RAVEN
2008 ANNUAL REPORT for the fiscal year ended January 31
Raven continues to generate solid sales and profit growth in spite of difficult
market conditions. It was our eighth-consecutive year of record earnings
per share, with sales to the agricultural market reaching all-time highs. Our
earnings growth of 9% was respectable but not up to our stated goal of 15%.
Difficulties in our residential construction and related markets reduced
results for the year. We continue to generate strong profit margins and high
returns on invested capital. These are the metrics we believe demonstrate
Raven’s strength and reinforce the confidence we have in the future.
Inside this Report
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Operations Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11-Year Financial Summary. . . . . . . . . . . . . . . . . . . . . . . . 16
Business Segment Performance . . . . . . . . . . . . . . . . . . . . 18
Financial Review and Analysis. . . . . . . . . . . . . . . . . . . . . . 19
Stock and Quarterly Performance . . . . . . . . . . . . . . . . . . . 30
Management’s Report on Internal Control
over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Report of Independent Registered
Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . 43
Directors and Executives . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Investor Information . . . . . . . . . . . . . . . . . Inside Back Cover
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
Dollars in thousands, except per-share data
OPERATIONS
For the years
ended January 3
2008
2007
change
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957
$27,529
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,145
27,802
38,302
25,44
PER SHARE
Net income — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.53
$ .39
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE
Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on beginning shareholders’ equity . . . . . . . . . . . . . . . . . .
0.44
6.52
17.6%
11.9%
20.8%
28.3%
0 .36
5 .45
7 .6%
.7%
22 .5%
30 .%
Shares and stock units outstanding, year end (in thousands) . . . .
18,130
8,044
7 .6%
7 .4%
9 .3%
0 .%
22 .2%
9 .6%
—
.7%
–7 .6%
–6 .0%
0 .5%
Net Sales
(dollars in millions)
Earnings per Share
(dollars)
Sales per Employee
(dollars in thousands)
250
200
150
100
50
0
1.50
1.20
0.90
0.60
0.30
0.00
250
200
150
100
50
0
2003 2004 2005 2006 2007 2008
2003 2004 2005 2006 2007 2008
2003 2004 2005 2006 2007 2008
Raven’s revenues saw a five-year compound
annual growth rate (CAGR) of 14.4% and
reached another record. While growth slowed
due to softness in some of our markets, this
was more than offset by strength in our
Flow Controls Division.
Earnings per share also reached a new high
and reflected a 20.6% five-year CAGR.
Another year of earnings growth is expected
in fiscal 2009.
By investing in its higher value-added
businesses, sales per employee reached
its 10th-consecutive record.
RAVEN INDUSTRIES
To Our Shareholders, Employees and Customers
Raven strengthened its financial condition and reported another
year of record results. We faced some tough market conditions,
especially in building construction, but made solid progress
in improving product quality, developing new products and
expanding distribution. Raven’s financial results were driven
by the outstanding performance of its Flow Controls Division.
Our company posted its eighth-consecutive year of record
earnings per share, which have grown from $.31 to $1.53
during this time.
Results Reflect Solid Business Model
Last year’s results fell short of long-term goals for sales and
profit growth, but demonstrated the strength and sustainability
of Raven’s business model and the effectiveness of our diversi-
fied business operations.
• Sales increased 8% to a record $234 million.
• Net income grew 9% to $27.8 million, also a record, while
earnings per share rose 10%, to $1.53.
• The quarterly dividend per share increased 22%, our
21st-consecutive annual increase.
• Raven’s stock price had a roller-coaster ride during the
year. After beginning the year at $28.43, it hit an all-time
high of $45.85, before falling back to end the fiscal year
at $30.02.
One Company – Four Strong Businesses
Raven has four terrific businesses that are leaders in their fields.
Knowing that cheap labor is not a sustainable business strategy,
we structured our operating units around innovation, quality,
customer service and technical support.
We never stop evaluating our businesses to ensure they are
sustainable and can provide the targeted returns on invested
capital. Our strategy is to optimize core businesses and to dis-
continue non-strategic product lines. For Raven to achieve its
long-term profit growth goal of 15%, not every business seg-
ment must deliver that level of growth. That’s a real advantage
when one of our operations is caught in a market down-cycle,
as was the case with the Engineered Films Division last year.
Ronald M. Moquist
President & Chief Executive Officer
2 2008 ANNUAL REPORT
Engineered Films Faces Tough Market
The Engineered Films Division (EFD) produces high-strength
plastic sheeting for industrial, construction, geomembrane and
agricultural applications. The past year was a difficult one for
EFD, with sales down 7% and operating income off 25%. We
knew that sales would suffer in comparison with the previous
year, which had $10 million of disaster-relief tarp sales related
to hurricane recovery efforts. Two other factors compounded
the situation: rising material costs and the competitive pricing
pressure in the construction market, which makes up 40% of
EFD’s revenues. We don’t see any short-term relief.
Raw material costs, mainly polyethylene resins, began climbing
in mid-2007. They continued to rise for the rest of the year,
increasing from $.60 per pound to $.80 by year-end. In the past,
we had the ability to pass those increases to our customers,
but because of the weak marketplace, that was no longer
possible. We don’t see this changing soon, and expect operating
income in EFD will increase only modestly in the year ahead.
As the construction market rebounds, pricing and margins will
firm up.
In spite of those issues, I am more confident than ever that the
manufacturing capacity and capability we added in the past
18 months will drive long-term profitable growth. Exciting
new products – such as our multi-layer radon gas barrier for
healthy-home construction – will lead the way, together with
geomembrane products that serve a growing market for high-
performance barrier films.
Record Performance at Flow Controls
The Flow Controls Division (FCD) had an exceptional year.
Sales were up 41% and operating income rose 89%. Farm cash
receipts are at an all-time high, as demand for corn and soy-
bean-based renewable fuels accelerates. However, growers’ net
income is being moderated by high input costs related to fuel,
fertilizer, seed, chemicals and insurance. These cost drivers
work in Raven’s favor, as our precision control systems are
designed to minimize input costs and maximize output and har-
vest yield. One example is the high cost of nitrogen fertilizer,
which is taking sales of our anhydrous ammonia application
control systems to all-time highs.
FCD is certainly helped by a strong agricultural market, but our
growth is also being driven by new products, expanding distri-
bution and growth in international markets. International sales
are currently 16% of the FCD total, with the potential to grow
to a much higher level.
We are investing 6.6% of FCD sales into new product innova-
tion and are building out the division as rapidly as we can. The
breadth of our product offering, combined with 30 years of
Strength and Drive
serving this market and strong brand recognition, are serving
us well. The Flow Controls Division will be the main factor in
Raven’s growth for the coming year.
Mixed Results for Electronic Systems
Our Electronic Systems Division (ESD) had a respectable year,
with sales up 2% but operating income down 5%. ESD works
with a small base of Fortune 500 companies and specializes in
low-volume, high-mix contract electronics manufacturing that
requires a high degree of engineering support and customer
service. We build printed circuit boards and sub-assemblies
for the avionics and aerospace industry, and these were strong
markets last year. On the negative side, sales of one of our
key products – electronic bed controls – were down 20%.
We do not see that trend changing soon, because the downturn
in new home construction and home improvements is nega-
tively affecting this market.
One of our top accounts was recently acquired by a foreign
company, which is taking its business to another manufacturer.
The loss of this sales volume can’t be fully offset by short-term
growth in our industrial and avionics accounts. Long-term,
ESD will grow through a new strategy of developing and
acquiring proprietary products in addition to increasing our
base of contract manufacturing customers.
Turnaround Continues at Aerostar
Our Aerostar subsidiary increased sales by 18% and oper-
ating income doubled, although on a very small profit base.
We would have done better if not for government-directed
delays in parachute shipments. Aerostar has finally turned the
corner on its restructuring and is now focused on three major
product areas:
• Aerostats, airships and high-altitude research balloons
• Military parachutes
• Specialty protective-wear for government agencies
Aerostar’s long-term future ultimately will be driven by our
success in aerostats – for both military and commercial use.
A new product we developed this past year – a tethered blimp
equipped with electronic sensors and radio equipment and
mounted on a large flat-bed trailer for mobility – can be used
for border security, intelligence gathering, scientific experi-
ments and emergency communication systems. This is a
product with tremendous revenue potential. Aerostar’s backlog
is double last year’s, pointing to a very strong year of sales
and profit growth.
RAVEN INDUSTRIES 3
To Our Shareholders, Employees and Customers
Cash Management and ROI
Cash is king at Raven. Cash is real ... it can’t be manipulated. It
is central to all we do at Raven, and we know how to generate
it. Our balance sheet is clean, with no debt and $23 million in
cash and investments. We ended the year with inventory about
$4 million higher than it needed to be, and we can generate
additional cash as we bring it down to a more reasonable level.
Here are our cash management priorities:
• Invest in organic growth whenever we can achieve a return
on investment of at least 15%.
• Increase the cash dividend annually.
• Repurchase Raven shares and/or pay a special dividend
whenever we have excess cash.
• Make small, strategic acquisitions that can be bolted on to
one of our core high-margin businesses.
• Free up cash by improving inventory turns at least 10%
per year.
Three-Year Capital Equipment Investments
FY 2008
FY 2007
FY 2006
$6.6 million
$16.5 million
$10.4 million
Seventy-four percent of capital investments over the past
three years went to our Engineered Films Division. With a
projected return of 15-20%, our investments create significant
economic value.
Over the last two years, it was tempting to leverage the bal-
ance sheet and add debt. We did the opposite. We built our
cash position and now have the financial flexibility to move
in whatever direction brings long-term growth and value to
our shareholders.
While we lost some ground on our return on equity in the past
two years, that was mainly due to our growing equity base and
cash reserves.
By the end of the current year we should have a total of
$40 million in cash. We are committed to returning 30% of
earnings to our shareholders as dividends. Any stock buybacks
or special one-time dividends would be additional.
Annual EPS Growth
Return on Equity
Return on Assets
Return on Sales
FY 2008 FY 2007 FY 2006 FY 2005
10.1%
28.3%
20.8%
11.9%
5.3%
30.1%
22.5%
11.7%
36.1%
36.7%
24.9%
11.9%
29.3%
26.9%
21.3%
10.6%
U.S.-based Manufacturing Strategy
All of Raven’s manufacturing is done in the United States,
with the bulk of that in South Dakota. This strategy may seem
outdated to some, but it actually contributes to our quality,
customer service and profitability. We source raw materials and
components on a global basis, but process and assemble them
locally. We can do this because cheap labor is not our primary
driver. We focus on innovation, technology, process control
and trained personnel. At some point, we will develop off-
shore manufacturing capability. But it won’t happen because
we could not compete with our American labor base. It will
be driven by a strategy to sell more products into targeted
international markets.
Our Long-term Growth Strategy
Our primary growth strategy is to drive profitable organic sales
in high-margin, capital-efficient niche markets where we can be
a leader. We avoid labor-intensive, commodity-type products.
Our goal is to increase sales 12% and earnings 15% per year
on average. We intend to achieve these targets by investing
in new products and capabilities, building out distribution
channels and expanding our geographic reach – especially in
South America and Europe.
Acquisitions could play a role in our growth – but they won’t
be significant. Acquisition candidates must fit within one of
Raven’s four core business units, increase long-term share-
holder value and be purchased at their intrinsic value or less.
Not many targets meet those basic criteria, which is why we do
so few acquisitions.
Every year brings changes and the need to adapt. We don’t
fall in love with any of our businesses – it’s performance that
counts. Yet some operations go through down-cycles, as is
the case with Engineered Films. Some businesses take time to
reach their potential, which happened with Aerostar. Some are
going through a repositioning, as in Electronic Systems. Not
every one of our four operations is going to perform at a high
level every year, but together they have the strength and drive
to achieve our long-term profit goals. That gives us a big advan-
tage over single-product competitors who struggle when their
markets are in recession.
4 2008 ANNUAL REPORT
We continue to use tools such as Six Sigma and Lean
Manufacturing to continuously improve quality, eliminate
waste and reduce cycle times. Every year the goal is to improve
productivity 6% and increase inventory turns. You can’t save
your way to success, but neither can you grow profitably if
margins are compressed by rising costs.
The Benefit of a Strong Board
I have had the opportunity to see and experience corporate
governance and the role a strong board of directors can play.
At a time when many boards defer their responsibilities to
outside experts rather than exercise the experience, judgment
and knowledge for which they were retained, the Raven board
continues to provide strong oversight and guidance to our
executives. Raven’s board challenges as well as supports and
encourages management. Our directors never forget that their
primary role is to oversee how the company serves the interests
of shareholders and other stakeholders.
Strength and Drive
Strength and Drive
Each day we have to earn the trust of shareholders, and nothing
builds this like performance. Not every year will be great, but
every year must instill a belief that we optimized the market
situation handed to us – that we have a plan for success – and
that we have the talent to execute that plan.
We were pleased to be named by Forbes as one of the top
200 Small Companies in America. In the past two years we have
been listed at 85 and 68. That doesn’t happen without a superb
group of employees who have the talent and drive to succeed.
My thanks to all of them – and to you, our shareholders, for
your continued support and confidence.
Ronald M. Moquist
President & CEO
March 28, 2008
Raven executive team from left to right:
CFO Thomas Iacarella,
Executive VP of Flow Controls Daniel Rykhus,
President and CEO Ronald Moquist,
VP of Engineered Films James Groninger,
Aerostar President Mark West,
VP Administration Barbara Ohme,
VP of Electronic Systems David Bair
RAVEN INDUSTRIES 5
Business Profile
While Raven’s four operations serve different markets, they have these strong growth factors:
• Significant share in their niche markets, which supports profitable expansion
• A business model that avoids labor-intensive commodity products – and offshore competition
• Strong cash generation and continued reinvestment in new products and capacity
• A high level of customer service through a combination of up-front sales consultation, materials management,
quality control and after-sales support
Operating Unit
Products or Services
Markets/Product Uses
Engineered Films
Flow Controls
Electronic Systems
•
•
•
•
String reinforced plastic (polyethylene) sheeting:
DURA-SKRIM®
Extruded polyethylene film that can be formulated and
tailored to a customer’s specifications: RUFCO®
Barriers against weather and air: FORTRESS™
Vapor retarders and gas barriers to prevent moisture from
seeping through concrete slabs or walls: VaporBlock®
underslab vapor retarder
•
•
•
•
•
Energy and geomembrane: oilfield pit liners, floating
covers, remediation liners and covers, landfill caps,
pond and canal linings
Construction: temporary building enclosures, house
wraps, disaster films, vapor retarders, gas barriers
Manufactured housing: transit enclosures, house wraps
Industrial: multilayer packaging films, lamination films,
containment tubing
Agriculture: temporary grain covers, silage bunker
covers, poultry house ceilings, waste disposal liners
•
•
•
•
•
•
•
•
•
Ag equipment guidance systems: Cruizer™
Spray equipment rate controllers: SCS Series™
Precision ag product application, steering and data
management systems: Viper™, Envizio Plus™
Ag equipment boom management and applications
systems: SmartBoom™, AccuBoom™, AutoBoom™
Tractor steering systems: SmarTrax™, QuickTrax™
Navigational guidance for professional ship pilots:
Starlink™
Contract manufacturing of low volume/high mix industrial
products that stand up to harsh environments
with great reliability
Repair/warranty service management and
product distribution
High levels of engineering support and
customer service
•
•
•
Domestic and international agricultural OEMs and
sprayer manufacturers
Agricultural equipment aftermarket
Marine ship pilots
•
•
Primarily Fortune 500 industrial OEMs in North America
Markets served by customers include industrial controls
and instrumentation, aerospace/aviation, communication,
defense
Aerostar
International
•
•
•
•
•
High-altitude scientific research balloons
High-altitude airships that reach near-space (60,000-
80,000 feet) for communications, data relay, surveillance
Tethered aerostats (blimps) for military, homeland security
and scientific use
Military parachutes
Clothing to protect from exposure to biochemicals,
fuels and fumes, extreme cold weather
•
•
•
•
•
U .S . and foreign governments
U .S . and international military forces
Homeland security
NASA
Scientific agencies and universities
6 2008 ANNUAL REPORT
Sales by Operating Unit
Income by Operating Unit
Competitive Strengths
Milestones
Engineered Films
Flow Controls
Electronic Systems
Aerostar
•
•
•
•
Vertically integrated manufacturer: offering extruded
blown film, lamination and conversion
Broad product line including mono- to seven-layer
co-extruded film and reinforced laminated sheeting,
from .003 to .045 inches thick
Superior target marketing
ISO 900:2000 certification
•
•
•
Installed new equipment capable of manufacturing
specialty multi-layer films for markets not previously
served
Moved to a market-specific approach to sales
New product introductions: radon, methane and
oxygen barrier films
Engineered Films Sales
(dollars in millions)
$91.1
$84.8
$82.8
$58.7
$42.6
$35.1
•
•
•
•
•
Market leader for agricultural sprayer controls
Large installed base of sprayer controls
Strong brand recognition and distribution network
Wide range of precision agricultural products
Excellent after-sale service
•
•
•
Introduced new products, including Cruizer™,
Viper PRO™, Envizio PRO™
Focus on international markets led to sales
contribution of 6%
Strengthened relationships with large OEMs that
are integrating Raven’s products into their machine
designs
2003
2004
2005
2006
2007 2008
Flow Controls Sales
(dollars in millions)
$64.3
$47.5 $45.5
$40.7
$35.1
$28.5
2003
2004
2005
2006
2007 2008
•
•
•
•
•
Advanced manufacturing technology
Full-service provider, from engineering and
manufacturing to customer service
Close partnership with customers
IPC certification to produce lead-free electronics
assemblies
ISO 900:2000 certification
•
•
•
•
Expanded lead-free manufacturing capabilities
Significantly improved on-time delivery rates through
use of Six Sigma
Continued to contribute good levels of cash flow
Introduced proprietary GPS-accessories product line
Electronic Systems Sales
(dollars in millions)
$66.3 $67.6
$56.2
$44.3 $47.0
$38.6
•
•
•
Sole source in U .S . for scientific research balloons
Over 50 years of experience in manufacturing
stratospheric balloons
Best technology for high-speed sewing and sealing
of specialty films and fabrics
•
•
•
•
•
Began manufacturing military personnel parachutes
Secured fuel handler coverall contract
Won U .S . Navy survival suit contract
Successful introduction of tethered aerostat with
transport and support equipment
Secured contract for a high-altitude unmanned airship
2003
2004
2005
2006
2007 2008
Aerostar Sales
(dollars in millions)
$21.7
$20.7
$17.4
$18.0
$17.3
$14.7
2003
2004
2005
2006
2007 2008
RAVEN INDUSTRIES 7
RAVEN Engineered Films Division
“Engineered Films is the
industry innovator, and
this is what will bring us
growth and profitability.
