RAVEN INDUSTRIES, INC. The following commentary on the operating results, liquidity, capital resources, and financial condition ofRaven Industries, Inc. (the Company or Raven) should be read in conjunction with the unaudited Consolidated Financial Statements in Item 1 of Part 1 of this Quarterly Report on Form 10-Q (Form 10-Q) and the Company's Annual Report on Form 10-K for the year endedJanuary 31, 2020 . The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is organized as follows: •Executive Summary •Results of Operations - Segment Analysis •Market Conditions and Outlook •Liquidity and Capital Resources •Off-Balance Sheet Arrangements and Contractual Obligations •Critical Accounting Policies and Estimates •Accounting Pronouncements
EXECUTIVE SUMMARY
Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air, and aerospace/defense markets. The Company is comprised of three unique operating units, classified into reportable segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films ), and Aerostar Division (Aerostar). Segment information is reported consistent with the Company's management reporting structure.
Management uses a number of metrics to assess the Company's performance:
•Consolidated net sales, gross margin, operating income, operating margin, net income, and diluted earnings per share. •Cash flow from operations and shareholder returns. •Return on sales, average assets, and average equity. •Segment net sales, gross profit, gross margin, operating income, and operating margin. At the segment level, operating income and margin does not include an allocation of general and administrative expenses. Vision and Strategy Raven's purpose is to solve great challenges. Great challenges require great solutions. Raven's three unique divisions share resources, ideas, and a passion to create technology that helps the world grow more food, produce more energy, protect the environment, and live safely. The Raven business model is our platform for success. Raven's business model is defensible, sustainable, and gives us a consistent approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three business segments, is summarized as follows: •Intentionally serve market segments with strong growth prospects in both the near and long term. •Consistently manage a pipeline of growth initiatives within our market segments. •Aggressively compete on quality, service, innovation, and peak performance. •Attract and develop exceptional leaders who understand business deeply and can thrive in theRaven Way . •On a path of continuous improvement, consistently taking actions to streamline processes, improve efficiencies, and increase value delivered to our customers. •Value our balance sheet as a source of strength and stability. •Corporate responsibility is a top priority. 18 -------------------------------------------------------------------------------- The following discussion highlights the consolidated operating results for the three-month periods endedApril 30, 2020 and 2019. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section. Three Months Ended April 30, April 30, (dollars in thousands, except per-share data) 2020 2019 % Change Net sales$ 86,496 $ 98,178 (11.9) % Gross profit 28,467 35,066 (18.8) % Gross margin (a) 32.9 % 35.7 % Operating income$ 3,939 $ 15,121 (74.0) % Operating margin (a) 4.6 % 15.4 % Other income (expense), net$ (468) $ (69) Net income attributable to Raven Industries, Inc.$ 4,047 $ 13,210 (69.4) % Diluted earnings per share$ 0.11 $ 0.36 Cash flow from operating activities$ 11,851 $ 8,762 35.3 % Cash outflow for capital expenditures$ (4,434) $ (1,570) 182.4 % Cash dividends$ (4,658) $ (4,682) (0.5) % Common share repurchases $ -$ (2,281) (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. Consolidated Results For the fiscal 2021 first quarter, net sales were$86.5 million , down$11.7 million , or 11.9%, from$98.2 million in last year's first quarter. All three operating divisions faced significant challenges related to the pandemic throughout the last two months of the first quarter, with the revenue shortfall being mainly driven by a decline inEngineered Films along with lower net sales in Aerostar. Despite the substantial global economic challenges, Applied Technology achieved year-over-year sales growth by leveraging industry-leading products and strong customer relationships. In Aerostar, net sales from stratospheric platforms was negatively impacted byDepartment of Defense travel restrictions which limited Aerostar's ability to fulfill contracts and conduct flight campaigns for itsU.S. Government customers.Engineered Films realized significant adverse impacts from the pandemic and related economic slowdown, with the largest decreases in net sales in the geomembrane (specifically in the energy sub-market), industrial and