Films Division is sold as pit and pond liners to contain water used in the drilling processes for these energy commodities. Lower prices for oil and natural gas could reduce exploration activities and demand for its products.

Film manufacturing uses polymeric resins, which can be subject to changes in price as the cost of oil or natural gas changes. Accordingly, volatility in oil and natural gas prices may negatively affect raw material costs and cost of goods sold and potentially cause the division to increase prices, which could adversely affect sales and/or profitability.

Adverse economic conditions in the major industries the Company serves may materially affect segment performance and consolidated results of operations.
The Company's results of operations are impacted by the market fundamentals of the primary industries served. Significant declines of economic activity in the agricultural, oil and gas exploration, construction, industrial, aerospace/defense, and other major markets served may adversely affect segment performance and consolidated results of operations.

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Legal, Regulatory, and Compliance Risks
The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others.
The Company has developed significant proprietary technology and other rights that are used in its businesses. The Company relies on trade secret, copyright, trademark, and patent laws and contractual provisions to protect the Company's intellectual property. While the Company takes enforcement of these rights seriously, other companies, such as competitors or persons in related markets, may attempt to copy or use the Company's intellectual property for their own benefit.

In addition, intellectual property of others has an impact on the Company's ability to offer some of its products and services for specific uses or at competitive prices. Competitors' patents or other intellectual property may limit the Company's ability to offer products and services to its customers. Any infringement or claimed infringement by the Company on the intellectual property rights of others could result in litigation and adversely affect the Company's ability to continue to provide, or could increase the cost of providing, products and services and negatively impact sales and profitability. Any infringement by the Company could also result in judgments against the Company, which could adversely affect results of operations, financial condition, liquidity, and cash flows.

The Company could be impacted by unfavorable results or material settlement of legal proceedings.
The Company is sometimes a party to various legal proceedings and claims that arise in the ordinary course of business. Regardless of the merit of any such claims, litigation is often very costly, time-consuming, and disruptive to the operations and business of the Company, and a distraction to management and other personnel. While these matters generally are not material in nature, it is possible a matter may arise that is material to the Company’s business.

Although the Company believes the probability of a materially adverse outcome is remote, if one or more claims were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements may be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against the Company that could have a material adverse effect on its businesses, financial condition, results of operation, and cash flows.

Raven is subject to governmental laws, regulations and other legal obligations related to privacy and data protection.
The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving. Raven collects personally identifiable information (PII) and other data as integral parts of its business processes and activities. This data is subject to a variety of U.S. and foreign laws and regulations, including oversight by various regulatory and other governmental bodies. Many foreign countries and governmental bodies, including the European Union, Brazil, individual states within the U.S., and other relevant jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or businesses operating within their jurisdictions. The European Union recently implemented the General Data Protection Regulation (GDPR), which imposes stringent data protection requirements and provides significant penalties for noncompliance. The state of California recently implemented the California Consumer Privacy Act (CCPA). Brazil implemented the Brazilian General Data Protection Law (BGPD). Any inability, or perceived inability, to adequately address privacy and data protection concerns, or to comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations could result in additional cost and liability to the Company or the Company’s officials, inhibit sales, or result in other adverse effects on the business.

Information Technology and Cybersecurity Risks
Technology failures or cyber-attacks on the Company's systems could disrupt the Company's operations or the functionality of its products and negatively impact the Company's business.
The Company increasingly relies on information technology systems to process, transmit, and store electronic information. In addition, a significant portion of internal communications, as well as communication with customers and suppliers, depends on information technology. Further, the products in Applied Technology and Aerostar segments depend upon GPS and other systems through which products interact with government computer systems and other centralized information sources. The Company is exposed to the risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional events. Like other companies, the Company's information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, foreign governments, and other security issues. Further, attacks on centralized information sources could affect the operation of the Company's products or cause them to malfunction. The Company has technology security initiatives, education and training programs, and disaster recovery plans in place to manage the Company's risk to these vulnerabilities, but these measures may not be adequate, or implemented properly, or executed timely to ensure that operations are not significantly disrupted. Potential consequences of a material cyber incident include damage to the Company's reputation, litigation, and increased cyber security protection and remediation costs. Such consequences could adversely affect results of operations.
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The implementation of a new enterprise resource planning (ERP) system may result in short term disruption to the Company’s operations and business, which could adversely impact the Company and damage customer relationships and brand reputation.
The Company depends heavily on its management information systems for several aspects of its business. The Company launched a company-wide initiative during the fiscal 2018 third quarter called "Project Atlas." This is a strategic long-term investment to replace the Company’s existing ERP platform. Project Atlas is being implemented in a phased approach and is expected to take approximately four years to complete. If the new ERP system or legacy system is disrupted, in any material way, during implementation, the Company may incur additional expenses and loss of data. Additionally, if improvements or upgrades are required to meet the evolving needs of the Company's business operations, the Company may be required to incur significant capital expenditures or expenses in the pursuit of improvements or upgrades to the new system. These efforts could potentially increase the amount of time for implementation of the new ERP platform, require expenditures above the anticipated amounts, demand the use of additional resources, distract key personnel and potentially cause short-term disruptions to existing systems and business. Any of these outcomes could impair the Company’s ability to achieve critical strategic initiatives and could adversely impact sales, profitability, cash flows and financial condition. Engineered Films and Aerostar went live on the Company's new ERP platform in fiscal 2020. Applied Technology is expected to go live in fiscal year 2022.


ITEM 1B.UNRESOLVED STAFF COMMENTS

None.


ITEM 2.PROPERTIES

Most of the Company's properties are located in the Sioux Falls, South Dakota, and surrounding area. The majority of real estate is owned by the Company and used by all three divisions for sales, manufacturing, and other functions. In addition, the Company owns or leases properties in: Texas, Virginia, Colorado, California, the Netherlands, Brazil, and Canada.

The following is the approximate square footage of the Company's owned or leased facilities by segment as of January 31, 2021: Applied Technology - 207,000; Engineered Films - 875,000; Aerostar - 219,000; and Corporate - 174,000. The Company believes that its properties are suitable and adequate to meet existing production needs.


ITEM 3.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 material to its results of operations, financial position, or cash flows.

The Company has insurance policies that provide coverage to various degrees for potential liabilities arising from legal proceedings.


ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.
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PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMPANY STOCK PERFORMANCE

The Company's common stock is traded on the Nasdaq Global Select Market under the ticker symbol RAVN. Daily market activity along with quoted prices and other trading information are readily available for the Company's common stock on numerous websites including www.nasdaq.com. The graph and table below compares the cumulative total shareholder return of the Company's stock in relation to the cumulative total return of the Russell 2000 and S&P Small Cap 600 indices. These two indices were selected as they are comparable benchmarks and the Company is a component of each index. Investors who hypothetically purchased $100.00 of the Company's stock on January 31, 2016, held the stock for five years and reinvested the dividends, would have seen their value increase to $233.32. Stock performance on the graph is not necessarily indicative of future share price performance.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES, INC., RUSSELL 2000 INDEX, AND THE S&P SMALL CAP 600 INDEX.
ravn-20210131_g2.jpg
For the years ended January 31,5-Year
Company / Index201620172018201920202021
CAGR(a)
Raven Industries, Inc.$100.00 $171.29 $267.80 $260.42 $224.09 $233.32 18.5 %
Russell 2000 Index100.00 133.53 156.47 150.96 164.86 214.61 16.5 %
S&P Small Cap 600 Index100.00 134.34 156.59 154.64 164.80 202.99 15.2 %
(a) Compound annual growth rate (CAGR)

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DIVIDENDS

On August 26, 2020, the Company announced that the Board of Directors indefinitely suspended the Company’s regular quarterly cash dividend on its common stock. The Company has reallocated this capital to supplement and accelerate investments in the Company's Strategic Platforms for Growth: Raven Autonomy™, Raven Composites™, and Raven Thunderhead. Prior to the announcement, the Company paid cash dividends to its shareholders of $0.26 per share in fiscal 2021, or approximately $9 million. The Company paid dividends to its shareholders of $0.52 per share, or approximately $19 million in fiscal 2020 and 2019.

ISSUER PURCHASES OF EQUITY SECURITIES

As of February 18, 2021, the Company had approximately 14,300 beneficial holders, which includes a substantial amount of the Company's common stock held of record by banks, brokers, and other financial institutions.

On November 3, 2014, the Company announced that its Board of Directors ("Board") had 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. This authorization remains in place until the authorized spending limit is reached or such authorization is revoked by the Board.
The Company had no share repurchases of the Company's common stock during fiscal 2021. Pursuant to the aforementioned authorizations, the Company made purchases of 332,651 shares at an average price of $32.41, equating to a total cost of $10.8 million during fiscal year 2020. The remaining dollar value authorized for share repurchases is $17.2 million at January 31, 2021.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance overall financial disclosure with commentary on the operating results, liquidity, capital resources, and financial condition of Raven Industries, Inc. (the Company or Raven). This commentary provides management's analysis of the primary drivers of year-over-year changes in key financial statement elements, business segment results, and the impact of accounting principles on the Company's financial statements. The most significant risks and uncertainties impacting the operating performance and financial condition of the Company are discussed in section Item 1A. "Risk Factors" of this Annual Report on Form 10-K (Form 10-K).

This discussion should be read in conjunction with Raven's Consolidated Financial Statements and notes thereto in Item 8 of this Form 10-K.

The MD&A is organized as follows:
Executive Summary
Results of Operations - Segment Analysis
Liquidity and Capital Resources
Off-Balance Sheet Arrangements and Contractual Obligations
Critical Accounting Policies and Estimates
Accounting Pronouncements

Management's Discussion and Analysis - Fiscal 2020 compared to Fiscal 2019
The comparison of fiscal 2020 with fiscal 2019, including the results of operations and liquidity, can be found in the "Management's Discussion and Analysis" section of the Company's 2020 Form 10-K, which comparison is incorporated by reference herein.

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 business segments: Applied Technology, Engineered Films, and Aerostar. Segment information is reported consistent with the Company's management reporting structure.

Management uses a number of measures to assess the Company's performance including:
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 margin and operating income. At the segment level, operating income 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 its 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.
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The following discussion highlights the consolidated operating results for the years ended January 31, 2021 and 2020. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.

For the years ended January 31,
(dollars in thousands, except per-share data)2021
% change
2020
Results of Operations
Net sales$348,359 (8.9)%$382,530 
Gross margin(a)
33.8 %32.3 %
Operating income$19,651 (50.8)%$39,939 
Operating margin(a)
5.6 %10.4 %
Net income attributable to Raven Industries, Inc.$18,876 (46.4)%$35,196 
Diluted income per share$0.52 (46.4)%$0.97 
Cash Flow and Shareholder Returns
Cash flow from operating activities$55,472 $54,872 
Cash outflow for capital expenditures16,147 8,560 
Cash dividends9,318 18,650 
Common share repurchases 10,781 
Performance Measures
Return on net sales(b)
5.4 %9.2 %
Return on average assets(c)
4.6 %9.2 %
Return on average equity(d)
5.8 %11.3 %
(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.
(b) Net income attributable to Raven Industries, Inc. divided by net sales.
(c) Net income attributable to Raven Industries, Inc. divided by average assets. Average assets is the sum of Total Assets for the beginning and ending of the fiscal year divided by two.
(d) Net income attributable to Raven Industries, Inc. divided by average equity. Average equity is the sum of Total Raven Industries, Inc. shareholders' equity for the beginning and ending of the fiscal year divided by two.

Results of Operations - Fiscal 2021 compared to Fiscal 2020
The Company's net sales in fiscal 2021 were $348.4 million, a decrease of $34.1 million, or 8.9%, from the prior year's net sales of $382.5 million. Year-over-year growth in Applied Technology was more than offset by declines in Engineered Films and Aerostar. The year-over-year growth within Applied Technology was driven by increased volumes to OEMs, as the division leveraged its industry-leading technology portfolio. Engineered Films' decline in net sales was driven by weak demand as its end-markets were significantly affected by the global pandemic. The year-over-year decline in revenue for Aerostar was primarily driven by pandemic related travel restrictions enacted by the Department of Defense.

Operating income in fiscal 2021 was $19.7 million, a decrease of $20.2 million, or 50.8%, from the prior year's operating income of $39.9 million.

Fiscal 2021 operating income was reduced by the following:

Strategic investments in Raven Autonomy™ during fiscal 2021 of $16.8 million, primarily in research and development and selling activities to advance the Company's autonomous ag solutions.
Lower operating leverage within Engineered Films due to significantly lower sales, primarily in the geomembrane (specifically the energy sub-market) and construction markets.

Net income attributable to Raven for fiscal 2021 was $18.9 million, or $0.52 per diluted share, compared to net income of $35.2 million, or $0.97 per diluted share, in fiscal 2020. The investment in Raven Autonomy™ reduced net income attributable to Raven by $12.9 million, or $0.36 per diluted share in fiscal 2021, and $2.3 million, or $0.06 per diluted share in fiscal 2020.


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Applied Technology Division
Fiscal 2021 net sales increased $16.7 million, or 12.8%, from $130.5 million in fiscal 2020 to $147.2 million in fiscal 2021. Applied Technology's increase in sales was driven by growth in the OEM channel, through leveraging its industry-leading technology portfolio and strong customer relationships. This growth was achieved despite economic challenges that included low commodity prices for much of the year and overall weak conditions within the ag industry. The growth included last-time buy activity associated with the exit of a commercial relationship initiated by the Company.

