Annual Report by an Employee Stock Purchase, Savings or Similar Plan — Form 11-K Filing Table of Contents
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‘11-K’ — Annual Report by an Employee Stock Purchase, Savings or Similar Plan
The Raven Industries, Inc. 401(k) Plan (the Plan) is subject to the Employee Retirement Income Security Act of 1974 (ERISA); therefore, the Plan's financial statements and supplemental schedule included in this Annual Report on Form 11-K for the years ended December 31, 2019 and December 31, 2018 have been prepared in accordance with the financial reporting requirements of ERISA.
DESCRIPTION
PAGE
Report
of Independent Registered Public Accounting Firm
Other schedules required by 29 CFR 2520.103-10 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under ERISA have been omitted because they are not applicable.
The following description of the Raven Industries, Inc. 401(k) Plan (the Plan) provides only general information. Reference
should be made to the Plan agreement and amendments for a more complete description of the provisions of the Plan.
General
The Plan is a contributory defined contribution 401(k) savings plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Plan covers substantially all employees of Raven Industries, Inc. (Raven or the Plan Sponsor) and subsidiaries (collectively referred to as the Company). Union members, leased employees, and foreign citizens working outside the United States of America are not eligible to participate in the Plan.
The
trustee of the Plan for the 2019 and 2018 Plan year is Fidelity Management Trust Company (Fidelity or Plan Trustee).
Eligibility and Vesting
Employees are eligible to participate in the Plan on the first monthly enrollment date (first day of each calendar month) proceeding the date in which they meet the eligibility requirements (attaining age 21 and completing one month of service). Participants are 100% vested at all times in their individual contributions, Company contributions (including Profit Sharing Contributions, if any), and earnings thereon.
Participant Contributions
Employees who do not elect otherwise are automatically enrolled in the Plan upon becoming eligible with pre-tax contributions set at 5% of eligible
compensation. Employees may elect to make contributions of up to 75% of eligible compensation. The aggregate of all such deferrals is subject to the maximum permitted by law. Prior to July 1, 2018, employees who did not elect otherwise were automatically enrolled in the Plan upon becoming eligible with pre-tax contributions set at 3% of eligible compensation
Employees eligible to make elective deferral contributions and have or will attain age 50 by the end of the calendar year are allowed to defer an excess of the otherwise applicable Plan and tax law limits on elective deferral contributions (catch-up contributions). Catch-up contributions are further limited by tax law applicable to the Plan year. Such elective deferrals may be either pre-tax or after-tax (Roth) contributions.
Employer
Contributions
The Company makes matching Safe Harbor contributions of 100% of elective deferrals up to the first 5% of compensation.
The Company may make an annual discretionary contribution known as a Profit Sharing Contribution. Any participant who is credited with 1,000 hours of service during the Plan year and is employed on the last day of the Plan year is eligible to receive an allocation of any Profit Sharing Contribution that is made. Each eligible participant is his or her own allocation group based on a classification of participants defined by the Plan. The Company did not elect to make
a discretionary Profit Sharing Contribution for the 2019 or 2018 Plan year.
Participant Accounts and Allocations
Each participant’s account is credited with the participant’s contributions, rollover deposits, the Company’s contributions and an allocation of the Plan earnings and expenses, and Company discretionary contributions, if any. Company contributions are invested in the same investment funds, in the same percentage, as elected by the participant.
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Investment Options
Participants are
allowed to change their allocation percentages and their investment elections daily among the various investment fund options offered by the Plan. Raven common stock is an investment option under the Plan and is purchased in the open market by the Plan Trustee. Participant investment elections, including allocation percentages, may not exceed 10% in Raven common stock for the 2019 and 2018 Plan years.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 minus the highest outstanding loan amount during the prior 12 months or 50% of their account balance at the time of loan origination. Loan fees are charged separately to the accounts of individuals who choose to exercise the Plan’s loan feature. The loans are secured by the balance in the participant’s
account and bear interest at rates approximating the prime interest rate plus 1% at the time of loan origination. Principal and interest is paid ratably through automatic payroll deduction. Each participant may have no more than two outstanding loans at any time. Loans outstanding as of December 31, 2019 were at interest rates ranging from 4.25% to 6.50%, and were payable through 2030. Loans outstanding as of December 31, 2018 were at interest rates ranging from 4.25% to 6.25%, and were payable through 2030.
Benefits
Participants may receive distributions from their vested accounts under the Plan upon termination of employment (account balances of $5,000 or less are automatically distributed or rolled into a Fidelity Individual Retirement rollover
account or Roth rollover account) or attainment of normal retirement age (age 55).
In-service distributions are permitted upon reaching normal retirement age. Distributions prior to age 59 ½ are subject to limitations as defined by the Plan document and the Internal Revenue Code. In addition, distributions prior to age 59 ½ may be subject to a tax penalty. A participant who is continuing employment with the Company after attaining age 70 ½ must take at least the minimum required distribution as defined by the Plan document.