construction markets. The Company's operating income for the first quarter of fiscal 2021 was$3.9 million , down$11.2 million , or 74.0%, compared to the first quarter of fiscal 2020. Included in the results for the first quarter of fiscal 2021 was$3.8 million of expenses associated with the Company's investment in Raven Autonomy™. The year-over-year decrease in operating income was driven principally by the investment in Raven Autonomy™, a significant decline in operating leverage withinEngineered Films , and delayed stratospheric platform contract fulfillment in Aerostar stemming from the pandemic. Net income for the first quarter of fiscal 2021 was$4.0 million , or$0.11 per diluted share, compared to net income of$13.2 million , or$0.36 per diluted share, in the prior year comparative period. The prior year's net income benefited from approximately$1.2 million ($0.03 per diluted share), while the current year benefited from$0.3 million ($.01 per diluted share) in favorable discrete tax items. The investment in Raven Autonomy™ reduced net income attributable to Raven by$2.9 million , or$0.08 per diluted share, in the first quarter of fiscal 2021. Applied Technology Division Results Applied Technology's net sales in the first quarter of fiscal 2021 were$42.0 million , up$0.3 million , or 0.7%, from last year's first quarter. Geographically, domestic sales were up 4.3% and international sales were down 8.2% year-over-year. Order activity remained strong for Applied Technology; however, supply chain challenges and enhanced safety precautions temporarily reduced workforce availability and precluded certain orders from being fulfilled during the first quarter. Division operating income in the first quarter of fiscal 2021 was$8.9 million , down$4.3 million , or 32.5% versus the first quarter of fiscal 2020. The decline was primarily driven by the division's investment in Raven Autonomy™. This year's first quarter results included$3.8 million of Raven Autonomy™ related expenses, primarily research and development investment to drive the commercialization of its autonomous ag solutions. 19 -------------------------------------------------------------------------------- Engineered Films Division ResultsEngineered Films' fiscal 2021 first quarter net sales were$33.4 million , a decrease of$10.9 million , or 24.6%, compared to fiscal 2020 first quarter net sales of$44.3 million . The Company saw demand decline significantly in the geomembrane (specifically the energy sub-market), construction, and industrial markets. Historically weak oil prices resulted in a 50 percent decline in rig counts within thePermian Basin and the division's sales into this end-market declined commensurately in the first quarter. In the construction and industrial markets, weak end-market demand resulted in a 20 percent decline versus the prior year, however, sales into the ag market grew significantly due to increased market share for high-value grain and silage covers.
Operating income for
Aerostar Division Results Aerostar net sales in the first quarter of fiscal 2021 were$11.2 million , a decrease of$1.0 million , or 8.5%, compared to fiscal 2020 first quarter net sales of$12.2 million . Delayed stratospheric balloon flights due toDepartment of Defense travel restrictions prevented the execution on certain contracts and drove the year-over-year decrease in net sales. Partially offsetting this decline was growth in net sales for aerostats. Division operating income in the first quarter of fiscal 2021 was$0.3 million , down$1.7 million versus the first quarter of fiscal 2020. The year-over-year decline was driven by the lower sales volume and a strategic increase in research and development expenses to advance product and service capabilities to drive future growth in core platforms. The radar and stratospheric capabilities being developed are very unique and are expected to position the division for future growth.
RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology designs, manufactures, sells, and services innovative
precision agriculture products, autonomous solutions, and information management
tools, which are collectively referred to as precision agriculture equipment,
that help farmers reduce costs, more precisely control inputs, and improve
yields for the global agriculture market.
Three Months Ended
April 30, April 30,
(dollars in thousands) 2020 2019 $ Change % Change
Net sales $ 42,007 $ 41,725 $ 282 0.7 %
Gross profit 20,330 21,337 (1,007) (4.7) %
Gross margin 48.4 % 51.1 %
Operating expenses $ 11,391 $ 8,101 $ 3,290 40.6 %
Operating expenses as % of sales 27.1 % 19.4 %
Operating income(a) $ 8,939 $ 13,236 $ (4,297) (32.5) %
Operating margin 21.3 % 31.7 %(a) At the segment level, operating income does not include an allocation of general and administrative expenses.