Applied Technology's operating income decreased by 13.7% to $26.5 million from $30.7 million in the prior year. Operating income was reduced by $16.6 million of strategic investment in research and development and selling activities for Raven Autonomy™.

Engineered Films Division
Fiscal 2021 net sales were $147.9 million, a decrease of $49.8 million, or 25.2%, compared to fiscal 2020. Engineered Films faced weak economic conditions across a majority of its end-markets throughout the year, resulting in a decline in net sales year-over-year. Geomembrane (including the energy sub-market) experienced the largest declines as rig counts in the Permian Basin were down 70 percent throughout a significant portion of the year. Net sales in the construction market also declined as there was reduced demand driven by a significant decline in non-residential construction starts versus the prior year. Partially offsetting these declines was the delivery of $4.8 million of film-based medical supplies associated with a FEMA contract to aid in the pandemic response.

Engineered Films' operating income decreased by 45.1% to $15.7 million from $28.7 million in the prior year. The year-over-year decline was driven by lower sales volume and the corresponding negative operating leverage.

Aerostar Division
Fiscal 2021 net sales were $53.3 million, down 2.0%, compared to $54.4 million in fiscal 2020. Declines in stratospheric platforms and radar products more than offset the increase in aerostat system deliveries during the current year, and drove the decline in sales year-over-year.

Aerostar's operating income was $4.4 million, a decrease of 48.8% year-over-year, from $8.6 million. The year-over-year decline was driven by lower margins due to increased material and overhead expenses, as well as a strategic increase in investment in the division's stratospheric systems.

RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products, autonomous solutions, and information management tools, which are collectively referred to as precision agriculture equipment, that help farmers reduce costs, more precisely control inputs, and improve farm yields for the global agriculture market.
For the years ended January 31,
(dollars in thousands)2021% change2020
Net sales$147,198 12.8 %$130,460 
Gross profit74,370 17.4 %63,359 
Gross margin50.5 %48.6 %
Operating expense$47,902 46.5 %$32,687 
Operating expense as % of sales32.5 %25.1 %
Operating income(a)
26,468 (13.7)%30,672 
Operating margin18.0 %23.5 %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.


For fiscal 2021, net sales increased $16.7 million, or 12.8%, to $147.2 million as compared to $130.5 million in fiscal 2020. Operating income decreased $4.2 million, or 13.7%, to $26.5 million as compared to $30.7 million in fiscal 2020.





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Fiscal 2021 results compared to fiscal 2020 results were primarily driven by the following factors:

Market conditions. During the first three quarters of fiscal 2021, the North America ag market was negatively impacted by low commodity prices, and the ongoing pandemic drove further uncertainty in the marketplace. These factors reduced expected farm income, and OEMs responded with lower production of new machines. During the fourth quarter, improving commodity prices have provided optimism about ag market conditions, with the Company seeing an increase in demand. As commodity prices have reached levels not seen since 2014, the Company anticipates these improved conditions will lead to strong results in the first half of fiscal 2022. The Company does not specifically model comparative market share position for any of its operating divisions, but based on the sales developments in fiscal 2021, the Company believes that Applied Technology, in aggregate, has maintained its global market share position during the year.
Sales volume and selling prices. Geographically, domestic sales were up 14.6% and international sales were up 7.1% year-over-year. Higher sales volume of both new and existing products, rather than an increase in selling price, was the primary driver of the increase in sales. Included within domestic sales totals is $17.0 million of last time buy activity to a non-strategic OEM customer. This is an increase of $9.2 million year-over-year of sales to this customer.
International sales. Net sales outside the U.S. accounted for 22.8% of segment sales in fiscal 2021 compared to 24.0% in fiscal 2020. International sales of $33.6 million in fiscal 2021 increased $2.2 million, or 7.1%, compared to fiscal 2020. Sales to Australia and Europe, up approximately 61% and 14%, respectively, led the increase in international sales year-over-year. The year-over-year increases were partially offset by a decrease in sales to Latin America.
Gross margin. Gross margin increased from 48.6% in fiscal 2020 to 50.5% in fiscal 2021. The year-over-year increase in profitability was driven by positive operating leverage from higher sales volume and favorable product mix.
Operating expenses. Fiscal 2021 operating expenses were 32.5% of net sales compared to 25.1% for the prior year. The increase in operating expenses as a percentage of sales was driven by $16.6 million of Raven AutonomyTM related expenses in fiscal 2021 compared to $2.8 million in fiscal 2020. These expenses primarily consisted of investment in research and development and selling activities to drive the commercialization of autonomous ag solutions.

Engineered Films
Engineered Films produces high-performance plastic films and sheeting for geomembrane, agricultural, construction, and industrial applications and also offers design-build and installation services of these plastic films and sheeting. Plastic film and sheeting can be purchased separately or together with installation services.
For the years ended January 31,
(dollars in thousands)2021
% change
2020
Net sales$147,921 (25.2)%$197,719 
Gross profit25,687 (32.7)%38,166 
Gross margin17.4 %19.3 %
Operating expenses$9,944 5.0 %$9,471 
Operating expenses as % of sales6.7 %4.8 %
Operating income(a)
$15,743 (45.1)%$28,695 
Operating margin10.6 %14.5 %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.


For fiscal 2021, net sales decreased $49.8 million, or 25.2%, to $147.9 million as compared to fiscal 2020. Operating income was $15.7 million, down 45.1% for fiscal 2021 as compared to $28.7 million for fiscal 2020.

Fiscal 2021 results compared to fiscal 2020 results were primarily driven by the following factors:

Market conditions. In fiscal 2021, the ongoing pandemic and resulting economic slowdown significantly impacted demand in the division's end-markets, with the geomembrane (including the energy sub-market) and construction markets, most significantly impacted. Rig counts within the Permian Basin were down over 70 percent year-over-year for most of fiscal 2021 before beginning to recover during the fourth quarter. In addition, delays in large-scale projects due to the pandemic has led to declines in demand within the construction and installation markets. During fiscal year 2022, the Company expects demand to continue to improve in the aforementioned markets that were significantly impacted by the economic slowdown. The Company does not model comparative market share position for any of its operating divisions, but based on the sales developments in fiscal 2021, the Company believes that Engineered Films, in aggregate, has maintained its market share in its core business.
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Sales volume and selling prices. Sales to geomembrane (including the energy sub-market) and construction markets were down significantly year-over-year. This decline in sales was driven by decreases in rig counts within the Permian Basin, as well as delays in large-scale projects, reducing sales volumes within the geomembrane, construction and installation markets during fiscal 2021. Sales volume, measured in pounds sold, decreased approximately 19% year-over-year for the twelve-month period ended January 31, 2021. The decline in demand in certain end-markets, as well as unfavorable product mix, caused selling prices to decline in fiscal 2021 compared to the prior year.
Gross margin. Fiscal 2021 gross margin was 17.4%, 1.9 percentage points lower than the prior fiscal year. The decrease in gross margin percentage was led by lower operating leverage due to the reduction in sales volume.
Operating expenses. Fiscal 2021 operating expenses, as a percentage of net sales, increased to 6.7%, from 4.8% in the prior year. Despite ongoing efforts to reduce costs due to the uncertainty of the pandemic, lower sales and focused research and development expenditures to improve quality and production efficiencies to support Raven Composites™ drove the increase in operating expenses as a percentage of net sales. In addition, the division increased its allowance for uncollectible accounts, contributing to the increase in operating expenses.