We have looked at where
the business needs to be
in five years and made
many of the investments
in people, technology and
equipment that we’ll need
to get there.”
James D. Groninger,
Division Vice President
and General Manager
– Engineered Films Division
8 2008 ANNUAL REPORT
Strong Business Model
Plastics touch virtually everything in our lives, from packaging to storage
and protection to finished goods. This makes it a huge market – and an
excellent source of long-term growth for Raven.
We are vertically integrated. We handle the three key film produc-
tion processes: 1) extrusion – creating up to seven-layer plastic sheeting
from polyethylene pellets, 2) lamination and string reinforcement
– enhancing the strength of extruded films, and 3) conversion – custom-
izing the sheeting with special properties, such as coverage area, texture
and print. As a result, our customers can gain access to a wide range of
products through a single source. The combination of expanding our
capacity with state-of-the-art equipment last year, and a production
process that is ISO 9001:2000 certified, also qualifies us to serve more
types of domestic markets than most of our competitors.
We have a strong research and development capability.
Our experienced design team helps us create custom solu-
tions for our customers. This group also develops variations of
existing products – either adding more characteristics, or enhancing
properties while reducing the thickness of the film. The result is products
with different “levels” of performance that meet the needs of a wide range
of customers. In addition, we have a world-class quality control lab that
performs extensive product testing.
We have close relationships with our customers. They
often come to us with new product ideas and leverage our R&D
expertise. Customers can purchase time on our production lines
to test their product ideas on the most technologically advanced
equipment in the industry. They can have us create short runs
of their products. We make the process as effortless as possible:
going out of our way to communicate at every step, and provid-
ing exceptional service and quick response times.
Sound Markets
Two market-related factors depressed Engineered Films’ perfor-
mance this past year. First, the level of disaster film sales in
previous years was unsustainably high and could not be repeated.
Second, a softening economy – particularly in residential
construction – led competitors that traditionally concentrated in
other film markets to enter some of ours with price discounting.
But we remain in the right markets, which offer many opportuni-
ties for growth.
Two of our important markets are energy and geomembranes.
Energy continues to be fueled by record prices for oil, sparking
increased drilling and the need for our containment liner products
to help protect the environment.
While geomembranes are a mature market, we are pursuing new
niche opportunities. One example is a geomembrane that is NSF
(National Sanitation Foundation) certified. About 90% of the fish
consumed in the U.S. are grown on farms – to which we now can
supply pond liners. Another example is water conservation. In
the Southwest, farmers want to line their irrigation canals with
our geomembranes to ensure precious moisture is not lost into
the soil – something that wasn’t a concern five years ago.
There are many industrial applications for our engineered
films, including manufacturing or packaging operations. We are
designing products that help farmers save money or increase
productivity. While this can be a long sales cycle – because of the
amount of testing involved – we are working with the right types
of customers to generate long-term growth.
Strength and Drive
Drive to Succeed
Last year, we made progress on our long-term growth initiatives.
We expect this fiscal year will be an important one for us, as we
take those initiatives to the next level.
The investment we made in expanding our capacity and adopting
new technologies will allow us to reap three benefits. First, we
plan to introduce a greater number of new products. One example
is a house wrap with improved handling characteristics. We also
expect to see sales from new gas barrier products that will protect
people from harmful fumes from one or more of these sources:
gasoline, diesel fuel, radon, and methane found in landfills.
Second, we’ll be more innovative. New manufacturing technol-
ogy allows us to replicate the exact color and quality of products
to customers year after year. It will help us use automation
to improve productivity as well as the working conditions for
our employees.
Third, we’ll be more flexible to meet market demand. We can
quickly change our equipment from manufacturing one product
to another. We also can alter the formulations of our products
to meet the different levels of performance. One example is
“down gauging” to create a thinner, lower cost, more “green”
solution for the customer without sacrificing performance. And
by running more products with thinner gauges, we are able to
achieve higher throughput on our existing capacity – a source of
incremental profit.
Since our customers want to deal with specialists, we aligned
our sales force by end-use market rather than geographical terri-
tories. The result is stronger relationships with these customers
as well as those who specify our products, such as architects and
engineers. We also gain deeper insights into our competition in
each area. In addition, we’re doing a better job of sharing infor-
mation among salespeople, so customers can quickly get answers
even if their primary contact is not immediately available. We are
continuing to build out our sales team. Our most recent addition
is an agricultural product specialist.
Increased competition in some market niches, continued raw
material price volatility, and a flat economy will make this a chal-
lenging year. However, our combination of close relationships
with customers, and new products – particularly house wraps,
geomembranes and gas barriers – should lead Engineered Films
to higher sales and profitability. n
RAVEN INDUSTRIES 9
RAVEN Flow Controls Division
Strong Business Model
Flow Controls’ substantial increases in revenues and operating income
last year were buoyed by a strong U.S. and international agricultural
market. However, it was the operation’s business model that enabled it to
grow faster than the industry.
We use proven technologies to create proprietary products. Flow
Controls is known for developing products that solve ag production
problems related to applying pesticides and nutrients. The operation takes
technologies introduced in other markets, such as wireless communica-
tions and global positioning systems (GPS), and creates breakthrough
products for the agricultural market. This approach reduces development
costs and shortens the new product cycle.
We have an effective approach to distribution. Working closely
with distributors, we reach the aftermarket in the U.S. and key inter-
national markets: Argentina, Australia, Brazil, Canada, Europe and
South Africa. We make it easy for them to market our systems, by
ensuring distributors are well trained, understand our products, and
have support when they need it. This approach led to explosive growth
last year. We also have strong relationships with important agricultural
equipment manufacturers.
“Flow Controls is a
precision technology
supplier that serves the
ag market. We support
our OEM customers by
making their machines
more effective. And
we add value to the
aftermarket by increasing
the efficiency of a grower’s
existing equipment.”
Daniel A. Rykhus,
Executive Vice President
and General Manager
– Flow Controls Division
0 2008 ANNUAL REPORT
We create near- and long-term growth opportunities.
Having a solid new product pipeline keeps our business strong.
The process begins by reviewing our current suite of products.
We look for opportunities to build on the technologies and
distribution networks already in place. Last year, this led us
to build out our steering and guidance lines. We also have an
Advanced New Product Group that evaluates future trends – in
technology as well as in agriculture – and uses this to direct our
longer term investments.
Growing Markets
We focus on the U.S. and select international markets for two
reasons. First, they either are established markets that must
maximize the available acreage, or they represent the fastest
growing emerging markets. Second, growers in these areas
have shown they want to adopt higher technology application
practices. Several trends are driving the demand that we expect
will keep agriculture growing at a brisk pace for at least the next
three years.
Land use is changing. This is happening because of a greater
emphasis on renewable fuels. More acres are being planted in
corn, and more growers want to plant it continuously. To do this
successfully, they have to closely monitor the amounts of chemi-
cals, such as nitrogen and pesticides, and the areas where these
are applied. Regulation also is increasing. Growers will need to
have accurate records of the types of chemicals used, where and
over what periods. Our Viper PRO™ computer tracks this data
for each field and can send data wirelessly to a desktop or note-
book computer for easy analysis and datalogging. In addition, we
will be providing diagnostic services over the Internet to ensure
maximum up-time.
Input costs, such as fertilizer and diesel fuel, are rising. Growers
also are changing their cropping practices. They increasingly
choose a no tillage approach, which preserves the land but
requires more frequent spraying. Because growers operate their
equipment with greater frequency, they want to do this as effi-
ciently as possible, and avoid issues such as gaps or overspray.
One of the results will be more demand for products such as our
new Cruizer™ guidance and steering system. This compact 3-D
system is designed for growers who do not yet have a guidance
system, allowing them to adopt the technology at half the price of
similar products. The combination of our steering and guidance
systems with AutoBoom™, which automatically adjusts boom
height to ensure even spraying of an uneven field, helps reduce
their costs while improving their accuracy.
Strength and Drive
Drive to Succeed
Our first goal for this year is to further strengthen Flow Controls’
international expansion. We added a precision ag specialist
in eastern Canada, where we had very little presence, and are
developing a stronger network of dealers throughout the country.
We also increased our support of the Australian market.
In addition, we established a relationship with a distributor in
Ukraine and already are generating sales there. We also are
reviewing our opportunities in Brazil.
Our ultimate objective is to increase international sales to more
than 25% of total Flow Controls revenues from their current
16%, while continuing to expand our domestic revenues.
Our second goal for this year is to further refine our product
line, to make us more competitive and improve profitability.
This already resulted in a product that premiered in February.
FarmPro™ is a dual-frequency RTK steering system we
created with a partner, which provides steering accuracy within
2 centimeters. Its initial reception has been very positive. While
we do not expect to match the record number of products
introduced last year, we will continue a steady stream of refine-
ments, and increase our commitment to advanced product
development activities.
Our third goal is to wisely allocate our engineering resources.
New product development, existing product improvement, and
process change to support our production capacity are important
engineering initiatives. These projects will improve our com-
petitive position both in the U.S. and internationally. We also will
review acquisition opportunities that represent a good strategic
fit, giving us access to complementary products, engineering
expertise, and effective distribution channels.
Flow Controls has grown by developing and controlling proprie-
tary technologies that provide solutions to growers in this country
and abroad. We will continue to make additions to our suite of
products and improvements on our current offerings, increas-
ing the value we offer to our OEM partners and those who use
our systems. n
RAVEN INDUSTRIES
RAVEN Electronic Systems Division
“We have a vested interest
in making customers
more successful. We help
improve their design and
systems – as well as our
own – to create a seamless
supply chain. This puts
us in a great position to
anticipate their needs or
respond quickly. That’s
something they’ll never
get with an offshore
company.”
David R. Bair,
Division Vice President
and General Manager
– Electronic Systems Division
2 2008 ANNUAL REPORT
Strong Business Model
Electronic Systems takes an unusual approach to providing electronics
manufacturing services. Seeking out short run, high product mix oppor-
tunities, our goal is to be a true partner with a small number of select
companies, giving them the personal attention they deserve. As a result,
most of our sales increases come from growing with them.
We are an extension of our customers’ operations. Our engineers
work with customers to design products that can be efficiently and cost-
effectively produced. Our material management experts identify the right
raw materials and vendors. Our quality control professionals design the
right tests and discuss how to improve the results. Our customer value
teams ensure customers have access to these and other resources, that
scheduling is coordinated, and customers are satisfied. This is a true
collaboration. And we handle repair and warranty service or product
distribution as customers request it. Those who leverage our expertise
see higher quality products at a lower cost. The longstanding customer
relationships that result reinforce our competitive advantage.
We offer technologies customers may not have. One example is our
ability to produce lead-free electronic assemblies. We are one of only
about a dozen firms worldwide to be certified for this. In addition, our
engineers can help customers convert from lead-based products, handling
what can be a complex redesign process, so their engineers can focus on
Strength and Drive
Drive to Succeed
Last year we made progress on most of our goals. Six Sigma,
Lean Manufacturing and our first Tiger Team of employees,
working together across department lines, allowed us to continue
removing costs from our business while doing a better job of
serving customers.
We strengthened our manufacturing capabilities by expanding
circuit testing abilities and automated optical inspection – allow-
ing us to identify and correct any problems earlier in the process.
Just as important as the $1 million we spend annually on capi-
tal equipment purchases is having the power and resources of
Raven’s sizable organization behind us.
We did not make enough progress on inventory turns, which
were flat with the prior year. This situation began to improve late
in 2007, as we boosted one customer’s on-time delivery rate. Our
goal is to reach 99% on-time delivery across our customer base.
We have a number of projects underway and expect them to have
a major impact on inventory turns.
This year will be a difficult one for us, because one of our
customers was acquired and took their business to another
provider. To offset this situation over the longer term, our goal
is to add a new customer during the year. We seek clients that
meet our criteria: 1) well-established companies, 2) the ability
to begin with projects that create several million in revenues for
us and grow from there, 3) a significant amount of engineering
or schedule support, 4) a desire to work closely with us to align
processes and improve the entire supply chain, and 5) a cultural
fit that would lead to a successful long-term relationship.
We are working hard to return to our traditional level of 10%
sales growth and solid earnings from operations by target-
ing the right niches and the right customers. This allows us
to continue making operational advances to better serve our
customers while giving them the personal attention they deserve.
Their long-term relationships with us mean we can move past
early start-up related costs and into regular production. The
combination provides the cash flow contribution that makes
Electronic Systems a valuable part of Raven. n
creating new products. We can provide the latest technology,
handling surface-mount components the size of a flake of pepper.
Many times older products are still in demand. Not everyone has
the technology to make these products – but we do. For example,
we can mount components using older through-hole technology.
We are committed to improving quality while removing
costs. Six Sigma and Lean Manufacturing techniques are part
of Electronic Systems’ culture. Last year, we worked with a
customer to create a single communication channel that allowed
us to improve on-time delivery from 52% to more than 90%. As
these process improvements bring cost savings, we share some
of this with customers. The rest is reinvested in strengthening
our capabilities to better serve customers, while still provid-
ing Electronic Systems with some of the strongest margins in
its market.
Opportune Markets
Our diverse customer base reaches sizable markets. This increases
the chances that softness in one area can be offset by sales in
another niche or market.