The following factors were the primary drivers of the three-month year-over-year changes:
•Market conditions. The North American ag market continues to be negatively impacted by low commodity prices, and the pandemic has driven further uncertainty in the marketplace. Unfavorable oil prices and demand has caused a significant reduction in ethanol production which has an unfavorable impact on corn prices. These factors have reduced expected farm income, and OEMs have responded with plans for lower production of new machines. The Company anticipates these low commodity prices, and an anticipated tightening of ag lending, will likely hamper any improvement in ag market conditions throughout fiscal 2021. The Company does not model comparative market share position for its divisions, but the Company believes Applied Technology maintained or increased its market share in the first quarter of fiscal 2021. •Sales volume and selling prices. First quarter fiscal 2021 net sales increased$0.3 million or 0.7%, to$42.0 million compared to$41.7 million in the prior year. Higher sales volume, rather than a change in selling price, was the primary driver of this increase. Net sales in the first quarter of fiscal 2021 included$2.8 million of last time buy activity to a non-strategic OEM customer, which was an increase of$1.1 million versus the prior year comparative period. Strong sales development in the current quarter led to increased sales to OEMs of new and existing products 20 -------------------------------------------------------------------------------- which benefited the division. However, supply chain challenges and enhanced safety precautions temporarily reduced workforce availability and precluded certain orders from being fulfilled during the first quarter. •International sales. For the first quarter of fiscal 2021, international sales totaled$11.1 million , down 8.2% from$12.1 million in the prior year comparative period. International sales represented 26.5% of segment revenue compared to 29.1% of segment revenue in the prior year comparative period. Weaker demand inCanada andLatin America drove the decrease in net sales internationally. •Gross margin. Gross margin decreased from 51.1% in the prior year first quarter to 48.4% in the first quarter of fiscal 2021. The year-over-year decrease in profitability for the three-month period was driven primarily by higher material and overhead costs. •Operating expenses. Fiscal 2021 first quarter operating expenses as a percentage of net sales was 27.1%, up from 19.4% in the prior year comparative period. This year's first quarter results included$3.8 million of Raven AutonomyTM related expenses, primarily research and development investment to drive the commercialization of its autonomous ag solutions.Engineered Films Engineered Films produces high-performance plastic films and sheeting for geomembrane, agricultural, construction, and industrial applications and also offers design-build and installation services of these plastic films and sheeting. Plastic film and sheeting can be purchased separately or together with installation services. Three Months Ended April 30, April 30, (dollars in thousands) 2020 2019 $ Change % Change Net sales$ 33,398 $ 44,292 $ (10,894) (24.6) % Gross profit 4,263 8,847 (4,584) (51.8) % Gross margin 12.8 % 20.0 % Operating expenses$ 2,656 $ 2,484 $ 172 6.9 % Operating expenses as % of sales 8.0 % 5.6 % Operating income(a)$ 1,607 $ 6,363 $ (4,756) (74.7) % Operating margin 4.8 % 14.4 %
(a) At the segment level, operating income does not include an allocation of general and administrative expenses.
The following factors were the primary drivers of the three-month year-over-year changes:
•Market conditions. In the first quarter, the pandemic and related economic slowdown drove a significant decrease in demand in the geomembrane (specifically in the energy sub-market), construction and industrial markets. Historically weak demand for oil, exacerbated by a world-wide over-supply situation, drove West Texas Intermediate prices to lows not previously realized and resulted in a 50 percent decline in rig counts within thePermian Basin . The Company expects that demand in the aforementioned markets will continue to be impacted by the current economic slowdown throughout fiscal 2021.Engineered Films has seen an increase in demand for high-value grain and silage covers within the ag market. The Company does not model comparative market share position for its divisions, but the Company believesEngineered Films maintained its market share in most of its end markets in the first quarter of fiscal 2021. •Sales volume and selling prices. First quarter net sales were$33.4 million , a decrease of$10.9 million , or 24.6%, compared to fiscal 2020 first quarter net sales of$44.3 million . The division achieved growth in the agriculture end-market; however, net sales to other end-markets were down year-over-year, which drove the significant decrease in net sales. Low demand in certain end-markets has caused selling price and volume to decline in the first quarter of fiscal 2021 compared to the prior year. Sales volume, measured in pounds sold, decreased approximately 18% year-over-year for the three-month period endingApril 30, 2020 . •Gross margin. For the three-month period endingApril 30, 2020 , gross margin was 12.8% and declined over 7 percentage points from 20.0% in the prior year. Negative operating leverage from lower sales volume along with lower selling prices drove the decrease in gross margin. •Operating expenses. As a percentage of net sales, operating expenses were 8.0% in the current year three-month period as compared to 5.6% in the prior year comparative period.