Aerostar
Aerostar serves the aerospace and defense and commercial lighter-than-air markets. Aerostar's core products include high-altitude stratospheric platforms, technical services, 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.
For the years ended January 31,
(dollars in thousands)2021% change2020
Net sales$53,343 (2.0)%$54,443 
Gross profit17,673 (20.5)%22,222 
Gross margin33.1 %40.8 %
Operating expenses$13,274 (2.6)%$13,625 
Operating expenses as % of sales24.9 %25.0 %
Operating income(a)
$4,399 (48.8)%$8,597 
Operating margin8.2 %15.8 %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.

Net sales for fiscal 2021 decreased 2.0% to $53.3 million from last year’s net sales of $54.4 million. Operating income decreased $4.2 million to $4.4 million in fiscal 2021 compared to $8.6 million in fiscal 2020.

Fiscal 2021 results compared to fiscal 2020 results were primarily driven by the following factors:

Market conditions. Aerostar's markets are subject to significant fluctuation in demand due to the timing of contract awards and unpredictability surrounding government spending. While it is particularly challenging to measure market share information for the Aerostar division and the Company does not model comparative market share position for any of its operating divisions, the Company believes that Aerostar has maintained its market share during fiscal 2021.
Sales volume. The decrease in net sales was driven by sales declines in stratospheric platforms and radar products. Radar products were impacted by a reduction in the scope of the products and services related to the five-year $36 million radar systems contract awarded in fiscal 2019. Partially offsetting these declines were an increase in deliveries on the aerostat contract awarded in fiscal 2020.
Gross margin. For fiscal 2021, gross margin decreased 7.7 percentage points compared to the prior fiscal year. The decrease in gross margin was driven predominately by an unfavorable sales mix and higher materials and overhead expenses, as well as $0.5 million of inventory write downs for radar products.
Operating expenses. Operating expenses as a percentage of net sales decreased 0.1 percentage points compared to the prior year. Fiscal 2021 operating expenses were $13.3 million, or 24.9% of net sales, compared to operating expenses of $13.6 million, or 25.0% of net sales in fiscal 2020. The division's research and development expenses increased as it continues investing in stratospheric systems that are expected to drive long-term growth. This increase was more than offset by a reduction in selling expenditures associated with lower sales volume.

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Corporate Expenses (administrative expenses; other income (expense), net; and effective tax rate)
For the years ended January 31,
(dollars in thousands)20212020
Administrative expenses$27,031 $28,025 
Administrative expenses as a % of sales7.8 %7.3 %
Other income (expense), net$(476)$95 
Effective tax rate2.1 %13.5 %

Administrative expenses decreased $1.0 million in fiscal 2021 compared to fiscal 2020. Increased focus on reducing expenditures in response to the pandemic drove down costs, including lower travel expenses due to company-wide travel restrictions and lower consulting and professional services. Lower administrative expenses were also attributable to a reduction of Project Atlas expenditures of $0.6 million year-over-year. Project Atlas related expenses were $2.1 million and $2.7 million in fiscal 2021 and fiscal 2020, respectively.

Other income (expense), net consists primarily of activity related to the Company's equity investments, interest income, foreign currency transaction gains or losses, amortization of debt issuance costs, and other fees related to the Company's credit facility further described in Note 11 "Debt" of the Notes to the Consolidated Financial Statements. There were no significant items in other income (expense), net for fiscal 2021 or fiscal 2020.

The Company's fiscal 2021 effective tax rate was 2.1% compared to 13.5% in the prior year. The decrease in the effective tax rate for fiscal 2021 was driven primarily by the decrease in current year profitability that resulted in a higher R&D tax credit as a percentage of pre-tax income. For further information regarding the change in effective tax rates, refer to Note 10 "Income Taxes" of the Notes to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet continues to reflect significant liquidity and a strong capital base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been the Company's primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows and credit facility access, 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 $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:
For the years ended January 31,
(dollars in thousands)20212020
Cash and cash equivalents$32,938 $20,707 

For the years ended January 31,
(dollars in thousands)20212020
Cash provided by operating activities$55,472 $54,872 
Cash used in investing activities(15,913)(58,609)
Cash used in financing activities(27,131)(40,887)
Effect of exchange rate changes on cash and cash equivalents(197)(456)
Net increase (decrease) in cash and cash equivalents$12,231 $(45,080)

Cash and cash equivalents totaled $32.9 million at January 31, 2021, compared to $20.7 million at January 31, 2020, an increase of $12.2 million. The sequential increase in cash was driven by an increased focus on lowering net working capital during the pandemic, as well as the Company's decision to indefinitely suspend the quarterly cash dividend on its common stock.
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At January 31, 2021, the Company held cash and cash equivalents of $2.2 million in accounts outside the United States. These balances included undistributed earnings of foreign subsidiaries. As of January 31, 2021, the Company has no deferred tax liability recognized relating to the Company’s investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The Tax Cuts and Jobs Act (TCJA) generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and as a result, the accumulated undistributed earnings would only be subject to other taxes, such as withholding taxes and state income taxes, on distribution of such earnings. No additional withholding or income taxes has been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it is the Company’s intention for these amounts to continue to be indefinitely reinvested in foreign operations. The Company’s liquidity is not materially impacted by the amount held in accounts outside of the United States as the Company's operating cash flows are primarily driven by U.S. sources.

Operating Activities
Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services, and employee compensation. Cash provided by operating activities was $55.5 million in fiscal 2021 and $54.9 million in fiscal 2020. The $0.6 million increase in operating cash flows in fiscal 2021 as compared to fiscal 2020 is primarily due to an increased focus on lower net working capital during the pandemic.

