RAVEN
2 0 0 5
A n n u a l R e p o r t
f o r t h e f i s c a l y e a r e n d e d J a n u a r y 3 1
Building a Platform for Success
Financial Highlights
Dollars in thousands, except per-share data
OPERATIONS
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended January 31
2005
2004
change
$168,086
27,862
17,891
$142,727
21,626
13,836
PER SHARE
Net income – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.97
0.22(a)
3.67
$
0.75
0.17
3.68
PERFORMANCE
Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on beginning shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
Shares outstanding, year-end (in thousands) . . . . . . . . . . . . . . . . . . . .
(a) Excludes a special dividend of $.625 per share that was paid during the second quarter of fiscal 2005.
16.6%
10.6%
21.3%
26.9%
15.2%
9.7%
18.2%
23.8%
17,999
18,041
17.8%
28.8%
29.3%
29.3%
29.4%
– 0.3%
9.2%
9.3%
17.0%
13.0%
– 0.2%
NET SALES
(dollars in millions)
EARNINGS PER SHARE
(dollars)
SALES PER EMPLOYEE
(dollars in thousands)
Table of Contents
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2000
2001
2002
2003
2004
2005
2000
2001
2002
2003
2004
2005
2000
2001
2002
2003
2004
2005
Business Profile . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . 2
Operating Units . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Eleven-Year Summary . . . . . . . . . . . . . . . . . . . . 14
Business Segments . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Review and Analysis . . . . . . . . . . . . . . 17
Stock and Quarterly Performance . . . . . . . . . . . 26
Management’s Report on Internal Control
over Financial Reporting . . . . . . . . . . . . . . . . 27
Financial Statements . . . . . . . . . . . . . . . . . . . . . 28
Report of Independent Registered
Public Accounting Firm . . . . . . . . . . . . . . . . . 39
Directors, Officers and Senior Management . . . 40
Investor Information . . . . . . . . . Inside Back Cover
Business Profile
Founded in 1956, Raven today is an industrial manufacturer with four operating units. The company has divested lower-performing
assets, simplified its product bases, and enhanced profitability (cash return on invested capital) and shareholder value–a strategy of
“Improve, innovate, grow.”
Operating Unit
Products
Markets
Competitive Strengths
Flow Controls
● Computerized control hardware
● Agriculture OEMs and sprayer
and software for precision farming
manufacturers
● Market leader for
ag sprayer controls
● Leading developer of
● Agricultural equipment after-
● Strong brand recognition and
GPS-based control systems
market
● Precision application of pesticides,
● Marine navigation
fertilizer and road de-icers
distribution network
● Wide range of precision
agricultural products
Engineered Films
● Rugged reinforced plastic
sheeting
● Manufactured housing and RVs
● Temporary grain covers for
agriculture
● Temporary building construction
enclosures
● Pond lining and containment for
oil exploration
● Vertically integrated
manufacturing capabilities
● Broad product line
● Superior target marketing
● High productivity and
low-cost structure
Electronic Systems
Aerostar
● Electronics Manufacturing
● Primarily industrial OEMs in
● Advanced manufacturing,
Services (EMS)
North America
technology
● Fortune 500 companies that
contract their low-volume,
high-mix production
● Full-service provider, from
engineering and manufacturing
to customer service
● ISO 9001
● Military cargo parachutes
● Government service uniforms
● High-altitude research balloons
● Custom-shaped inflatables
● US and foreign governments
● NASA
● Promotional and advertising
markets, including Disney
and Macy’s
● Reputation for innovation and
quality
● Sole source in US for scientific
balloons
● Best technology
Sales
(dollars in millions)
$40.7
$35.0
$28.5
2003
2004 2005
Sales
(dollars in millions)
$58.7
$42.6
$35.1
2003
2004 2005
Sales
(dollars in millions)
$47.0
$44.3
$38.6
2003
2004 2005
Sales
(dollars in millions)
$21.7
$20.7
$17.4
2003
2004 2005
Raven 2005 Annual Report
page 1
To Our Shareholders, Employees and Customers
Ronald M. Moquist
President & Chief Executive Officer
During the past year we continued to build a solid platform
for success—one that further strengthens our four core
businesses and sets the stage for long-term profitable growth.
The platform starts with a business model that focuses our
resources on developing specialty niche markets where we
can be a market leader, not dependent on cheap labor or
commodity-type products. It’s a model capable of driving
high-margin sales and capital-efficient growth.
Fiscal Year Results
We became an even stronger company last year. The major initiatives we launched five years ago are paying off both in
top- and bottom-line growth.
• Sales climbed 18% to a record $168 million. Special one-time hurricane plastic tarp sales contributed $9 million.
• Net earnings were up 29% to $17.9 million.
• Operating margins expanded to 17% from the previous year’s 15%.
• Investments in plant and equipment, and new product development increased 89% to $9.5 million.
• The quarterly dividend was increased 22%, our eighteenth consecutive annual increase. In May we paid a one-time
special cash dividend of $.625 per share.
• Total return to Raven shareholders (stock price appreciation, assuming all dividends were reinvested) was 37%
versus the S&P 500’s total return of 6%.
• The stock was split two-for-one in October.
Building for the Future
We have a solid game plan, one that can deliver strong results. We will continue to seek out high-growth markets where
we can apply our engineering and manufacturing expertise. Our businesses rely on speed, flexibility and innovation,
providing our customers with a level of engineering and service support that is not easily duplicated. We never stop
evaluating our business model to ensure it is still relevant and can provide the returns we have promised to our
shareholders.
The best way to create shareholder value is to deliver consistent, dependable growth. This means continuously reinvesting
in our core businesses while improving productivity. Our innovation efforts yielded promising new products last year, and
page 2
our current level of investments in plant and equipment give us the capacity for continued growth. In the last three years
capital investments have averaged less than $6 million per year. This year we kick it up several notches with planned
investments of $10 million.
Segment Performance
The Engineered Films Division (EFD) had an outstanding year, by far its best ever. Higher raw material costs were
offset by selling price increases, improved productivity and increased volume that optimized equipment utilization. We
continue to invest heavily in new extrusion equipment for producing multi-layer specialty films. Last year we invested
$4 million in plant and equipment. This year we will spend $6 million. We believe the opportunities for substantial high-
margin growth will continue into the foreseeable future.
The Flow Controls Division (FCD) had another stellar performance. Designing innovative precision agricultural
products is the engine of growth for FCD. Last year we introduced several successful new products, with SmarTrax,™ the
clear-cut “homerun” of the group. SmarTrax™ gives us a leading position in a segment of the tractor-navigation market
where low cost and basic sub-meter accuracy are the key drivers. We believe this is the sweet spot of the market where most
sales will arise.
We plan to expand our market presence in Brazil and Argentina by opening a distribution warehouse and service support
center. We believe our products are well suited to the large-acreage farms and agricultural practices of these countries.
The Electronic Systems Division (ESD) got off to a slow start in the first half of last year but finished with
significantly improved results. Start-up problems with a large new customer, plus some process and equipment failures,
contributed to the drop-off. The ESD business model of providing low-volume, high-mix contract manufacturing services,
coupled with lots of customer service and engineering support is still the most viable in this marketplace. It avoids going
toe-to-toe with cheap-labor manufacturers in the Far East. Our business model requires great nimbleness, strict discipline,
robust manufacturing processes and a “zero waste” mentality.
Aerostar International had a wonderful performance. Aerostar was once a financial drag on the corporation, but is now
a full partner in our success. Up until two years ago, Aerostar was focused on commercial outerwear and hot air balloons.
We now target high-tech military outerwear, government and commercial inflatables—such as high-altitude research
balloons for NASA, and we also make military parachutes. The challenge in this strategy is that government contracts
don’t flow in on a smooth, steady schedule. We have not yet received the follow-on contract for parachutes, so sales will be
reduced in the first half of this year.
I’m proud to note that early this year Aerostar helped NASA’s Balloon Program set another endurance record for large
scientific payloads. A 40-million-cubic-foot balloon, manufactured in our Texas facility, carried the 6,000-pound CREAM
(Cosmic Ray Energetics And Mass) experiment to an altitude of 130,000 feet for almost 42 days.
Strong Financial Returns
Cash flow is a core element of our long-term corporate strategy. We have a strong balance sheet with no debt and $9.6
million in cash, plus inventories and accounts receivable that are clean. The one big disappointment last year was the
slippage in inventory turns. Inventory turns are a key metric for a manufacturing company. We ended the year with
inventory at $23.3 million, much higher than necessary.
Raven 2005 Annual Report page 3
To Our Shareholders, Employees and Customers
We have made great progress in our three-year plan to improve returns on invested capital. Very few companies can match
us on these key ratios. It’s one of the things we are most proud of:
FY 2005
FY 2004
FY 2003
FY 2002
Annual EPS Growth . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.3%
26.9%
21.3%
10.6%
25.0%
23.8%
18.2%
9.7%
29.0%
21.5%
15.9%
9.3%
50.0%
18.4%
13.3%
7.5%
In the last three years we have grown earnings per share at an average annual rate of 28%. Although these levels of growth
are not sustainable long-term, we are committed to delivering at least 15% earnings growth, on average.
Our Growth Strategies
The best growth strategies are the ones that the competition has difficulty copying. That’s why we avoid labor-intensive,
commodity-type products. Our strategy is to create high-margin, capital-efficient growth in niche markets where we can
be a leader. To do that, we emphasize three main strategies: Innovation, Operational Excellence, and Market Expansion.
We develop these strategies with a return-on-investment mentality. Before new capital is committed, we must be convinced
that the opportunity is real and Raven has a high potential to succeed.
Innovation
Innovation at Raven means more than developing great new products, although that’s an absolutely essential element.
It’s also about building effective sales and distribution networks; providing higher levels of technical and service support to
customers; and adding advanced processing machinery that drives efficiency. By continuously challenging each other to
act and think in new and creative ways, through robust dialogue and honest give-and-take, we sustain an environment
where innovation flourishes.
Operational Excellence
Operating excellence is really a culture. It’s how we want to run our company. We’re achieving operating improvements
every day through our Total Quality and Six Sigma programs. As we reduce defects, improve processes and eliminate
variation in every department at Raven we not only become more competitive, but also, more consumer-centric. In many
cases, we have been able to drive down prices while improving margins. We set an annual productivity improvement goal
of 6%. Last year we met our goal through the accomplishments of Engineered Films and Aerostar. All our operations are
capable of doing the same.
Market Expansion
We plan to take our high-margin products and multiply their impact by expanding into associated markets and
geographic regions. Our international revenues were only $11 million last year, so there is plenty of room for growth.
Brazil is a target country that holds great potential for Raven precision ag products. It could someday rival the US market
in total size. We recognize that to gain a strong presence we need to establish warehousing, service capabilities and
training facilities. Those efforts will start this second quarter.
page 4
Investor Trust
Our approach to building investor trust is based on a commitment to “performance with integrity.” Tom Iacarella, our
Chief Financial Officer, leads a financial team that adheres to high standards of controllership and is committed to full
disclosure with transparency. We take pride in the clarity and directness of our financial reports. We present the numbers
in this Annual Report proudly, knowing that investment decisions are made based on their accuracy and completeness.
Raven does not provide analysts or shareholders with specific targets for sales and profits. Instead, we commit to achieving
our financial objectives over the long haul:
• Sales growth of 12%+
• Earnings growth of 15%+
• Return on sales exceeding 9%
• Return on assets exceeding 15%
• Return on equity exceeding 20%
A Strong Outlook
It is an honor to lead a great company such as Raven. Our 850 employees and our Board of Directors are dedicated to
making Raven one of the best small companies in America. I am grateful for their loyalty, talent and commitment. We are
proud of what we accomplished last year, but we realize that business is not about reliving the past—it is the constant
challenge to improve and grow.
Last year we not only delivered strong results but also took the necessary steps to create a company of lasting value. With
our strong cash flow, we will continue to invest heavily in organic growth; make small, add-on acquisitions; increase the
regular quarterly dividend; and repurchase our stock.
We are well positioned for this year, projecting double-digit earnings growth—making it another year of record sales
and profits.
My sincere thanks to all Raven employees. Together, we have created an open, challenging, respectful environment built
on mutual trust—a place where we can succeed, grow and have fun.
Ronald M. Moquist
President & CEO
March 29, 2005
Raven 2005 Annual Report
page 5
Raven 2005 Annual Report
page 6
page 7
Flow Controls Division
Many factors
contributed to a
strong showing,
including a
vigorous
agricultural
economy.
$40.7
$35.1
Flow Controls Sales
(dollars in millions)
$28.5
$23.2
$16.8
$13.5
2000
01
02
03
04
05
Raven products sold to farmers for
greater efficiency in their fields utilize
professional grade GPS technology,
“ruggedized” field computers, wireless
data transmission methods, and other
technologies.