Aerostar
Aerostar serves the aerospace/defense and commercial lighter-than-air markets.
Aerostar's core products include high-altitude stratospheric balloons and radar
systems. These products can be integrated with additional third-party sensors to
provide research, communications, and situational awareness capabilities to
governmental and commercial customers.
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Three Months Ended
April 30, April 30,
(dollars in thousands) 2020 2019 $ Change % Change
Net sales $ 11,151 $ 12,190 $ (1,039) (8.5) %
Gross profit 3,834 4,881 (1,047) (21.5) %
Gross margin 34.4 % 40.0 %
Operating expenses $ 3,541 $ 2,885 $ 656 22.7 %
Operating expenses as % of sales 31.8 % 23.7 %
Operating income(a) $ 293 $ 1,996 $ (1,703) (85.3) %
Operating margin 2.6 % 16.4 %(a) At the segment level, operating income does not include an allocation of general and administrative expenses.
The following factors were the primary drivers of the three-month year-over-year changes:
•Market conditions. Aerostar's markets are subject to significant variability in demand due to government spending uncertainties and the timing of contract awards. The Company does not model comparative market share position for its divisions, but the Company believes Aerostar has maintained or increased its market share in the first quarter and fiscal 2021. •Sales volume. Net sales decreased 8.5% from$12.2 million for the three-month period endedApril 30, 2019 , to$11.2 million for the three-month period endedApril 30, 2020 . The decrease in revenue was driven by temporary delays in the execution on contracts due toDepartment of Defense travel restrictions. •Gross margin. For the three-month period, gross margin decreased from 40.0% to 34.4% was primarily driven by lower sales volume and an unfavorable sales mix. •Operating expenses. First quarter fiscal 2021 operating expense was$3.5 million , or 31.8% of net sales, an increase from 23.7% of net sales in the first quarter of fiscal 2020. Increased investment in R&D drove the increase in operating expenses as the division continued its investment in the advancement of its stratospheric and radar technologies. Corporate Expenses (administrative expenses; other (expense), net; and income taxes) ` Three Months Ended April 30, April 30, (dollars in thousands) 2020 2019 Administrative expenses$ 6,940 $ 6,475 Administrative expenses as a % of sales 8.0 % 6.6 % Other income (expense), net$ (468) $ (69) Effective tax rate (13.8) % 12.2 % Administrative spending for the three-month period of fiscal 2021 was up$0.5 million compared to fiscal 2020. Higher headcount and administrative spending to support the Company's growth strategy in Raven Autonomy™ led to the increase in year-over-year spending. Other income (expense), net consists primarily of activity related to the Company's equity investments, interest income and expense, and foreign currency transaction gains or losses. Lower returns on cash and interest expense on long-term borrowings during the first quarter contributed to the increase in Other (expense) during the three-month period in fiscal 2021. There were no significant items in other income (expense), net for the three-month period in fiscal 2020. The Company's effective tax rates for the three-month periods endedApril 30, 2020 and 2019, were (13.8)% and 12.2%, respectively. The year-over-year volatility in the effective tax rate for the three-month periods was driven primarily by an increase in the R&D tax credit. Due to the decrease in pre-tax income, this resulted in a negative effective tax rate during the first quarter of fiscal year 2021. Refer to Note 12 Income Taxes of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for more information on the impact of discrete tax items to the effective tax rate. 22 --------------------------------------------------------------------------------
MARKET CONDITIONS AND OUTLOOK
Given the unique market challenges, risks, and uncertainties presented as a result of the global coronavirus (COVID-19) pandemic, the Company identified four strategic priorities for fiscal 2021: upholding theRaven Way , emphasizing cash flow and liquidity, protecting the core business and continuing to invest in Raven Autonomy™. All three of the Company's divisions acted on these priorities during the first quarter and will continue to do so throughout fiscal 2021. Applied Technology expects to have a relatively strong year and drive year-over-year revenue growth with the strength of its product portfolio. The current year results will benefit from last time purchases from a non-strategic OEM customer, contributing to net sales growth of approximately$10 million . The Company remains confident that the division's strong customer relationships, diverse product offering, and commitment to service, quality, and innovation will put Applied Technology in a strong position to capture opportunities in the marketplace. However, low commodity prices, declines in ethanol production, anticipated tightening of ag lending and OEM plant shutdowns will limit the division's growth during the remainder of fiscal 2021. The economic slowdown, driven by the pandemic, negatively affected most end markets thatEngineered