The Company's cash needs have minimal seasonal trends. As a result, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in net working capital. Net working capital and net working capital percentage are metrics used by management as a guide in measuring the efficient use of cash resources to support business activities and growth. The Company's net working capital for the comparative periods was as follows:
For the years ended January 31,
(dollars in thousands)20212020
Accounts receivable, net$48,669 $62,552 
Plus: Inventories, net52,703 53,899 
Less: Accounts payable18,639 14,893 
Net working capital(a)
$82,733 $101,558 
Annualized net sales(b)
$320,308 $343,044 
Net working capital percentage(c)
25.8 %29.6 %
(a) Net working capital is defined as accounts receivable, net plus inventories, net less accounts payable.
(b) Annualized net sales is defined as fourth quarter net sales during the applicable fiscal year multiplied by four.
(c) Net working capital percentage is defined as net working capital divided by annualized net sales.
Net working capital percentage improved from 29.6% at January 31, 2020, to 25.8% at January 31, 2021. The Company's continued focus on maintaining lower net working capital during the pandemic drove the year-over-year change. The Company lowered inventory levels at Engineered Films to align with expected sales, while the increase in accounts payable was due to timing of purchases and the optimization of payment terms, including forgoing early-payment discounts during most of fiscal year 2021. The decrease in accounts receivable was driven by a combination of the timing and fulfillment of sales orders during the fourth quarter and lower sales volume year-over-year.

Inventory levels were down $1.2 million, or 2.2% from $53.9 million at January 31, 2020, to $52.7 million at January 31, 2021. In comparison, net sales decreased $5.7 million or 6.6% year-over-year in the fourth quarter. The decrease in inventory was primarily driven by the Engineered Films division improving operational efficiency and aligning inventory levels with corresponding expected sales.

Accounts receivable levels decreased $13.9 million, or 22.2% from $62.6 million at January 31, 2020, to $48.7 million at January 31, 2021. In comparison, net sales decreased $5.7 million or 6.6% year-over-year in the fourth quarter. The decrease in accounts receivable was driven by a combination of the timing and fulfillment of sales orders during the fourth quarter and lower sales volume year-over-year. In addition, a decrease in unbilled receivables for Aerostar due to timing of billings and fulfillment of certain service contracts contributed to the decrease.

Accounts payable increased $3.7 million, or 25.2% to $18.6 million at January 31, 2021, from $14.9 million at January 31, 2020. The timing of purchases and related payments in the fourth quarter of fiscal 2021 compared to the fourth quarter of fiscal 2020, as well as forgoing early-payment discounts for most of fiscal year 2021, led to an increase in the accounts payable balance year-over-year.
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Investing Activities
Cash used in investing activities totaled $15.9 million in fiscal 2021 and $58.6 million in fiscal 2020. Capital expenditures totaled $16.1 million in fiscal 2021 compared to $8.6 million in fiscal 2020. The primary drivers of the decrease in cash outflows in fiscal 2021 were the acquisitions of Smart Ag and DOT in the prior fiscal year. There were no business acquisitions in fiscal 2021.

Management anticipates capital spending of approximately $18.0 million in fiscal 2022 primarily for facility expansion and capital investments in Engineered Films and Applied Technology to support the growth of Raven Composites™ and Raven Autonomy™.

Financing Activities
Financing activities consumed cash of $27.1 million in fiscal 2021 compared with $40.9 million in fiscal 2020. The decrease in financing cash outflows was driven by the suspension of the dividend during the current year and share repurchases in the prior year. The payment of $17.9 million in fiscal 2021 related to the redemption of the noncontrolling interest in DOT, partially offset the aforementioned changes.

Dividends paid were $9.3 million and $18.7 million in fiscal years 2021 and 2020, respectively. On August 26, 2020, the Company announced that the Board of Directors indefinitely suspended the Company’s regular quarterly cash dividend on its common stock. The Company intends to reallocate this capital to supplement and accelerate investments in the Company's Strategic Platforms for Growth; Raven Autonomy™ and Raven Composites™. Dividends per share were $0.26 and $0.52 in fiscal years 2021 and 2020, respectively.

In fiscal 2016, the Company began to repurchase common shares as part of the $40.0 million share repurchase plan authorized by the Company’s Board of Directors. Since that time, the Board has provided additional authorizations bringing the total amount authorized under the plan to $75.0 million at January 31, 2021. The Company made no share repurchases in fiscal 2021, however share repurchases totaling $10.8 million were made in fiscal 2020. Approximately $17.2 million of the total authorization remains available for share repurchases under this plan as of January 31, 2021.

Other Liquidity and Capital Resources
In fiscal 2020, the Company replaced its previous credit facility with a three-year $100 million senior revolving credit facility which includes a $100 million borrowing availability expansion feature. This Credit Agreement is more fully described in Note 11 "Debt" of the Notes to the Consolidated Financial Statements. There were no borrowings outstanding at fiscal year-end for any of the periods covered by this Form 10-K. Availability under the Credit Agreement for borrowings as of January 31, 2021, was $100 million.

Letters of credit (LOC) totaling $0.1 million and $0.1 million were outstanding at January 31, 2021 and 2020. Any draws required under the LOCs would be settled with available cash or borrowings under the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including those relating to financial reporting and notification, limits on levels of indebtedness and liens, investments, mergers and acquisitions, affiliate transactions, sales of assets, restrictive agreements, and change in control as defined in the Credit Agreement. Financial covenants include an interest coverage ratio and funded indebtedness to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. The Company is in compliance with all financial covenants set forth in the Credit Agreement.

The Company launched a company-wide initiative during the third quarter of fiscal 2018 called Project Atlas. This is a strategic and long-term investment to replace the Company’s existing ERP platform. This investment will drive efficiencies across the enterprise, enable faster integration of future acquisitions, automate a significant portion of internal controls, and enhance the Company's execution of its long-term growth strategy. Engineered Films and Aerostar went live on the Company's new ERP platform in fiscal 2020. Applied Technology is expected to go live in fiscal year 2022. The total project is expected to cost approximately $12 million. The Company recognized $2.1 million and $2.7 million in fiscal years 2021 and 2020, respectively, of expenses for Project Atlas. Project Atlas spending is expected to be approximately $2.0 million in fiscal year 2022.

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OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

As of January 31, 2021, the Company is obligated to make cash payments in connection with its non-cancelable operating leases for facilities and equipment, financing lease obligations and unconditional purchase obligations, primarily for raw materials. Additionally, the Company's known off-balance sheet debt and other unrecorded obligations at January 31, 2021, are listed in the table below.
(dollars in thousands)Total
Less than
1 year
2-3
years
4-5
years
More than
5 years
Long term notes and credit facility$2,124 $85 $2,039 $— $— 
Financing lease obligations774 377 374 23 — 
Operating leases7,703 2,308 2,844 2,115 436 
Unconditional purchase obligations39,519 39,519 — — — 
Postretirement benefits15,486 369 756 762 13,599 
Acquisition-related contingent payments2,000 2,000 — — — 
Contractual Gift Agreement2,140 715 1,425 — — 
Redeemable noncontrolling interest5,333 5,333 — — — 
Uncertain tax positions2,692 — — — — 
$77,771 $50,706 $7,438 $2,900 $14,035 
Long-term notes and credit facility
The Company entered into a credit facility on September 20, 2019, 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 million with a maturity date of September 20, 2022. Loan proceeds may be utilized by Raven for strategic business purposes, such as business acquisitions, and for net working capital needs.