Termination
Although it has not expressed any intent to do so, the
Company has the right to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, distributions of account balances will be made in accordance with Plan documents.
Death Benefits
The designated beneficiary is entitled to a death benefit distribution equal to the participant’s vested balance.
Administrative and Investment Fees
The cost of administrative services such as Plan record keeping, trustee services, and electronic access to Plan information are included in the investment management fees that are reflected as a reduction of investment returns.
Annual audit fees, legal services and other fees paid for regulatory
compliance and investment advisory services are absorbed by the Employer and are excluded from "Administrative fees" reported in the Statements of Changes in Net Assets Available for Benefits.
2. Significant Accounting Policies
Basis of Accounting
The Plan’s financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of the Plan’s financial statements in conformity with accounting principles generally
accepted in the United States of America requires the Plan administrator to make certain estimates and assumptions that affect the reported amounts of assets available for Plan benefits at the date of the financial statements and the changes in net assets available for benefits during the reporting period and, when applicable, disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly
6
transaction
(i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net (depreciation) appreciation includes the Plan’s gains and losses on investments bought and sold and investments held during the year.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent notes receivable are reclassified as distributions based upon the terms of the Plan document. Interest income on notes receivable is recorded when it is earned. The allowance
for credit losses was $30,468 and $29,906 at December 31, 2019 and 2018, respectively.
Benefits Paid to Participants
Benefits are recorded in the Statements of Changes in Net Assets Available for Benefits when paid.
Subsequent Events
The Plan has evaluated subsequent events through June 10, 2020, the date the financial statements were issued and has disclosed the appropriate events in Note 8 Subsequent Events of this Form 11-K.
Recent
Accounting Pronouncements
In August 2018 the Financial Accounting Standards Board issued Accounting Standards Update No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13). The amendments in ASU 2018-13 remove, modify and add disclosures for companies required to make disclosures about recurring or nonrecurring fair value measurements under Topic 820. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of this guidance is permitted, however the Company has the option to delay the adoption of the additional disclosures required until the effective date. Certain amendments
in this guidance are required to be applied prospectively and others are to be applied retrospectively. The Company will adopt ASU 2018-13 in 2020 when it is effective. The Company does not expect the adoption of ASU 2018-13 to have a significant impact on the Plan's disclosures for assets and liabilities reported at fair value on a recurring or nonrecurring basis.
There were no accounting pronouncements adopted in 2019 that had a significant impact on the Financial Statements or Notes to Financial Statements in this Form 11-K.
3. Risks
and Uncertainties
The Plan provides for various investment options in a combination of investment securities. Investment securities are exposed to various risks including, but not limited to, interest rate, market, liquidity, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits. See Note 8 subsequent events for further disclosure of risks and uncertainties related to COVID-19, declared a global pandemic on March 11, 2020 by the World Health Organization.
7
4. Investments
and Fair Value Measurements
Accounting guidance establishes a framework for measuring fair value that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy distinguishes between fair valuation assumptions based on observable and unobservable inputs and consists of three levels:
Level 1
Quoted market prices in active markets that the Plan has the ability to access for identical assets or liabilities.
Level 2
Inputs to the valuation methodology include -
Quoted
prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability; or
Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
Level 3
Unobservable inputs which reflect estimates and assumptions that a market participant would use.
The
following is a description of valuation methods used for assets recorded at fair value at December 31, 2019 and 2018:
•Money market funds - Valued at the net asset value (NAV) based on the daily closing price as reported by the fund. Money market funds are classified within Level 1 of the fair value hierarchy.
•Mutual funds - Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds registered with the Securities and Exchange Commission. These funds are required to publish their NAV daily and to transact at that price. Mutual funds are classified within Level
1 of the fair value hierarchy.
•Common collective trust - The investments include a capital preservation trust. The Plan’s interest in this trust is valued based on the NAV of the observable market prices of the underlying investments held by the fund less its liabilities. The NAV for the underlying assets of the trust is a readily determinable measure of their fair value and is the basis used by the trust for reporting all current transactions. Fair values for the underlying assets of the trust were based on either quoted prices in active markets or observable inputs or quotations from inactive markets. The Plan's investments in this trust are classified within Level 2 of the fair value hierarchy.
•Common stocks
- The investment relates to self-directed brokerage accounts held by participants and Raven common stock purchased in the open market. Common stocks are valued at the closing price reported on the active market on which the individual securities are traded and are classified within Level 1 of the fair value hierarchy.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The availability of observable market
data is monitored to assess the appropriate classifications of financial instruments within the fair value hierarchy. Changes in economic conditions or valuation techniques may require transfer of financial instruments from one fair value level to another. For the years ended December 31, 2019 and December 31, 2018 there were no transfers in or out of Levels 1, 2, or 3.