Sales in the Flow Controls Division (FCD) climbed 16% to $41 million while operating
income rose 27% to $10.5 million despite the revenue loss of $6 million from a special
order for chemical-injection systems in the previous year. Many internal and external
factors contributed to this strong showing, including a vigorous agricultural economy in
North America. New products over the past three years—such as the SmarTrax™, Viper,
and Lightbar guidance systems for improved farming efficiency—were purchased by
farmers and farm service providers in record volumes.
Adjustments to our distribution strategy to foster better representation of our product
lines in the southern and western US generated strong sales improvements there. Large
national accounts also chose our line of products based on the breadth of the line and
the availability of training and field support.
The strategic emphasis to develop deeper technical expertise while also developing
significantly more dealer representation is paying off. Raven products sold to growers for
greater farming efficiency utilize professional grade GPS technology, “ruggedized” field
computers, wireless data transmission methods, and other technologies. This blend of
technologies calls for high levels of training and field support availability and has been
well received by existing channel partners. And, finally, international FCD sales
increased 53% and now exceed 10% of total division sales. We grew in both our South
American and Australian markets.
Prospects
Strong gross profit improvement in the division was driven by aggressive value-
engineering efforts, which led to significant material cost reductions on key product
lines and lower overall labor content to build product. This year we should further
reduce labor cost while cutting cycle times for most products to two days or less. We also
continue to invest significant business development efforts in each of our international
markets. Continued growth has been strengthened by our acquisition, in February 2005,
of a Canadian company that has developed an automatic boom height control system.
As part of FCD’s initiatives to enhance product training and to improve product
development and testing processes, the Raven Precision Solutions Center was opened last
year. This new 7,200-square-foot facility sits on 190 acres of farmland and includes
state-of-the-art development and test tools for a range of FCD technologies as well as a
custom-built training facility. Facility utilization has been much higher than planned
as large customers and researchers, potential technology partners, and universities have
all begun using this site.
Raven 2005 Annual Report
page 8
page 9
Engineered Films Division
Biggest growth
was in disaster
films, followed by
agriculture,
manufactured
housing and
pit linings.
Engineered Film Sales
(dollars in millions)
$58.7
$42.6
$35.4
$35.8
$35.1
$30.9
The Engineered Films Division (EFD) experienced a record year both in sales
and profitability for the 12 months ended January 31, 2005. Sales were up 38% to
$59 million from the previous fiscal year while operating income grew by 49% to
$15.7 million in the same timeframe. The division shipped over $9 million of film in
response to the severe hurricane season in the southeastern United States.
Higher profits were driven by operational efficiencies generated through increased sales
of higher-margin products. Sales increases were propelled for the most part by an
improving economy, which saw all of our market segments increase. Our largest growth
was in our disaster films product line, followed by agriculture, manufactured housing
and pit linings for oil exploration.
Several operational and equipment changes and purchases occurred this past year. Our
Ohio production facility was converted into a warehousing facility, cutting staffing levels
significantly but still providing quick access to key markets in the eastern United States.
We continued to invest in manufacturing capacity, building two new extrusion lines late
in the year.
Prospects
We expect ongoing growth in virtually all plastic sheeting markets this new year
and have prepared for greater demand. With the two new extruders added to our
Sioux Falls location: one, a state-of-the-art 3-layer line; the other, a 5-layer line—
we will have access to new markets this year. We are constructing a 26,000-foot addition
to our manufacturing facility in Sioux Falls for anticipated future growth. This addition
should be completed this spring and will be used initially for warehouse space, but will
soon house new lamination equipment.
2000
01
02
03
04
05
A sea of blue temporary roof coverings
dominated parts of hurricane-devas-
tated Florida last fall. Many were made
from Raven’s disaster film.
photo credit: Lannis Waters
Raven 2005 Annual Report
page 10
page 11
Electronic Systems Division
Management
continues to
believe the model
of high-mix,
low-volume
manufacturing
is the best path
to success.
Electronic Systems Division (ESD) sales for the last fiscal year climbed 6% to
$47 million. The division got off to a slow start in the first six months, but performance
improved in the second half. High startup costs with a major new client combined with
lower first-half sales to impact profits negatively. For the full year, ESD operating profits
declined 23% from the previous fiscal year, reaching $4.5 million.
Management continues to believe that ESD’s model of high-mix, low-volume
manufacturing is the best path to success in the highly competitive Electronics
Manufacturing Services (EMS) business.
ESD continues to aggressively utilize Six Sigma, a quality-improvement business
strategy focused on using statistical and problem-solving tools to enhance
manufacturing efficiency. ESD efforts this past year included improvements in our
Design Engineering and Engineering Change Order (ECO) processes. Major activities
also included improvements in quoting and new product introductions, and moving
to lead-free manufacturing.
The division added one client in the fourth quarter of the past fiscal year. This account
will give us exposure to a new market—medical equipment.
Electronic Systems Sales
(dollars in millions)
Prospects
$47.0
$44.3
$38.6
$32.0
$32.3
$30.2
Efforts will continue on reducing manufacturing cycle time, increasing inventory turns,
and improving cycle time in technical support processes. As in this past year, ESD has
pushed to maintain a selective base of customers by adding one or two new clients
annually. We will continue our focus on enhancing customer service and in providing
value-added services in test, design, manufacturability analysis and component
obsolescence tracking.
2000
01
02
03
04
05
Expansion into the avionics market,
including military fighter aircraft and
missiles as well as commercial jetliners,
continues strong in Electronic Systems.
Raven 2005 Annual Report
page 12
page 13
Aerostar
This past year Aerostar sales rose 4% to $22 million while operating income climbed
17% to $3.6 million, with profits for the past fiscal year reflecting higher efficiencies on
our parachute contracts. Aerostar results now include the company’s high-altitude
research balloon business, which was formerly part of the Engineered Films Division.
Aerostar accelerated new business development in the areas of meteorological balloons
and Near Space applications.
Aerostar optimized manufacturing efficiencies in its $ 7.7 million cargo parachute
contract. Every procedure in the new contract lent itself to automation—Aerostar’s
greatest strength. This second-year contract ramped up to full delivery rates for the
first three quarters of the year. At that point, deliveries originally scheduled through
January 2005 were rescheduled by the US Army through October 2005. This subsidiary
also received significant business in government-uniform manufacturing due to the
reorganization of federal agencies in the formation of the Department of Homeland
Security. Profitability on these orders was solid due to substantial order volume.
We developed a relationship with a high-tech designer of coldwater survival suits.
Aerostar added these products to its existing GSA contract. Sales of inflatable military
decoys were also strong, particularly in the first half of the year.
Commercial product sales were off this year due to the lack of activity by some of
Aerostar’s largest customers such as Disney, and the movie and event/concert industries.
Renewed activities in these areas were seen in the fourth quarter with an upturn in
orders leading into the new year.
Aerostar begins this new year with substantially lower parachute shipments. We are
ready for new parachute contract solicitations that are due to be released in the second
half of the year. These bids are for five-year contracts in areas that would take advantage
of the strengths of Aerostar's manufacturing automation capabilities. Sales and profits
in fiscal 2006 will significantly depend on obtaining new government contracts in the
parachute and protective-wear area. During the past fiscal year, Aerostar completed
ISO 9002 certification, which will allow us to pursue business opportunities that
otherwise would not have been available.
$20.7 $21.7
Prospects
Aerostar has
Sales in all
completed
plastic sheeting
ISO 9002
markets,
certification,
which will open
including oil
up new business
drilling, were up
opportunities.
XX% in
fiscal 2004.
Aerostar Sales
(dollars in millions)
$33.3
$29.2
$20.8
Aerostar Sales
(dollars in millions)
$17.4
2000
01
02
03
04
05
The huge inflatable airship called
“High Sentry” is an Aerostar concept
for a new high-altitude unmanned
airship to reach 67,000 feet. It could
be used for communications or
surveillance over a 300-mile radius
(280,000 square-mile area).
Eleven-Year Financial Summary
Dollars in thousands, except per-share data
OPERATIONS FOR THE YEAR
Net sales
For the years ended January 31,
2004
2005
2003
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income % of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income % of beginning equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL POSITION
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt / total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory turnover (CGS / year-end inventory) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS PROVIDED BY (USED IN)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMON STOCK DATA
Net income per share – basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock price range during year
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares outstanding, year-end (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shareholders, year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER DATA
Price / earnings ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales per employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168,086
—
168,086
43,200
27,862
—
27,862
27,955
$ 17,891
10.6%
26.9%
$ 15,298(b)
$ 61,592
20,950
$ 40,642
2.94
$ 19,964
88,509
—
$ 66,082
0.0%
5.4
$ 18,871
(7,631)
(19,063)
(7,823)
$
$
$
0.99
0.97
0.85(b)
3.67
26.94
13.08
18.38
17,999
6,269
18.9
807
$
208
$ 43,646
$142,727
—
142,727
33,759
21,981
(355)
21,626
21,716
$ 13,836
9.7%
23.8%
$119,589
1,314
120,903
27,515
16,861
204
17,065
17,254
$ 11,185
9.3%
21.5%
$ 3,075
$ 2,563
$ 55,710
11,895
$ 43,815
4.68
$ 15,950
79,508
57
$ 66,471
0.1%
6.5
$ 19,732
(4,352)
(6,155)
9,225
$
0.77
0.75
0.17
3.68
$ 15.23
7.56
$ 14.11
18,041
3,560
18.8
770
$
185
$ 47,120
$ 49,351
13,167
$ 36,184
3.75
$ 16,455
72,816
151
$ 58,236
0.3%
4.4
$ 12,735
(9,166)
(5,830)
(2,261)
$
$
$
0.61
0.60
0.14
3.21
9.20
4.38
7.91
18,133
2,781
13.2
758
$
160
$ 42,826
All per-share, shares outstanding and market price data reflect the October 2004 two-for-one stock split, the January 2003 two-for-one stock split and the July 2001 three-for-two stock split. All other
figures are as reported.
Price / earnings ratio is determined as closing stock price divided by net income per share-diluted.
(a) During the second quarter of fiscal 2003, the company sold its Beta Raven Industrial Controls Division. In fiscal 2001, 2000 and 1996, the company sold its Plastic Tank, Glasstite and Astoria
businesses, respectively.
(b) Includes a special dividend of $.625 per share that was paid during the second quarter of fiscal 2005.
page 14
For the years ended January 31,
(h)2001(h)
(h)2002(h)
(h)2000(h)
(h)1999(h)
(h)1998(h)
(h)1997(h)
(h)1996(h)
(h)1995(h)
$112,018
6,497
118,515
23,851
13,788
(613)
13,175
13,565
$ 8,847
7.5%
18.4%
$ 2,371
$ 45,308
13,810
$ 31,498
3.28
$ 14,059
67,836
280
$ 52,032
0.5%
5.0
$ 18,496
(13,152)
(8,539)
(3,195)
$
$
$
0.48
0.47
0.13
2.82
5.88
3.02
5.64
18,424
2,387
12.1
838
$
141
$ 33,834
$113,360
19,498
132,858
21,123
7,417(c)
3,331(d)
10,748
10,924
$ 6,411(c)(d)
4.8%
11.8%
$ 2,399
$ 51,817
13,935
$ 37,882
3.72
$ 11,647
65,656
2,013
$ 47,989
4.0%
5.9
$ 9,441
9,752
(14,227)
4,966
$
$
$
0.31
0.31
0.12
2.53
3.48
1.88
3.04
18,956
2,460
9.8
1,043
$
127
$ 38,239
$107,862
42,523
150,385
24,217
7,971
2,606(e)
10,577
10,503
$ 6,762(e)
4.5%
10.9%
$ 2,895
$ 55,371
14,702
$ 40,669
3.77
$ 15,068
74,047
3,024
$ 54,519
5.3%
5.2
$ 10,375
6,323
(16,326)
372
$
$
$
0.26
0.26
0.11
2.32
3.04
2.25
2.40
23,496
2,749
9.2
1,320
$
114
$ 44,935
$108,408
46,798
155,206
24,441
8,220
1,453
9,673
9,649
$ 6,182
4.0%
10.0%
$ 2,944
$ 60,279
15,128
$ 45,151
3.98
$ 19,563
83,657
4,572
$ 62,293
6.8%
4.9
$ 8,326
(3,127)
(2,714)
2,485
$
$
$
0.22
0.22
0.10
2.21
3.79
2.54
2.67
28,164
3,014
12.4
1,445
$
107
$ 47,431
$104,489
47,679
152,168
24,929
9,555
1,007
10,562
12,540(f)
$ 8,062
5.3%
14.2%
$ 2,709
$ 57,285
17,816
$ 39,469
3.22
$ 19,817
82,066
1,128
$ 61,563
1.8%
4.8
$ 9,274
(4,979)
(4,884)
(589)
$
$
$
0.28
0.28
0.09
2.13
4.29
3.27
3.77
28,944
3,221
13.7
1,511
$
101
$ 47,154
$101,869
39,576
141,445
25,287
9,321
2,650
11,971
11,915
$ 7,688
5.4%
15.6%
$ 2,367
$ 56,696
20,016
$ 36,680
2.83
$ 18,142
80,662
3,181
$ 56,729
5.3%
4.5
$ 7,088
(5,090)
(2,363)
(365)
$
$
$
0.27
0.27
0.08
1.96
3.92
2.67
3.75
29,016
3,011
13.9
1,387
$
102
$ 38,102
(c) Includes $2.6 million of business repositioning charges, net of gains on plant sales, primarily in Electronic Systems Division and Aerostar.