The Company is party to a financial assistance agreement (Agreement) between DOT and Western Economic Diversification Canada (WEDC), a government agency in Canada, that was entered into in August 2019. Under the Agreement, the WEDC agrees to contribute up to $5.0 million in Canadian currency, approximately $4.0 million in US dollars, over a three year period for costs incurred to develop a cloud-based distribution and service channel for a particular DOT product being developed. DOT is eligible to receive contributions for costs incurred for purposes specified in the Agreement. The Company is required to repay the funds contributed by WEDC in 60 monthly installments commencing April 1, 2023, plus interest based on an average bank rate plus three percent, accruing from the payment commencement date. As of January 31, 2021, the Company had received $2.0 million in contributions from WEDC and no repayments have been made. The outstanding liability balance is reported as "Long term debt" on the Consolidated Balance Sheets.

Lease obligations
The Company's financing lease obligations are primarily related to vehicles and equipment to support general business operations. Operating leases are primarily related to facilities to support production, R&D, and sales efforts.

Unconditional purchase obligations
Unconditional purchase obligations consist of those for inventory and other obligations that arise in the normal course of business operations. The majority of these are related to the purchase of raw material inventories in the Applied Technology and Engineered Films divisions.

Postretirement benefit obligation
The Company previously provided postretirement medical and other benefits to certain senior executive officers and senior managers. At January 31, 2021, sixteen participants remained eligible to receive postretirement medical and other benefits for their lifetimes. Postretirement benefit amounts presented in the table above represent expected payments on the accumulated postretirement benefit obligation before it is discounted. This benefit obligation is unfunded and is further described in Note 8 "Employee Postretirement Benefits" of the Notes to the Consolidated Financial Statements.

Acquisition-related obligations
The Company has a future obligation for earn-out payments associated with the acquisition of AgSync, completed in fiscal 2019. The total liability recorded on the Consolidated Balance Sheets as of January 31, 2021, related to this future obligation was $2.0 million. The liability recorded represents the present value of earn-out payments classified as consideration at the acquisition date.

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Contractual gift agreement
The Company has future obligations related to a gift agreement with the South Dakota State University (SDSU) Foundation, Inc. (the Foundation) effective in January 2018. This gift will be used by SDSU, located in Brookings, SD, for the establishment of a precision agriculture facility to support SDSU's Precision Agriculture degrees and curriculum. This facility will assist the Company in further collaboration with faculty, staff, and students on emerging technology in support of the growing need for precision agriculture practices and tools. The Company will make a $5.0 million gift to the Foundation in annual installments throughout the term of the agreement. The liability recorded for this contingency at January 31, 2021, was $2.0 million (measured based on the present value of the expected future cash outflows).

Redeemable noncontrolling interest
Related to the Company’s majority ownership in DOT, the Company had call rights to purchase shares held by the noncontrolling interest shareholders at a price defined in the purchase agreement. The noncontrolling interest shareholders also had put rights allowing them to sell their minority interest back to the Company at a price derived from a specific formula. Due to the redemption features in these put rights, the minority interest shareholders’ value of shares owned was classified as a redeemable noncontrolling interest in the Company’s Consolidated Balance Sheets at January 31, 2020. During the first quarter of fiscal 2021, the Company was required to redeem the remaining noncontrolling interest in DOT after the minority interest shareholders exercised their put options. The Company closed on the transaction to purchase the shares of the largest minority shareholder for $17.9 million in the second quarter of fiscal 2021, giving the Company full voting control of DOT. The remaining redeemable amount, as well as the liability for the noncontrolling interest redeemed in the prior fiscal year, totaling approximately $5.3 million, is payable in November 2021 and these expected payments are reflected in the table above.

Uncertain tax positions
Raven reported a total liability for uncertain tax positions of $2.7 million at January 31, 2021. The Company is not able to reasonably estimate the timing of future payments relating to these non-current tax benefits. This obligation is retired when the uncertain tax position is settled or the applicable tax year is no longer subject to examination by the tax authorities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that require the application of especially challenging, subjective, or complex judgment when valuing assets and liabilities on the Company's balance sheet. These policies and estimates are discussed below because a fluctuation in actual results versus expected results could materially affect operating results and because the policies require significant judgments and estimates to be made. Accounting related to these policies is initially based on best estimates at the time of original entry in the accounting records. Adjustments are periodically recorded when, and if, the Company's actual experience differs from the expectations underlying the estimates. These adjustments could be material if experience were to vary significantly from expectations.

Goodwill
The Company recognizes goodwill as the excess cost of an acquired business over the net amount assigned to assets acquired and liabilities assumed. Goodwill for each reporting unit is assessed for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. The Company performs impairment reviews of goodwill by reporting unit. At the November 30th annual measurement date for fiscal 2021, the Company identified four reporting units: Engineered Films, Applied Technology (excluding Autonomy), Autonomy, and Aerostar.

The Company has the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.

If the Company performs a quantitative assessment, the fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires the Company to make significant estimates and assumptions regarding future revenues and expenses, projected capital expenditures, changes in net working capital, and the appropriate discount rate. In developing the discounted cash flow analysis, assumptions regarding revenue growth rates, operating profit margin percentages, capital expenditures, and changes in net working capital reference both the Company's annual operating plan (budget) and long-term strategic plan for each of the Company’s reporting units. These are updated to reflect the best available information at that time and as appropriate reflect market participant assumptions, if such amounts might differ from the Company-specific assumptions, for each of the Company’s reporting units. Discount rate assumptions for each reporting unit include the Company's estimated weighted average cost of capital, derived using both known and estimated customary market metrics, and management’s assessment of risks inherent to the future cash flows of the respective reporting unit. Use of the market approach includes evaluating comparable publicly-traded companies that are similar in size and industry. Revenue and EBITDA (earnings before interest, tax, depreciation and amortization) multiples for each reporting unit
27

were reviewed to ascertain the reasonableness of the reporting unit fair values. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures).

For the fiscal 2021 annual assessment, the Company elected to bypass the qualitative assessment and performed a quantitative assessment for each of the four reporting units. The Company's decision was driven by the time lapse since the last quantitative analysis and market conditions during the fiscal year. The fiscal year 2021 annual impairment test determined the estimated fair value exceeded the carrying value in each of our reporting units, therefore, no impairment charge was required.