Industrial controls and instrumentation is a good example. The
bed frame controls market is dependent on residential housing.
That market will be slow again this year. However, our business
in commercial building controls for heating, ventilating and air
conditioning actually benefits when older buildings are being
maintained rather than replaced with new ones. We provide
parts to keep older systems running, so our clients can focus on
developing newer ones. And as the new systems age, we begin
to support these.
According to our research, the aerospace/aviation industry is
expected to grow more than 8% annually for the next several
years. This is driven by higher demand for corporate planes,
and the need to replace aging U.S. commercial jets as travel
increases. We are benefiting from having a number of systems
on aircraft – from environmental controls to landing gear to fuel
tank monitoring.
Most of our work for defense and homeland security is in
communications equipment. One reason we expect to see higher
growth here is by serving the need for secure wireless systems
that allow different military and government agencies to commu-
nicate with each other.
RAVEN INDUSTRIES 3
RAVEN Aerostar
Strong Business Model
Aerostar serves four markets: parachutes, protective clothing, lighter than
air research balloons and airships, and tethered aerostats. This focus arose
from its expertise in product design engineering, efficient high-speed
manufacturing, and effective quality control. Last year, Aerostar recom-
mitted to accelerating its revenue and profitability.
We have a strong foundation in military parachutes and protective
clothing. Aerostar has been successful in gaining contracts and follow-
on work in these markets. While parachutes and protective clothing are
a solid and sustainable business, their expansion is limited. We are using
them as a platform to invest in areas with greater growth.
We have exciting opportunities in high-altitude products. In
January 2008, three Aerostar stratospheric balloons helped NASA set
a record – flying 13,000 pounds of scientific equipment for over 1,700
hours in Antarctica. Our experience in balloons and airships gives us the
reputation as an industry leader. In addition, competition here is limited.
We believe the potential size of these markets, combined with our good
relationships with industry decision-makers and ability to cost-effectively
execute programs, represents an opportunity for incredible growth.
“This is not the Aerostar
of five years ago. We
have identified our best
opportunities for growth,
and they are in the high
tech aerospace market.
We are using our stable
businesses to fund faster
growing opportunities
and expect to become
a major contributor to
Raven’s revenues and
profitability.”
Mark L. West,
President
– Aerostar International, Inc.
4 2008 ANNUAL REPORT
Favorable Markets
Parachutes used by the U.S. military were designed over 40 years
ago, when soldiers and gear were considerably lighter. This has
spurred a replacement cycle. The $14 million MC-6 U.S. Army
parachute contract, which we began shipping in November 2007,
is a two-year program. Follow-on contracts could last through
2010. We also expect to qualify for the five-year T-11 parachute
contract for all U.S. paratroopers. The combination of these two
programs could mean approximately $7 million in annual rev-
enues to Aerostar over the next seven years.
In protective wear, last year we received a $6.5 million one-year
contract for fuel handler coveralls. The first shipments were sent
in December 2007. We are actively pursuing follow-on contracts.
We also won a small but important contract for the Navy 86-P
survival suit for pilots, which allowed us to enter this market.
We believe high-altitude airships offer great growth. As an
emerging market, there are no estimates on its size. However,
Army professionals have told us they are very excited about the
capabilities that airships offer. This was supported by additional
Congressional funding of over $5 million for the HiSentinel pro-
gram, a joint project with Southwest Research Institute and the
U.S. Air Force Research Lab. At its completion, this project will
develop small near-space airships for tactical communications
and surveillance.
Orders for high-altitude research balloons had declined over
the last 25 years, representing $3-4 million in Aerostar annual
revenues. However, NASA breathed new life into the market.
This has led to its recently announced – and funded – program
to explore the Van Allen Belt in 2010, which would involve
30 flights in a two-year period.
Tethered aerostats offer the greatest potential for near-term
growth. They present an effective solution for the military’s need
to quickly deploy an inexpensive unmanned surveillance or com-
munication platform. Only one other company competes in this
market, which is estimated at $125 million annually. Capturing
even a portion of this represents an important gain for Aerostar.
Strength and Drive
Drive to Succeed
Our performance last year was negatively affected by delays in
shipping the MC-6 contract. However, we entered the current
year with nearly 85% of our planned sales in place and are taking
other steps to further improve performance.
We expect approximately $15 million in revenues from
contracts for parachutes and protective gear. There are three
goals for this business. First, we plan to deliver these products
on time and to our customers’ specifications. Second, we will use
our unmatched high-speed manufacturing process and insights
from skilled employees to ensure these contracts are as profitable
as possible.
Our third goal is securing future business. The time from winning
a contract to starting shipments can be long and influenced by
factors beyond our control. We are looking – and qualifying – for
follow-on contracts to existing parachute and protective wear
programs. We also are building relationships with other partners
to help secure additional contracts.
In high-altitude airships, we are working to make our next test
flight a success. The test should help confirm our ability to pro-
duce a cost-effective solar powered stratospheric airship. The
launch is expected to take place in our second quarter. We believe
a successful flight could result in additional Congressional funds
to support the high-altitude airship program, leading it to become
a regular line item in the military budget.
For high-altitude research balloons, we plan to build on the inter-
est shown by NASA. New science is developing that demands
the use of balloons. With traditional flights lasting only two-to-
four days, and our balloons capable of being airborne for more
than 30 days, Aerostar is a leader in this market.
The tethered aerostat market offers much opportunity for growth.
Our successful flight in October of Model TIF 25K illustrated
Aerostar’s turnkey, easy-to-use mobile aerial platform, so the
aerostat launched within hours of reaching the site. We offer five
sizes of aerostats to meet a variety of needs. The lead time to
manufacture an aerostat is approximately six months, so we will
be particularly focused on contacting potential customers in the
first half of this year.
Aerostar is more focused and is actively investing income from
slower growing parachute and protective wear segments into
fast-growing markets for high-altitude airships, research bal-
loons and tethered aerostats. Our goal is to be a more meaningful
contributor to Raven’s long-term growth and profitability. n
RAVEN INDUSTRIES 5
For the years ended January 3
2007
2006
ELEVEN-YEAR FINANCIAL SUMMARY
11.9%
28.3%
2008
Dollars in thousands except per-share data
OPERATIONS FOR THE YEAR
Net sales
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957
Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
233,957
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,148
Operating income
41,145
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
41,145
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,224
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,802
Net income as % of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income as % of beginning equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,966
FINANCIAL POSITION
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,869
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,108
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,761
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.56
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,743
147,861
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,275
Long-term debt / total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory turnover (CGS / year-end inventory) . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS PROVIDED BY (USED IN)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,151
(4,433)
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,270)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
14,489
COMMON STOCK DATA
Net income per share — basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.54
1.53
Net income per share — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.44
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.52
Stock price range during year
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45.85
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.20
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.02
18,130
Shares and stock units outstanding, year end (in thousands) . . . . . . . . . . . . . . . .
8,700
Number of shareholders, year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER DATA
19.6
Price / earnings ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
930
Sales per employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,628
0.0%
4.8
$27,529
—
27,529
54,882
38,302
—
38,302
38,835
$ 25,44
$204,528
—
204,528
53,23
37,284
—
37,284
37,494
$ 24,262
.7%
30 .%
.9%
36 .7%
$ 6,507
$ 5,056
$ 73,29
6,464
$ 56,755
4 .45
$ 36,264
9,764
—
$ 98,268
$ 7,345
20,050
$ 5,295
3 .56
$ 25,602
06,57
9
$ 84,389
0 .0%
5 .8
0 .0%
5 .4
$ 26,33
(8,664)
(0,277)
(2,626)
$ .4
.39
0 .36
5 .45
$ 42 .70
25 .46
$ 28 .43
8,044
8,992
20 .5
884
$ 246
$ 44,237
$ 2,89
(,435)
(6,946)
2,790
$ .34
.32
0 .28
4 .67
$ 33 .5
6 .54
$ 3 .60
8,072
9,263
23 .9
845
$ 242
$ 43,69
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.
Book value per share is computed by dividing total shareholders’ equity by the number of common shares and stock units outstanding.
(a) In fiscal 2003, 2001, and 2000, the company sold its Beta Raven Industrial Controls, Plastic Tank, and Glasstite businesses, respectively.
6 2008 ANNUAL REPORT
2005
2004
2003
2002
200
2000
999
998
$68,086
—
68,086
43,200
27,862
—
27,862
27,955
$ 7,89
$42,727
—
42,727
33,759
2,98
(355)
2,626
2,76
$ 3,836
$9,589
,34
20,903
27,55
6,86
204
7,065
7,254
$ ,85
$2,08
6,497
8,55
23,85
3,788
(63)
3,75
3,565
$ 8,847
0 .6%
26 .9%
$ 5,298(b)
9 .7%
23 .8%
9 .3%
2 .5%
7 .5%
8 .4%
$ 3,075
$ 2,563
$ 2,37
$ 6,592
20,950
$ 40,642
2 .94
$ 9,964
88,509
—
$ 66,082
$ 55,70
,895
$ 43,85
4 .68
$ 5,950
79,508
57
$ 66,47
$ 49,35
3,67
$ 36,84
3 .75
$ 6,455
72,86
5
$ 58,236
$ 45,308
3,80
$ 3,498
3 .28
$ 4,059
67,836
280
$ 52,032
$3,360
9,498
32,858
2,23
7,47(c)
3,33(d)
0,748
0,924
$ 6,4(c)(d)
4 .8%
.8%
$ 2,399
$ 5,87
3,935
$ 37,882
3 .72
$ ,647
65,656
2,03
$ 47,989
$07,862
42,523
50,385
24,27
7,97
2,606(e)
0,577
0,503
$ 6,762(e)
4 .5%
0 .9%
$ 2,895
$ 55,37
4,702
$ 40,669
3 .77
$ 5,068
74,047
3,024
$ 54,59
$08,408
46,798
55,206
24,44
8,220
,453
9,673
9,649
$ 6,82
4 .0%
0 .0%
$04,489
47,679
52,68
24,929
9,555
,007
0,562
2,540(f)
$ 8,062
5 .3%
4 .2%
$ 2,944
$ 2,709
$ 60,279
5,28
$ 45,5
3 .98
$ 9,563
83,657
4,572
$ 62,293
$ 57,285
7,86
$ 39,469
3 .22
$ 9,87
82,066
,28
$ 6,563
0 .0%
5 .4
0 .%
6 .5
0 .3%
4 .4
0 .5%
5 .0
4 .0%
5 .9
5 .3%
5 .2
6 .8%
4 .9
.8%
4 .8
$ 8,87
(7,63)
(9,063)
(7,823)
$ 0 .99
0 .97
0 .85(b)
3 .67
$ 26 .94
3 .08
$ 8 .38
7,999
6,269
8 .9
835
$ 20
$ 43,646
$ 9,732
(4,352)
(6,55)
9,225
$ 2,735
(9,66)
(5,830)
(2,26)
$ 0 .77
0 .75
0 .7
3 .68
$ 5 .23
7 .56
$ 4 .
8,04
3,560
8 .8
787
$ 8
$ 47,20
$ 0 .6
0 .60
0 .4
3 .2
$ 9 .20
4 .38
$ 7 .9
8,33
2,78
3 .2
784
$ 54
$ 42,826
$ 8,496
(3,52)
(8,539)
(3,95)
$ 0 .48
0 .47
0 .3
2 .82
$ 5 .88
3 .02
$ 5 .64
8,424
2,387
2 .
858
$ 38
$ 33,834
$ 9,44
9,752
(4,227)
4,966
$ 0 .3
0 .3
0 .2
2 .53
$ 3 .48
.88
$ 3 .04
8,956
2,460
9 .8
,082
$ 23
$ 38,239
$ 0,375
6,323
(6,326)
372
$ 8,326
(3,27)
(2,74)
2,485
$ 0 .26
0 .26
0 .
2 .32
$ 3 .04
2 .25
$ 2 .40
23,496
2,749
9 .2
,369
$ 0
$ 44,935
$ 0 .22
0 .22
0 .0
2 .2
$ 3 .79
2 .54
$ 2 .67
28,64
3,04
2 .4
,507
$ 03
$ 47,43
$ 9,274
(4,979)
(4,884)
(589)
$ 0 .28
0 .28
0 .09
2 .3
$ 4 .29
3 .27
$ 3 .77
28,944
3,22
3 .7
,573
$ 97
$ 47,54
(b) Includes a special dividend of $.625 per share that was paid in fiscal 2005.
(c) Includes $2.6 million of business repositioning charges, net of gains on plant sales, primarily in Electronic Systems 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 the sale of an investment in an affiliate.
RAVEN INDUSTRIES 7
BUSINESS SEGMENTS
Dollars in thousands
2008
2007
2006
2005
2004
2003
For the years ended January 3
ENGINEERED FILMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,783 $ 9,082 $ 82,794 $ 58,657 $ 42,636 $ 35,096
0,030
17,655
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,244
43,688
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,080
4,012
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
,475
4,046
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
5,739
25,8
3,960
,403
9,907
33,52
7,359
2,436
0,563
5,94
72
,6
23,440
4,988
3,266
2,887
FLOW CONTROLS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,291 $ 45,55 $ 47,506 $ 40,726 $ 35,059 $ 28,496
6,897
19,102
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,483
36,922
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
729
1,008
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
948
1,125
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
0,56(b)
23,70
,372
876
0,
27,629
577
,42
8,254
9,304
34
,004
3,586
30,047
938
,085
ELECTRONIC SYSTEMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,609 $ 66,278 $ 56,29 $ 47,049 $ 44,307 $ 38,589
4,022
10,349
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,528
25,865
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395
1,077
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
978
1,237
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
5,797
4,975
84
850
8,96
20,9
,62
87
4,492
7,382
,20
880
0,850
25,75
,357
,086
AEROSTAR
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,274 $ 4,654 $ 8,009 $ 2,654 $ 20,725 $ 7,408
,02
1,506
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,032
9,857
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
570
156
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
374
499
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
3,092(c)
7,756
,30
436
3,609
7,492
542
389
2,33
6,837
79
359
707
8,6
82
375
REPORTABLE SEGMENTS TOTAL
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957 $27,529 $204,528 $68,086 $42,727 $9,589
2,96
48,612
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,287
116,332
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,774
6,253
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
3,775
6,907
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
34,356(b)
73,756
7,075
3,548
27,706(c)
57,976
3,024
3,90
45,08
02,953
6,02
5,490
44,542
90,587
0,088
4,75
CORPORATE & OTHER(a)
Sales from sold business . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ — $ — $ — $ ,34
Operating income (loss) from sold business . . . . . . . .
204
(5,00)
Operating (loss) from administrative expenses . . . . . .
2,529
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
—
(7,467)
31,529
382
437
—
(6,806)
6,8
50
395
—
(7,258)
5,570
270
400
—
(6,494)
4,753
466
293
(355)
(5,725)
2,532
306
244
TOTAL COMPANY
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957 $27,529 $204,528 $68,086 $42,727 $20,903
7,065
41,145
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72,86
147,861
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,033
6,635
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
3,966
7,344
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
27,862(b)
88,509
7,54
3,84
2,626(c)
79,508
3,330
4,45
37,284
06,57
0,358
5,5
38,302
9,764
6,522
5,885
(a) Operating income from sold businesses includes administrative expenses directly attributable to the sold businesses. Assets are principally cash, investments, deferred taxes and notes receivable.
(b) Includes a $1.3 million pretax writeoff of assets related to the Fluent Systems product line.
(c) Includes $182,000 of pretax gain on plant sale.
8 2008 ANNUAL REPORT
FINANCIAL REVIEW AND ANALYSIS
Comparative Results of Operations
Dollars in thousands, except per-share data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share – diluted . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . .
$233,957
59,148
18,003
41,145
42,224
14,422
$ 27,802
$ 1.53
34.2%
2008
%
sales
25.3
7.7
17.6
18.0
6.2
11.9
%
change
+ 7.6
+ 7.8
+ 8.6
+ 7.4
+ 8.7
+ 7.7
+ 9.3
+10.1
– 0.9
Executive Summary
For the years ended January 3
2007
%
sales
$27,529
54,882
6,580
38,302
38,835
3,394
$ 25,44
$ .39
34 .5%
25 .2
7 .6
7 .6
7 .9
6 .2
.7
%
change
+6 .4
+3 .
+4 .5
+2 .7
+3 .6
+ .2
+4 .9
+5 .3
–2 .3
2006
%
sales
26 .0
7 .8
8 .2
8 .3
6 .5
.9
$204,528
53,23
5,947
37,284
37,494
3,232
$ 24,262
$ .32
35 .3%
%
change
+2 .7
+23 .2
+2 .9
+33 .8
+34 .
+3 .5
+35 .6
+36 .
– .9
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers in the industrial, agricultural,
construction and military/aerospace markets, primarily in North America. It operates four business segments: Engineered Films,
Flow Controls, Electronic Systems and Aerostar.
Fiscal 2008 was another record-breaking year for the company, which reported $27.8 million in net income and $1.53 of earnings
per diluted share. Net income increased $2.4 million, or 9.3%, over last year’s $25.4 million, while earnings per diluted share rose
14 cents from one year ago. Fiscal year net sales climbed to $234.0 million, exceeding fiscal 2007 by $16.4 million, or 7.6%. Sales
and profit increases were driven by a strong performance from the company’s Flow Controls segment.
In fiscal 2008, Raven raised its quarterly dividend from 9 cents per share to 11 cents per share, representing the 21st-consecutive
annual increase. Fiscal 2008 capital spending was $6.6 million, down significantly from the $16.5 million spent one year earlier. In
fiscal 2007 and 2006, the company made significant capital investments in its Engineered Films segment, adding extrusion capacity
and manufacturing capabilities. Management expects that fiscal 2009 capital spending will be in the $8 million range.
The following discussion highlights the consolidated operating results. Operating results are more fully explained in the segment
discussions that appear after this.
Fiscal 2008 versus Fiscal 2007
Consolidated net sales for fiscal 2008 of $234.0 million were $16.4 million, or 7.6%, higher than last year. Flow Controls was the
main driver of the annual revenue growth and, combined with revenue increases for Electronic Systems and Aerostar, offset lower
Engineered Films sales. An improved agricultural economy which increased product demand and the introduction of new products
grew Flow Controls sales by $18.8 million, to $64.3 million. Electronic Systems net sales of $67.6 million were $1.3 million higher
than fiscal 2007, with deliveries of aviation and secure communication electronics increasing over last year. Aerostar fiscal 2008 net
sales of $17.3 million improved $2.6 million over one year earlier, due mainly to higher research balloon and parachute sales activity.
Engineered Films net sales of $84.8 million were $6.3 million lower than fiscal 2007, which included $9.9 million in disaster film
shipments that did not recur in fiscal 2008.
Fiscal 2008 operating income of $41.1 million increased $2.8 million, or 7.4%, as compared with $38.3 million for fiscal 2007. A
strong profit performance in Flow Controls, together with increased Aerostar operating income, offset lower Engineered Films and
Electronic Systems results. Flow Controls improved profits by $9.0 million from fiscal 2007, leveraging higher sales volume on the
existing manufacturing cost base to reach $19.1 million in operating income. Aerostar reported operating income of $1.5 million
for fiscal 2008, more than double the $707,000 posted one year earlier. This was due mainly to higher research balloon profits and
improved results on the MC-6 Army parachute contract. Engineered Films operating income of $17.7 million was down $5.8 million
from one year ago, reflecting a lower sales level, increased raw material costs, and higher depreciation expense. Electronic Systems
operating income of $10.3 million fell short of last fiscal year due primarily to a less favorable product mix, decreasing $501,000 on
slightly higher sales volume.
RAVEN INDUSTRIES 9
FINANCIAL REVIEW AND ANALYSIS (continued)
Fiscal 2007 versus Fiscal 2006
Fiscal 2007 net sales of $217.5 million exceeded the prior year by $13.0 million, or 6.4%. Engineered Films and Electronic Systems
posted record net sales for the fiscal year ended January 31, 2007, while Flow Controls and Aerostar fell short of fiscal 2006 revenue
levels. Engineered Films net sales reached $91.1 million, an $8.3 million improvement over fiscal 2006, with increased demand for
pit liners used in oil and gas fields, along with higher construction film sales, resulting in 10.0% revenue growth. Electronic Systems
net sales climbed to $66.3 million, a $10.1 million increase over fiscal 2006. Higher product demand from the segment’s largest
customer accounted for most of fiscal 2007’s revenue increase. Flow Controls net sales of $45.5 million for the fiscal year ended
January 31, 2007, were behind the prior year by $2.0 million. There was a fair amount of uncertainty in the agricultural economy
during that year and customer buying decisions were delayed. Lower parachute product deliveries accounted for the fiscal 2007
revenue decrease for Aerostar, as net sales of $14.7 million represented a $3.4 million decline from fiscal 2006.
For the year ended January 31, 2007, operating income rose 2.7% to $38.3 million, an increase of $1.0 million compared with
$37.3 million reported for fiscal 2006. Strong performances from Engineered Films and Electronic Systems were partially offset by
lower operating income for Flow Controls and Aerostar. Higher sales and favorable raw material pricing contributed to Engineered
Films’ improved operating income, which increased $3.5 million to reach $23.4 million. Fiscal 2007 Electronic Systems operating
income of $10.9 million grew $1.9 million, due mainly to higher sales and better operational execution on existing customer
contracts. Flow Controls fiscal 2007 operating income of $10.1 million represented a decrease of $3.5 million in contrast to one year
earlier. Lower sales volume on relatively fixed costs negatively affected this segment’s profit for the year ended January 31, 2007.
With the lack of parachute product shipments during fiscal 2007, Aerostar reported a decrease in operating income of $1.4 million,
falling to $707,000.
Prospects
Management expects another year of record sales and profits in fiscal 2009, with continuing demand for Flow Controls precision
agriculture products leading revenue and income growth. Aerostar is anticipating its turnaround to continue in fiscal 2009, as full-year
deliveries under the government protective wear and MC-6 parachute contracts are expected to increase revenue and operating income
for the segment. With the additional capabilities and capacity of the new extrusion equipment placed into service during fiscal 2008,
Engineered Films continues to position itself for future revenue and profit growth and is expected to post higher sales and operating
income in fiscal 2009. The company anticipates lower Electronic Systems sales and profits in fiscal 2009, due to the loss of an
important customer and weak demand for consumer bed controls.
Performance Measures
Raven seeks to enhance shareholder value by delivering high returns on sales and invested capital. Fiscal 2008 net income was
11.9% of net sales, matching the company’s fiscal 2006 record. Net income as a percent of average assets was 20.8% as compared to
22.5% in fiscal 2007. As a percent of beginning equity, fiscal 2008 net income was 28.3%, down from fiscal 2007’s 30.1%.
Net income as % of
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.9%
20.8%
28.3%
.7%
22 .5%
30 .%
.9%
24 .9%
36 .7%
0 .6%
2 .3%
26 .9%
9 .7%
8 .2%
23 .8%
9 .3%
5 .9%
2 .5%
2008
2007
2006
2005
2004
2003
20 2008 ANNUAL REPORT
Segment Analysis
Net Sales and Operating Income by Segment
2008
2007
2006
Dollars in thousands
Net Sales
Engineered Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flow Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
amount
$ 84,783
64,291
67,609
17,274
$233,957
%
change
– 6.9
+41.3
+ 2.0
+17.9
+ 7.6
amount
$ 9,082
45,55
66,278
4,654
$27,529
%
change
+0 .0
– 4 .2
+7 .9
–8 .6
+ 6 .4
amount
$ 82,794
47,506
56,29
8,009
$204,528
Operating Income
Engineered Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flow Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Films
2008
2007
2006
amount
$ 17,655
19,102
10,349
1,506
(7,467)
$ 41,145
%
sales
20.8
29.7
15.3
8.7
17.6
amount
$ 23,440
0,
0,850
707
(6,806)
$ 38,302
%
sales
25 .7
22 .2
6 .4
4 .8
7 .6
amount
$ 9,907
3,586
8,96
2,33
(7,258)
$ 37,284
%
change
+4 .
+6 .6
+9 .5
–6 .8
+2 .7
%
sales
24 .0
28 .6
5 .9
.8
8 .2
Engineered Films produces rugged reinforced plastic sheeting for industrial, construction,
manufactured housing and agricultural applications.
Engineered Films — Comparative Results of Operations
2008
%
sales
%
change
– 6.9
–21.5
4.0 + 0.7
–24.7
20.8
24.8
2007
%
sales
29 .4
3 .7
25 .7
%
change
+0 .0
+7 .5
+5 .5
+7 .7
$9,082
26,803
3,363
23,440
2006
%
sales
27 .6
3 .5
24 .0
%
change
+4 .
+24 .
+ 9 .7
+26 .5
$82,794
22,88
2,9
9,907
Dollars in thousands
Net sales . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Selling expenses . . . . . . . .
Operating income . . . . . . .
$84,783
21,040
3,385
17,655
Fiscal 2008 versus Fiscal 2007
ENGINEERED FILMS
Operating
Income
(dollars in millions)
Net Sales
(dollars in millions)
$91.1
$82.8
$84.8
$23.4
$19.9
$17.7
Net sales of $84.8 million for the year ended January 31, 2008, were $6.3 million, or 6.9%, behind
the $91.1 million mark posted one year ago. Lower disaster film shipments of $9.9 million and a
decrease in industrial market revenue were partially offset by higher sales of pit liners used in the
energy sector and an increase in underslab vapor barrier deliveries. Increased drilling activity due
to high oil and gas prices throughout the year accounted for the sales improvement in the energy
market, while higher market share and industry growth boosted vapor barrier revenue. In the past, the segment has been able to pass
through raw material cost increases in the form of higher selling prices. However, competitive pricing pressures in the construction
market did not allow for this type of adjustment in fiscal 2008. Despite higher raw material costs in fiscal 2008, selling prices were
down approximately 3% from fiscal 2007 because of lower product pricing.
2006 2007 2008
2006 2007 2008
Fiscal 2008 operating income of $17.7 million fell behind the prior year by $5.8 million, or 24.7%. In addition, gross profit as a
percent of sales dropped from 29.4% to 24.8%. For the quarter ended January 31, 2008, operating income of $3.4 million was down
$914,000, or 21.2%, compared with one year earlier. Profits and margins have been negatively affected by a more competitive pricing
environment, as higher input costs have not equated to increased selling prices due to excess film capacity in the marketplace. Besides
higher raw material costs, the segment also experienced increased depreciation expense and start-up costs associated with the new
extruders placed into service during the first and second quarters of fiscal 2008. Fiscal 2008 selling expenses of $3.4 million were even
with last year, reflecting lower personnel costs offset by increased product development expense.
RAVEN INDUSTRIES 2
FINANCIAL REVIEW AND ANALYSIS (continued)
Fiscal 2007 versus Fiscal 2006
Fiscal 2007 net sales of $91.1 million grew 10.0%, or $8.3 million, from $82.8 million reported for fiscal 2006. Sales of pit lining
and construction films posted significant revenue growth for fiscal 2007, but were partially offset with decreased sales activity in the
manufactured housing and disaster film markets. Fiscal 2007 disaster film sales totaled $9.9 million versus $11.4 million one year
earlier. Selling price adjustments positively affected the fiscal 2007 sales level. The amount of sales attributable to higher product
pricing (and not due to an increase in volume) was estimated to be about 8% of total fiscal 2007 reported sales.
Operating income in fiscal 2007 climbed to $23.4 million, up $3.5 million, or 17.7%. Gross profit as a percentage of net sales
increased from 27.6% in fiscal 2006 to 29.4%. Higher sales and favorable resin costs contributed to the profit growth and higher
margin percentage. A rise in fiscal 2007 selling expenses partially offset the positive impact of the segment’s higher sales level and
favorable material costs. Fiscal 2007 selling expenses exceeded the prior year because of higher personnel costs and an increased trade
show presence to support the segment’s expanded product offerings and manufacturing capabilities.
Prospects
Engineered Films is expected to generate double-digit sales growth in the upcoming year. However, operating income is not
anticipated to grow at the same pace, as the current pricing environment is expected to continue into fiscal 2009. Management believes
that the recent investments in extrusion capacity will allow this segment to expand its product offerings and open new markets, but
notes that it generally takes two-to-three years to fully utilize new extrusion capacity. The degree of the continuing downturn in
construction activity and the opportunity to sell disaster film in fiscal 2009 represent significant risk and upside, respectively, to the
current outlook.
Flow Controls
Flow Controls, including Raven Canada and Raven GmbH (Europe), provides electronic and Global Positioning System (GPS)
products for precision agriculture, marine navigation and other niche markets.
Flow Controls — Comparative Results of Operations
2008
%
sales
%
change
+41.3
37.9 +67.1
8.2 +18.0
29.7 +88.9
2007
%
sales
32 .
9 .9
22 .2
%
change
– 4 .2
–6 .9
+2 .6
–25 .6
$45,55
4,599
4,488
0,
2006
%
sales
37 .0
8 .4
28 .6
%
change
+6 .6
+7 .7
+27 .3
+5 .2
$47,506
7,57
3,985
3,586
Dollars in thousands
Net sales . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Selling expenses . . . . . . . .
Operating income . . . . . . .
$64,291
24,397
5,295
19,102
Fiscal 2008 versus Fiscal 2007
FLOW CONTROLS
Operating
Income
(dollars in millions)
Net Sales
(dollars in millions)
$64.3
$19.1
$47.5 $45.5
$13.6
$10.1
Flow Controls fiscal 2008 net sales climbed to a record $64.3 million, an increase of $18.8
million, or 41.3%, over fiscal 2007. The strong farm economy pushed sales higher in all of the
segment’s product groups (standard, precision, steering, and autoboom), with standard sprayer
control systems making a significant contribution. Anhydrous ammonia control systems used in
corn production accounted for the majority of sales growth within the standard product group.
Increased deliveries of marine navigation systems and international agricultural sales also contributed to revenue expansion.
Fiscal 2008 fourth-quarter sales of $16.6 million topped last year’s final quarter by $6.2 million, or 59.3%. Standard sprayer control
system deliveries continued strong during the fourth quarter, while the segment also benefitted from sales of the recently introduced
Envizio PRO™ and Cruizer™ products.
2006 2007 2008
2006 2007 2008
Fiscal 2008 operating income of $19.1 million grew 88.9% or $9.0 million, from one year earlier. Gross profit as a percentage of sales
was 37.9% and compared favorably to 32.1% in fiscal 2007. Fiscal 2008 fourth quarter operating income of $4.5 million was more
than double the $2.1 million for the quarter ended January 31, 2007. Gross margins increased from 29.9% one year ago to 35.8% for
the just-ended quarter. The fiscal 2008 profit growth and favorable margin comparisons for both the full year and the fourth quarter
were due to the higher sales volume and the effect of leveraging the increased revenue across a relatively fixed manufacturing cost
base. Higher personnel costs for the segment’s domestic selling efforts and increased advertising expense related to new product
introductions accounted for fiscal 2008 selling expenses rising 18.0% to $5.3 million. Fiscal 2008 selling expense as a percent of sales
fell to 8.2% versus 9.9% one year ago.
22 2008 ANNUAL REPORT
Fiscal 2007 versus Fiscal 2006
Fiscal 2007 net sales were $45.5 million, a decrease of $2.0 million, or 4.2%, from the prior year. Revenue growth was hampered by
three factors: softness in the U.S. agricultural economy; weakness in global markets, especially South America and Australia; and
reliability issues with the segment’s GPS-based agriculture products.
