INVEST IN
WHAT
YOU KNOW
RAVEN
Raven Industries
P.O. Box 5107
Sioux Falls, SD 57117-5107
www.ravenind.com
RAVEN
2009 ANNUAL REPORT for the fiscal year ended January 31
58585_Cover_u3.indd 1
4/3/09 2:54:57 AM
Protect the Core
Raven’s conservative approach to its operations has generated solid
financial results for more than 50 years. Year-over-year profitable growth
has always been our goal. In today’s environment, that is no longer the
imperative. We have entered the most challenging economy in the company’s
history and are taking the right actions for long-term viability:
(cid:115)(cid:0) (cid:50)(cid:73)(cid:71)(cid:72)(cid:84)(cid:13)(cid:83)(cid:73)(cid:90)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:80)(cid:82)(cid:85)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:83)(cid:83)(cid:69)(cid:78)(cid:84)(cid:73)(cid:65)(cid:76)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:79)(cid:82)(cid:69)
(cid:115)(cid:0) (cid:48)(cid:82)(cid:69)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:78)(cid:71)(cid:0)(cid:80)(cid:82)(cid:79)(cid:108)(cid:84)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:83)(cid:84)(cid:82)(cid:69)(cid:78)(cid:71)(cid:84)(cid:72)
(cid:115)(cid:0) (cid:36)(cid:69)(cid:80)(cid:76)(cid:79)(cid:89)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:65)(cid:80)(cid:73)(cid:84)(cid:65)(cid:76)(cid:0)(cid:73)(cid:78)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:67)(cid:79)(cid:82)(cid:69)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:12)(cid:0)(cid:66)(cid:85)(cid:84)(cid:0)(cid:65)(cid:84)(cid:0)(cid:65)(cid:0)(cid:82)(cid:69)(cid:68)(cid:85)(cid:67)(cid:69)(cid:68)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)
(cid:115)(cid:0) (cid:39)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:83)(cid:84)(cid:82)(cid:79)(cid:78)(cid:71)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:109)(cid:79)(cid:87)(cid:0)(cid:84)(cid:79)(cid:0)(cid:77)(cid:73)(cid:78)(cid:73)(cid:77)(cid:73)(cid:90)(cid:69)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:78)(cid:69)(cid:69)(cid:68)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:68)(cid:69)(cid:66)(cid:84)
We will take advantage of the opportunities presented to us and
create growth where we can. In the past year, this enabled us to
achieve our ninth-consecutive year of record earnings per share and our
22nd-consecutive increase in the annual dividend—plus a special dividend.
Inside this Report
Letter to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Business Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Operations Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Eleven-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
Dollars in thousands, except per-share data
OPERATIONS
For the years
ended January 31
2009
2008
Change
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913
$233,957
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,394
30,770
41,145
27,802
PER SHARE
Net income—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.70
$ 1 .53
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE
Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on beginning shareholders’ equity . . . . . . . . . . . . . . . . . .
0.52(a)
6.30
16.6%
11.0%
21.1%
26.0%
0 .44
6 .52
17 .6%
11 .9%
20 .8%
28 .3%
Shares and stock units outstanding, year end (in thousands) . . . .
18,027
18,130
19 .6%
12 .8%
10 .7%
11 .1%
18 .2%
–3 .4%
–5 .7%
–7 .6%
1 .4%
–8 .1%
–0 .6%
(a) Excludes a special dividend of $1.25 per share that was paid during the fourth quarter of fiscal 2009.
NET SALES
(dollars in millions)
EARNINGS PER SHARE
(diluted, in dollars)
SALES PER EMPLOYEE
(dollars in thousands)
$279.9
$234.0
$217.5
$204.5
$1.70
$1.53
$1.39
$1.32
$262
$252
$242
$246
$201
$181
$168.1
$142.7
$0.97
$0.75
2004 2005 2006 2007 2008 2009
2004 2005 2006 2007 2008 2009
2004 2005 2006 2007 2008 2009
Revenues rose 20% to a new high. This reflected
much stronger sales at Applied Technology and
Aerostar, and a slight increase for Engineered Films.
The 11% increase in net income lifted earnings per
share to its ninth-consecutive record year.
Sales per employee rose nearly 4% for the latest
period, making this its 11th-consecutive record year.
RAVEN 2009 ANNUAL REPORT 1
58585_Narrative.indd 1
3/27/09 6:16:06 PM
TO OUR SHAREHOLDERS,
EMPLOYEES AND CUSTOMERS
Raven posted its ninth-consecutive record year—as great success
in our agricultural markets more than offset difficult conditions
in other key markets. It was a year with two distinct parts. In the
first three quarters, net income was up 20% over the previous year,
driven primarily by the stunning growth in our Applied Technology
Division (previously known as the Flow Controls Division). Then
there was the fourth quarter, when net income dropped 22% (after
31-consecutive quarters of year-over-year record earnings) as
demand for engineered films was down 28%.