For the Company's Engineered Films, Applied Technology (excluding Autonomy), and Aerostar reporting units, the fair value of the reporting unit was substantially in excess of the carrying value and not at risk of failing the quantitative analysis. Within the Autonomy reporting unit, the fair value of the reporting unit exceeded the carrying value of the assets by more than 20%. The fair value increase since the prior fiscal year acquisition is largely attributed to the significant investment in research and development activities to advance the autonomous technology, developed synergy between the Smart Ag and DOT acquisitions, and growing interest in the autonomous market. In determining the estimated fair value, the Company estimated a number of significant factors, including projected revenues growth rates, projected operating income results, terminal growth rates, and the discount rate. The Company made reasonable estimates and assumptions based on facts and circumstances available as of the measurement date. However, if actual results are not consistent with the estimates and assumptions used in the calculations, we may be exposed to future impairment losses that could be material. Events and conditions that could negatively impact the estimated fair value include increases in the Company's weighted average cost of capital, further delays in the commercialization of autonomous products, inability to realize the anticipated revenue growth opportunities, and a decrease in projected profitability. Goodwill associated with the Autonomy reporting unit was $56.6 million as of January 31, 2021.

Intangible Assets
Intangible assets are comprised of existing technology, customer relationships, and other definite-lived and indefinite-lived intangible assets. Identifiable intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. The Company typically uses an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions are inherent in the valuation of intangible assets. The valuation of intangibles takes into consideration other marketplace participants, and includes the amount and timing of future cash flows (including expected growth rates, discount rates, and profitability), royalty rates, customer attrition rates, and product obsolescence factors. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. Significant judgment is required to estimate the value of intangibles and in assigning their respective useful lives. Accordingly, the Company typically engages third-party valuation specialists, who work under the direction of management, to assist in valuing intangible assets acquired.

Definite-lived Intangible Assets
The Company amortizes definite-lived assets over their estimated useful lives. Identifiable definite-lived intangible assets are being amortized over the period of estimated benefit using the straight-line method and the undiscounted cash flows method.

Estimated useful lives range from three to twenty years. The Company evaluates definite-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition. The Company's estimates of future cash flows attributable to its assets require significant judgment based on the Company's historical and anticipated results. The Company considers various factors that could trigger an impairment review. These factors include the Company's business strategy, negative industry or economic trends, loss of customers, and changes in the manner of how the Company uses its acquired assets.

When the Company determines that the carrying value of the assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure the potential impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds the asset's fair value. Different assumptions and judgments could materially affect the calculation of the fair value of our assets.

Indefinite-lived Intangible Assets
Indefinite-lived intangible assets relate to acquired in-process R&D (IPR&D) and are capitalized and subject to annual impairment testing. As of January 31, 2021, the Company had in-process research and development recorded for $31.6 million. Upon successful completion of each project, the Company makes a separate determination of useful lives of the acquired indefinite-lived intangible assets and the related amortization is recorded as an expense over the estimated useful lives of the
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specific projects. Indefinite-lived intangible assets are subject to an annual assessment for impairment using a fair-value based test and between annual tests whenever a triggering event indicates there may be an impairment.

The Company uses a discounted future cash flow method (quantitative analysis) to estimate the fair value of indefinite-lived intangible assets, which is based on expected future cash flows attributable to the respective assets. Significant estimates and assumptions are inherent in the valuation of intangible assets. The valuation of intangibles takes into consideration other marketplace participants, and includes the amount and timing of future cash flows (including expected growth rates, discount rates, and profitability) and product obsolescence factors. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. Accordingly, the Company typically engages third-party valuation specialists, who work under the direction of management, to assist in valuing intangible assets acquired.

For the fiscal 2021 annual assessment, the Company's quantitative assessment indicated no impairment, with the fair value of the indefinite-lived assets exceeding the carrying value of the assets. Management's assessment assumes that the Company will commercialize autonomous products during fiscal 2022.

ACCOUNTING PRONOUNCEMENTS

See Note 1 "Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K 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," "would," "will," "predict," "project," "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 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 impact 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 this Annual Report on Form 10-K. 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.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents. The Company's outstanding debt as of January 31, 2021, relates to a long-term note, that bears no interest until April 2023, with an outstanding balance of $2.0 million and $0.8 million of financing lease obligations. The Company does not expect net income 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 $2.1 million and $5.3 million at January 31, 2021 and 2020, respectively. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in "Accumulated other comprehensive income (loss)" within shareholders' equity. Foreign currency transaction gains or losses are recognized in the period incurred and are included in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income. Foreign currency fluctuations had no material effect on the Company's financial condition, results of operations, or cash flows.

The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, the Company does utilize derivative financial instruments to manage the economic impact of fluctuation in foreign currency exchange rates on those transactions that are denominated in 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 in any of the three previous years.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
Management's Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm - Deloitte & Touche LLP
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed effectiveness of the Company's internal control over financial reporting as of January 31, 2021. In making its assessment of effectiveness of internal control over financial reporting, management used the criteria described by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment using those criteria, we concluded that, as of January 31, 2021, the Company's internal control over financial reporting was effective at a reasonable assurance level.

The effectiveness of our internal control over financial reporting as of January 31, 2021, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which appears on the next page.

/s/ DANIEL A. RYKHUS/s/ TAIMUR SHARIH
Daniel A. RykhusTaimur Sharih
President and Chief Executive OfficerVice President and Chief Financial Officer


March 24, 2021









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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Raven Industries, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Raven Industries, Inc. and subsidiaries (the "Company") as of January 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended January 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2021, in conformity accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 24, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Intangible Assets – Autonomy Reporting Unit and In-Process Research and Development— Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The goodwill balance is $107.7 million as of January 31, 2021, of which $56.6 million is allocated to the Autonomy reporting unit. The Company determines the fair value of its Autonomy reporting unit at least annually using a discounted cash flow analysis. The Company has indefinite-lived in-process research and development (“IPR&D”) assets that are associated with the Autonomy reporting unit as well. As of January 31, 2021, the carrying value of the IPR&D assets is $31.6 million. Management estimates the fair value of IPR&D at least annually using an excess earnings method, which is a specific discounted cash flow method. The determination of the fair values using the discounted cash flow methods requires management to make significant estimates and assumptions related to projected revenue growth rates, projected operating profit margins, and the applicable discount rates. The Company has not yet commercialized the autonomous products that will drive the future revenues for the Autonomy reporting unit and associated IPR&D assets.

The fair value of the Autonomy reporting unit and IPR&D intangible assets exceeded the carrying value as of the measurement date and, therefore, no impairment was recognized. Changes in these assumptions could have a significant impact on both the
33

fair values and the amount of any impairment charges.