Flow Controls fiscal 2007 operating income of $10.1 million was down $3.5 million, or 25.6%, from fiscal 2006 results due to lower
sales volume on fixed costs, increased product warranty expense, and higher selling expenses. As a percentage of sales, gross profit
declined to 32.1% versus 37.0% for fiscal 2006. Fiscal 2007 selling expenses were $4.5 million, up from the prior year’s $4.0 million
by $503,000, or 12.6%. During fiscal 2007, Flow Controls concentrated its sales and marketing efforts on international markets. The
benefits of cost controls put into place in the segment’s domestic selling group were offset by increased selling efforts in Canada
and Europe.
Prospects
Management expects strong sales growth in the coming year, given the current strength of the agricultural market and Flow Controls
sales order backlog heading into fiscal 2009. Management also expects international sales to increase, as past investments in reaching
the Canadian, European, and South American markets continue to pay off. New product sales, specifically the Envizio PRO™ and
Cruizer™, should contribute to the fiscal 2009 revenue growth. These products were introduced late in fiscal 2008 and fourth-quarter
sales indicated strong customer acceptance. Fiscal 2009 sales growth for Flow Controls is targeted to exceed 20%. Operating income
growth is expected to be tempered by reinvestment in product development, marketing, and manufacturing capacity.
Electronic Systems
Electronic Systems is a total-solutions provider of electronics manufacturing services, primarily to North American original
equipment manufacturers.
Electronic Systems — Comparative Results of Operations
2008
%
sales
%
change
+ 2.0
– 3.8
1.7 + 4.7
– 4.6
15.3
17.0
2007
%
sales
8 .0
.7
6 .4
%
change
+7 .9
+2 .9
+24 .4
+2 .7
$66,278
,95
,0
0,850
2006
%
sales
7 .4
.6
5 .9
%
change
+9 .5
+84 .4
+ 7 .5
+98 .5
$56,29
9,80
885
8,96
Dollars in thousands
Net sales . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Selling expenses . . . . . . . .
Operating income . . . . . . .
$67,609
11,502
1,153
10,349
Fiscal 2008 versus Fiscal 2007
ELECTRONIC SYSTEMS
Net Sales
(dollars in millions)
Operating
Income
(dollars in millions)
$66.3 $67.6
$10.9
$10.3
$56.2
$8.9
In fiscal 2008, Electronic Systems surpassed the prior year’s record $66.3 million in net sales,
reaching $67.6 million. This represented a $1.3 million, or 2.0%, sales improvement. Increased
deliveries of secure communication and aviation electronics accounted for the sales growth, but
were partially offset by a 19.7% decrease in hand-held bed control shipments.
2006 2007 2008
2006 2007 2008
Despite higher sales volume in fiscal 2008, Electronic Systems operating income of $10.3 million
fell short of fiscal 2007, dropping $501,000, or 4.6%. As a percentage of sales, fiscal 2008 gross profit decreased from 18.0% a year
ago to 17.0%. Unusually high profit margins realized on closeout orders placed by a former customer were not enough to offset the
impact of lower sales of hand-held bed controls in fiscal 2008. Fourth quarter operating income declined 34.2% to $1.9 million from
$2.9 million reported for the quarter ended January 31, 2007, reflecting lower-margin product sales on decreased sales volume.
Fiscal 2007 versus Fiscal 2006
Electronic Systems increased net sales 17.9%, or $10.1 million, over fiscal 2006 to reach $66.3 million. Most of the fiscal 2007 sales
growth came from a high level of aviation electronics deliveries made to the segment’s largest customer.
Fiscal 2007 operating income reached $10.9 million, improving $1.9 million, or 21.7%, over fiscal 2006. Higher sales volume
and better execution on existing contracts accounted for this improvement. As a percentage of net sales, gross profit in fiscal 2007
increased to 18.0% versus 17.4% for fiscal 2006, reflecting the operational gains made during the year. Higher personnel costs in
fiscal 2007 contributed to selling expenses rising 24.4% to $1.1 million.
RAVEN INDUSTRIES 23
FINANCIAL REVIEW AND ANALYSIS (continued)
Prospects
Management anticipates fiscal 2009 net sales to be down less than 10% when compared with fiscal 2008. The loss of approximately
$7 million of business, resulting from a customer being acquired and moving its manufacturing to another supplier, will be difficult to
replace. The slowdown in demand for hand-held bed controls is also expected to continue into fiscal 2009. These revenue downturns
are expected to be partially offset by additional sales of secure communication and aviation electronics. Margins are expected to
decrease due to unfavorable product mix and the impact of fixed costs on a lower revenue base. Electronic Systems operating income
is expected to decline significantly in the first quarter of fiscal 2009, leading to lower full-year operating income.
Aerostar
The Aerostar segment manufactures military parachutes, protective wear, custom-shaped inflatable products, and high-altitude
balloons for public and commercial research.
Aerostar — Comparative Results of Operations
2008
%
sales
%
change
+ 17.9
12.8 + 44.5
4.1 – 14.5
8.7 +113.0
2007
%
sales
0 .4
5 .6
4 .8
%
change
–8 .6
–49 .7
– 9 .5
–66 .9
$4,654
,529
822
707
2006
%
sales
6 .9
5 .0
.8
%
change
–6 .8
–33 .4
– 4 .9
–40 .9
$8,009
3,04
908
2,33
Dollars in thousands
Net sales . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Selling expenses . . . . . . . .
Operating income . . . . . . .
$17,274
2,209
703
1,506
Fiscal 2008 versus Fiscal 2007
Fiscal 2008 net sales of $17.3 million increased $2.6 million, or 17.9%, from fiscal 2007. Higher
research balloon and parachute sales accounted for the growth. Fiscal 2008 research balloon sales
activity included more international deliveries. In addition, shipments began under the segment’s
$14 million MC-6 parachute contract in the fourth quarter of fiscal 2008, with $2.1 million of
parachute revenue recorded in that quarter.
AEROSTAR
Net Sales
(dollars in millions)
Operating
Income
(dollars in millions)
$18.0
$17.3
$2.1
$14.7
$1.5
$0.7
2006 2007 2008
2006 2007 2008
Operating income more than doubled in fiscal 2008, hitting $1.5 million versus $707,000 one year earlier, with gross profit margins
improving from last year’s 10.4% to 12.8%. Higher research balloon profits due to increased volume and improved results on the
parachute contract contributed to operating income growth in fiscal 2008. Fiscal 2008 selling expenses of $703,000 declined $119,000,
or 14.5%, compared with one year earlier. There were no expenses incurred during the current year for hot-air balloon selling efforts,
reflecting the decision to exit this business in fiscal 2007.
Fiscal 2007 versus Fiscal 2006
Aerostar’s fiscal 2007 net sales of $14.7 million were $3.4 million, or 18.6%, lower than in fiscal 2006. Higher sales of commercial
inflatable products during fiscal 2007 were offset by lower parachute product deliveries and a decline in research balloon revenue.
Fiscal 2007 operating income of $707,000 decreased $1.4 million from fiscal 2006. The lack of parachute business and a decrease in
research balloon profits were the main factors in the operating income decline. Under-utilized plant capacity caused the fiscal 2007
gross margin to drop 6.5 percentage points, decreasing to 10.4%. Selling expenses of $822,000 were down 9.5%, as cost controls were
put into place at the beginning of fiscal 2007.
Prospects
Management expected fiscal 2008 to be a stronger turnaround year for Aerostar, but as government-related design issues delayed
deliveries on the MC-6 parachute contract until the fourth quarter, fiscal 2008 operating results did not fulfill expectations. During
fiscal 2008, Aerostar received an add-on to the MC-6 Army parachute contract for another $7.3 million, bringing the total parachute
contract order to more than $14 million. Start-up costs under the contract were incurred during fiscal 2008, and as a result, Aerostar
should be well-positioned to take advantage of full production during fiscal 2009. Shipments are expected to accelerate rapidly,
with Aerostar in a position to more than redouble its operating income in the coming year. Fiscal 2009 sales are targeted to increase
approximately 45%, due mainly to higher parachute revenues.
24 2008 ANNUAL REPORT
Expenses, Income Taxes and Other
Corporate expenses of $7.5 million increased $661,000, or 9.7%, from fiscal 2007 due primarily to higher personnel compensation
expense. Fiscal 2008 corporate expense as a percentage of net sales was 3.2% versus 3.1% in the preceding year. Fiscal 2007 corporate
expenses of $6.8 million declined 5.2% from fiscal 2006 as a result of lower corporate giving and management incentive costs.
Fiscal 2009 corporate expenses are expected to increase approximately 8-10% due primarily to higher personnel compensation and
professional service expense.
Raven had no outstanding debt at January 31, 2008, and no short-term borrowings were made during the fiscal year. Other income of
$1.1 million in fiscal 2008 grew from $533,000 in fiscal 2007. The main component of other income is interest income,
which rose in fiscal 2008 due to higher cash and short-term investment balances. Fiscal 2008’s
effective income tax rate of 34.2% was lower than last year’s rate of 34.5% and fiscal 2006’s rate
of 35.3%. An increase in the U.S. federal tax deduction for income attributable to manufacturing
activities accounted for most of the decrease in the fiscal 2008 effective tax rate. The effective
tax rate in fiscal 2009 is expected to remain consistent with fiscal 2008, assuming that the U.S.
research and development tax credit is renewed. Absent the renewal, the rate is expected to rise to
the 35% range.
NET OPERATING MARGIN
(percent)
17.6% 17.6%
18.2%
16.6%
15.2%
14.1%
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
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
$27,151
(4,433)
(8,270)
2007
$26,33
(8,664)
(0,277)
2006
$2,89
(,435)
(6,946)
2003 2004 2005 2006 2007 2008
Operating Activities and Cash Position
Cash flow from operations over the past three years of $74.7 million compared with net income of $77.5 million over the same
period. Net cash provided by operating activities in fiscal 2008 totaled $27.2 million, an $838,000 increase compared with operating
cash inflows in fiscal 2007. The improvement in fiscal 2008 operating cash flows versus one year ago was due primarily to company
earnings and increases in the accounts payable and accrued liabilities balances at year-end, partially offset by higher inventory and
accounts receivable levels. Cash consumed to finance accounts receivable and inventory balances for the year ended January 31, 2008,
was $13.6 million versus cash used of $2.4 million during fiscal 2007. Flow Controls growth accounted for most of the increase.
Net cash provided by operating activities in fiscal 2007 totaled $26.3 million, a $5.1 million increase from operating cash inflows
of $21.2 million in fiscal 2006. Growth slowed during fiscal 2007 and the amount of incremental cash required for working capital
requirements decreased. Cash used to finance inventory and accounts receivable balances in fiscal 2007 decreased $5.8 million as
compared with fiscal 2006.
Cash, cash equivalents and short-term investments totaled $22.8 million at January 31, 2008, up $12.0 million from one year
earlier. Higher cash balances reflect strong operating cash flows, lower capital spending, and a decrease in treasury stock purchases.
During fiscal 2007, operating cash inflows were consumed by a high level of capital investment in Engineered Films for additional
manufacturing equipment and facilities, and an increase in equity returned to the shareholders in the form of cash dividends and stock
repurchases. Management expects that cash and short-term investments, combined with continued positive operating cash flows, will
continue to be sufficient to fund day-to-day operations.
RAVEN INDUSTRIES 25
FINANCIAL REVIEW AND ANALYSIS (continued)
CASH FLOWS FROM
OPERATIONS
(dollars in millions)
$27.2
$26.3
$21.2
$19.7
$18.9
$12.7
Investing Activities
Net cash used in investing activities in fiscal 2008 totaled $4.4 million versus $18.7 million in
fiscal 2007. Fiscal 2008 capital expenditures of $6.6 million decreased $9.9 million from the
prior year’s $16.5 million, when $13.3 million was invested in Engineered Films for additional
manufacturing capacity and facilities. At the end of fiscal 2008, $2.5 million of short-term
investments matured, were converted to cash, and are being reinvested in the first quarter of
fiscal 2009. Net cash used in investing activities in fiscal 2007 totaled $18.7 million, up from
$11.4 million in fiscal 2006. Besides the significant amount of capital expenditures made, fiscal
2007 investing activities also included placing an additional $2.0 million of cash into short-term
investments.
Financing Activities
2003 2004 2005 2006 2007 2008
Net cash used in financing activities in fiscal 2008 of $8.3 million decreased $2.0 million from
the $10.3 million consumed in fiscal 2007. No short-term borrowings were required during
fiscal 2008. The company’s main financing activities continue to be the payment of dividends and
the repurchase of company stock. In fiscal 2008, Raven increased its quarterly dividend on a per-share basis for the 21st-consecutive
year, with quarterly dividend payments of 11 cents per share increasing 22.2% from the prior year. Treasury share purchases totaled
$592,000 during fiscal 2008 and were $3.6 million lower than the prior year. In fiscal 2008, 20,150 shares were purchased at an
average share price of $29.42. Net cash used in financing activities in fiscal 2007 of $10.3 million grew $3.3 million from the
$6.9 million used in fiscal 2006. The increase in cash used in financing activities during fiscal 2007 was due mainly to a 28.7% rise
in dividend payments and $2.5 million more of treasury stock purchases.
Off-balance Sheet Arrangements and Contractual Obligations
As of January 31, 2008, the company is obligated to make cash payments in connection with its non-cancelable operating leases
for facilities and equipment and unconditional purchase obligations, primarily for raw materials, in the amounts listed below. The
company has no off-balance sheet debt or other unrecorded obligations other than the items noted in the following table. In addition
to the commitments noted there, standby letters of credit totaling $1.2 million have been issued, primarily to support self-insured
workers compensation bonding requirements. 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, would be more expensive,
and would require additional cash outlays. Management believes the chances of this are remote. A summary of the obligations and
commitments at January 31, 2008, and for the next five years is shown below.
Dollars in thousands
Contractual Obligations:
Line of credit(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unconditional purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
—
427
5,447
38,38
—
$44,92
Less than
year
-3
years
3-5
years
$
—
73
20
38,38
—
$38,692
$ —
254
464
—
—
$78
$ —
—
548
—
—
$548
More
than
5 years
$ —
—
4,234
—
—
$4,234
RETURN ON
AVERAGE ASSETS
(percent)
24.9%
21.3%
22.5%
20.8%
18.2%
15.9%
(a) $8.0 million line bears interest at 5.00% as of January 31, 2008, and expires July 2008. The line of credit is reduced by outstanding letters
of credit totaling $1.2 million.
(b) The total liability for uncertain tax positions under FIN 48 at January 31, 2008, was $2.2 million. The company is not able to reasonably
estimate the timing of future payments relating to non-current tax benefits.
2003 2004 2005 2006 2007 2008
26 2008 ANNUAL REPORT
Capital Requirements
Raven maintains an excellent financial condition and capacity for growth. Management continues to look for opportunities to expand
its core businesses through acquisitions or internal growth. The company has the capacity to secure additional financing and will do
so if the appropriate strategic opportunity presents itself. Capital expenditures for fiscal 2009 are expected to be in the $8 million
range. The company intends to return approximately 30% of its earnings to shareholders in the form of quarterly dividends. Stock
repurchases are anticipated to continue as a way to return additional cash to shareholders and increase balance sheet leverage. Cash
generated from operations and the availability of cash under existing credit facilities should be sufficient to fund these initiatives.
If stock repurchase or investment opportunities do not materialize and cash balances continue to build, management intends to pay
a special dividend by the end of fiscal 2009.
Critical Accounting Policies and New Accounting Standards
Critical Accounting Policies
Critical accounting policies are those that require the application of judgment when valuing assets and liabilities on the company’s
balance sheet. These policies are discussed below, because a fluctuation in actual results versus expected results could materially affect
operating results, and because the policies require significant judgments and estimates to be made. Accounting related to these policies
is initially based on best estimates at the time of original entry in the accounting records. Adjustments are periodically recorded when
the company’s actual experience differs from the expected experience underlying the estimates. These adjustments could be material
if experience were to change significantly in a short period of time. The company does not enter into derivatives or other financial
instruments for trading or speculative purposes. However, Raven has used derivative financial instruments to manage the economic
impact of fluctuations in currency exchange rates on transactions that are denominated in currency other than its functional currency,
which is the U.S. dollar. The use of these financial instruments had no material effect on the company’s financial condition, results of
operations or cash flows.