Good Results—Mixed Performance
We had good results this past year, but didn’t accomplish them in
the way we planned. The Applied Technology Division had a great
year and Aerostar did well. But our Engineered Films Division and
Electronic Systems Division both had major earnings shortfalls.
• Sales increased 20% to a record $280 million.
• Net income grew 11% to a record $30.8 million, and earnings
per share were up from $1.53 the previous year to $1.70.
• A total
of
$37.1 million was
returned to shareholders
through
stock repurchases and dividends.
• The quarterly dividend rose 18%: our 22nd-consecutive
annual
increase. A special one-time dividend of $1.25 per share was
paid on November 14, 2008.
• The year ended with no debt
and $16.3 million in cash.
Adapting to a Changing World
The worldwide economy is in the worst shape I have experienced in
my 40 years in business. Consumers and businesses are deleveraging
after 20 years of excess spending and consumption. We over-built,
we over-bought, and we over-borrowed. What we have done is pull
trillions of dollars of future consumption into the present. Now the
federal government is trying to stimulate the economy by leveraging
up and putting us into even more debt.
In this environment, you cannot rely on the same old playbook.
Traditional long-range strategic planning becomes meaningless.
Anyone doing a three- or five-year strategic plan is wasting valuable
corporate resources.
At Raven, our plan is based on the belief that no meaningful turn-
around will take place until at least mid-2010, and that it will be a
long and slow recovery. Corporate and consumer balance sheets
must be repaired and excess capacity must be excised before sustain-
able growth can occur.
Not all of our businesses are positioned for growth in this difficult
environment, but together they provide Raven with the strength to
us a big advan-
remain financially strong and profitable. That gives
Ronald M. Moquist
President &
Chief Executive Officer
2 RAVEN 2009 ANNUAL REPORT
58585_Narrative.indd 2
3/30/09 6:48:58 AM
tage when one of our businesses with solid fundamentals is
going through a down-cycle in a weak market. It also gives
us staying power against single-product competitors.
Engineered Films Continues to
Struggle
The Engineered Films Division (EFD) produces high-
performance plastic sheeting for construction, oil field,
industrial, agricultural and geomembrane applications.
It was another difficult year for EFD, with sales up 5%
but operating income down 38%. High raw material costs
and competitive pricing again combined to drive down
profitability.
Oil field applications and construction projects each
contribute 40% of sales volume, and both of these markets
are in the tank. Oil drilling in North America drops
dramatically when oil prices go below $60 a barrel. As this
letter is being written, prices are under that level. While
residential construction was down all of last year, commer-
cial construction held up for the first nine months. Now
both are suffering, with no relief in sight. We don’t foresee
a pickup in either market, so sales and income in EFD will
drop significantly in the coming year.
Our game plan for this business is to emphasize product
differentiation, raw material cost controls and improved
efficiencies. We have the capability to produce high-perfor-
mance, multi-layer films using our modern, state-of-the-art
plastic extruders. We will focus on creating high qual-
ity films at prices comparable to our competitor’s lower
performing commodity films, giving customers better value
at the same price.
30.1%
36.7%
RETURN ON EQUITY AND
RETURN ON ASSETS
(percent)
We are the most financially sound company in the indus-
trial films marketplace,
which should allow us to
negotiate better prices
and terms on raw mate-
rials. These commodities
account for 60-70% of
our films’ price, so this
is a key consideration in
driving profit margins.
Our extrusion equip-
m e n t i s n e w, h i g h l y
efficient and productive,
and can hold film thick-
nesses to tight tolerances,
which conserves mate-
rial and again gives us a
competitive advantage.
20.8% 21.1%
26.0%
24.9%
23.8%
26.9%
28.3%
18.2%
21.3%
22.5%
2004 2005 2006 2007 2008 2009
Return on Equity
Return on Assets
We are committed to investing in the
right assets that provide a good return
on our shareholders’ investment.
Applied Technology Builds
on Success
The Applied Technology Division (ATD) had an amazing
performance last year. Sales were up 60% and operating
income grew 77%. ATD provides precision solutions for
agriculture—such as GPS steering devices, planting and
spraying controls and data collection—to reduce operating
costs and improve yields.
Agriculture has been one of the few bright spots in the
economy. Farm income was at an all-time high last year
as commodity prices peaked. Prices are down from their
mid-year highs, and input costs such as seed, chemicals and
fertilizer are up—putting a squeeze on net income. Farm
income will drop in 2009, but overall, growers are in good
shape and the debt they are carrying is manageable.