(d) Includes the $3.1 million pretax gain ($1.4 million net of tax) on the sale of the company’s Plastic Tank Division.
(e) Includes the $1.2 million pretax gain ($764,000 net of tax) on the sale of assets of the company’s Glasstite subsidiary.
(f) Includes the $1.8 million pretax gain ($1.2 million net of tax) on sale of an investment in an affiliate.
(g) Includes $1.8 million of business repositioning charges at the company’s Beta Raven Industrial Controls Division.
(h) Amounts for these years are unaudited.
$ 84,379
38,010
122,389
22,660
7,692
1,869
9,561
9,566
$ 6,197
5.1%
13.6%
$ 2,130
$ 45,695
14,771
$ 30,924
3.09
$ 18,069
67,553
2,816
$ 49,151
5.4%
4.1
$ 9,687
(4,158)
(4,029)
1,500
$
$
$
0.22
0.22
0.08
1.74
3.46
2.58
3.21
28,296
3,190
14.9
1,368
$
89
$ 32,539
$ 87,458
35,889
123,347
23,968
10,470
466(g)
10,936
9,372
$ 6,088(g)
4.9%
14.8%
$ 1,843
$ 43,795
15,078
$ 28,717
2.90
$ 18,570
65,636
4,179
$ 45,526
8.4%
4.4
$ 7,452
(10,000)
406
(2,142)
$
$
$
0.22
0.21
0.07
1.60
4.08
3.00
3.13
28,410
3,031
14.9
1,414
$
87
$ 29,661
Raven 2005 Annual Report
page 15
2005
2004
2003
(j)2002(j)
(j)2001(j)
(j)2000(j)
For the years ended January 31
Business Segments
Dollars in thousands
FLOW CONTROLS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ENGINEERED FILMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ELECTRONIC SYSTEMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AEROSTAR
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,726
10,516(a)
23,701
1,372
876
$ 58,657
15,739
25,181
3,960
1,403
$ 47,049
4,492
17,382
1,201
880
$ 21,654
3,609
7,492
542
389
SOLD BUSINESSES(h)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
—
—
—
—
REPORTABLE SEGMENTS TOTAL
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE & OTHER(i)
Operating (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL COMPANY
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168,086
$142,727
34,356(a)
73,756
7,075
3,548
27,351(b)
57,976
3,024
3,901
$ (6,494)
14,753
466
293
$ (5,725)
21,532
306
244
$168,086
$142,727
27,862(a)
88,509
7,541
3,841
21,626(b)
79,508
3,330
4,145
(a) Includes a $1.3 million pretax writeoff of assets related to the Fluent Systems product line (See Note 4).
(b) Includes $182,000 of pretax gain on plant sale.
(c) Includes a $550,000 in-process research and development charge related to the Starlink acquisition.
(d) Includes $414,000 of pretax gains on plant sales.
(e) Includes $1.8 million of business repositioning charges in the Electronic Systems Division and $2.6 million for the total company.
(f) Includes a $3.1 million pretax gain on the sale of the company’s Plastic Tank Division.
(g) Includes a $1.2 million pretax gain on the sale of the company’s Glasstite business.
(h) Operating income for sold businesses includes administrative expenses directly attributable to the sold businesses.
(i) Operating loss consists of administrative expenses — assets are principally cash, investments, deferred taxes and notes receivable.
(j) Amounts for 2002, 2001 and 2000 are unaudited.
page 16
$ 35,059
8,254
19,304
341
1,004
$ 42,636
10,563
15,941
712
1,611
$ 44,307
5,797
14,975
841
850
$ 20,725
3,092(b)
7,756
1,130
436
$ —
(355)
—
—
—
$ 28,496
6,897
21,483
729
948
$ 35,096
10,030
17,244
4,080
1,475
$ 38,589
4,022
14,528
395
978
$ 17,408
1,012
7,032
570
374
$ 1,314
204
—
7
20
$120,903
22,165
60,287
5,781
3,795
$ (5,100)
12,529
252
171
$120,903
17,065
72,816
6,033
3,966
$ 23,178
5,509(c)
20,313
677
443
$ 35,796
8,257
13,691
3,178
1,001
$ 32,289
2,264
13,910
774
1,101
$ 20,755
2,907(d)
7,150
256
347
$ 6,497
(613)
1,102
52
76
$ 16,758
3,985
9,578
327
353
$ 35,403
7,397
11,520
633
946
$ 32,039
(542)(e)
15,359
1,492
1,089
$ 29,160
2,996
8,872
163
367
$ 19,498
3,331(f)
4,805
246
718
$ 13,520
2,873
7,096
202
351
$ 30,868
6,274
12,001
764
993
$ 30,176
1,632
18,846
1,168
1,032
$ 33,298
3,282
12,778
145
454
$ 42,523
2,606(g)
13,475
1,172
1,831
$118,515
$132,858
$150,385
18,324(c,d)
56,166
4,937
2,968
17,167(e,f)
50,134
2,861
3,473
16,667(g)
64,196
3,451
4,661
$ (5,149)
11,670
157
177
$ (6,419)
15,522
229
194
$ (6,090)
9,851
188
223
$118,515
$132,858
$150,385
13,175(c,d)
67,836
5,094
3,145
10,748(e,f)
65,656
3,090
3,667
10,577(g)
74,047
3,639
4,884
Financial Review and Analysis
RESULTS OF OPERATIONS
The following table presents comparative financial performance for the past three years:
Dollars in thousands, except per-share data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposition of businesses and assets . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
%
Sales
100.0
25.7
8.4
16.6
16.6
6.0
10.6
$168,086
43,200
14,056
1,282
27,862
27,955
10,064
$ 17,891
0.97
$
36.0%
%
Change
+17.8
+28.0
+17.5
+28.8
+28.7
+27.7
+29.3
+29.3
– 0.8
For the years ended January 31
2004
%
Sales
100.0
23.7
8.4
15.2
15.2
5.5
9.7
%
Change
+18.1
+22.7
+12.5
+26.7
+25.9
+29.8
+23.7
+25.0
+ 3.1
$142,727
33,759
11,960
173
21,626
21,716
7,880
$ 13,836
0.75
$
36.3%
2003
%
Sales
100.0
22.8
8.8
14.1
14.3
5.0
9.3
%
Change
+ 2.0
+15.4
– 3.7
+29.5
+27.2
+28.6
+26.4
+28.8
+ 1.1
$120,903
27,515
10,629
(179)
17,065
17,254
6,069
$ 11,185
0.60
$
35.2%
EXECUTIVE SUMMARY
Consolidated Operating Results
Fiscal 2005 was another record-breaking year for the company,
exceeding fiscal 2004 record-setting results with $17.9 million in
net income and $0.97 of earnings per diluted share. This represents
growth in net income and diluted earnings per share of 29.3%. Net
sales reached a record $168.1 million, surpassing fiscal 2004 by
$25.4 million, or 17.8%. Driving the income and sales increases
were strong performances in the company’s Engineered Films and
Flow Controls segments. Results for fiscal 2004 were also a record,
with net income of $13.8 million, or $0.75 per diluted share.
During fiscal 2005, the company split its stock two-for-one and
paid dividends of 22 cents per share, adjusted for the stock split, or
51⁄2 cents per quarter. A one-time special dividend of 621⁄2 cents per
share, which totaled $11.3 million, was also distributed to share-
holders. In fiscal 2004, the company increased its quarterly
dividend from 31⁄2 cents to 41⁄2 cents per share. Capital expenditures
totaled $7.5 million for fiscal 2005, which was significantly higher
than the $3.3 million spent in fiscal 2004. Fiscal 2005 capital
spending in the Engineered Films segment to increase extrusion
capacity totaled almost $4.0 million.
Management has planned for another year of double-digit profit
growth, based on continuing agricultural demand for precision
agriculture products and carryover demand for plastic sheeting,
with another year of record sales and profits in fiscal 2006.
The following discussion highlights the consolidated operating
results. Results at the divisional and subsidiary level are more fully
explained in the segment discussions that follow. In addition, the
company has undertaken divestitures and repositioning activities in
fiscal 2003 and fiscal 2004, which are more fully explained under
“Divestitures and Repositioning Activities.” The company’s high-
altitude research balloon operation, formerly in the Engineered
Films segment, is included with Aerostar results as a result of a
change in the company’s organizational structure. Prior year
results have been reclassified to reflect this change.
Fiscal 2005 versus fiscal 2004
Net sales of $168.1 million were 17.8% higher than fiscal 2004,
with all segments recording increases over their fiscal 2004 revenue
levels. Operating income rose $6.2 million, reaching $27.9 million.
Profit gains were a result of significant sales increases in the
company’s higher-margin product lines. Flow Controls’ net sales of
$40.7 million were $5.7 million, or 16.2% ahead of fiscal 2004, due
to the strong agricultural economy and new product introductions
while operating income rose 27.4% to $10.5 million. Engineered
Films posted the largest revenue gain, increasing net sales by
37.6%, or $16.0 million. The severe hurricane season resulted in
disaster film sales of $9.1 million in fiscal 2005. This segment
also recorded the largest operating income gain of $5.2 million,
a 49.0% increase over fiscal 2004 results. Electronic Systems’ net
sales of $47.0 million were $2.7 million higher than fiscal 2004,
although the increase in revenue did not result in positive profit
growth. Electronic Systems’ operating income decreased
$1.3 million from the prior year due to unfavorable product mix
and start-up issues with a new customer. Aerostar recorded a modest
net sales increase over fiscal 2004 of 4.5%, while operating income
of $3.6 million rose 16.7%. Fiscal 2004 results include an operating
loss of $355,000 for ongoing environmental and legal liabilities
associated with previously sold businesses.
Raven 2005 Annual Report
page 17
DIVESTITURES AND
OTHER REPOSITIONING ACTIVITIES
During fiscal 2004 and 2003, the company closed and downsized
business units that did not provide proper returns on investment.
While the company will continue to review the utilization of
invested capital, management believes this activity was substantially
completed in fiscal 2003.
Fiscal 2004 Activities
Fiscal 2004 divestiture activities were limited to the sale, by the
company’s Aerostar subsidiary, of a sewing plant closed in fiscal
2003. The sale of that plant and its related equipment resulted in
cash proceeds of $196,000 and a pretax gain of $182,000. This gain
was offset by a $355,000 loss from increased liabilities for environ-
mental or legal issues related to previously sold businesses, as
estimated by the company and its advisors.
Fiscal 2003 Activities
During fiscal 2003, the former Beta Raven Industrial Controls
Division was sold. A pretax gain of $104,000 and $577,000 of cash
proceeds were realized on the completion of the disposal of that
subsidiary. An Aerostar sewing plant was closed during the third
quarter as well. The remainder of the pretax net gain of $179,000
related to the collection of a previously discounted note receivable,
net of increased anticipated costs from ongoing environmental and
legal liabilities from previously sold businesses.
Sold Businesses
Fiscal 2003 net sales from Sold Businesses of $1.3 million were
entirely composed of Beta Raven Industrial Controls Division opera-
tions. Operating income totaled $204,000, which included $179,000
of gains on asset sales.
Fiscal 2004 versus fiscal 2003
Net sales of $142.7 million and operating income of $21.6 million
represented 18.1% and 26.7% growth over fiscal 2003. All segments
achieved sales growth over fiscal 2003 and gains in operating
income were a result of increased gross profits in all the segments.
An increase in special-order chemical injection system sales and
new product sales drove Flow Controls’ sales up to $35.1 million,
a $6.6 million sales jump. Operating income in this segment
reached $8.3 million. Engineered Films sales of $42.6 million
were up 21.5% over fiscal 2003, but material pricing pressures
kept operating income relatively flat at $10.6 million. Electronic
Systems increased sales 14.8% to $44.3 million while growing
operating income to $5.8 million, or 44.1%, from a selective
customer base generating new and expanded orders. Aerostar
executed a strong turnaround in fiscal 2004, increasing sales from
$17.4 million to $20.7 million, and increasing operating income
by $2.1 million to $3.1 million, largely due to a US Army cargo
parachute contract. Fiscal 2004 results include an operating loss
of $355,000 for ongoing environmental and legal liabilities associ-
ated with previously sold businesses. Fiscal 2003 results include
$1.3 million in net sales and $204,000 of operating income related
to operations of Sold Businesses.
FISCAL 2005 PERFORMANCE MEASURES
The company’s net income as a percent of net sales has steadily
risen over the last five years, reaching 10.6% for fiscal 2005. In
terms of average assets, net income was 21.3%. This highlights the
company’s effective use of its assets to generate income. Finally, as a
percent of beginning equity for fiscal 2005, net income improved to
26.9%, generating shareholder value.