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The following tables set forth by level, within the fair value hierarchy, the Plan’s investments at fair value as of December 31, 2019 and 2018:
2019
Level
1
Level 2
Level 3
Total
Money market fund
$
1,069,590
$
—
$
—
$
1,069,590
Mutual
funds
80,819,205
—
—
80,819,205
Common collective trust
—
2,788,089
—
2,788,089
Common
stock
844,149
—
—
844,149
Participant self- directed brokerage accounts
271,707
—
—
271,707
Total
investments at fair value
$
83,004,651
$
2,788,089
$
—
$
85,792,740
2018
Level
1
Level 2
Level 3
Total
Money market fund
$
1,045,609
$
—
$
—
$
1,045,609
Mutual
funds
59,597,708
—
—
59,597,708
Common collective trust
—
2,980,035
—
2,980,035
Common
stock
825,604
—
—
825,604
Participant self- directed brokerage accounts
235,860
—
—
235,860
Total
investments at fair value
$
61,704,781
$
2,980,035
$
—
$
64,684,816
The
Plan’s investment gains and losses realized (bought and sold) and unrealized (held during the year) are reported in the Statement of Changes in Net Assets Available for Benefits as "Net appreciation (depreciation) in fair value of investments".
5. Tax Status
The Company has adopted a Fidelity volume submitter plan, "Volume Submitter Defined Contribution Plan (Profit Sharing/401(k) Plan)". The volume submitter plan received an advisory opinion letter dated March 31, 2014 in which the Internal Revenue Service (IRS) stated that the form of the plan
was in compliance with the applicable requirements of the Internal Revenue Code (the Code). In addition, the advisory opinion letter stated that an employer who adopts this plan may rely on the volume submitter plan advisory opinion letter with respect to the qualification of its plan under the Code. Therefore, the Plan administrator believes that the Plan continues to be designed and operated in all material respects in compliance with the applicable requirements of the Code.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain tax position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December
31, 2019 and December 31, 2018, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits of any tax periods in process.
6. Related Party and Party-in-Interest Transactions
Certain Plan investments are shares of funds managed by Fidelity Management Trust, the Plan Trustee. These transactions qualify as exempt party-in-interest transactions. Some fees paid by the Plan for recordkeeping, trustee, and investment management were included
as a reduction of the return earned on investments. Fees paid directly by the Plan for investment management and recordkeeping services were $101,165 and $82,815 for the years ended December 31, 2019 and 2018, respectively.
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Plan investments also include shares of Raven common stock. The Plan held participant-directed investments in Raven common stock as of December 31, 2019 and December 31, 2018 with fair values of $844,149 and $825,604, respectively. During 2019 and 2018, the Plan made open-market purchases of approximately $184,000 and $251,000,
respectively, and sales of approximately $114,000 and $269,000, respectively, of Raven common stock. During the years ended December 31, 2019 and 2018, the Plan recorded dividend income of approximately $12,000 and $13,000, respectively, on this common stock.
7. Plan Amendments
Effective January 1, 2018, the Plan was amended to increase the Company's matching Safe Harbor contributions to the Plan to 100% of elective deferrals up to the first 5% of compensation. Prior to
this amendment, the Company made matching Safe Harbor contributions of 100% of elective deferrals up to the first 3% of compensation plus 50% of elective deferrals that exceed 3% of compensation but not to exceed 5% of compensation
The plan was further amended effective July 1, 2018 to change the automatic enrollment provisions to increase the pre-tax contributions to 5% of the eligible participant's compensation. Prior to the amendment, employees who did not elect otherwise were automatically enrolled in the Plan upon becoming eligible with pre-tax contributions set at 3% of eligible compensation
8.
Subsequent Events
The Plan has evaluated events up to the filing date of this Annual report on Form 11-K and concluded that no subsequent events have occurred that would require recognition or disclosure in the Notes to Financial Statements other than the subsequent events disclosed below.
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. COVID-19 has negatively affected, and may continue to negatively affect, the macro-economic conditions and global economy. Subsequent to December 31, 2019, the Plan's assets, valued at fair value,
have declined significantly and may continue to be negatively impacted due to the uncertainty surrounding the length of the pandemic and its economic impact. The Plan Sponsor does not believe there is substantial doubt about the Plan's ability to continue as a going concern and expects the Plan Administrator will continue to be able to carry on all administrative functions for the Plan.
On March 27, 2020 the Coronavirus Aid Relief and Economic Security Act ("CARES Act") was signed by the president of the United States. The CARES Act included temporary relief provisions specific to 401(k) plans along with providing economic stimulus. The Plan Sponsor and Plan Administrator are evaluating these provisions and the impact to the Plan and the participants. Plan participants will be notified of any plan amendments as a result
of the CARES Act.
Consent
of independent registered public accounting firm
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