ATD will drive growth in two ways. First, we will increase
the distribution of our products and continue to expand
internationally. Second, we will create new products that
make farming more productive. Our range of products
gives us advantages over competitors, since we can offer
total solutions and not just single-purpose devices. Our
strategy is to supplement our complete offering of products
with a suite of advisory and information services, such as
these being launched or currently in development:
• Collecting and distributing critical input data
• Providing recommendations and prescriptions for field
operations
• Supplying advanced hardware and software to execute
those recommendations
• Helping growers build a database that over time can
take variability out of operations
Demand for grain to feed people and cattle, and to produce
fuel, should continue at a high level. The drive to improve
crop yields and productivity world-wide is ongoing. We just
finished a great year. Beating that performance will be a
challenge.
Electronic Systems Had a Tough Year
Sales in our Electronic Systems Division (ESD) were down
9%, and operating income dropped 43%. ESD is an elec-
tronics contract manufacturer specializing in low-volume,
high-mix production requiring a high degree of engineer-
ing support and customer service. We build printed circuit
boards and assemblies for a small base of Fortune 500
companies. Sales focus on three markets:
• Electronic bed controls
• Printed circuit boards for avionics
• Secure communication devices for government
agencies
Sales for bed controls were down 52% and gross profits
dropped by almost 75%. That comes after a large drop the
RAVEN 2009 ANNUAL REPORT 3
58585_Narrative.indd 3
3/27/09 6:16:16 PM
previous year, as this product is directly linked to residen-
tial construction and home remodeling. Bed control sales
will drop even further in the coming year as the housing
market continues to suffer.
The other two markets are good ones: avionics and secure
communications. Avionics is our largest business, making
up more than 50% of sales in ESD. Sales of printed circuit
boards for avionics were up 33% for the year. This business
has the potential to grow, unless Boeing and Airbus aircraft
production schedules are pushed out or cancelled in the
coming year.
Sales of communication devices were down 36% as we lost
a large customer last year. That situation has now stabi-
lized. Although it is relatively small at $16 million in annual
sales, our communications business should hold up well in a
recession because of increased government spending.
ESD is becoming more competitive when total delivered
cost is considered. Quality and supply chain disruption
issues associated with Asian competitors are becoming
especially acute. Customers are looking for best price, but
they are also aware that a break in the supply chain can
have disastrous consequences. The financial stability and
reliability of suppliers will become increasingly important.
That should benefit ESD.
Aerostar Continues to Improve
Our Aerostar subsidiary had a 57% sales increase, and
operating income more than doubled. Aerostar’s results
were right on target, and continuing improvements are
expected in the year ahead.
We are an important supplier of parachutes, specialty
protective outerwear and aerostats for military, commercial
and scientific markets. Aerostar is in a strong position to
weather the recession.
We have contracts for
parachutes and specialty
outerwear, and our aero-
stat orders are mainly
a military, scientific or
NASA purchase.
REGULAR DIVIDENDS
PER SHARE
excluding special dividends
(dollars)
$0.52
$0.44
Our growth plan is to
develop and promote
tethered aerostats, as
they have wide-ranging
applications for commu-
nications, surveillance
and intelligence work.
We go into the year in
good shape, as most of
our projected sales are
already booked.
$0.36
$0.28
$0.22
$0.17
2004 2005 2006 2007 2008 2009
Our policy is to return earnings to
shareholders in the form of a dividend.
As a result, our regular dividend has seen a
25% five-year compound annual growth rate.
4 RAVEN 2009 ANNUAL REPORT
Invest in What You Know
When I joined Raven in 1975, our board of directors
was heavily invested financially and emotionally in the
company’s success. One of our founding board members
counseled management to invest in Raven, because that
was the one business we really understood—and if it were
a good business, we should own a part of it. That was good
advice, so I made my first purchase of Raven stock two
months later.
For 53 years, Raven has been a conservatively run, profit-
able operation. That will not change. Our philosophy has
always been to deploy capital in our core businesses where
we can get high returns. At Raven, we invest in what we
know: where we understand the risks and rewards.
New Priorities
Raven has the resources to come out of this recession a
strong survivor, but we have to re-calibrate our thinking
and implement a new strategy. For the near term, growing
the business at previous target rates is no longer the
imperative. This is our new strategy:
• Protect the core
• Generate and preserve cash
• Invest
in quality
Protect the Core
This is not just about survival: it’s about protecting core
assets and core values. We will outperform the competition
during the worst of the recession and thrive when we come
out by taking these actions:
• Get
rid of
everything that
is
non-core.
This
includes
customers, product lines, assets and jobs.
• Defend core assets. Protect businesses that have
performed well in the past but will struggle in this
recessionary environment.
• Protect core values and beliefs.