Films serves, with the largest impacts being concentrated in the geomembrane (specifically in the energy sub-market), construction, and industrial markets. While the duration of the economic slowdown is still unknown, we are not expecting to see a recovery in the geomembrane market within fiscal 2021 and we expect a significant year-over-year decline in revenue for the division. Despite the challenges with the oil industry, the division is working diligently with our industry partners to develop innovative solutions that solve great challenges for our customers in addition to taking advantage of near-term opportunities that exist in the other markets we serve. In Aerostar,Department of Defense travel restrictions prevented the execution on certain contracts during the first quarter and sales were delayed as a result. The division expects the travel restrictions to be temporary, but the timing of contract delivery could continue to be pushed out if these travel restrictions stay in place for an extended period of time. The backlog and underlying fundamental demand remains very strong for the division's radar and stratospheric product platforms. The Company expects to complete the fulfillment of its current aerostat contract in fiscal 2021, which will generate an additional$7 million in revenue throughout the current fiscal year. Overall, with conditions constantly changing, the length and duration of this economic slowdown is still uncertain, but the Company is well prepared to respond to these challenges. The fundamentals of our company remain very strong, and we have great confidence in our long-term success.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect significant liquidity and a strong capital base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been the Company's primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows, will be sufficient to fund the Company's normal operating, investing, and financing activities beyond the next twelve months. In addition, the Company has a three-year,$100 million senior revolving credit facility which includes a$100 million borrowing availability expansion feature. If executed, this allows the Company's total borrowing capacity to reach$200 million . This credit facility has a maturity date ofSeptember 20, 2022 .
The Company's cash balances and cash flows were as follows:
April 30, January 31, April 30,
(dollars in thousands) 2020 2020 2019
Cash and cash equivalents $ 72,581 $ 20,707 $ 61,370
Three Months Ended
(dollars in thousands) April 30, 2020 April 30, 2019
Cash provided by operating activities $ 11,851 $ 8,762
Cash used in investing activities (4,290) (2,441)
Cash provided by (used in) financing activities 44,648 (10,665)
Effect of exchange rate changes on cash and cash equivalents (335) (73)
Net increase (decrease) in cash and cash equivalents
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Cash and cash equivalents totaled $72.6 million at April 30, 2020 , an increase
of $51.9 million from $20.7 million at January 31, 2020 . Cash and cash
equivalents as of April 30, 2019 was $61.4 million . The sequential increase in
cash was driven by a $50.0 million draw down on its credit facility to maximize
the Company's short-term financial flexibility during the COVID-19 global
pandemic.
Operating Activities
Cash provided by operating activities was primarily derived from cash received
from customers, offset by cash payments for inventories, services, and employee
compensation. Cash provided by operating activities was $11.9 million for the
first three months of fiscal 2021 compared with $8.8 million in the first three
months of fiscal 2020. The increase in operating cash flows year-over-year was
driven primarily by actions taken to lower net working capital.
The Company's cash needs have minimal seasonal trends. As a result, the
discussion of trends in operating cash flows focuses on the primary drivers of
year-over-year variability in net working capital. Net working capital and net
working capital percentage are metrics used by management as a guide in
measuring the efficient use of cash resources to support business activities and
growth. The Company's net working capital for the comparative periods was as
follows:
(dollars in thousands) April 30, 2020 April 30, 2019
Accounts receivable, net $ 60,336 $ 67,792
Plus: Inventories 57,101 58,042
Less: Accounts payable 20,392 16,179
Net working capital(a) $ 97,045 $ 109,655
Annualized net sales(b) 345,984 392,712
Net working capital percentage(c) 28.0 % 27.9 %
(a) Net working capital is defined as accounts receivable, (net) plus inventories less accounts payable.
(b) Annualized net sales is defined as the most recent quarter net sales times four for each of the fiscal
periods, respectively.
(c) Net working capital percentage is defined as net working capital divided by annualized net sales.
Net working capital percentage was up slightly year-over-year in the first
quarter of fiscal 2021. However, net working capital decreased $12.6 million
year-over-year in the first quarter. This year-over-year change was driven
primarily by an increase in accounts payable and lower accounts receivable in
Engineered Films due to a decrease in net sales year-over-year.