Inventories
Raven’s most significant accounting judgment is determining inventory value at the lower of cost or market. The company estimates
inventory valuation each quarter. Typically, when a product reaches the end of its lifecycle, inventory value declines slowly or the
product has alternative uses. Management uses its 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 Electronic Systems, the
company typically has recourse to customers for obsolete or excess material. When Electronic Systems customers authorize inventory
purchases, especially with long lead-time items, they are required to take delivery of unused material or compensate the company
accordingly. In every operating unit of the company, management must manage obsolete inventory risk. The accounting judgment
ultimately made is an evaluation of the success that management will have in controlling inventory risk and mitigating the impact of
obsolescence when it does occur.
RAVEN INDUSTRIES 27
FINANCIAL REVIEW AND ANALYSIS (continued)
Warranty
Estimated warranty liability costs are based on historical warranty costs and average time
elapsed between purchases and returns for each business segment. Warranty issues that are
unusual in nature are accrued for individually.
Allowance for Doubtful Accounts
Determining the level of the allowance for doubtful accounts requires management’s best
estimate of the amount of probable credit losses based on historical writeoff experience by
segment, and an estimate of the collectibility of any known problem accounts. Factors that
are considered beyond historical experience include the length of time the receivables are
outstanding, the current business climate, and the customer’s current financial condition.
Revenue Recognition
BOOK VALUE PER SHARE
(dollars)
$6.52
$5.45
$4.67
$3.68 $3.67
$3.21
2003 2004 2005 2006 2007 2008
The company recognizes and records revenue when products are shipped because there
is persuasive evidence of an arrangement, the sales price is determinable, collectibility is
reasonably assured, and delivery has occurred. Estimated returns, sales allowances or warranty charges are recognized upon shipment
of a product. The company sells directly to customers or distributors that incur the expense and commitment for any post-sale
obligations beyond stated warranty terms.
Self-insurance Reserves
Raven purchases insurance with deductibles for product liability; general insurance, including aviation product liability; and workers’
compensation. Third-party insurance is carried for what is believed to be the major portion of potential exposure. The company has
established accruals for potential uninsured claims, including estimated costs and legal fees. Management considers these accruals
adequate, although a substantial change in the number and/or severity of claims would result in materially different amounts.
Goodwill and Long-lived Assets
Management periodically assesses goodwill and other long-lived assets for impairment, or more frequently if events or changes in
circumstances indicate that an asset might be impaired, using fair value measurement techniques. For goodwill, Raven performs
impairment reviews annually by reporting units, which are the company’s reportable segments. The one exception is Aerostar’s high-
altitude research balloon operation, which is evaluated independently from Aerostar’s other operations. Estimates of fair value are
primarily determined using discounted cash flows, market comparisons and recent transactions. These valuation methodologies use
significant 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.
Uncertain Tax Positions
Accounting for tax positions requires judgments, including estimating reserves for uncertainties associated with the interpretation
of income tax laws and regulations, and the resolution of tax positions with tax authorities after discussions and negotiations.
The ultimate outcome of these matters could result in material favorable or unfavorable adjustments to the consolidated
financial statements.
28 2008 ANNUAL REPORT
New Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurement. The standard
provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 clarifies the principle that fair value should
be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy
that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy. The statement is effective as of the beginning of the company’s 2009 fiscal year.
The company does not expect the implementation of SFAS No. 157 to have a material impact on its consolidated results of operations,
financial condition or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159
is effective for the beginning of the company’s 2009 fiscal year. The company does not expect the provisions of SFAS No. 159 to
have a material impact on its consolidated results of operations, financial condition, or cash flows.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) requires an entity to recognize the
assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date.
It also requires acquisition-related costs to be expensed as incurred, restructuring costs to generally be expensed in periods subsequent
to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period to impact income tax expense. The adoption of SFAS No. 141(R) will change the company’s accounting
treatment for business combinations on a prospective basis beginning February 1, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160
changes the accounting and reporting for minority interests, which will be characterized as non-controlling interests and classified as
a component of equity. The adoption of SFAS No. 160 is effective on a prospective basis beginning February 1, 2009. The company
does not expect the provisions of SFAS No. 160 to have a material impact on its consolidated results of operations, financial condition,
or cash flows.
RAVEN INDUSTRIES 29
MONTHLY CLOSING STOCK PRICE AND VOLUME
e
c
i
r
P
50
40
30
20
0
0
Feb07 Mar07 Apr07 May07 Jun07
Jul07 Aug07 Sep07 Oct07 Nov07 Dec07
Jan08
Shares Traded (in thousands)
Closing Stock Price (in dollars)
QUARTERLY INFORMATION (Unaudited)
e
m
u
l
o
V
3000
500
0
Net
Sales
Gross
Profit
Operating
Income
Dollars in thousands
except per-share data
FISCAL 2008
First Quarter . . . . . $ 58,103 $17,374 $12,838 $13,025 $ 8,540 $0.47 $0.47 $30.84 $26.20 $0.11
0.11
Second Quarter . . .
0.11
Third Quarter . . . . .
Fourth Quarter . . . .
0.11
Total Year . . . . . . . . $233,957 $59,148 $41,145 $42,224 $27,802 $1.54 $1.53 $45.85 $26.20 $0.44
55,653
61,842
58,359
13,407
15,299
13,068
8,543
10,940
8,824
8,857
11,254
9,088
39.36
45.85
42.75
28.39
33.42
27.57
5,843
7,398
6,021
0.32
0.41
0.33
0.32
0.41
0.33
Pretax
Income
Net
Income
High
Net Income
Per Share(a)
Basic Diluted
Common Stock
Market Price
Low
Cash
Dividends
Per Share
FISCAL 2007
First Quarter . . . . . . . $ 58,465
50,38
Second Quarter . . . .
57,435
Third Quarter . . . . . .
Fourth Quarter . . . . .
5,248
Total Year . . . . . . . . . $27,529
FISCAL 2006
First Quarter . . . . . . . $ 50,704
45,304
Second Quarter . . . .
54,35
Third Quarter . . . . . .
Fourth Quarter . . . . .
54,385
Total Year . . . . . . . . . $204,528
$5,89
2,83
4,480
2,328
$54,882
$,477
7,872
0,540
8,43
$38,302
$,65
7,937
0,73
8,570
$38,835
$ 7,502
5,27
6,968
5,844
$25,44
$5,6
0,882
4,23
2,975
$53,23
$,36
7,299
0,568
8,28
$37,284
$,098
7,39
0,635
8,370
$37,494
$ 7,57
4,774
6,869
5,462
$24,262
$0 .4
0 .28
0 .39
0 .32
$ .4
$0 .40
0 .26
0 .38
0 .30
$ .34
$0 .4
0 .28
0 .38
0 .32
$ .39
$0 .39
0 .26
0 .37
0 .30
$ .32
$42 .6
42 .70
32 .64
35 .35
$42 .70
$22 .28
27 .78
3 .99
33 .5
$33 .5
$3 .22
25 .89
25 .89
25 .46
$25 .46
$6 .54
8 .68
2 .75
26 .75
$6 .54
$0 .09
0 .09
0 .09
0 .09
$0 .36
$0 .07
0 .07
0 .07
0 .07
$0 .28
(a) Net income per share is computed discretely by quarter and may not add to the full year.
30 2008 ANNUAL REPORT
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 procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management has assessed 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, 2008,
our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of January 31, 2008, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which
appears on page 43 of this Annual Report.
Ronald M. Moquist
President & Chief Executive Officer
Thomas Iacarella
Vice President & Chief Financial Officer
March 20, 2008
RAVEN INDUSTRIES 3
CONSOLIDATED BALANCE SHEETS
2008
Dollars in thousands, except share data
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,272
1,500
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,538
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,529
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,075
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,955
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,869
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,743
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,902
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,347
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,861
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,374
12,804
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
930
Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,108
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shares, par value $ .00 per share
Authorized — 00,000,000
Outstanding — 2008: 8,20,53; 2007: 8,039,223
2006: 8,072,369
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . $147,861
118,275
7,478
As of January 3
2007
2006
$ 6,783
4,000
3,336
28,07
,76
,268
73,29
36,264
6,604
3,677
$9,764
$ 9,409
2,000
29,290
27,89
,746
,08
7,345
25,602
6,40
2,809
$06,57
$ 6,093
9,579
792
6,464
$ 8,79
,54
77
20,050
5,032
,78
98,268
84,389
$9,764
$06,57
The accompanying notes are an integral part of the consolidated financial statements.
32 2008 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands, except per-share data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957
2008
For the years ended January 3
2007
$27,529
2006
$204,528
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174,809
62,647
5,297
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,148
54,882
53,23
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . .
18,003
6,580
5,947
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,145
38,302
37,284
Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,079)
(533)
(20)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,224
38,835
37,494
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,422
3,394
3,232
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,802
$ 25,44
$ 24,262
Net income per common share:
— Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.54
— Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.53
$ .4
$ .39
$ .34
$ .32
The accompanying notes are an integral part of the consolidated financial statements.
RAVEN INDUSTRIES 33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
Paid-in
Dollars in thousands, except per-share data
capital
Balance January 3, 2005 . . . . . . . . . . . $ 32,053 $ 765
$ Par
common
stock
Accumulated
other
comprehensive
income
(loss)
Retained
earnings
Treasury stock
Shares
Cost
(4,053,386) $ (4,700) $ 74,964 $
Total
— $ 66,082
Net income . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income . . . . . . .
Cash dividends ($ .28 per share) . . . .
Purchase of stock . . . . . . . . . . . . . . .
Stock surrendered upon exercise
of stock options . . . . . . . . . . . . . .
Employees’ stock options exercised .
Share-based compensation . . . . . . . .
Tax benefit from exercise of
stock options . . . . . . . . . . . . . . . .
Balance January 3, 2006 . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income . . . . . . .
Adoption of SFAS No . 58,
net of tax . . . . . . . . . . . . . . . . . . .
Dividends ($ .36 per share) . . . . . . . .
Purchase of stock . . . . . . . . . . . . . . .
Stock surrendered upon exercise
of stock options . . . . . . . . . . . . . .
Employees’ stock options exercised .
Share-based compensation . . . . . . . .
Tax benefit from exercise of
stock options . . . . . . . . . . . . . . . .
Balance January 3, 2007 . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
24,262
—
—
(67,800)
—
(,689)
(5,056)
—
(27)
68
—
(689)
40
485
—
—
—
—
—
—
—
32,94
430
,40
—
(4,2,86)
—
(43,389)
—
—
—
—
—
—
—
—
94,70
25,44
—
—
3
—
—
—
—
—
—
3
—
(2)
—
—
—
—
—
—
—
—
—
—
—
(46,247)
—
—
(4,20)
—
(6,508)
—
(,885)
—
—
(28)
4
—
(854)
78
605
—
—
—
—
—
—
—
—
—
—
—
—
—
32,307
470
2,34
—
(4,267,433)
—
(47,590)
—
3,03
—
(,893)
470
98,268
24,262
3
24,275
(5,056)
(,689)
(76)
578
485
430
84,389
25,44
(2)
25,420
(,885)
(6,507)
(4,20)
(882)
859
605
—
—
—
—
—
—
Net income . . . . . . . . . . . . . . . . . . . .
Postretirement benefits, net of
$84 income tax . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income . . . . . . .
Adoption of FIN 48 . . . . . . . . . . . . . .
Dividends ($ .44 per share) . . . . . . . .
Purchase of stock . . . . . . . . . . . . . . .
Stock surrendered upon exercise
of stock options . . . . . . . . . . . . . .
Employees’ stock options exercised .
Share-based compensation . . . . . . . .
Tax benefit from exercise of
stock options . . . . . . . . . . . . . . . .
479
Balance January 31, 2008 . . . . . . . . . $32,408 $3,436
(47)
48
—
(,462)
,70
904
—
—
—
—
4
—
—
The accompanying notes are an integral part of the consolidated financial statements.
34 2008 ANNUAL REPORT
—
—
—
—
—
(20,50)
—
—
—
—
—
—
—
—
(592)
—
—
—
27,802
—
27,802
—
—
(76)
(7,970)
—
—
—
—
56
3
—
—
—
—
—
—
56
3
28,089
(76)
(7,966)
(592)
(,509)
,38
904
479
(14,287,583) $(48,182) $132,219 $(1,606) $118,275
—
—
—
—
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended January 3
2006
2007
2008
Dollars in thousands
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,802
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable, net of recoveries . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities, net of effects from acquisition
and disposition of businesses and assets . . . . . . . . . . . . . . . . . . . . . . . .
Other operating activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,944
400
91
(779)
904
(8,187)
(24)
27,151
$25,44
$24,262
5,445
440
40
(293)
605
4,684
467
78
(809)
485
(5,380)
5
26,33
(8,086)
08
2,89
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from borrowing under line of credit . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of borrowing under line of credit . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit on stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,635)
(3,100)
5,600
(269)
—
(29)
(4,433)
—
—
(7,966)
(592)
479
(191)
(8,270)
(6,522)
(6,000)
4,000
(203)
—
6
(8,664)
—
—
(6,507)
(4,20)
470
(39)
(0,277)
(0,358)
(4,500)
5,500
(2,828)
650
0
(,435)
4,500
(4,500)
(5,056)
(,689)
—
(20)
(6,946)
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
2
(8)
14,489
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
6,783
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,272
(2,626)
9,409
$ 6,783
2,790
6,69
$ 9,409
The accompanying notes are an integral part of the consolidated financial statements.
RAVEN INDUSTRIES 35
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 provid-
ing a variety of products to customers within the industrial,
agricultural, construction and military/aerospace markets
primarily in North America. The company operates three
divisions (Flow Controls, Engineered Films and Electronic
Systems) in addition to three wholly owned subsidiaries:
Aerostar International, Inc. (Aerostar); Raven Industries
Canada, Inc. (Raven Canada); and Raven Industries GmbH
(Raven GmbH). All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the company’s financial statements in
conformity 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.
FOREIGN CURRENCY
The company’s subsidiaries that operate outside the United
States use their local currency as the functional currency. The
functional currency is translated into U.S. dollars for balance
sheet accounts using the period-end exchange rates, and aver-
age exchange rates for the statement of income. Adjustments
resulting from financial statement translations are included
as cumulative translation adjustments in accumulated other
comprehensive income (loss) within shareholders’ equity.
Foreign currency transaction gains or losses are recognized
in the period incurred and are included in interest income and
other, net in the Consolidated Statements of Income.
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, money market and
sweep accounts with Wells Fargo Bank, N.A. and Wells Fargo
Brokerage Services, LLC.
SHORT-TERM INVESTMENTS
The company has invested in certificates of deposit with rates
ranging from 3.50% to 5.00%. The investments have varying
maturity dates, all of which are less than 12 months from the
balance sheet date.
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
36 2008 ANNUAL REPORT
accounts is the company’s best estimate of the amount of
probable credit losses based on historical writeoff experience
by segment and an estimate of the collectibility of any known
problem accounts.
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 methods. The estimated useful lives used for
computing depreciation are as follows:
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing equipment by segment
Flow Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures, office equipment and other . . . . . . . . . . . . . . . .
3 - 5 years
5 - 2 years
3 - 5 years
3 - 5 years
3 - 7 years
5 - 39 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 and are
presented net of accumulated amortization. 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 and liabilities
assumed as goodwill. Goodwill is tested for impairment on
an annual basis during the fourth quarter, and between annual
tests whenever there is an impairment indicated. Impairment
tests of goodwill are performed at the reporting unit level. Fair
values are estimated based on discounted cash flows and are
compared with the corresponding carrying value of the report-
ing unit. If the fair value of the reporting unit is less than the
carrying amount, the amount of the impairment loss must be
measured and then recognized to the extent the carrying value
exceeds the implied fair value.