Generate and Preserve Cash
While the conservative approach to our business won’t
change, we will use these strategies to defend the balance
sheet, reduce our risk profile and improve working capital
turnover:
• Turn non-core assets to cash
• Improve inventory and accounts receivable turns
• Extend accounts payable terms
• Reduce capital investments
• Cut expenses to the bone
• Suspend stock buy-backs
At the same time, we will continue to pay the dividend,
because returning cash to shareholders is one of our
“core” values.
58585_Narrative.indd 4
3/27/09 6:16:16 PM
Invest in Quality
We will emphasize quality in everything we do:
• Customers—They must be financially sound and
prospective long-term partners.
• Suppliers—They must
A break in the
supply chain can be more devastating than losing a
customer.
be reliable.
• Products—We must
eliminate waste,
scrap and
re-work.
• R&D—Not
all
good product
development projects will
make the cut. They must have high projected returns
and relatively low risk.
Meeting the Challenges Ahead
This coming year will be the most challenging in our
history. Under these difficult conditions, we do not expect to
top last year’s record earnings of $1.70 per share. What we
can do, and have always done, is to optimize performance
regardless of how the markets play out, and be ready to take
advantage of opportunities.
From left to right:
Daniel Rykhus, Executive Vice
President; Ronald Moquist,
President & Chief Executive
Officer; Barbara Ohme, Vice
President–Administration; Thomas
Iacarella, Vice President & Chief
Financial Officer
On April 1, 2009, Conrad Hoigaard will be stepping down
as Raven’s chairman of the board, a position he has held
since April 1980. I am deeply grateful for his 29 years of
leadership and exemplary service as chairman. He will
remain a director.
Finally, my thanks to all Raven employees. Their talent
and dedication once again earned us the honor of being
named by Forbes Magazine as “One of the Best Small
Companies in America.” This is our third-consecutive year
on the list, and our highest ranking: coming in at 45, after
previous years at 85 and 68. It is a privilege to lead such a
great company.
Ronald M. Moquist
Ronald M. Moquist
President & CEO
March 24, 2009
RAVEN 2009 ANNUAL REPORT 5
58585_Narrative.indd 5
3/27/09 6:16:20 PM
Business Profile
Raven is a diversified company that strives for an intergrated approach to drive success:
• Significant share in a niche market, with additional opportunities for profitable expansion
• A business model that avoids labor-intensive commodity products—and offshore competition
• Strong cash generation that funds reinvestment and shareholder returns
• A high level of customer service, including consultative sales, materials management, strong quality control
and after-sales support
Operating Unit
Products or Services
Markets/Product Uses
Applied
Technology
(formerly Flow
Controls)
Engineered
Films
Electronic
Systems
Aerostar
International
•
•
•
Domestic and international agricultural OEMs and
sprayer manufacturers
Agricultural equipment aftermarket
Marine ship pilots
•
•
•
•
•
•
Ag equipment guidance systems: Cruizer™
Spray equipment rate controllers: SCS Series™
Precision agricultural product application, steering and
data management systems: Viper™, Envizio Pro™
Ag equipment boom management and applications
systems: SmartBoom™, AccuBoom™, AutoBoom™
Tractor steering systems: SmarTrax™, QuickTrax™,
FarmPRO™
Navigational guidance for professional ship pilots:
Wheelhouse II™
•
•
•
•
String reinforced plastic (polyethylene) sheeting:
DURA-SKRIM®
Extruded polyethylene film that can be formulated and
tailored to a customer’s specifications: RUFCO®
Silage bunker covers that protect grain and animal feed:
FeedFresh™
Vapor & gas retarders/barriers to prevent moisture and
radon from migrating through concrete slabs or walls:
VaporBlock®
•
•
•
•
•
Energy and geomembrane: oilfield pit liners, floating
covers, remediation liners and covers, landfill caps and
interim covers, 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
•
•
•
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
•
High-altitude research balloons carrying scientific
payloads
High-altitude airships that reach near-space (60,000-
80,000 feet) for communications, data relay, surveillance
Tethered aerostats (blimps) for military, homeland
security, scientific use
Military parachutes
Clothing to protect from exposure to biochemicals, fuels
and fumes, extreme cold water immersion
Customized inflatable military decoys
•
•
•
•
•
•
•
Fortune 500 and industrial OEMs in North America
End markets served by customers include controls
and instrumentation, aerospace/aviation,
communication, defense
•
•
•
•
•
U.S. and foreign governments
U.S. and international military forces
Homeland security
NASA
Scientific agencies and universities
6 RAVEN 2009 ANNUAL REPORT
Sales by Operating Unit
Income by Operating Unit
Applied Technology
Engineered Films
Electronic Systems
Aerostar
Competitive Strengths
Milestones
•
•
•
•
•
Market leader for agricultural sprayer controls
Large installed base of sprayer controls
Solid brand recognition and distribution network
Wide range of precision agricultural products that