2004
2005
2002
2000
2003
2001
Net income as % of
Net sales . . . . . . . . . . . .
Average assets . . . . . . . .
Beginning equity . . . . .
10.6%
21.3%
26.9%
9.7%
18.2%
23.8%
9.3%
15.9%
21.5%
7.5%
13.3%
18.4%
4.8%
9.2%
11.8%
4.5%
8.6%
10.9%
page 18
SEGMENT ANALYSIS
SALES AND OPERATING INCOME BY SEGMENT
2005
2004
2003
Dollars in thousands
amount
%
change
%
change
amount
%
change
amount
SALES
Flow Controls . . . . . . $ 40,726 +16.2
Engineered Films . . .
58,657 +37.6
Electronic Systems . .
Aerostar . . . . . . . . . . .
Total ongoing . . . . . .
Sold businesses . . . . .
Total . . . . . . . . . . . . . $168,086 +17.8
47,049 + 6.2
21,654 + 4.5
168,086 +17.8
—
$ 35,059 +23.0
$ 28,496
42,636 +21.5
35,096
44,307 +14.8
20,725 +19.1
142,727 +19.3
—
$142,727 +18.1
38,589
17,408
119,589
1,314
$120,903
+22.9
–12.9
+19.5
+ 7.0
+ 6.8
–79.8
+ 2.0
2005
2004
2003
Dollars in thousands
amount
OPERATING INCOME (LOSS)
Flow Controls . . . . . . $ 10,516
Engineered Films . . .
15,739
Electronic Systems . .
4,492
Aerostar . . . . . . . . . . .
3,609
Corporate expenses . .
(6,494)
Total ongoing . . . . . .
27,862
Sold businesses . . . . .
—
Total . . . . . . . . . . . . . $ 27,862
%
sales
amount
%
sales
amount
%
sales
25.8
26.8
9.5
16.7
16.6
16.6
$ 8,254
10,563
5,797
3,092
(5,725)
21,981
(355)
$ 21,626
23.5
24.8
13.1
14.9
15.4
15.2
$ 6,897
10,030
4,022
1,012
(5,100)
16,861
204
$ 17,065
24.2
28.6
10.4
5.8
14.1
14.1
FLOW CONTROLS
The Flow Controls Division (FCD) provides electronic speed and
Global Positioning System (GPS)-based, location-compensated
application-control products for the agriculture, marine navigation
and other niche markets.
Fiscal 2005 versus fiscal 2004
FCD increased sales 16.2% over fiscal 2004 to reach $40.7 million,
despite the decrease of $6.0 million in sales recorded last year under
a special order for chemical injection systems. Improved farm
incomes, new product sales, value-engineering activities, and an
increase in market share contributed to the fiscal 2005 revenue
growth. As a percentage of net sales, gross profits increased from
30.4% to 36.7%. Fiscal 2005 operating income of $10.5 million
grew 27.4% due to the higher sales level, high-margin product
sales, and value engineering activities. The operating income
growth was tempered by a $1.3 million writeoff against inventory,
fixed assets and intangible assets from the segment’s December
2003 acquisition of Fluent Systems, LLC. Also, selling expenses rose
$729,000, or 30.4%, due to continued investment in the segment’s
precision agriculture distribution plan.
9
12
30
40
Net Sales
(dollars in millions)
FLOW CONTROLS
Operating
Income
(dollars in millions)
Fiscal 2004 versus fiscal 2003
Net sales of $35.1 million grew 23.0% from fiscal 2003 net sales of
$28.5 million. Shipments of $6.0 million under a special order for
chemical injection systems during the first half of fiscal 2004 were
$2.8 million higher than
fiscal 2003 shipments. The
division’s precision agricul-
ture distribution plan,
comprised of new product
introductions, improvements
on existing products and an
expanded customer base,
helped drive the remaining
growth. Operating income of
$8.3 million surpassed fiscal
2003 operating income by
$1.4 million. Higher sales
levels in turn produced
increased gross profits, but
were partially offset by a
$678,000, or 39.5%, increase
in selling expenses. As a
percentage of net sales, gross profits were 30.4% as compared to
29.8% for fiscal 2003. Selling expenses rose sharply from personnel
and advertising costs associated with the new precision agriculture
distribution plan. Additionally, fiscal 2003 bad debt expense was
favorable due to the collection of a receivable for which an
allowance had previously been established.
2003 2004 2005
20
10
0
3
6
0
2003 2004 2005
Prospects
FCD continues to focus on gaining market share in the precision
agriculture market; developing new, innovative products; and
improving its existing products through value-engineering efforts.
New product growth will be aided by the February 2005 acquisition
of a Canadian company that has developed an automatic boom
height control system and market expansion into international
markets, particularly South America. These factors are expected
to contribute to revenue growth in the 15-20% range in the
upcoming year.
Raven 2005 Annual Report
page 19
ENGINEERED FILMS
The Engineered Films Division (EFD) produces rugged reinforced
plastic sheeting for industrial, construction, manufactured housing
and agriculture applications.
Fiscal 2005 versus fiscal 2004
Fiscal 2005 net sales of $58.7 million surpassed fiscal 2004 net sales
by $16.0 million, or 37.6%. As a result of the severe hurricane
season, disaster film sales of $9.1 million, including $5.0 million
of fourth-quarter shipments, boosted the sales level for the current
fiscal year. The segment also recorded fiscal 2005 net sales gains
in the pit lining, manufactured housing, and agricultural markets.
Fiscal 2005 operating income climbed to $15.7 million, a
$5.2 million, or 49.0%, increase over fiscal 2004 results. The profit
impact of the higher sales level was partially offset by increased
selling expenses, which rose $461,000, or 21.3%, due to higher
personnel and advertising expenses. As a percentage of net sales,
gross profits increased from 30.0% to 31.4%. The fiscal 2005 gross
profit rate reflects favorable plant utilization due to the higher sales
level that has been partially offset by higher raw material costs
experienced by EFD in the current fiscal year.
Fiscal 2004 versus fiscal 2003
The segment’s net sales exceeded fiscal 2003 net sales by
$7.5 million to reach $42.6 million. Fiscal year 2004 saw an
upturn in pit-lining, industrial-market and vapor-barrier sales.
Construction sales remained steady and agriculture sales increased.
Despite the sales growth, gross profits increased only 6.7%.
Combined with a $231,000, or 12.0%, increase in selling expenses,
operating income increased $533,000. Selling expenses grew as a
result of additional sales personnel as the division worked to expand
its new product sales and
market penetration. As a
percentage of net sales,
gross profits declined from
34.2% to 30.0%, reflecting
the fluctuation in raw
material costs between
the years.
ENGINEERED FILMS
Operating
Income
(dollars in millions)
Net Sales
(dollars in millions)
60
45
30
15
0
16
12
8
4
0
2003 2004 2005
2003 2004 2005
page 20
Prospects
Additional extrusion capacity, which will be brought online at the
beginning of fiscal 2006, will enable EFD to continue its revenue
growth in the markets it currently serves as well as open new
market possibilities. Absent reorders for hurricane film, sales
growth could fall to the 5% range in fiscal 2006. Volatility in resin
prices could impact gross profit rates, although the segment adjusts
selling prices whenever possible to pass along the raw material
cost increases.
ELECTRONIC SYSTEMS
The Electronic Systems Division (ESD) is a total-solutions provider
of electronics manufacturing services, primarily to North American
original equipment manufacturers.
6
48
Net Sales
(dollars in millions)
ELECTRONIC SYSTEMS
Operating
Income
(dollars in millions)
Fiscal 2005 versus fiscal 2004
Electronic Systems’ net sales for fiscal 2005 reached $47.0 million,
an increase of $2.7 million, or 6.2% over fiscal 2004 net sales.
Operating income fell
behind fiscal 2004 results,
decreasing by $1.3 million.
Fiscal 2005 net sales were
positively impacted by ship-
ments made to a new
customer, although low
profit margins due to high
start-up costs did not result
in a corresponding increase
in operating income.
Slightly higher personnel
costs in fiscal 2005
accounted for selling
expenses increasing 6.9%
to $823,000. As a percent-
age of sales, gross profits
declined to 11.3% as compared to 14.8% for fiscal 2004, reflecting
the start-up costs.
2003 2004 2005
32
16
0
0
4
2
2003 2004 2005
Fiscal 2004 versus fiscal 2003
Segment net sales rose 14.8%, or $5.7 million, to $44.3 million over
fiscal 2003 net sales. Increased demand for our customers’ products
fueled the increase. Operating income increased $1.8 million over
fiscal 2003 operating income of $4.0 million. Gross profit growth
was the main contributor, as selling expenses remained relatively
flat. Gross profit margins improved from 12.4% in fiscal 2003 to
14.8% in 2004. The improvement was a result of production effi-
ciencies and better capacity utilization.
Prospects
ESD’s business model of providing low-volume, high-mix contract
manufacturing services continues to serve the segment well,
although increased manufacturing efficiencies will be sought in
fiscal 2006. The segment will continue to focus on reducing cycle
time in all areas of manufacturing and looks for sales growth in
the 10% range for fiscal 2006, with profit margins moving toward
fiscal 2004 levels.
AEROSTAR
The Aerostar segment manufactures military cargo parachutes,
government service uniforms, custom-shaped inflatable products,
and high-altitude balloons for public and commercial research.
Fiscal 2005 versus fiscal 2004
Aerostar’s fiscal 2005 net sales of $21.7 million were $929,000, or
4.5%, above fiscal 2004 net sales. Sales growth in parachute prod-
ucts, military decoys, and uniforms were partially offset by declines
in the segment’s sales of hot-air balloons, commercial inflatable
products, and high-altitude research balloons. Fourth-quarter sales
of $4.0 million were down 16.0% from the prior year. The lower
fourth-quarter sales reflect a reduced shipping schedule for Army
cargo parachutes and resulted in a $97,000 fourth-quarter operat-
ing loss. For the full year, fiscal 2005 operating income increased
$517,000, or 16.7%, over fiscal 2004 results due to relatively high
profitability realized on the parachute products and military decoys.
As a percentage of sales, gross profit increased from 18.1% for
fiscal 2004 to 21.1% for the current fiscal year. Selling expenses
rose to $950,000 in fiscal 2005, an increase of $117,000, or 14.0%.
Most of the selling expense increase was due to an increased
emphasis on attaining government contract business.
Fiscal 2004 versus fiscal 2003
Aerostar had a strong turnaround in fiscal 2004, pulling net sales
up 19.1% over fiscal 2003 results to $20.7 million. Shipments
under the US Army cargo parachute contract secured in fiscal 2003
increased $6.0 million, which offset the loss in sales from discontin-
ued outerwear lines, lower advertising-inflatables sales, and a
decrease in research balloon sales of $1.1 million. Operating
income of $3.1 million displayed a similarly strong turnaround
4
24
18
AEROSTAR
Net Sales
(dollars in millions)
Operating
Income
(dollars in millions)
as compared to operating income of $1.0 million in fiscal 2003,
driven by gross profit increases and selling expense decreases. The
restructuring that the subsidiary has undergone in the past three
fiscal years has resulted in
the elimination of cold-
weather outerwear business
and a diminished focus on
hot-air balloon sales.
Operating income includes
a $182,000 gain on the sale
of a sewing plant closed in
fiscal 2003. Gross profits
increased as a percentage
of sales from 11.7% to
18.1%, largely on the
strength of the cargo para-
chute contract and
improved margins on other
sewn and sealed products.
Fiscal 2003 profits were
also depressed by $306,000 of inventory obsolescence charges on
hot-air balloon and apparel operations and start-up costs incurred
for parachute manufacturing.
2003 2004 2005
2003 2004 2005
12
6
0
1
0
2
3
Prospects
The first half of fiscal 2006 will reflect substantially lower parachute
shipments as compared to the first six months of fiscal 2005.
Interest in high-altitude research balloon projects is increasing and
may partially offset these losses. Fiscal 2006 results will depend on
obtaining new government contracts where Aerostar can leverage its
capacity and experience. Aerostar targets overall sales growth in the
5-10% range in the coming fiscal year.