LONG-LIVED ASSETS
The company periodically assesses the recoverability of
long-lived and intangible assets using fair value measurement
techniques. An impairment loss is recognized when the carry-
ing amount of an asset exceeds the estimated undiscounted
cash flows used in determining the fair value of the assets.
The amount of the impairment loss to be recorded is calculated
by the excess of the asset’s carrying value over its fair value.
Fair value is generally determined using a discounted cash
flow analysis.
INSURANCE OBLIGATIONS
The company employs insurance policies covering work-
ers’ 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 insurance policy
benefit 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 settlement 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 upon shipment of products
because there is persuasive evidence of an arrangement,
the sales price is determinable, collectibility is reason-
ably assured, and delivery has occurred. 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, sales allowances or
warranty charges are recognized upon shipment of a product.
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. Additional
accruals are made for any significant, discrete warranty issues.
RESEARCH AND DEVELOPMENT
Research and development expenditures of $4.4 million in
fiscal 2008, $2.6 million in fiscal 2007, and $2.5 million in
fiscal 2006 were charged to cost of goods sold in the year
incurred. Expenditures are principally composed of labor and
material costs.
SHARE-BASED COMPENSATION
In fiscal 2003, the company began recording compensation
expense related to its share-based compensation plans using
the fair value method permitted by SFAS No. 123, Accounting
for Stock-Based Compensation. On February 1, 2006, the
company adopted SFAS No. 123(R), Share-Based Payment.
SFAS No. 123(R) requires that the cash retained as a result
of the tax deductibility of employee share-based awards
be presented as a component of cash flows from financing
activities in the consolidated statement of cash flows. In prior
periods, the company reported these amounts as a component
of cash flows from operating activities. The adoption of SFAS
No. 123(R) has had no other effect on consolidated results of
operations, financial condition, or cash flows.
INCOME TAXES
Deferred income taxes reflect temporary differences 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 peri-
ods when the temporary differences will affect taxable income.
Deferred tax assets are reduced by a valuation allowance to
reflect realizable value, when necessary. Judgmental reserves
are maintained for uncertain tax positions.
NEW ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value Measurement. The
standard provides guidance for using fair value to measure
assets and liabilities. SFAS No. 157 clarifies the principle
that fair value should be based on the assumptions market
participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the informa-
tion used to develop those assumptions. Under the standard,
fair value measurements would be separately disclosed by
level within the fair value hierarchy. The statement is
effective as of the beginning of the company’s 2009 fiscal
year. The company does not expect the implementation of
SFAS No. 157 to have a material impact on its consolidated
results of operations, financial condition or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits companies to choose to measure many
financial instruments and certain other items at fair value.
SFAS No. 159 is effective for the beginning of the company’s
2009 fiscal year. The company does not expect the provisions
of SFAS No. 159 to have a material impact on its consolidated
results of operations, financial condition, or cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. SFAS No. 141(R) requires an entity
to recognize the assets acquired, liabilities assumed, contrac-
tual contingencies, and contingent consideration at their fair
value on the acquisition date. It also requires acquisition-
related costs to be expensed as incurred, restructuring costs to
generally be expensed in periods subsequent to the acquisition
date, and changes in accounting for deferred tax asset valua-
tion allowances and acquired income tax uncertainties after
the measurement period to impact income tax expense. The
adoption of SFAS No. 141(R) will change the company’s
accounting treatment for business combinations on a prospec-
tive basis beginning February 1, 2009.
RAVEN INDUSTRIES 37
NOTES TO FINANCIAL STATEMENTS (continued)
Note 3. Supplemental Cash Flow Information
Dollars in thousands
Changes in operating assets and liabilities,
net of effects from acquisition and
disposition of businesses and assets:
For the years ended January 3
2006
2007
2008
Accounts receivable . . . . . . . . . . . . . . . $ (5,216) $ (2,097) $ (3,82)
(4,356)
(03)
(2,688)
3,02
(39)
$ (8,187) $ (5,380) $ (8,086)
Inventories . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . .
Accounts payable . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . .
Customer advances . . . . . . . . . . . . . . . .
(8,403)
218
2,437
2,648
129
(262)
(284)
(,770)
(,045)
78
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . $14,068
$3,759
$2,806
Note 4. Montgomery Industries Acquisition
On February 17, 2005, the company acquired substantially
all of the assets of Montgomery Industries, Inc., a privately
held Canadian corporation, for $2.7 million in cash plus the
assumption of certain liabilities and a quarterly payment of
6 percent on future sales of Montgomery products up to a
maximum payment of $1.825 million. Montgomery 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. Of the purchase price, $289,000 was allocated
to current assets; $82,000 was allocated to property, plant
and equipment; $2.560 million was allocated to amortizable
intangible assets (amortized over approximately seven years);
$539,000 to current liabilities assumed; and $285,000 to
goodwill, which is deductible for tax purposes.
For the years ended January 31, 2008, 2007, and 2006, the
earn-out on the sales of Montgomery products was $298,000,
$203,000, and $183,000, respectively, which was recorded as
an increase in goodwill.
The operation is a component of the Flow Controls segment.
The results of operations for the acquired business have been
included in the consolidated financial statements since the date
of acquisition. Pro forma earnings are not presented due to the
immateriality of the effect of the acquisition to the company’s
consolidated operations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements. SFAS No. 160 changes the accounting and
reporting for minority interests, which will be characterized
as non-controlling interests and classified as a component
of equity. The adoption of SFAS No. 160 is effective on a
prospective basis beginning February 1, 2009. The company
does not expect the provisions of SFAS No. 160 to have a
material impact on its consolidated results of operations, finan-
cial condition, or cash flows.
Note 2. Selected Balance Sheet Information
Following are the components of selected balance sheet items:
As of January 3
2007
2006
Dollars in thousands
Accounts receivable, net:
Trade accounts . . . . . . . . . . . . . . . . . . . . . . . $36,831
(293)
Allowance for doubtful accounts . . . . . . . . .
$36,538
2008
Inventories, net:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . $ 4,975
3,631
In process . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,923
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,529
Other current assets:
Insurance policy benefit . . . . . . . . . . . . . . . . $ 2,549
406
Prepaid expenses and other . . . . . . . . . . . . .
$ 2,955
Property, plant and equipment, net:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,227
21,523
Buildings and improvements . . . . . . . . . . . . .
57,563
Machinery and equipment . . . . . . . . . . . . . .
(44,570)
Accumulated depreciation . . . . . . . . . . . . . .
$35,743
Other assets, net:
Amortizable assets:
Purchased technology . . . . . . . . . . . . . . . . $ 2,300
1,172
Other intangibles . . . . . . . . . . . . . . . . . . .
(1,740)
Accumulated amortization . . . . . . . . . . . .
1,732
2,540
75
$ 4,347
Deferred income taxes . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities:
Salaries and benefits . . . . . . . . . . . . . . . . . . . $ 2,109
2,415
Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,184
40(k) contributions . . . . . . . . . . . . . . . . . . .
4,010
Insurance obligations . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
—
490
Profit sharing . . . . . . . . . . . . . . . . . . . . . . . .
684
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,912
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,804
Other liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ —
5,246
Postretirement benefits . . . . . . . . . . . . . . . . .
2,232
Uncertain tax positions . . . . . . . . . . . . . . . . .
$ 7,478
38 2008 ANNUAL REPORT
$3,594
(258)
$3,336
$29,547
(257)
$29,290
$ 3,750
2,62
2,709
$28,07
$ 3,504
3,652
20,663
$27,89
$ 65
67
$ ,268
$ 747
334
$ ,08
$ ,227
2,494
52,552
(39,009)
$36,264
$ ,084
6,662
43,256
(35,400)
$25,602
$ 3,380
,305
(2,729)
,956
,607
4
$ 3,677
$ 3,380
,265
(2,300)
2,345
38
46
$ 2,809
$ ,722
2,22
,09
,743
265
553
397
,578
$ 9,579
$ —
5,032
—
$ 5,032
$ 2,67
2,9
,049
,632
808
,68
569
,642
$,54
$ 9
,709
—
$ ,78
Note 5. Goodwill and Other Intangibles
Goodwill
The changes in the carrying amount of goodwill by reporting
segment are shown below:
Flow
Dollars in thousands
Controls
Balance at January 3, 2005 . . . . $ 4,940
Goodwill acquired during
Engineered Electronic
Systems
$ 433
Films
$96
Aerostar
$ 464
Total
$ 5,933
the year . . . . . . . . . . . . . . . . . .
Acquisition earn-outs . . . . . . .
Balance at January 3, 2006 . . . .
Acquisition earn-outs . . . . . . .
Balance at January 3, 2007 . . . .
Acquisition earn-outs . . . . . . .
Balance at January 31, 2008 . . $5,909
285 —
83 —
96
203 —
96
298 —
$96
5,6
5,408
—
—
433
—
433
—
$433
—
—
464
—
464
—
$464
285
83
6,40
203
6,604
298
$6,902
Intangible Assets
Estimated future amortization expense based on the current
carrying value of amortizable intangible assets for fiscal
periods 2009 through 2013 is $398,000, $389,000, $357,000,
$351,000, and $22,000, respectively. The company wrote-off
$1.1 million of fully amortized intangible assets in fiscal 2008.
Note 6. 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 $1,020,000, $935,000,
and $892,000 for fiscal 2008, 2007 and 2006, respectively.
In addition, the company provides postretirement medical and
other benefits to senior executive officers and senior managers.
There are no assets held for the plans and any obligations are
covered through the company’s operating cash and invest-
ments. The company accounts for these benefits in accordance
with SFAS No. 106, Accounting for Postretirement Benefits
Other Than Pensions. At January 31, 2007, the company
adopted SFAS No. 158, Employers’ Accounting for Defined
Pension and Other Postretirement Plans. This statement
requires the company to fully recognize the liability for its
postretirement benefits through changes in accumulated other
comprehensive income.
The incremental effect of applying SFAS No. 158 on the
following balance sheet items as of January 31, 2007, was
as follows:
Impact of SFAS No . 58
Dollars in thousands
Non-current deferred tax assets . . . . . . . . . $ 592
8,749
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
2,32
Other liabilities . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive
Before Adjustment
$ ,05
,05
2,900
After
$ ,607
9,764
5,032
income (loss) . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . .
(8)
00,53
(,885)
(,885)
(,893)
98,268
The accumulated benefit obligation for these benefits is
shown below:
Dollars in thousands
2008
Benefit obligation at beginning of year . . . . . . . . $5,213
90
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
307
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . .
(2)
Total recognized in net and other
395
comprehensive income . . . . . . . . . . . . . . . . . .
(161)
Retiree benefits paid . . . . . . . . . . . . . . . . . . . . . .
5,447
Benefit obligation at end of year . . . . . . . . . . . . .
Less: unrecognized actuarial losses . . . . . . . . . . .
—
Ending liability balance . . . . . . . . . . . . . . . . . . . . $5,447
For the years ended January 3
2007
$4,928
84
278
89
2006
$2,722
80
259
2,04
(66)
5,23
—
$5,23
(47)
4,928
(3,045)
$,883
The liability and expense reflected in the balance sheet and
income statement were as follows:
Dollars in thousands
2008
Beginning liability balance . . . . . . . . . . . . . . . . . . $5,213
635
Employer expense . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . .
(240)
Total recognized in net and other
395
comprehensive income . . . . . . . . . . . . . . . . . .
—
Initial effect of adopting SFAS No . 58 . . . . . . . . .
(161)
Retiree benefits paid . . . . . . . . . . . . . . . . . . . . . .
5,447
Ending liability balance . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
(201)
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . $5,246
For the years ended January 3
2007
$,883
596
—
2006
$,447
583
—
2,900
(66)
5,23
(8)
$5,032
—
(47)
,883
(74)
$,709
Assumptions used:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wage inflation rate . . . . . . . . . . . . . . . . . . . . . . .
6.75%
4.00%
6 .00%
4 .00%
5 .75%
4 .00%
The discount rate is based on matching rates of return on high-
quality fixed-income investments with the timing and amount
of expected benefit payments. No material fluctuations in
retiree benefit payments are expected in future years.
The assumed health care cost trend rate for fiscal 2008 was
10.38% as compared to 9.64% and 9.39% assumed for fiscal
2007 and 2006. The impact of a one-percentage-point change
in assumed health care rates would not be significant to the
company’s income statement and would affect the ending
liability balance by approximately $900,000. The rate to
which the fiscal 2008 health care cost trend rate is assumed to
decline is 5.25%, which is the ultimate trend rate. The fiscal
year that the rate reaches the ultimate trend rate is expected to
be fiscal 2028.
Note 7. Warranties
Changes in the warranty accrual were as follows:
Dollars in thousands
2008
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 397
1,390
Accrual for warranties . . . . . . . . . . . . . . . . . . . . .
(1,103)
Settlements made (in cash or in kind) . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . $ 684
As of January 3
2007
$ 569
,37
(,489)
$ 397
2006
$ 452
958
(84)
$ 569
RAVEN INDUSTRIES 39
NOTES TO FINANCIAL STATEMENTS (continued)
Note 8. Income Taxes
The reconciliation of income tax computed at the federal
statutory rate to the company’s effective income tax rate was
as follows:
Dollars in thousands
2008
Tax at U .S . federal statutory rate . . . . . . . . . . . . . . . 35.0%
State and local income taxes,
net of U .S . federal benefit . . . . . . . . . . . . . . . . . .
Tax benefit on qualified production activities . . . . . .
Tax credit for research activities . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.5
(2.1)
(0.7)
0.5
34.2%
For the years ended
January 3
2007
35 .0%
2006
35 .0%
.
( .0)
(0 .5)
(0 .)
34 .5%
.
( .0)
(0 .)
0 .3
35 .3%
Significant components of the company’s income tax
provision were as follows:
Dollars in thousands
Income taxes:
Currently payable . . . . . . . . . . . . . . . . . . . . . $15,201
(779)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,422
$3,687
(293)
$3,394
$4,04
(809)
$3,232
For the years ended January 3
2006
2007
2008
Deferred Tax Assets
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and liabili-
ties for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the
company’s deferred tax assets and liabilities were as follows:
As of January 3
2007
2006
2008
Dollars in thousands
Current deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . $ 105
215
781
456
518
2,075
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . .
Insurance obligations . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets (liabilities):
Postretirement and other employee benefits . .
Depreciation and amortization . . . . . . . . . . . . .
Net operating loss carryforward(a) . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,836
(478)
123
741
318
2,540
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . $4,615
$ 9
22
7
357
390
,76
,758
(405)
82
—
72
,607
$3,368
$ 88
220
680
282
476
,746
598
(439)
—
—
59
38
$2,064
(a) The company’s Canadian operation incurred a $317,000 net operating loss that if
unused will begin to expire in 2017.
Uncertain Tax Positions
Effective February 1, 2007, the company adopted the
provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). Upon adoption of
FIN 48 the company recorded a net $716,000 increase in the
liability for unrecognized tax benefits, which was recorded as
a reduction to the February 1, 2007 beginning retained earn-
ings balance. As of the adoption date, the company had gross
unrecognized tax benefits of $1.3 million ($1.6 million includ-
40 2008 ANNUAL REPORT
ing interest and penalties). The following table summarizes the
activity related to the gross unrecognized tax benefits (exclud-
ing interest and penalties) for the year ended January 31, 2008:
Dollars in thousands
Balance as of February , 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $,328
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . .
465
Balance as of January 3, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $,793
During the fiscal year ended January 31, 2008, there were no
increases, decreases or settlements of uncertain tax posi-
tions related to prior years. The company does not expect any
significant change in the amount of unrecognized tax benefits
in the next fiscal year.
The total unrecognized tax benefits that, if recognized, would
affect the company’s effective tax rate were $1.2 million and
$0.9 million as of January 31, 2008 and February 1, 2007,
respectively.
The company recognizes interest and penalties accrued related
to unrecognized tax benefits in income tax expense. At January
31, 2008 and February 1, 2007, accrued interest and penalties
were $439,000 and $264,000, respectively.
The company files tax returns, including returns for its
subsidiaries, with various federal, state, and local jurisdictions.