control input costs
Excellent after-sale support through a strong,
centralized service system
•
•
•
•
Increased revenues 60% and operating income 77%
Strong demand for Cruizer, Envizio Pro
Continued overseas expansion led international sales
to 17% of total revenues
Successfully scaled manufacturing and service
operations to handle higher sales
•
•
•
•
•
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 .001 to .045 inches thick
Superior target marketing
R&D team develops customized solutions for
customers
ISO 9001:2000 certification
•
•
•
Introduced the industry’s first reinforced silage covers
to prevent oxygen intrusion; radon barrier films;
house wrap films
Added horizontal cast line extrusion capabilities to
geomembrane production
Maintained market share in difficult environment
•
•
•
•
•
Advanced manufacturing technology
Full-service provider: from design through engineering,
manufacturing and customer service
Close partnership with customers
IPC certification to produce lead-free electronics
assemblies
ISO 9001:2000 certification
•
•
•
•
Consolidated two facilities into one while improving
efficiencies
Kaizen events led to improvements in all processes,
from order through delivery
Replaced most of sales lost from slowing markets and
a customer that was acquired
Continued to generate solid cash flow
•
•
•
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 fabric and films
•
•
•
•
Reported record sales and operating profits
Won U.S. Army contract to provide series of small
tethered aerostats as decoys in Iraq
Doubled production of parachutes and protective
wear for military personnel
Revitalized sales of high-altitude scientific research
balloons to NASA
APPLIED TECHNOLOGY SALES
(dollars in millions)
$103.1
$64.3
$40.7
$35.1
$47.5 $45.5
2004
2005
2006
2007
2008
2009
ENGINEERED FILMS SALES
(dollars in millions)
$91.1
$89.9
$85.3
$82.8
$58.7
$42.6
2004
2005
2006
2007
2008
2009
ELECTRONIC SYSTEMS SALES
(dollars in millions)
$66.3 $68.0
$62.0
$56.2
$44.3 $47.0
2004
2005
2006
2007
2008
2009
AEROSTAR SALES
(dollars in millions)
$20.7 $21.7
$27.2
$18.0
$17.3
$14.7
58585_Narrative.indd 7
3/27/09 6:16:26 PM
2004
2005
2006
2007
2008
2009
RAVEN 2009 ANNUAL REPORT 7
RAVEN
“Investing in what we know means committing resources to
the strategy that has been in place for five years. We leveraged
earlier investments: in Starlink, which helped us develop a
stronger steering product; in Montgomery Industries, which
gave us AutoBoom and a presence in Canada; and in new
applications for field computers. We invested in capacity
and efficiency to keep pace with growing demand. These
actions—and the new products that resulted—gave us a
strong, broad precision ag offering that saves money for
growers while providing the information they need.”
Matthew T. Burkhart
General Manager—
Applied Technology Division
APPLIED
T ECHNOLOGY
DIVISION
8 RAVEN 2009 ANNUAL REPORT
58585_Narrative.indd 8
3/27/09 6:16:29 PM
The Envizio Pro™ offers a complete package
(equipment guidance, chemical control,
and implement control) that is easy to
incorporate into the cab of a sprayer—and
for growers to use.
A Phenomenal Year
Ready for the Challenge
In the summer of 2008, agricultural market conditions in
the U.S. and other geographies we serve were particularly
strong. High prices for corn and rising costs for fuel, fertil-
izer and seed created ideal market conditions. Growers had
more discretionary funds, and many wanted to invest these
in precision agriculture products to reduce their input costs
and help them better manage farming-related information.
This helped us grow faster than the overall industry for a
second year—and to achieve the goals we had set.
We continued to expand internationally. Overseas
markets contributed 17% of revenues, up from 16% last
year and closer to our 25% goal. We ended the year with
19 people in our international sales and service staff, a
significant investment for a company our size.
Progress was made in Canada, where we are develop-
ing relationships with OEMs and expanding our dealer
network. We added a new major distributor in Australia
to help us more effectively reach growers there. In Western
Europe, we capitalized on opportunities in the U.K., France
and Germany, and saw strong double-digit growth from
our relatively small distributor base. We are proceeding
cautiously in South America and Eastern Europe, because
local markets are less stable.
We refined our product line. Our engineering staff
improved the design of our products, so they are easier
to install, simpler to operate, and more reliable. This
process will bring long-term benefits for existing and
future offerings.
We also focused on enhancing existing products. One exam-
ple was adding VRA (variable rate application) technology
to our popular Envizio Pro™ field computer. Growers now
can control input costs by using lower amounts of fertilizer
and pesticides in areas where these are less desirable, while
maintaining levels where these can maximize yields.
In addition to our strong financial performance, we
accelerated implementation of our strategy to increase
visibility in the global precision agricultural marketplace.