Raven 2005 Annual Report
page 21
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes cash provided by (used in) the
company’s business activities for the past three fiscal years:
Dollars in thousands
2004
$19,732
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,352)
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,155)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
$18,871
(7,631)
(19,063)
2003
$12,735
(9,166)
(5,830)
OPERATING ACTIVITIES AND CASH POSITION
The company’s cash flow from operations totaled $51.3 million
over the past three years compared to net income of $42.9 million
over the same period. Cash flow from operations in fiscal 2005
totaled $18.9 million, an $861,000 decrease as compared to cash
inflows in fiscal 2004. The rise in net income and higher accounts
payable balances at fiscal 2005 year-end were offset by higher
accounts receivable and inventory levels. Fiscal 2005 net income
was $4.1 million higher than fiscal 2004 while accounts payable
increased by $6.6 million due to the higher inventory levels and to
the extenstion of payment terms on certain vendor invoices. Fiscal
2005’s ending accounts receivable balance was $25.4 million, an
increase of nearly $7.0 million from fiscal 2004. Accounts
receivable balances for the company’s Engineered Films and Flow
Controls segments were substantially higher at fiscal 2005 year-end
as compared to their fiscal 2004 year-ending balances due to higher
sales levels. Fiscal 2005 inventory levels in Engineered Films,
Electronic Systems, and Flow Controls were up as compared to
January 31, 2004, with Engineered Films accounting for over half
of the increase. Fiscal 2004 operating cash flows were $19.7 million
as compared to cash flows of $12.7 million for fiscal 2003. The rise
in net income and cash generated from inventory reductions were
the main drivers for the fiscal 2004 increase in operating cash flows
as compared to fiscal 2003.
Cash, cash equivalents and short-term investments totaled
$9.6 million at January 31, 2005, which represents an $8.8 million
decrease from one year earlier. Higher working capital require-
ments, increased capital expenditures, and the $11.3 million special
dividend have generated the decline in available cash at fiscal 2005
year-end. The company expects that cash and short-term invest-
ments, combined with continued positive operating cash flows,
will continue to be sufficient to fund day-to-day operations.
The company utilized its short-term credit facility to fund the
Flow Controls’ Canadian acquisition in February 2005, borrowing
$3.0 million against its line of credit.
EXPENSES, INCOME TAXES AND OTHER
Corporate expenses increased 13.4% over fiscal 2004 to $6.5 million
for fiscal 2005. Higher professional service fees accounted for nearly
half of the $769,000 increase, with the remaining increase due to
higher personnel costs. As a percentage of sales, corporate expenses
NET OPERATING MARGIN
(in percent)
16
12
8
4
0
2000
2001
2002
2003
2004
2005
were 3.9% of net sales for fiscal
2005 as compared to fiscal 2004’s
4.0% of net sales. Fiscal 2004
corporate expenses of $5.7 million
increased 12.3% over fiscal 2003.
Personnel costs accounted for
nearly half of the growth, a result
of additional staff and increased
compensation and insurance
expenses. Fiscal 2005 interest
expense of $35,000 decreased
$36,000 from fiscal 2004 and
consisted of interest on capital
leases and deferred acquisition
payments from the Starlink and
System Integrators acquisitions.
No borrowings were made in fiscal
2005. For fiscal 2004, interest expense increased slightly from
$63,000 in fiscal 2003 to $70,000. In addition to interest incurred
on the company’s capital leases and deferred acquisition payments
during fiscal 2004, interest expense was recorded on payments
related to a previously accrued tax dispute settlement. Fiscal 2005
other income of $128,000 declined from $160,000 in fiscal 2004.
The main component of other income is interest income, which
was reduced in fiscal 2005 due to lower cash levels that resulted
from the $11.3 million special dividend payout in May 2004. Fiscal
2005’s effective income tax rate of 36.0% was slightly lower than the
36.3% effective rate for fiscal 2004. Fiscal 2004’s tax rate of 36.3%
was higher than the 35.2% effective rate for fiscal 2003 due to state
income taxes, higher nondeductible expenses, and the impact of
graduated rates.
page 22
INVESTING ACTIVITIES
The company used $7.6 million of cash for investing activities in
fiscal 2005 versus $4.4 million for fiscal 2004. Fiscal 2005 capital
expenditures of $7.5 million increased by $4.2 million from fiscal
2004, with over half of the investment being made in the
Engineered Films segment for additional extrusion capacity.
A $650,000 investment was made during fiscal 2005 in an uncon-
solidated real estate affiliate and $1.0 million of short-term
investments were liquidated. Fiscal 2004 cash used in investing
CASH FLOWS FROM
OPERATIONS
(dollars in millions)
20
15
10
activities included the acquisition
of Fluent Systems, LLC for
$1.0 million and the purchase of a
formerly leased Aerostar facility
for $1.0 million. Short-term
investments of $4.0 million were
purchased in fiscal 2003 with
excess cash. Fiscal 2006 capital
expenditures are planned to reach
$10 million — primarily for addi-
tional Engineered Films capacity.
5
0
2004
2003
2002
2001
2000
2005
FINANCING ACTIVITIES
Fiscal 2005 cash used in financing
activities increased significantly to
$19.1 million as compared to
$6.2 million expended in fiscal
2004. The increase in cash used
was due primarily to the $11.3 million special dividend paid in
May 2004. The company’s main financing activities continue to be
the payment of dividends and the repurchase of company stock. The
company increased its quarterly dividend on a per-share basis for
the eighteenth consecutive year. Dividends, excluding the special
621⁄2 cent dividend, increased 29.4% over fiscal 2004, and purchases
of 186,500 treasury shares at an average price of $18.87 were made
during the year. In fiscal 2004, 288,350 shares were repurchased at
an average price of $10.64 while 502,460 shares at an average price
of $6.62 were repurchased in fiscal 2003.
No borrowings were made in fiscal 2005. The remaining debt of
the company consists of capital leases assumed in the acquisition
of Starlink that are scheduled to be repaid in fiscal 2006. The
company utilized its short-term credit facility early in fiscal 2006,
borrowing in February 2005 to fund its Flow Controls’ acquisition.
Contractual obligations consist of capital leases and non-cancelable
operating leases for facilities and equipment, and unconditional
purchase obligations primarily for raw materials. Letters of credit
have been issued for workers’ compensation insurance obligations
that remain from the period of self-insurance (February 1, 2001,
and prior). In the event the bank chooses not to renew the
company’s line of credit, the letters of credit would cease and
alternative methods of support for the insurance obligations would
be necessary that would be more expensive and require additional
cash outlays. The company believes the chances of such an event
are remote. In fiscal 2005, the company entered into an agreement
to purchase for $1.8 million a building to be used in the
Engineered Films segment. The agreement required an earnest
payment of $25,000 at signing with the remainder due upon
closing, on or before May 1, 2006. A summary of the obligations
and commitments at January 31, 2005, for the next five years is
shown below.
Dollars in thousands
Contractual Obligations:
Line of credit(a) . . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . .
Unconditional purchase obligations . . . . .
Real estate purchase agreement . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Commercial Commitments:
Letters of credit . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
FY 2006
FY 2007-
FY 2008
FY 2009-
FY 2010
$ — $ — $ —
—
329
—
—
329
61
562
16,952
1,775
19,350
61
222
16,952
1,775
19,010
2,032
$21,382
2,032
$21,042
—
329
$
$—
—
11
—
—
11
—
$ 11
(a) $7.0 million line bears interest at 5.25% as of January 31, 2005, and expires
May 2005.
CAPITAL REQUIREMENTS
The company maintains an excellent financial condition and
capacity for growth. Management continues to look for opportuni-
ties to expand its core businesses through acquisitions or internal
growth. The company has the capacity to assume additional
financing and will do so if the appropriate strategic opportunity
presents itself. Capital expenditures for fiscal 2006 are forecast in
the $10 million range, with over half of these expenditures support-
ing Engineered Films with extrusion equipment and facilities
capacity. The company intends to return approximately 30% of
its earnings to shareholders in the form of dividends. Stock repur-
chases are anticipated to continue as a means to return additional
cash to shareholders and increase the leverage of the company’s
balance sheet. Although the cash generated from operations and
the availability of cash under existing credit facilities is anticipated
to be sufficient to fund these initiatives, the company has explored
long-term debt financing.
Raven 2005 Annual Report
page 23
operating unit of the company, management must manage obsolete
inventory risk. The accounting judgment ultimately made is an
evaluation of the success that division management will have in
controlling inventory risk and mitigating the impact of obsoles-
cence when it does occur.
Determining the level of the allowance for doubtful accounts,
warranty and self-insurance accruals represent management’s best
estimate of future events. Historical levels of activity or assistance
from advisors may be used in certain circumstances, but knowledge
of the current financial climate or the impact of a new product on
these accruals always tempers evaluation of the historical data.
The company periodically assesses goodwill and other intangible
assets for impairment, at the segment level, using fair value
measurement techniques. Estimates of fair value are primarily
determined using discounted cash flows, market comparisons
and recent transactions. These valuation methodologies use signifi-
cant estimates and assumptions, which include projected future
cash flows, including timing and the risks inherent in future cash
flows, perpetual growth rates and determination of appropriate
market comparables.
NEW ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 151, Inventory Costs – An Amendment of
ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in
ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the account-
ing for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). In addition, SFAS No. 151
requires that allocation of fixed-production overheads to the costs
of conversion be based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective for inventory
costs incurred during fiscal years beginning after June 15, 2005.
The company believes that it is currently in compliance with
SFAS No. 151 and does not expect adoption of this revised statement
to have a significant effect on consolidated results of operations or
financial position.
CRITICAL ACCOUNTING POLICIES AND
NEW ACCOUNTING STANDARDS
CRITICAL ACCOUNTING POLICIES
Critical accounting policies for the company are those policies that
require the application of judgment when valuing assets and liabil-
ities on the company’s balance sheet. These policies are discussed
immediately below because a fluctuation in actual results versus
expected results could materially affect our operating results and
because the policies require significant judgments and estimates to
be made. Our accounting related to these policies is initially based
on our best estimates at the time of original entry in our account-
ing records. Adjustments are periodically recorded when our actual
experience differs from the expected experience underlying the
estimates. These adjustments could be material if our experience
were to change significantly in a short period of time. The
company, other than utilizing operating leases, does not enter
into off-balance sheet financing or derivatives.
The company’s most difficult accounting decision is determining
inventory value at the lower of cost or market. Typically, when a
product reaches the end of its life cycle, inventory value declines
slowly or the product has alternative uses. Management uses its
computerized manufacturing resources planning data to help
determine if inventory is slow-moving or has become obsolete due
to an engineering change. The company closely reviews items that
have balances in excess of the prior year’s requirements or that
have been dropped from production requirements. Despite these
reviews, technological or strategic decisions, made by management
or the company’s customers, may result in unexpected excess
material. In the Electronic
Systems Division, the company
typically has recourse to customers
for obsolete or excess material.
Under terms of the contract, the
customers may have to take deliv-
ery of the material or compensate
the company accordingly. In every
RETURN ON
AVERAGE ASSETS
(in percent)
21
14
7
0
2000
2001
2002
2003
2004
2005
page 24
In December 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 153, Exchanges of Nonmonetary Assets –
An Amendment of APB Opinion No. 29. This statement amends
APB Opinion No. 29 and is based on the principle that exchanges
of nonmonetary assets should be measured on the fair value of the
assets exchanged. SFAS 153 is effective for nonmonetary exchanges
occurring in fiscal periods beginning after June 15, 2005. The adop-
tion of this statement will not have a significant effect on the
consolidated results of operations or financial position.
In December 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 123 (Revised 2004), Share-Based Payment,
or SFAS No. 123R, which is a revision of SFAS No. 123. SFAS No.
123R supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees, and amends SFAS No. 95, Statement of Cash Flows.
SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the
income statement based on their
fair values. SFAS No. 123R is effec-
tive for the company beginning
July 1, 2005. The company began
expensing stock options in fiscal
2003 utilizing the modified
prospective method and does not
expect adoption of this revised
statement will have a significant
effect on consolidated results of
operations or financial position.
BOOK VALUE
PER SHARE
(in dollars)
4
2
3
1
0
2000
2001
2002
2003
2004
2005
RECENTLY PASSED LEGISLATION
On October 22, 2004, the President signed the American Jobs
Creation Act of 2004 (the “Act”). The Act provides a deduction for
income from qualified domestic production activities, which will be
phased in from 2005 through 2010. In return, the Act also provides
for a two-year phaseout of the existing extraterritorial income
exclusion (ETI) for foreign sales that was viewed to be inconsistent
with international trade protocols by the European Union. The
company expects the net effect of the phaseout of the ETI and
the phase-in of this new deduction to result in a decrease in the
effective tax rate for fiscal years 2006 and 2007 of less than one
percentage point, based on current earnings levels. In the long
term, the company expects that the new deduction will result in a
decrease of the annual effective tax rate by up to an additional
two percentage points based on current earnings levels.
Under the guidance in FASB Staff Position No. FSP 109-1,
Application of FASB Statement No. 109, “Accounting for Income
Taxes,” to the Tax Deduction on Qualified Production Activities
Provided by the American Jobs Creation Act of 2004, the deduc-
tion will be treated as a “special deduction” as described in FASB
Statement No. 109. As such, the special deduction has no effect on
deferred tax assets and liabilities existing at the enactment date.
Rather, the impact of this deduction will be reported in the period
in which the deduction is claimed on our tax return.
Raven 2005 Annual Report
page 25
Monthly Closing Stock Price and Volume
e
c
i
r
P
25
20
15
10
5
0
5000
4000
3000
2000
e
m
u
l
o
V
1000
0
Feb04 Mar04 Apr04 May04 Jun04
Jul04 Aug04 Sep04 Oct04 Nov04 Dec04
Jan05
Shares Traded (in thousands)
Closing Stock Price (in dollars)
Quarterly Information (Unaudited)
Dollars in thousands,
except per-share data
FISCAL 2005
First Quarter . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . .
Total Year . . . . . . . . . . . . . . . . . .
FISCAL 2004
First Quarter . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . .
Total Year . . . . . . . . . . . . . . . . . . . .
FISCAL 2003
First Quarter . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . .
Total Year . . . . . . . . . . . . . . . . . . . .
Net
Sales
Gross
Profit
Operating
Income
Pretax
Income
Net
Income
Net Income
(a)(b)Per Share(a)(b)
Diluted
Basic
Common Stock
(b)Market Price(b)
Low
High
Cash
Dividends
(b)Per Share(b)
$ 38,408
37,077
48,597
44,004
$168,086
$
$
$
$
36,942
36,110
36,081
33,594
142,727
30,974
29,692
31,423
28,814
120,903
$11,678
8,759
12,962
9,801
$43,200
$
9,437
7,811
9,219
7,292
$ 33,759
$
8,150
5,996
7,332
6,037
$ 27,515
$ 8,451
5,651
8,099(d)
5,661
$27,862
$8,475
5,677
8,115(d)
5,688
$27,955
$ 5,415
3,642
5,194(d)
3,640
$17,891
$0.30
0.20
0.29
0.20
$0.99
$
6,544
4,937
6,121
4,024
$ 21,626
$
5,304
3,532
4,872
3,357
$ 17,065
$
6,556
4,976
6,126
4,058
$ 21,716
$
5,320
3,569
4,939
3,426
$ 17,254
$
4,183
3,163
3,902
2,588
$ 13,836
$
3,458
2,320
3,210
2,197
$ 11,185
$ 0.23
0.17
0.22
0.14
$ 0.77
$ 0.19
0.13
0.18
0.12
$ 0.61
$0.29
0.20
0.28
0.20
$0.97
$ 0.23
0.17
0.21
0.14
$ 0.75
$ 0.18
0.12
0.17
0.12
$ 0.60
$17.17
19.43
23.89
26.94
$26.94
$
9.50
11.00
13.73
15.23
$ 15.23
$
$
6.09
7.22
7.00
9.20
9.20
$13.65
13.08
17.41
17.05
$13.08
$0.055
0.680(c)
0.055
0.055
$0.845
$ 7.56
7.90
10.62
11.89
$ 7.56
$ 4.38
5.38
5.83
6.70
$ 4.38
$ 0.040
0.040
0.045
0.045
$ 0.170
$ 0.035
0.035
0.035
0.035
$ 0.140
(a) Net income per share is computed discretely by quarter and may not add to the full year.
(b) All per-share and market price data reflect the October 2004 and January 2003 two-for-one stock splits.
(c) A special dividend of $.625 per share was paid during the second quarter of fiscal 2005.
(d) Includes a pretax $1.3 million ($845,000 net of tax) writeoff of assets related to the Fluent Systems product line (See Note 4).
page 26
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934. Our 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. Our internal control over financial reporting includes those policies and proce-
dures 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 our internal control over financial reporting in relation to criteria described in Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using those
criteria, we concluded that, as of January 31, 2005, our internal control over financial reporting was effective.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of January 31, 2005 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page 39 of this
Annual Report.
Ronald M. Moquist
President & Chief Executive Officer
March 24, 2005
Thomas Iacarella
Vice President & Chief Financial Officer
Raven 2005 Annual Report
page 27
Consolidated Balance Sheets
Dollars in thousands, except per-share data
ASSETS
Current assets
2005
As of January 31
2004
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,619
3,000
25,370
23,315
1,465
1,823
61,592
19,964
5,933
1,020
$88,509
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
57
10,322
9,716
855
20,950
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities, primarily compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,477
Commitments and contingencies
$14,442
4,000
18,454
16,763
1,313
738
55,710
15,950
6,776
1,072
$79,508
$
72
3,666
7,784
373
11,895
57
1,085
2003
$ 5,217
4,000
16,468
21,366
1,493
807
49,351
16,455
5,933
1,077
$72,816
$
119
5,291
7,157
600
13,167
151
1,262
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66,082
66,471
58,236
Common shares, par value $1.00 per share
Authorized — 100,000,000
Outstanding — 2005: 17,999,468; 2004: 18,041,088
(9,020,544 pre-split); 2003: 18,132,724 (9,066,362 pre-split)
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,509
$79,508
$72,816
The accompanying notes are an integral part of the consolidated financial statements.
page 28
Consolidated Statements of Income
Dollars in thousands, except per-share data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended January 31
2004
$142,727
108,968
2005
$168,086
124,886
2003
$120,903
93,388
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,200
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposition of businesses and assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,056
1,282
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,862
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
(128)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,955
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,064
33,759
11,960
173
21,626
70
(160)
21,716
7,880
27,515
10,629
(179)
17,065
63
(252)
17,254
6,069
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,891
$ 13,836
$ 11,185
Net income per common share
— basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.99
0.97
$
$
0.77
0.75
$
$
0.61
0.60
The accompanying notes are an integral part of the consolidated financial statements.
Raven 2005 Annual Report
page 29
Consolidated Statements of Shareholders’ Equity
and Comprehensive Income
$1 Par
Common
Stock
$
7,875
Paid-in
Capital
$ 1,222
Treasury stock
Shares
(3,269,019) $ (31,789)
Cost
Retained
Earnings
$74,724
Total
$ 52,032
478
11,185
(2,563)
—
(3,324)
(905)
1,093
174
66
58,236
13,836
(3,075)
(3,068)
(843)
572
282
531
66,471
17,891
(3,971)
(11,327)
—
(3,519)
(686)
512
309
402
$66,082
Dollars in thousands, except per-share data
Balance January 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . .
SFAS 123 adoption adjustment . . . . . . . . . . . . . . . . . . .
Net and comprehensive income . . . . . . . . . . . . . . . . . .
Cash dividends ($.140 per share)(a) . . . . . . . . . . . . . . .
Two-for-one stock split . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of stock . . . . . . . . . . . . . . . . .
Employees' stock options exercised . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . .
Tax benefit from exercise of stock options . . . . . . . . . .
Balance January 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . .
Net and comprehensive income . . . . . . . . . . . . . . . . . .
Cash dividends ($.170 per share)(a) . . . . . . . . . . . . . . .
Purchase of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of stock . . . . . . . . . . . . . . . . .
Employees' stock options exercised . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . .
Tax benefit from exercise of stock options . . . . . . . . . .
Balance January 31, 2004. . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
7,875
—
(70)
176
—
—
15,856
—
—
—
(39)
137
—
—
15,954
478
—
—
(1,682)
—
(835)
917
174
66
340
—
—
—
(804)
435
282
531
784
—
—
—
(3,269,019)
(251,230)
—
—
—
—
(6,789,268)
—
—
(144,175)
—
—
—
—
(6,933,443)
—
—
—
—
(3,324)
—
—
—
—
(35,113)
—
—
(3,068)
—
—
—
—
(38,181)
—
11,185
(2,563)
(6,193)
—
—
—
—
—
77,153
13,836
(3,075)
—
—
—
—
—
87,914
—
—
—
(411)
—
(646)
327
309
402
17,891
—
—
(3,971)
— (11,327)
— (15,543)
—
—
—
—
—
$ 765 (14,053,386) $(41,700) $74,964
—
—
—
(6,933,443)
(186,500)
—
—
—
—
(3,519)
—
—
—
—
Net and comprehensive income . . . . . . . . . . . . . . . . . .
Cash dividends ($.220 per share) . . . . . . . . . . . . . . . . .
Cash dividend — Special ($.625 per share) . . . . . . . .
Two-for-one stock split . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retirement of stock . . . . . . . . . . . . . . . . .
Employees' stock options exercised . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . .
Tax benefit from exercise of stock options . . . . . . . . . .
Balance January 31, 2005 . . . . . . . . . . . . . . . . . . . .
—
—
—
15,954
—
(40)
185
—
—
$32,053
(a) Reflects the January 2003 and October 2004 two-for-one stock splits.
The accompanying notes are an integral part of the consolidated financial statements.
page 30
For the years ended January 31
2004
2005
2003
$17,891
$13,836
$11,185
Consolidated Statements of Cash Flows
Dollars in thousands
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable, net of recoveries . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposition of businesses and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities, net of effects from the acquisition
3,410
431
34
1,282
(31)
309
and sale of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,669)
214
18,871
Cash flows from investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of businesses and assets, net of cash sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,541)
(3,000)
4,000
(414)
—
(650)
(26)
(7,631)
Cash flows from financing activities
Proceeds from borrowing under line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment on borrowing under line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(72)
(15,298)
(3,519)
(174)
(19,063)
3,674
471
67
173
254
282
850
125
19,732
(3,330)
(4,000)
4,000
(1,038)
257
—
(241)
(4,352)
—
—
(141)
(3,075)
(3,068)
129
(6,155)
3,541
425
(100)
(179)
1,157
174
(3,470)
2
12,735
(6,033)
(5,000)
1,000
(57)
927
—
(3)
(9,166)
1,025
(1,025)
(131)
(2,563)
(3,324)
188
(5,830)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,823)
14,442
$ 6,619
9,225
5,217
$14,442
(2,261)
7,478
$ 5,217
The accompanying notes are an integral part of the consolidated financial statements.
Raven 2005 Annual Report
page 31
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
BASIS OF PRESENTATION AND PRINCIPLES
OF CONSOLIDATION
The consolidated financial statements include the accounts of
Raven Industries, Inc. and its wholly owned subsidiaries (the
"company"). The company is an industrial manufacturer providing
a variety of products to customers within the industrial, agricul-
tural, construction and military/aerospace markets primarily in
North America. The company operates three divisions (Flow
Controls, Engineered Films and Electronic Systems) in addition
to a wholly owned subsidiary, Aerostar International, Inc.
(Aerostar). All significant intercompany balances and transactions
have been eliminated in consolidation. The company has a 50%
ownership investment in Zip City Partners, LLC. The equity method
is used to account for this investment.
USE OF ESTIMATES
The preparation of the company's financial statements in conform-
ity with accounting principles generally accepted in the United
States of America requires management to make certain estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Cash and cash equivalent balances are principally concentrated in
checking and savings accounts with Wells Fargo Bank.
SHORT-TERM INVESTMENTS
The investments consist of fully insured certificates of deposit with
varying maturities, all less than 12 months from the balance sheet
date. Rates on the deposits at January 31, 2005 range from 1.55%
to 2.4%.
ACCOUNTS RECEIVABLE AND ALLOWANCE
FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and
do not bear interest. The allowance for doubtful accounts is the
company’s best estimate of the amount of problable credit losses
based on historical write-off experience by segment and an estimate
of the collectibility of any known problem accounts.
page 32
INVENTORY VALUATION
Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out basis. Market value encom-
passes consideration of all business factors including price, contract
terms and usefulness.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
over the estimated useful lives of the assets using accelerated meth-
ods. The estimated useful lives used for computing depreciation are
as follows:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 to 39 years
3 to 7 years
Maintenance and repairs are charged to expense in the year
incurred and renewals and betterments are capitalized. The cost
and related accumulated depreciation of assets sold or disposed of
are removed from the accounts and the resulting gain or loss is
reflected in operations.
INTANGIBLE ASSETS
Intangible assets, primarily comprised of technologies acquired
through acquisition, are recorded at cost net of accumulated amor-
tization. Amortization is computed on a straight-line basis over
estimated useful lives ranging from 3 to 20 years. The straight-line
method of amortization reflects an appropriate allocation of the
cost of the intangible assets to earnings in each reporting period.
GOODWILL
The company recognizes the excess cost of an acquired entity over
the net amount assigned to assets acquired, including intangible
assets with indefinite lives, and liabilities assumed, as goodwill.
Goodwill and intangible assets with indefinite lives are tested for
impairment on an annual basis during the fourth quarter, and
between annual tests whenever there is an impairment indicated.
Fair values are estimated based on future cash flows and are
compared with the corresponding carrying value of the related asset.
LONG-LIVED ASSETS
The company periodically assesses the recoverability of long-lived
and intangible assets using fair value measurement techniques,
where fair value is calculated based upon anticipated future
earnings and undiscounted operating cash flows. If the fair value
is less than the carrying amount of the asset, an impairment loss
is recognized to the extent the carrying value exceeds the fair value
of the asset.
INSURANCE OBLIGATIONS
The company employs insurance policies covering workers’
compensation and general liability costs. Liabilities are accrued
related to claims filed and estimates for claims incurred but not
reported. To the extent these obligations will be reimbursed by
insurance, the expected reimbursement is included as a component
of other current assets.