Inventory levels decreased $0.9 million , or 1.6%, year-over-year from $58.0
million at April 30, 2019 , to $57.1 million at April 30, 2020 . In comparison,
consolidated net sales decreased $11.7 million , or 11.9%, year-over-year in the
first quarter. The decrease in inventory was primarily driven by the Engineered
Films division improving operational efficiency and aligning inventory levels
with corresponding expected sales.
Accounts receivable decreased $7.5 million or 11.0%, year-over-year to $60.3
million at April 30, 2020 , from $67.8 million at April 30, 2019 . In comparison,
consolidated net sales decreased $11.7 million , or 11.9%, year-over-year in the
first quarter. Lower sales volume and the timing of cash receipts were the
primary drivers of the year-over-year decrease in accounts receivable.
Accounts payable increased $4.2 million , or 26.0%, year-over-year from $16.2
million at April 30, 2019 , to $20.4 million at April 30, 2020 . The increase in
accounts payable year-over-year was primarily due to timing of purchases and
optimization of payment terms.
Investing Activities
Cash used by investing activities was $4.3 million for the first three months of
fiscal 2021 compared with cash used of $2.4 million in the first three months of
fiscal 2020. Capital expenditure spending increased $2.9 million compared to the
prior year three-month period due to current year investments in property and
equipment in Engineered Films .
Financing Activities
Cash used for financing activities for the first three months of fiscal 2021
decreased $55.3 million compared to the first three months of fiscal 2020. The
decrease in cash outflows was driven by a $50.0 million draw down on its credit
facility during the first three months of fiscal 2021. There were no borrowings
or repayments in the prior year comparative period. In addition, the prior
fiscal year included $2.3 million of share repurchases in the first three months
compared to no share repurchases in the first three months of fiscal 2021.
Dividends per share for the first three months of fiscal 2021 and 2020 were
consistent at
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--------------------------------------------------------------------------------Other Liquidity and Capital Resources The Company entered into a$100 million credit agreement onSeptember 20, 2019 , with a maturity date ofSeptember 20, 2022 . This agreement (Credit Agreement) is more fully described in Note 10 Debt of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q. 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 drew down$50.0 million on its credit facility during fiscal 2021 first quarter to increase its cash position to maximize financial flexibility during the COVID-19 global pandemic. The borrowings mature onSeptember 20, 2022 . Availability under the Credit Agreement for borrowings as ofApril 30, 2020 , was$50.0 million . As the impacts of the risks and uncertainties related to the pandemic become more clear, the Company expects to make principal payments on this long-term obligation, including$25.0 million which was repaid prior to the filing of this Form 10-Q. Letters of credit (LOCs) totaling$0.1 million and$0.3 million were outstanding atApril 30, 2020 andApril 30, 2019 , respectively. Any draws required under the LOCs would be settled with available cash or borrowings under the Credit Agreement.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes in the Company's known off-balance sheet debt and other unrecorded obligations since the fiscal year endedJanuary 31, 2020 . CRITICAL ACCOUNTING ESTIMATES Critical accounting policies are those that require the application of judgment when valuing assets and liabilities on the Company's balance sheet. For a description of our critical accounting policies and estimates, see Critical Accounting Policies and Estimates in Item 7 of our Annual Report on Form 10-K for the year endedJanuary 31, 2020 , filed with theSEC . There have been no material changes to our critical accounting policies during the three-month period endedApril 30, 2020 .
ACCOUNTING PRONOUNCEMENTS
See Note 2 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for a summary of recent accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future, not past or historical events. Without limiting the
foregoing, the words "anticipates," "believes," "expects," "intends," "may,"
"plans," "should," "estimate," "predict," "project," "would," "will,"
"potential," and similar expressions are intended to identify forward-looking
statements. However, 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 development of new technologies to satisfy customer requirements,
possible development of
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competitive technologies, ability to scale production of new products without negatively impacting quality and cost, risks of operating in foreign markets, risks relating to acquisitions, including risks of integration or unanticipated liabilities or contingencies, and ability to finance investment and net working capital needs for new development projects, any of which could adversely impact any of the Company's product lines, risks of litigation, as well as other risks described in Item 1A., Risk Factors, of the Company's Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2020 . The foregoing list is not exhaustive and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
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