We will not match the unsustainably high levels of growth
seen last year, and continued increases in revenue will be
difficult to achieve. Current indications are that corn, wheat
and soybean prices will remain near the levels seen at the
end of 2008, and higher input costs will constrain farm
income. This means the progress we make on the following
goals will be critical to our continued success.
First, we plan to establish a more comprehensive
U.S. grower distribution channel. This will happen as we
develop additional dealer-direct links, which would mean at
least 70 new dealer locations offering our products.
Our second goal is to improve international operations by
continuing to build a stronger support system at our head-
quarters. We will invest in system engineers and product
support engineering that allows us to “localize” products
for different markets, and accelerates our pursuit of new
joint development projects in overseas markets.
Thirdly, we expect to develop alliances with other precision
agricultural providers to expand our market reach. These
relationships will take us to the next level in three areas:
1) creating distribution channel opportunities to reach
more growers, 2) filling technology gaps in or giving us
access to emerging technologies, and 3) collaborating on
product development.
O n F e b r u a r y 1 , 2 0 0 9 , M a t t B u r k h a r t b e c a m e
general manager of Applied Technology. Dan Rykhus
assumed additional corporate responsibilities, with
the general managers of Applied Technology and
Electronic Systems reporting to him, along with the
information technology function. We also changed the
division’s name from “Flow Controls” to “Applied
Technology.” This reflects the broader approach we are
taking to our market. n
RAVEN 2009 ANNUAL REPORT 9
58585_Narrative_u2.indd 9
3/30/09 2:11:28 PM
RAVEN
“Investing in what we know means focusing on innovation.
The progression of our business frequently involves providing
a commodity film product to a customer, establishing trust,
and then working closely with the customer to design films
that offer greater benefits—from weight to strength to cost
savings. That final step is where we really add value and
introduce films that can bring long-term growth.”
James D. Groninger
Division Vice President
and General Manager—
Engineered Films Division
E NGINEERED
F ILMS
DIVISION
10 RAVEN 2009 ANNUAL REPORT
58585_Narrative.indd 10
3/27/09 6:16:35 PM
VaporBlock® films prevent moisture
from seeping from the ground to damage
expensive coatings and floor coverings,
or the structural integrity of buildings
under construction.
Innovation in a Difficult Year
For the first nine months, Engineered Films sales were rela-
tively strong. This was due in part to serving diverse end
markets, where strength in one area could offset slowness in
another. In the final quarter, the recession hit the markets
where we had been performing well: particularly oil and
gas exploration. As a result, while we were unable to close
out the year as we would have liked, Engineered Films still
had some notable accomplishments.
We used new manufacturing processes to become
more innovative. This truly distinguishes us from
our competition. We have invested in new extrusion and
conversion technology, providing us with the flexibility
to go beyond just offering commodity films to customers.
This includes giving them the opportunity to work with
our engineers to design products to their specifications, and
conducting trial runs of those films on our state-of-the-art
manufacturing lines, so customers can see the processes and
costs involved.
We introduced new products. Notable among these
was our VaporBlock® Plus™ multilayer barrier film. When
placed under concrete slabs in commercial and residen-
tial construction, this material restricts the migration of
naturally occurring gasses (such as methane and radon)
50- to 200-times more effectively than other premium poly-
ethylene films.
Another important addition was FeedFresh™ silage covers.
Because of its oxygen barrier, FeedFresh reduces the
amount of spoilage in cattle feed. This saves money for
farmers while increasing the amount of milk that dairy
cows can produce, or improving daily weight gains for
steers and heifers.
We have a number of other products in trials, and some
are being evaluated as private label opportunities for our
customers. Potential applications for our higher perfor-
mance products span a diverse set of markets, including
environmental, agricultural and industrial.
Keeping Costs in Line
with Opportunities
The film industry is looking for its end-use markets to find
a floor in this soft economy. Once this happens, we believe
there will be opportunities for growth.
In the meantime, we will build on the disciplines put in place
during this past year. We will keep our capital expenditures
low, fine-tuning prior investments so we can continue to
meet customers’ needs. We will expand on our fourth-
quarter workforce reductions by carefully controlling
selling and other indirect expenses.
We believe opportunities in the coming year will arise from
two sources. First, customers will want to reduce their costs
while still getting the performance they need from films.
They will be attracted to our unique ability to formulate
value-added products to their specifications—and within
their budgets.
Second, we have the capacity to serve new markets. By
extending the lives of our products and developing new
formulations to provide a better value to potential users of
our films, we can reach additional customers.
While it will take some time to return to the levels of profit-
ability seen in past years, we remain committed to this goal.