CONTINGENCIES
The company is involved as a defendant in lawsuits, claims or
disputes arising in the normal course of business. An estimate of the
loss on these matters is charged to operations when it is probable
that an asset has been impaired or a liability has been incurred,
and the amount of the loss can be reasonably estimated. The settle-
ment of such claims cannot be determined at this time; however,
management believes that any liability resulting from these claims
will be substantially mitigated by insurance coverage. Accordingly,
management does not believe that the ultimate outcome of these
matters will be significant to its results of operations, financial
position or cash flows.
REVENUE RECOGNITION
The company recognizes revenue and records revenues upon
shipment of products. The company sells directly to customers
or distributors who incur the expense and commitment for any
post-sale obligations beyond stated warranty terms. Estimated
returns, allowances or warranty charges are recognized upon
shipment of a product. The company does not typically require
collateral from its customers. Shipping and handling costs are
classified as a component of cost of goods sold.
WARRANTIES
Accruals necessary for product warranties are estimated based
upon historical warranty costs and average time elapsed between
purchases and returns for each division. Any warranty issues that
are unusual in nature are accrued individually.
RESEARCH AND DEVELOPMENT
Research and development expenditures of $2.0 million in fiscal
2005, $1.7 million in fiscal 2004, and $1.3 million in fiscal 2003
were charged to cost of goods sold in the year incurred.
Expenditures are principally composed of labor and material costs.
STOCK-BASED COMPENSATION
The company records compensation expense related to its stock-
based compensation plan using the fair value method permitted
by SFAS No. 123, "Accounting for Stock-Based Compensation"
under the modified prospective method outlined by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition
and Disclosure."
INCOME TAXES
Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities and
reserves. Judgmental reserves are maintained for income tax audits
and other tax issues. Deferred income taxes reflect temporary differ-
ences between assets and liabilities reported on the company's
balance sheet and their tax bases. These differences are measured
using enacted tax laws and statutory tax rates applicable to the
periods when the temporary differences will impact taxable income.
Deferred tax assets are reduced by a valuation allowance to reflect
realizable value, when necessary.
STOCK SPLITS
The company completed two-for-one stock splits effected in the form
of a 100% stock dividend on October 15, 2004, and January 15, 2003.
All per-share information reflects the effect of these stock splits.
NEW ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 151, Inventory Costs – An Amendment of
ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in
ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the account-
ing for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). In addition, SFAS No. 151
requires that allocation of fixed-production overheads to the costs
of conversion be based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective for inventory
costs incurred during fiscal years beginning after June 15, 2005.
The company believes that it is currently in compliance with
SFAS No. 151 and does not expect adoption of this revised statement
to have a significant effect on consolidated results of operations or
financial position.
Raven 2005 Annual Report
page 33
Notes to Financial Statements (continued)
In December 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 153, Exchanges of Nonmonetary Assets –
An Amendment of APB Opinion No. 29. This statement amends
APB Opinion No. 29 and is based on the principle that exchanges
of nonmonetary assets should be measured on the fair value of the
assets exchanged. SFAS 153 is effective for nonmonetary exchanges
occurring in fiscal periods beginning after June 15, 2005. The adop-
tion of this statement will not have a significant effect on the
consolidated results of operations or financial position.
In December 2004, the Financial Accounting Standards Board,
or FASB, issued SFAS No. 123 (Revised 2004), Share-Based
Payment, or SFAS No. 123R, which is a revision of SFAS No. 123.
SFAS No. 123R supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends SFAS No. 95, Statement
of Cash Flows. SFAS No. 123R requires all share-based payments
to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
SFAS No. 123R is effective for the company beginning July 1, 2005.
The company began expensing stock options in fiscal 2003 utilizing
the modified prospective method and does not expect adoption of
this revised statement will have a significant effect on consolidated
results of operations or financial position.
RECENTLY PASSED LEGISLATION
On October 22, 2004, the President signed the American Jobs
Creation Act of 2004 (the “Act”). The Act provides a deduction for
income from qualified domestic production activities, which will be
phased in from 2005 through 2010. In return, the Act also provides
for a two-year phaseout of the existing extraterritorial income
exclusion (ETI) for foreign sales that was viewed to be inconsistent
with international trade protocols by the European Union.
Under the guidance in FASB Staff Position No. FSP 109-1,
Application of FASB Statement No. 109, “Accounting for Income
Taxes,” to the Tax Deduction on Qualified Production Activities
Provided by the American Jobs Creation Act of 2004, the deduc-
tion will be treated as a “special deduction” as described in FASB
Statement No. 109. As such, the special deduction has no effect on
deferred tax assets and liabilities existing at the enactment date.
Rather, the impact of this deduction will be reported in the period
in which the deduction is claimed on our tax return.
page 34
Note 2. Selected Balance Sheet Information
Following are the components of selected balance sheet items:
As of January 31
2004
2005
Dollars in thousands
Accounts receivable, net:
2003
Trade accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,635
(265)
$25,370
$18,719
(265)
$18,454
$16,708
(240)
$16,468
Inventories, net:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,538
2,820
16,957
$23,315
Property, plant and equipment, net: . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net:
Amortizable assets:
Purchased technology . . . . . . . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliate . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities:
Salaries and benefits . . . . . . . . . . . . . . . . . . . . . . . .
Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
401(k) contributions . . . . . . . . . . . . . . . . . . . . . . . .
Insurance obligations . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition payments . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,084
15,184
36,486
(32,790)
$19,964
$ 1,080
946
(1,831)
195
650
175
$ 1,020
$ 1,992
1,852
980
1,541
567
900
—
1,884
$ 9,716
$ 2,500
2,120
12,143
$16,763
$ 1,110
13,049
32,479
(30,688)
$15,950
$ 1,250
1,136
(1,494)
892
—
180
$ 1,072
$ 1,875
1,638
906
524
267
544
389
1,641
$ 7,784
$ 5,290
2,275
13,801
$21,366
$ 1,091
12,154
32,248
(29,038)
$16,455
$ 1,080
884
(1,027)
937
—
140
$ 1,077
$ 1,766
1,627
782
1,045
276
406
—
1,255
$ 7,157
Note 3. Supplemental Cash Flow Information
Dollars in thousands
Changes in operating assets and liabilities,
net of effects from the purchase and sale
of businesses:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . .
Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended January 31
2003
2004
2005
$(6,950)
(6,704)
150
6,576
1,777
482
$(4,669)
$(2,072)
4,603
(16)
(1,625)
187
(227)
850
$
$ (304)
(2,671)
15
560
(1,153)
83
$(3,470)
$
77
9,596
$
50
7,014
$
44
4,852
Cash flows from investing activities in fiscal 2005 include $409,000
of payments related to acquisitions that were deferred under their
respective purchase agreements.
Note 4. Fluent Systems
On December 19, 2003, the company acquired substantially all of
the assets of Fluent Systems, LLC for $1.0 million in cash and a
payment deferred until December 2004, which was valued at
$60,000. This start-up company had developed a wireless liquid
level monitoring system used with anhydrous ammonia tanks. Of
the purchase price, $79,000 was assigned to equipment, $195,000
was assigned to intangible assets, $19,000 to current liabilities
assumed and $848,000 to goodwill, which is fully deductible for tax
purposes. The operation was assigned to the Flow Controls segment.
Pro forma earnings are not presented due to the immateriality of the
acquisition to the consolidated operations.
The results of operations were included in the consolidated financial
statements from the date of acquisition. In the third quarter of
fiscal 2005, Flow Controls decided to abandon the Fluent Systems
product line resulting in a $1.3 million pretax writeoff of inventory,
equipment, intangible assets and goodwill.
Note 5. Divestitures and Other Repositioning Activities
Fiscal 2004 divestiture activities were limited to the sale by the
company’s Aerostar subsidiary of a sewing plant closed in fiscal
2003. The sale of that plant and its related equipment resulted in
cash proceeds of $196,000 and a pretax gain of $182,000. This gain
was offset by a $355,000 loss from increased liabilities for environ-
mental or legal issues related to previously sold operations, as
estimated by the company and its advisors. At January 31, 2005, the
company had an undiscounted accrual remaining of $145,000 for
environmental monitoring and clean-up costs of sold operations.
During fiscal 2003, the former Beta Raven Industrial Controls
Division was sold. A pretax gain of $104,000 and $577,000 of cash
proceeds were realized on the completion of the disposal of that
subsidiary. An Aerostar sewing plant was closed during the third
quarter as well. The remainder of the pretax net gain of $179,000
related to the collection of a previously discounted note receivable,
net of increased anticipated costs from ongoing liabilities from
previously sold businesses.
Note 6. Goodwill and Other Intangibles
Goodwill
The changes in the carrying amount of goodwill by reporting
segment are shown below:
Dollars in thousands
Balance at January 31, 2002 . . . . . . . .
Purchase price adjustments . . . . . . .
Balance at January 31, 2003 . . . . . . . .
Goodwill acquired during year . . . . .
Balance at January 31, 2004 . . . . . . . .
Adjustment . . . . . . . . . . . . . . . . . . . . .
Writeoff of Fluent Systems . . . . . . . .
Balance at January 31, 2005 . . .
Flow
Controls
$ 4,947
Engineered Electronic
Systems
$ 356
77
433
—
433
—
—
$433
Films
$ 96
(7) —
96
—
96
—
(848) —
$ 96
4,940
843
5,783
5
$4,940
Aerostar
$ 464
—
464
—
464
—
—
$464
Total
$ 5,863
70
5,933
843
6,776
5
(848)
$5,933
Intangible Assets
Estimated future amortization expense based on the current
carrying value of amortizable intangible assets for fiscal periods
2006 through 2010 is $79,000, $62,000, $6,000, $5,000, and
$4,000, respectively.
Note 7. Employee Retirement Benefits
The company has a 401(k) plan covering substantially all
employees and contributed 3% of qualified payroll. The company’s
contribution expense was $836,000, $817,000 and $715,000 for
fiscal 2005, 2004 and 2003, respectively.
In addition, the company provides postretirement medical and
other benefits to senior executive officers and senior managers.
The company accounts for these benefits in accordance with
SFAS No. 106, “Accounting for Postretirement Benefits Other Than
Pensions.” There are no assets held for the plans and any obliga-
tions are covered through the company’s operating cash and
investments. The liability and expense reflected in the balance sheet
and income statement are as follows:
Dollars in thousands
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion . . . . . . . . .……………………..
As of January 31
2004
$1,102
316
(206)
1,212
(200)
$1,012
2005
$1,212
391
(156)
1,447
(180)
$1,267
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wage inflation rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical inflation rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0%
4.0%
7.0%
7.0%
4.0%
7.0%
2003
$ 969
306
(173)
1,102
(150)
$ 952
8.0%
4.0%
7.0%
The accumulated benefit obligation based upon the rates noted in
the table above was approximately $2.7 million, $2.4 million and
$2.2 million at January 31, 2005, 2004 and 2003, respectively. No
material fluctuations in retiree benefits are expected in future years.
Raven 2005 Annual Report
page 35
Note 10. Financing Arrangements
Raven has an uncollateralized credit agreement providing a line of
credit of $7.0 million which expires in May 2005. Letters of credit
totaling $2.0 million have been issued under the line, primarily to
support self-insured workers’ compensation bonding requirements.
No borrowings were outstanding as of January 31, 2005, 2004 or
2003, and $5.0 million was available at January 31, 2005. The
credit agreement contains certain restrictive covenants that, among
other things, require maintenance of certain levels of net worth and
working capital. Borrowings on the credit line bore interest as of
January 31, 2005, 2004 and 2003 at 5.25%, 4.00% and 4.25%,
respectively. The weighted-average interest rate for borrowing under
the short-term credit line in fiscal 2003 was 4.6%. There were no
borrowings under the credit line in fiscal years 2005 or 2004.
Wells Fargo Bank, N.A. provides the company's line of credit.
One member of the company's board of directors is also on the
board of directors of Wells Fargo & Co., the parent company of
Wells Fargo Bank, N.A.
The company leases certain transportation, equipment and facilities
under operating leases. Total rent and lease expense was $305,000,
$355,000 and $446,000 in fiscal 2005, 2004 and 2003, respectively.
Future minimum lease payments under non-cancelable operating
leases for fiscal periods 2006 to 2010 are $222,000, $185,000,
$144,000, $6,000, and $5,000 with all leases scheduled to expire
by fiscal 2010.
Notes to Financial Statements (continued)
Note 8. Warranties
Changes in the warranty accrual were as follows:
Dollars in thousands
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual for warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements made (in cash or in kind) . . . . . . . . . . . . . . .
Sale of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of January 31
2004
$ 156
863
(756)
—
$ 263
2005
$ 263
932
(743)
—
$ 452
2003
$ 248
584
(576)
(100)
$ 156
Note 9. Income Taxes
The reconciliation of income tax computed at the federal statutory
rate to the company’s effective income tax rate is as follows:
Tax at U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . .
State and local income taxes, net of
U.S. federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible stock option expense . . . . . . . . . . . . . . . . . . .