Uncertain tax positions are related to tax years that remain
subject to examination. The company’s fiscal 2004 through
2007 U.S. tax returns remain subject to examination by federal
tax authorities, and the company’s fiscal 2003 through 2007
state and local tax returns remain subject to examination by
state and local authorities.
Note 9. Financing Arrangements
The company has an uncollateralized credit agreement provid-
ing a line of credit of $8.0 million with a maturity date of July
1, 2008, bearing interest at 1.00% under the prime rate. Letters
of credit totaling $1.2 million have been issued under the
line, primarily to support self-insured workers’ compensation
bonding requirements. No borrowings were outstanding as of
January 31, 2008, 2007 or 2006, and $6.8 million was avail-
able at January 31, 2008. The weighted-average interest rate
for borrowing under the short-term credit line in fiscal 2006
was 5.63%. There were no borrowings under the credit line in
fiscal years 2008 or 2007.
Wells Fargo Bank, N.A. provides the company’s line of credit
and holds the company’s cash and cash equivalents. 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 vehicles, equipment and facili-
ties under operating leases. Total rent and lease expense was
$268,000, $351,000, and $381,000 in fiscal 2008, 2007 and
2006, respectively. Future minimum lease payments under
non-cancelable operating leases for fiscal periods 2009 to 2011
are $173,000, $139,000, and $115,000, respectively, with all
leases scheduled to expire by fiscal 2011.
Note 10. Share-based Compensation
At January 31, 2008, the company had two share-based
compensation plans, which are described below. The compen-
sation cost for these plans was $904,000, $605,000, and
$485,000 in fiscal 2008, 2007, and 2006, respectively. The
related income tax benefit recorded in the income statement
was $154,000, $110,000, and $58,000 for fiscal 2008, 2007,
and 2006, respectively. Compensation cost capitalized as
part of inventory at January 31, 2008, 2007, and 2006, was
$54,000, $40,000 and $63,000, respectively.
2000 Stock Option and Compensation Plan
The company’s 2000 Stock Option and Compensation
Plan, approved by the shareholders, is administered by the
Personnel and Compensation Committee of the Board of
Directors and allows for either incentive or non-qualified
options with terms not to exceed 10 years. There are 438,125
shares of the company’s common stock reserved for future
option grants under the plan at January 31, 2008. Options are
granted with exercise prices not less than market value at the
date of grant. The stock options vest over a four-year period
and expire after five years. Options contain retirement and
change in control provisions that may accelerate the vesting
period. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model.
The company uses historical data to estimate option exercise
and employee termination within the valuation model.
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.
For the years ended January 3
2006
2007
2008
4 .36%
4 .45%
3.07%
Risk-free interest rate . . . . . . . . . . . . . . . . . . .
0 .90%
.29%
1.28%
Expected dividend yield . . . . . . . . . . . . . . . . .
39 .25%
38 .97%
40.62%
Expected volatility factor . . . . . . . . . . . . . . . .
4 .25
4 .25
Expected option term (in years) . . . . . . . . . . .
4.25
$0 .90
$ 9 .5
Weighted average grant date fair value . . . . . $11.45
Information regarding option activity for the year ended
January 31, 2008 is as follows:
Weighted Aggregate
intrinsic
average
value
exercise
(in 000s)
price
Number
of options
Weighted
average
remaining
contractual
term
(years)
Outstanding at
beginning of year . . . . . . .
Granted . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . .
Outstanding at
end of year . . . . . . . . . . . .
Options exercisable
at end of year . . . . . . . . . .
447,050
75,400
(147,769)
(1,650)
$18.89
34.50
8.91
26.94
373,031
$25.96
$,926
182,250
$21.16
$,652
2 .80
.78
The intrinsic value of a stock award is the amount by which
the fair value of the underlying stock exceeds the exercise
price of the award. The total intrinsic value of options exer-
cised was $3.5 million, $3.7 million and $3.6 million during
the years ended January 31, 2008, 2007 and 2006, respec-
tively. As of January 31, 2008, the total compensation cost
for non-vested awards not yet recognized in the company’s
statements of income was $1.4 million, net of the effect of
estimated forfeitures. This amount is expected to be recog-
nized over a weighted average period of 2.56 years.
Deferred Stock Compensation Plan for Directors
On May 23, 2006, the company’s stockholders approved the
Deferred Stock Compensation Plan for Directors of Raven
Industries, Inc. Under the plan, a stock unit is the right to
receive one share of the company’s common stock as deferred
compensation, to be distributed from an account established in
the name of the non-employee director by the company. Stock
units have the same value as a share of common stock but
cannot be sold. Stock units are a component of the company’s
equity. The plan reserves 50,000 common shares for the
conversion of stock units into common stock after direc-
tors retire from the Board. The plan is administered by the
Governance Committee of the Board of Directors.
Stock units granted under this plan vest immediately and are
expensed at the date of grant. Stock units are also accumulated
if a director elects to defer the annual retainer paid for board
service. When dividends are paid on the company’s common
shares, stock units are added to the directors’ balances and a
corresponding amount is removed from retained earnings. The
intrinsic value of a stock unit is the fair value of the underly-
ing shares.
Information regarding outstanding stock units for the year
ended January 31, 2008, is as follows:
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred retainers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Converted into common shares . . . . . . . . . . . . . . . . . . . . .
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . .
Number
of units
4,828
3,846
,099
05
—
9,878
Weighted
average
price
$28 .43
36 .40
36 .40
35 .79
—
$30 .02
Note 11. Net Income Per Share
Basic net income per share is computed by dividing net
income by the weighted-average common shares and stock
units outstanding. Diluted net income per share is computed
by dividing net income by the weighted-average common
and common equivalent shares outstanding (which includes
the shares issuable upon exercise of employee stock options
net of shares assumed purchased with the option proceeds)
and stock units outstanding. Certain outstanding options were
excluded from the diluted net income per-share calculations
because their effect would have been anti-dilutive, as their
RAVEN INDUSTRIES 4
NOTES TO FINANCIAL STATEMENTS (continued)
exercise prices were greater than the average market price of
the company’s common stock during those periods. For
fiscal 2008, 2007, and 2006, 90,338, 96,075, and 19,125
options, respectively, were excluded from the diluted net
income per-share calculation. Details of the computation are
presented below.
For the years ended January 3
2007
2008
2006
Numerator:
Net income (in thousands) . . . . . . $ 27,802
$ 25,44
$ 24,262
Denominator:
Weighted average common
shares outstanding . . . . . . . . . 18,099,600
8,082,606
8,055,439
Weighted average stock
units outstanding . . . . . . . . . . .
8,580
3,602
—
Denominator for
basic calculation . . . . . . . 18,108,180
8,086,208
8,055,439
Weighted average common
shares outstanding . . . . . . . . . 18,099,600
8,082,606
8,055,439
Weighted average stock
units outstanding . . . . . . . . . . .
Dilutive impact of stock options .
8,580
95,883
3,602
86,705
—
259,04
Denominator for
diluted calculation . . . . . . 18,204,063
8,272,93
8,34,543
Net income per share – basic . . . . $ 1.54
Net income per share – diluted . . $ 1.53
$ .4
$ .39
$ .34
$ .32
Note 12. Business Segments and
Major Customer Information
The company’s reportable segments are defined by their
common technologies, production processes and invento-
ries. These segments reflect the organization of the company
into the three Raven divisions, each with a Divisional Vice
President, and its Aerostar subsidiary.
Engineered Films produces rugged reinforced plastic sheeting
for industrial, construction, manufactured housing and agri-
culture applications. Flow Controls, including Raven Canada
and Raven GmbH, provides electronic and Global Positioning
System (GPS) products for the precision agriculture, marine
navigation and other niche markets. Electronic Systems is a
total-solutions provider of electronics manufacturing services.
Aerostar manufactures military parachutes, protective wear,
custom-shaped inflatable products and high-altitude balloons
for government and commercial research.
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 report-
ing structure as required by SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information.
42 2008 ANNUAL REPORT
Business segment information is as follows:
For the years ended January 3
2007
2008
2006
$ 66,278
0,850
25,75
,357
,086
$ 9,082
23,440
4,988
3,266
2,887
$ 45,55
0,
27,629
577
,42
Dollars in thousands
ENGINEERED FILMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,783
17,655
Operating income . . . . . . . . . . . . . . . . . .
43,688
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,012
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
4,046
FLOW CONTROLS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,291
19,102
Operating income . . . . . . . . . . . . . . . . . .
36,922
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,008
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
1,125
ELECTRONIC SYSTEMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,609
10,349
Operating income . . . . . . . . . . . . . . . . . .
25,865
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,077
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
1,237
AEROSTAR
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,274
1,506
Operating income . . . . . . . . . . . . . . . . . .
9,857
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
156
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
499
REPORTABLE SEGMENTS TOTAL
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957
48,612
Operating income . . . . . . . . . . . . . . . . . .
116,332
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,253
Capital expenditures . . . . . . . . . . . . . . . .
6,907
Depreciation & amortization . . . . . . . . . .
CORPORATE & OTHER(a)
Operating (loss) from
administrative expenses . . . . . . . . . . . $ (7,467) $ (6,806)
6,8
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
395
TOTAL COMPANY
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,957
41,145
Operating income . . . . . . . . . . . . . . . . . .
147,861
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,635
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
7,344
(a) Assets are principally cash, investments, deferred taxes and notes receivable.
$27,529
38,302
9,764
6,522
5,885
$ 4,654
707
8,6
82
375
$27,529
45,08
02,953
6,02
5,490
31,529
382
437
$ 82,794
9,907
33,52
7,359
2,436
$ 47,506
3,586
30,047
938
,085
$ 56,29
8,96
20,9
,62
87
$ 8,009
2,33
6,837
79
359
$204,528
44,542
90,587
0,088
4,75
$ (7,258)
5,570
270
400
$204,528
37,284
06,57
0,358
5,5
Sales to a customer of the Electronic Systems segment
accounted for 11% and 10% of consolidated sales in fiscal
2008 and 2007, respectively, and 14% of the company’s
consolidated accounts receivable at January 31, 2008 and
January 31, 2007. No customer accounted for more than 10%
of the company’s consolidated sales or accounts receivable in
fiscal 2006.
Sales to countries outside the United States, primarily to
Canada, were as follows:
Dollars in thousands
Flow Controls . . . . . . . . . . . . . . . . . . . . . . . . . . $10,100
1,800
Engineered Films . . . . . . . . . . . . . . . . . . . . . . .
Electronic Systems . . . . . . . . . . . . . . . . . . . . . .
6,900
1,300
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign sales . . . . . . . . . . . . . . . . . . . . . . $20,100
For the years ended January 3
2006
2007
2008
$ 6,700
$ 7,00
,300
2,000
8,000
8,700
800
900
$6,800
$8,700
Note 13. Quarterly Information (Unaudited)
The company’s quarterly information is presented on page 30.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Raven Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
shareholders’ equity and comprehensive income and cash flows present fairly, in all material respects, the financial
position of Raven Industries, Inc. and its subsidiaries at January 31, 2008, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended January 31, 2008 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of January 31, 2008 based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, appearing on page 31 of the 2008 Annual Report to Shareholders in Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and
on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included 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. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
As described in Note 6 to the consolidated financial statements, effective January 31, 2007, the Company adopted the
provisions of Financial Accounting Standards Board (FASB) Statement No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans. As described in Note 8 to the consolidated financial statements,
effective February 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes.
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 20, 2008
RAVEN INDUSTRIES 43
BOARD OF DIRECTORS
FINANCIAL HIGHLIGHTS
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
Conrad J. Hoigaard
Chairman of the Board,
Raven Industries, Inc.;
Chairman of the Board,
Hoigaard’s Inc.,
Minneapolis, MN
Director since 1976
Kevin T. Kirby
President,
Kirby Investment Corporation,
Sioux Falls, SD
Director since 2007
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
The Raven Board held four regular meetings in fiscal year 2008.
In April 2007, it increased the quarterly dividend for the 21st-consecutive year.
Audit Committee
Thomas S. Everist, Chair
Anthony W. Bour
Kevin T. Kirby
Cynthia H. Milligan
The Audit Committee held two 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 standards.
Personnel and
Compensation Committee
David A. Christensen, Chair
Mark E. Griffin
Conrad J. Hoigaard
The Personnel and Compensation Committee held three
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
Kevin T. Kirby
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.
Raven Executive Team
David R. Bair
Division Vice President & General Manager–Electronic Systems Division, Age: 51, Service 9 years
James D. Groninger
Division Vice President & General Manager–Engineered Films Division, Age: 49, Service 21 years
Thomas Iacarella
Vice President & Chief Financial Officer, Age: 54, Service 16 years
Ronald M. Moquist
President & Chief Executive Officer, Age: 62, Service 32 years
Barbara K. Ohme
Vice President–Administration, Age: 60, Service 20 years
Daniel A. Rykhus
Executive Vice President, General Manager–Flow Controls Division, Age: 43, Service 18 years
Mark L. West
President–Aerostar International, Inc., Age: 54, Service 26 years
44 2008 ANNUAL REPORT
INVESTOR INFORMATION
Annual Meeting
May 21, 2008, 9:00 a.m.
Ramkota Hotel and Conference Center
3200 W. Maple Avenue
Sioux Falls, SD
Dividend Reinvestment Plan
Raven Industries, Inc. sponsors a Dividend Reinvestment Plan
so shareholders can purchase additional Raven common stock
without paying 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 to our Investor
Relations Department.
Dividend Policy
Our policy is to return about 30% of the company’s earnings
to shareholders as a dividend. Each year our board of directors
reviews Raven’s dividend. Fiscal 2008 represented the
21st-consecutive year we raised our annual dividend:
a 22% increase to 44 cents per share.
Raven Web Site
www.ravenind.com
Stock Quotations
Listed on the Nasdaq NGS Stock Market—RAVN
Total Return Index
Base Year = 100
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
South 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, 2008, which has been filed with the
Securities and Exchange Commission, is available free of charge.
Affirmative Action Plan
Raven Industries, Inc. and Aerostar International, Inc. are Equal
Employment Opportunity Employers with approved affirmative
action plans.
Direct inquires to:
Raven Industries, Inc.
Attention: Investor Relations
P.O. Box 5107
Sioux Falls, SD 57117-5107
Phone: 605-336-2750
500
400
300
200
100
0
Jan 2003
Jan 2004
Jan 2005
Jan 2006
Jan 2007
Jan 2008
Raven Industries Inc
SP1500 Industrial Machinery
Russell 2000 Index
Delivering Long-term
Shareholder Value
If an investor purchased $100 of
Raven stock on January 31, 2003,
held it for the next five years and
reinvested the dividends, its value
would have increased to $419.77.
This was a significant premium
over the same investment in the
S&P 1500 Industrial Index, which
would have been worth $227.10,
or in the Russell 2000 Index, which
would have grown to $203.82.
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FORWARD-LOOKING STATEMENTS
This annual report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. Without limiting the foregoing, the words “anticipates,” “believes,”
“expects,” “intends,” “may,” “plans” and similar expressions are intended to identify forward-looking statements. The company intends that all forward-looking statements be subject to the
safe harbor provisions of the Private Securities Litigation Reform Act. Although management believes that the expectations reflected in forward-looking statements are based on reasonable
assumptions, there is no assurance these assumptions are correct or that these expectations will be achieved. Assumptions involve important risks and uncertainties that could significantly affect
results in the future. These risks and uncertainties include, but are not limited to, those relating to weather conditions, which could affect some of the company’s primary markets, such
as agriculture and construction; or changes in competition, raw material availability, technology or relationships with the company’s largest customers — any of which could adversely
affect any of the company’s product lines, as well as other risks described in Raven’s 10-K under Item 1A. This list is not exhaustive, and the company does not have an obligation to revise any
forward-looking statements to reflect events or circumstances after the date these statements are made.
RAVEN
Raven Industries
P.O. Box 5107
Sioux Falls, SD 57117-5107
www.ravenind.com