Watching our costs, working closely with customers, and
having an innovative product line that will reach beyond
current markets should help us achieve this. n
58585_Narrative.indd 11
3/27/09 6:16:36 PM
RAVEN 2009 ANNUAL REPORT 11
RAVEN
“During this past year, we were investing in what we know
by enhancing operational excellence. We completed a
facility consolidation that improved customer service and
reduced costs. Kaizen events were used to identify ways
to strengthen our processes. These efforts allowed us to
continue generating cash to fuel Raven’s growth. The results
also put us in a good position to increase the Electronic
Systems Division’s operating profit in the coming year—
despite an uncertain economy.”
David R. Bair
Division Vice President
and General Manager—
Electronic Systems Division
E LECTRONIC
S YSTEMS
DIVISION
12 RAVEN 2009 ANNUAL REPORT
What differentiates Electronic Systems from
its competitors is the ability to produce short
runs of a component—maybe only a handful
a year—with high quality and reliability.
Improved Operations
More Progress Expected on Goals
We set three goals for the past fiscal year: 1) to improve
inventory turns, 2) to strive for a higher on-time deliv-
ery rate, and 3) to add a new customer. The combination
of two very weak customer end-user markets, and the
loss of a customer through acquisition, meant we did not
make as much progress toward these goals as we would
have liked. But important advances were made.
We focused on markets with growth potential.
Industrial controls—from bed controls to security monitor-
ing equipment—were hit by issues in residential housing
and commercial real estate. That led to a significant drop
in sales to this area. However, we were able to increase
revenues from aerospace/aviation. This reflected continued
demand for fuel efficient planes for the airlines, and having
our products incorporated into a number of different
defense aircraft and missile programs. Products also were
shipped to our sister division, Applied Technology, for the
first full fiscal year.
We increased our operating efficiency. A key action
was the September consolidation of two Sioux Falls manu-
facturing facilities into one, which eliminated the issues
and expenses of moving products between the two of
them. In addition, on-time delivery improved slightly, and
we increased our operating efficiency during the second
half of the year. Despite having a lower margin product
mix this year, these actions contributed to a stronger oper-
ating margin in the second half compared with the first
six months.
We conducted four Kaizen (process improvement)
events in the third and fourth quarters. The first covered
nearly every aspect of our processes, from receiving an
order until the product is delivered. We identified more than
20 opportunities to cut waste and improve our approach.
Then we concentrated on the engineering change order
process, new product introductions, and schedule changes,
and came up with 100 more areas to strengthen. These will
become our focus in the new fiscal year.
We do not anticipate any improvement in the industrial
controls market during the year, and we hope it is near
the bottom. Most of our growth will come from aerospace/
aviation. While these are lower margin products for us, this
year will see us producing more existing products rather
than new ones, which should help profitability. As we hold
more Kaizen events and streamline our processes, our
margins should improve.
With this in mind, we are working toward four goals for
fiscal 2010. First, we plan to increase on-time delivery to
above 90% by focusing on what causes late releases—from
material availability, to maintaining schedule integrity, to
strengthening communication between our customers and
ourselves. Second, we expect to raise our productivity by
more than 5% through holding at least one Kaizen event
each month.
Third, we will continue to improve our inventory turns,
which increased slightly in fiscal 2009. Tactics for achieving
this include more discipline regarding customer schedule
changes and better communication with vendors. Fourth,
we are working hard to add a major customer. The process
of integrating a new customer can take 12 to 18 months,
so we would expect to begin seeing the benefits of this in
fiscal 2011.
These goals reflect how we are investing our resources in
Electronic Systems Division’s long-term future. We plan
to achieve them—despite poor conditions in some end-use
markets—while cutting capital spending by about 50%
from fiscal 2009 levels. This should help us continue to
generate good amounts of cash for the year. n
58585_Narrative.indd 13
3/27/09 6:16:42 PM
RAVEN 2009 ANNUAL REPORT 13
RAVEN
“Here’s how we invested in what we know. One, we doubled
our production of military parachutes and protective
wear—while automated systems meant we only increased
related staff by 20%. Two, we created closer relationships
with customers—and other companies that serve them—to
cultivate long-term growth. Both actions reflected our
philosophy of leveraging Aerostar’s foundation business in
aerostats and sewn products.”
Mark L. West
President—
Aerostar International, Inc.
AEROSTAR
INTERNATIONAL
14 RAVEN 2009 ANNUAL REPORT
58585_Narrative.indd 14
3/27/09 6:16:47 PM
This super-pressure balloon, produced
by Aerostar and launched by NASA from
Antarctica in December 2008, set a new
record for the longest balloon flight:
more than 50 days.
Delivering on Goals for the Year
Most of Aerostar’s revenues come from government
contracts, which are not as directly affected by the changes
in the economy. This helped us meet nearly every goal we
set for the year.