Impact of graduated rates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended
January 31
2004
35.0%
2005
35.0%
2003
35.0%
0.9
0.3
—
(0.2)
36.0%
0.9
0.3
—
0.1
36.3%
0.4
0.3
(0.6)
0.1
35.2%
Significant components of the company's income tax provision are
as follows:
Dollars in thousands
Income taxes:
For the years ended
January 31
2004
2003
2005
Currently payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,095
(31)
$10,064
$7,626
254
$7,880
$4,912
1,157
$6,069
Significant components of the company's deferred tax assets and
liabilities are as follows:
Dollars in thousands
Current deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets (liabilities):
Accrued compensation and benefits . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of January 31
2004
2005
2003
$
93
237
591
161
383
1,465
443
(771)
118
(210)
$1,255
$
93
182
532
183
323
1,313
354
(502)
75
(73)
$1,240
$
84
194
508
369
338
1,493
333
(380)
53
6
$1,499
page 36
Note 11. Stock Options
Senior officers and key employees of the company have been
granted options to purchase stock under the company's 2000 Stock
Option and Compensation Plan ("Plan"). The Plan, administered
by the board of directors, allows for either incentive or non-quali-
fied options with terms not to exceed ten years. There are 655,700
shares of the company's common stock reserved for future option
grants under the plan at January 31, 2005. Options are granted
with exercise prices not less than market value at the date of grant.
These stock options vest over a four-year period and expire after
five years.
Effective February 1, 2002, the company adopted the fair value
recognition provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation.” Under the modified prospective method of
adoption selected by the company pursuant to the provisions of
SFAS No. 148, "Accounting for Stock-Based Compensation-
Transition and Disclosure," compensation cost recognized in
fiscal year 2003 is the same as that which would have been recog-
nized had the recognition provisions of SFAS No. 123 been applied
from its original effective date. Stock compensation expense for
fiscal years 2005, 2004 and 2003 was $309,000, $282,000 and
$174,000, respectively.
The weighted average grant date fair value of each option granted
was $5.91, $4.11 and $1.89 in fiscal 2005, 2004 and 2003, respec-
tively. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following weighted average assumptions by grant year.
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility factor . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option term (in years) . . . . . . . . . . . . . . . . . . .
For the years ended January 31
2003
2004
2005
3.02%
3.02%
3.51%
2.00%
1.33%
1.07%
33.57%
35.89%
34.92%
4.5
4.5
4.5
Information regarding option activity is as follows:
For the years ended January 31
2005
2004
2003
weighted
average
exercise
price
weighted
average
exercise
price
options
options
weighted
average
exercise
price
options
723,676
86,600
(184,600)
(13,500)
872,112
$ 5.89
129,000
22.00
2.77 (274,436)
(3,000)
9.79
$ 3.72
13.50
2.61
2.65
1,102,608
152,800
(353,892)
(29,404)
$ 3.05
7.00
3.09
3.14
Outstanding
at beginning
of year……. . . .
Granted . . . . . . . . . .
Exercised . . . . . . . . .
Forfeited . . . . . . . . .
Outstanding at
end of year . . . . .
612,176
$ 9.02
723,676
$ 5.89
872,112
$ 3.72
Options
exercisable at
end of year . . . . .
323,076
$ 5.27
326,608
$ 3.57
414,146
$ 2.78
The following table contains information about stock options
outstanding at January 31, 2005:
Exercise
Price
$ 2.67
4.38
7.00
13.50
22.00
Remaining
Contractual
Life (Years)
0.75
1.75
2.75
3.75
4.75
Number
Outstanding
106,876
149,400
147,300
122,000
86,600
612,176
Number
Exercisable
106,876
112,050
73,650
30,500
—
323,076
Note 12. Net Income Per Share
Basic net income per share is computed by dividing net income by
the weighted-average common shares outstanding. Common shares
outstanding represent common shares issued less shares purchased
and held in treasury. Share and per-share data in the net income
per-share computation have been restated to reflect the October 15,
2004, and January 15, 2003, two-for-one stock splits. Diluted net
income per share is computed by dividing net income by the
weighted-average common and common equivalent shares
outstanding, which includes the shares issuable upon exercise of
employee stock options, net of shares assumed purchased with the
option proceeds. Certain outstanding options were excluded from
the diluted net income per-share calculations because their exercise
prices were greater than the average market price of the company's
common stock during those periods. For fiscal 2005, 2004 and
2003, 21,650, 32,250 and 38,200 options, respectively, were excluded
from the diluted net income per-share calculation. Details of the
computation are presented below.
Dollars in thousands,
except per-share amounts
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive impact of stock options . . . . . . . . .
Weighted-average common and
common-equivalent shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
For the years ended January 31
2005
2004
2003
$
17,891
$
13,836
$
11,185
18,066,223
344,104
18,081,712
407,868
18,302,930
392,720
18,410,327
18,489,580
18,695,650
— basic . . . . . . . . . . . . . . . . . . . . . . . . . .
— diluted . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.99
0.97
$
$
0.77
0.75
$
$
0.61
0.60
Raven 2005 Annual Report
page 37
Note 14. Commitment to Purchase
Engineered Films Facility
In fiscal 2005, the company entered into an agreement to purchase
for $1.8 million a building to be used in the Engineered Films
segment. The agreement required an earnest payment of $25,000
at signing with the remainder due upon closing, on or before
May 1, 2006.
Note 15. Subsequent Event
On February 17, 2005, the company entered into a purchase
agreement to buy substantially all of the assets of Montgomery
Industries, Inc., a privately held Canadian corporation, for
$2.8 million in cash plus the assumption of certain liabilities
and a quarterly payment of six percent on future sales of
Montgomery products up to a maximum of $1.825 million.
Montgomery has developed and sold an automatic boom height
control system under the name “Autoboom” for agricultural
sprayers designed to successfully maintain optimum boom height
in uneven terrain without compromising the speed with which the
sprayer can be operated. This operation will be combined into the
company’s Flow Controls segment.
Note 16. Quarterly Information (Unaudited)
The company’s quarterly information is presented on page 26.
Notes to Financial Statements (continued)
Note 13. Business Segments and
Major Customer Information
The company's reportable segments are defined by their common
technologies, production processes and inventories. These segments
reflect the organization of the company into three Raven divisions,
each with a Divisional Vice President, and one subsidiary. The
Industrial Controls Division of Beta Raven, sold in fiscal 2003, is
included under the caption "Sold Businesses." During fiscal 2005,
the company’s high-altitude research balloon operation, formerly
in the Engineered Films segment, moved under the management of
Aerostar. As a result of this change in the company’s organizational
structure, the financial results of those operations have been
included in Aerostar’s segment disclosures.
The company measures the performance of its segments based on
their operating income exclusive of administrative and general
expenses. The accounting policies of the operating segments are
the same as those described in Note 1, Summary of Significant
Accounting Policies. Other income, interest 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 as required by
SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information.”
No customer accounted for more than 10% of the company’s
consolidated sales or accounts receivable in fiscal 2005 or 2004.
In fiscal 2003, one customer in the Electronic Systems segment
accounted for $12.9 million, or 10.7%, of the company’s consoli-
dated sales, although no customer accounted for more than 10%
of accounts receivable.
The company had sales of $11.0 million for the year ended
January 31, 2005, to countries outside the United States, primarily
to Canada. Sales were included in the Flow Controls, Engineered
Films, Electronic Systems and Aerostar segments totaling
$5.0 million, $621,000, $4.8 million and $474,000, respectively.
Market and segment information for 2005, 2004 and 2003 is
presented on pages 1 and 16 of this annual report.
page 38
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Raven Industries, Inc:
We have completed an integrated audit of Raven Industries, Inc.’s 2005 consolidated financial statements and of its internal control over
financial reporting as of January 31, 2005, and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders’ equity and
comprehensive income and of cash flows present fairly, in all material respects, the financial position of Raven Industries, Inc. and its subsidiaries at
January 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2005
in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing on page 27
of the 2005 Annual Report to Shareholders, that the Company maintained effective internal control over financial reporting as of January 31, 2005 based
on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control – Integrated Framework
issued by the COSO. 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. Our responsibility is to express opinions on management’s assessment and on the
effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
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 (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (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 receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) 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.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 24, 2005
Raven 2005 Annual Report
page 39
Board of Directors
Anthony W.
Bour
President &
Chief Executive
Officer,
Showplace Wood
Products, Inc.,
Sioux Falls, SD;
Director since: 1995
David A.
Christensen
Former President &
Chief Executive
Officer,
Raven Industries, Inc.,
Sioux Falls, SD;
Director since: 1971
Thomas S.
Everist
President,
The Everist
Company,
Sioux Falls, SD;
Director since: 1996
Mark E.
Griffin
President &
Chief Executive
Officer,
Lewis Drugs, Inc.,
Sioux Falls, SD;
Director since: 1987
The Raven Board held four regular meetings and two special meetings in Fiscal Year 2005.
In April 2004, it increased the quarterly dividend for the 18th year.
Conrad J.
Hoigaard
Chairman of
the Board,
Raven
Industries, Inc.;
Chairman of
the Board,
Hoigaard’s Inc.,
Minneapolis, MN;
Director since: 1976
Cynthia H.
Milligan
Dean,
College of Business
Administration,
University of
Nebraska, Lincoln,
Lincoln, NE;
Director since: 2001
Ronald M.
Moquist
President &
Chief Executive
Officer,
Raven
Industries, Inc.,
Sioux Falls, SD;
Director since: 1999
Audit Committee
Thomas S. Everist, Chair
Anthony W. Bour
Cynthia H. Milligan
The Audit Committee held three meetings to review
the activities and independence of Raven’s external
auditors. It also reviewed the auditor’s findings
regarding Raven’s financial reporting process, related
internal and disclosure controls and compliance with
applicable law.
Personnel and Compensation Committee
David A. Christensen, Chair
Mark E. Griffin
Conrad J. Hoigaard
The Personnel and Compensation Committee
held two meetings to review and approve executive
compensation plans, policies and practices, and key
succession plans.
Governance Committee
Cynthia H. Milligan, Chair
Anthony W. Bour
David A. Christensen
Thomas S. Everist
Mark E. Griffin
Conrad J. Hoigaard
The Governance Committee held two meetings
to review corporate bylaws, corporate
governance standards, and assess the Board’s
effectiveness. This Committee is responsible for
the Board nomination process.
Senior Executive Officers
Ronald M. Moquist
President & Chief Executive Officer, Age: 59, Service 29 years
Thomas Iacarella
Vice President & Chief Financial Officer, Age: 51, Service 13 years
Senior Management
David R. Bair
Division Vice President & General Manager–Electronic Systems Division, Age: 48, Service 6 years
James D. Groninger
Division Vice President & General Manager–Engineered Films Division, Age: 46, Service 18 years
Barbara K. Ohme
Vice President–Administration, Age: 57, Service 17 years
Daniel A. Rykhus
Executive Vice President, General Manager–Flow Controls Division, Age: 40, Service 15 years
Mark L. West
President–Aerostar International, Inc., Age: 51, Service 23 years
page 40 Raven 2005 Annual Report
Investor Information
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Minneapolis, MN
Stock Transfer Agent & Registrar
Wells Fargo Bank, N.A.
161 N. Concord Exchange
P.O. Box 64854
S. St. Paul, MN 55164-0854
Phone: 1-800-468-9716
Form 10-K
Upon written request, Raven Industries, Inc.’s form
10-K for the fiscal year ended January 31, 2005,
which has been filed with the Securities and
Exchange Commission, is available free of charge.
Direct inquires to:
Raven Industries, Inc.
Attention: Investor Relations
P.O. Box 5107
Sioux Falls, SD 57117-5107
Phone: 605-336-2750
Raven Website
www.ravenind.com
Stock Quotations
Listed on the Nasdaq Stock Market—RAVN
Annual Meeting
May 26, 2005, 9:00 a.m.
Washington Pavilion of Arts and Science
301 S. Main Avenue
Sioux Falls, SD
Raven Industries, Inc. is an Equal Employment
Opportunity Employer with an approved affirmative
action plan.
Dividend Reinvestment Plan
Raven Industries, Inc. sponsors a Dividend
Reinvestment Plan whereby shareholders can
purchase additional Raven common stock without
the payment of any brokerage commission or fees.
For more information on how you can take
advantage of this plan, contact your broker,
our stock transfer agent or write: Investor Relations;
P.O. Box 5107, Sioux Falls, SD 57117-5107
SIC Codes:
3672, 3081, 3829
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act provides a “safe harbor” for forward-looking statements. Certain information included in
this Annual Report and other materials filed or to be filed by the company with the Securities and Exchange Commission (as well as
information included in statements made or to be made by the company) contains statements that are forward-looking. Although the
company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there is no
assurance that such expectations will be achieved. Such 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 certain of the company’s primary markets, such as agriculture and construction, or changes in competition, raw material avail-
ability, technology or relationships with the company’s largest customers, any of which could adversely impact any of the company’s
product lines. 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.
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RAVEN
Raven Industries
P.O. Box 5107
Sioux Falls, SD 57117-5107