Given the significant judgments made by management to estimate the fair values of the Autonomy reporting unit and the IPR&D, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of applicable discount rates, and projections of revenue growth rates and operating profit margins, specifically considering the autonomous products are not yet commercialized, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the projected revenue growth rates, projected operating profit margins, and the selection of discount rates used by management to estimate the fair value of the Autonomy reporting unit and the IPR&D included the following, among others:
We tested the effectiveness of controls over management’s goodwill and IPR&D impairment evaluation, including those over the determination of the fair value of the Autonomy reporting unit and the IPR&D assets, such as controls related to management’s selection of the discount rates and projections of revenue growth rates and operating profit margins.
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rates, including testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.
Due to the lack of historical experience available for the autonomous products, we evaluated the reasonableness of management’s projected revenue growth rates and operating profit margins by comparing the forecasts to (1) internal communications to management and the Board of Directors, (2) external communications made by management to analysts, investors and potential customers, (3) management’s estimates of market demand, including consideration of external market sources, (4) forecasted information included in analyst and industry reports for the Company and certain of its peer companies, and (5) the historical operating results of the Company’s existing products.
We performed inquiries of the R&D personnel that oversee the ongoing IPR&D projects to assess whether there were any indicators that may suggest the IPR&D assets may be impaired.
We performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the Autonomy reporting unit and IPR&D assets that would result from changes in the assumptions.


/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 24, 2021

We have served as the Company's auditor since 2017.





















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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Raven Industries, Inc.

Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Raven Industries, Inc. and subsidiaries (the “Company”) as of January 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 31, 2021, of the Company and our report dated March 24, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 24, 2021
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RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)

As of January 31,
20212020
ASSETS
Current assets
Cash and cash equivalents$32,938 $20,707 
Accounts receivable, net48,669 62,552 
Inventories, net52,703 53,899 
Other current assets5,776 5,436 
Total current assets140,086 142,594 
Property, plant and equipment, net106,007 100,850 
Goodwill107,677 106,509 
Intangible assets, net44,585 46,217 
Other assets11,016 7,087 
TOTAL ASSETS$409,371 $403,257 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable$18,639 $14,893 
Accrued liabilities30,401 20,743 
Other current liabilities2,998 2,287 
Total current liabilities52,038 37,923 
Long-term debt1,981 225 
Other liabilities23,997 29,161 
Total liabilities78,016 67,309 
Commitments and contingencies (see Note 13)
Redeemable noncontrolling interest 21,302 
Raven Industries, Inc. shareholders' equity
Common stock, $1.00 par value, authorized shares 100,000; issued 67,533 and 67,436 respectively
67,533 67,436 
Additional paid-in capital66,670 61,508 
Retained earnings311,676 302,300 
Accumulated other comprehensive loss(3,341)(5,415)
Less treasury stock at cost, 31,665 and 31,665 shares, respectively
(111,183)(111,183)
Total shareholders' equity331,355 314,646 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$409,371 $403,257 
The accompanying notes are an integral part of the consolidated financial statements.



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RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in thousands, except per-share amounts)

For the years ended January 31,
202120202019
Net sales$348,359 $382,530 $406,668 
Cost of sales230,557 258,783 274,119 
Gross profit117,802 123,747 132,549 
Research and development expenses43,094 31,558 26,174 
Selling, general and administrative expenses55,057 52,250 51,242 
Operating income19,651 39,939 55,133 
Other income (expense), net(476)95 6,437 
Income before income taxes19,175 40,034 61,570 
Income tax expense397 5,421 9,697 
Net income18,778 34,613 51,873 
Net income (loss) attributable to the noncontrolling and redeemable
noncontrolling interest
(98)(583)79 
Net income attributable to Raven Industries, Inc.$18,876 $35,196 $51,794 
Net income per common share:
    Basic$0.52 $0.98 $1.44 
    Diluted$0.52 $0.97 $1.42 
Comprehensive income:
Net income$18,778 $34,613 $51,873 
Other comprehensive income (loss):
Foreign currency translation2,299 (994)(1,045)
Postretirement benefits, net of income tax (expense) benefit of $65, $251, and $(99), respectively
(225)(865)342 
Other comprehensive income (loss), net of tax2,074 (1,859)(703)
Comprehensive income20,852 32,754 51,170 
Comprehensive income (loss) attributable to noncontrolling and
redeemable noncontrolling interest
(98)(583)79 
Comprehensive income attributable to Raven Industries, Inc.$20,950 $33,337 $51,091 
The accompanying notes are an integral part of the consolidated financial statements.

37


RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars and shares in thousands, except per-share amounts)

$1 Par Common StockAdditional Paid-in CapitalTreasury Stock At CostRetained EarningsAccumulated Other Comprehen-sive Income (Loss)Raven Industries, Inc. EquityNon-controlling InterestTotal EquityRedeem-able Non-controlling Interest
Balance January 31, 2018$67,124 $59,143 $(100,402)$252,772 $(2,573)$276,064 $2 $276,066 $— 
Net income— — — 51,794 — 51,794 79 51,873 — 
Other comprehensive (loss), net of income tax— — — — (703)(703)— (703)— 
Reclassification due to ASU 2018-02 adoption—  — 280 (280) —  — 
Cash dividends ($0.52 per share)
— 203 — (18,877)— (18,674)— (18,674)— 
Dividends of less than wholly-owned subsidiary paid to noncontrolling interest  — — —  (79)(79)— 
Shares issued on stock options exercised, net of
shares withheld for employee taxes
113 (2,750)— — — (2,637)— (2,637)— 
Shares issued on vesting of stock units, net of shares withheld for employee taxes
52 (892)— — — (840)— (840)— 
Share-based compensation— 3,951 — — — 3,951 — 3,951 — 
Balance January 31, 201967,289 59,655 (100,402)285,969 (3,556)308,955 2 308,957  
Net income (loss)— — — 35,196 — 35,196 (1)35,195 (582)
Other comprehensive (loss), net of income tax
— — — — (1,859)(1,859)— (1,859)— 
Business acquisition of less than wholly-owned
subsidiary (See Note 6)
—  —  —  —  24,315 
Redemption of noncontrolling interest— 199 — — — 199  199 (2,431)
Cash dividends ($0.52 per share)
— 216 — (18,865)— (18,649)— (18,649)— 
Dividends of less than wholly-owned subsidiary
    paid to noncontrolling interest
— — — — —  (1)(1)— 
Shares issued on stock options exercised, net of
    of shares withheld for employee taxes
41 (1,069)— — — (1,028)— (1,028)— 
Shares issued on vesting of stock units, net of
shares withheld for employee taxes
106 (2,464)— — — (2,358)— (2,358)
Shares repurchased—  (10,781)— — (10,781)— (10,781)— 
Share-based compensation— 4,971 — — — 4,971 — 4,971 — 
Balance January 31, 202067,436 61,508 (111,183)302,300 (5,415)314,646  314,646 21,302 
Net income (loss)   18,876