We exceeded our revenue goal in parachutes and
protective wear, as shipments of both products ramped
up throughout the year. Because these contracts are in
their second year—past the period for prototypes and
approvals—their profitability reached our targeted levels,
too. This reflects our efficient approach to high-speed
manufacturing.
We took a new approach to building the large
tethered aerostat business. The original goal was to
follow our successful October 2007 flight by booking orders
for the product. This did not happen. The military appreci-
ates the role aerostats can play in solving problems—such
as better communication with troops in the field—but it
does not usually buy aerostats directly.
As a result, the best way to generate business is by partner-
ing with large defense electronics contractors that need
our aerostats to carry their communication payloads. We
spent the year meeting and forming relationships with these
firms. Interest has been good, and we are quoting programs
that we believe will generate sales in future years.
We met our revenue goal for this business by selling small
tethered aerostats. We began shipments under a $1.8 million
government contract for aerostats to be used as decoys in
Iraq. We also made our first delivery in Spain as part of
opening the European market for this product.
The high-altitude research balloon business saw
its highest sales in a decade. This interest is being
driven by scientists who want longer duration flights
to gather more information. We have worked with NASA
for years to develop a new type: the super-pressure balloon.
A successful flight of this product occurred in Antarctica
in December, and we already are building one that is twice
as large.
More progress is needed for high-altitude airships.
While our June 2008 flight was not the unqualified success
we had hoped for, the U.S. military saw the potential for this
airship and is proceeding with the program. We learned a
number of lessons from that launch, including new tech-
niques to deal with air turbulence, and are applying them to
our next flight scheduled for this fall.
Creating Opportunities
While the new presidential administration will subject mili-
tary spending to greater scrutiny, the products we provide
have two advantages. First, they are connected with the
safety of our troops, such as parachutes. Second, they are
small programs so may be less likely to face cuts.
We enter the year with most of our expected revenues in
place. Our biggest challenge will be creating opportunities
to generate the rest.
The stage has been set for parachutes. The MC-6 program,
which involved 20,000 parachutes, will conclude at the end
of this year. We have qualified for the follow-on contract:
the 52,000-parachute T-11 program. Because many of its
components are the same as the MC-6’s, we believe Aerostar
has an edge in gaining this business.
For tethered aerostats, we will continue cultivating relation-
ships with defense contractors that should lead to future
orders. Our current-year goal for high-altitude balloons
and airships is to ensure their key flights go smoothly.
Should this happen, we believe demand for these products
could accelerate quickly over the next few years, provid-
ing a significant driver for Aerostar’s revenue and profit
growth for years to come. n
58585_Narrative.indd 15
3/27/09 6:16:48 PM
RAVEN 2009 ANNUAL REPORT 15
For the years ended January 31
2008
2007
ELEVEN-YEAR FINANCIAL SUMMARY
2009
Dollars in thousands except per-share data
OPERATIONS FOR THE YEAR
Net sales
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913
Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
279,913
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,881
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income
46,394
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
46,394
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,901
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,770
Net income as % of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.0%
26.0%
Net income as % of beginning equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,884(b)
FINANCIAL POSITION
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,073
23,322
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,751
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.21
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,880
144,415
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,556
Long-term debt / total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory turnover (CGS / year-end inventory) . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS PROVIDED BY (USED IN)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,037
(7,000)
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36,969)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
(5,005)
COMMON STOCK DATA
Net income per share–basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.71
1.70
Net income per share–diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.77(b)
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.30
Stock price range during year
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47.82
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.60
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.81
18,027
Shares and stock units outstanding, year-end (in thousands) . . . . . . . . . . . . . . . .
8,268
Number of shareholders, year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER DATA
12.83
Price / earnings ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,070
Sales per employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 262
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,361
0.0%
5.9
$233,957
—
233,957
59,148
41,145
—
41,145
42,224
$ 27,802
$217,529
—
217,529
54,882
38,302
—
38,302
38,835
$ 25,441
11 .9%
28 .3%
11 .7%
30 .1%
$ 7,966
$ 6,507
$100,869
22,108
$ 78,761
4 .56
$ 35,743
147,861
—
$118,275
$ 73,219
16,464
$ 56,755
4 .45
$ 36,264
119,764
—
$ 98,268
0 .0%
4 .8
0 .0%
5 .8
$ 27,151
(4,433)
(8,270)
14,489
$ 1 .54
1 .53
0 .44
6 .52
$ 45 .85
26 .20
$ 30 .02
18,130
8,700
19 .6
930
$ 252
$ 66,628
$ 26,313
(18,664)
(10,277)
(2,626)
$ 1 .41
1 .39
0 .36
5 .45
$ 42 .70
25 .46
$ 28 .43
18,044
8,992
20 .5
884
$ 246
$ 44,237
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.
16 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 16
3/27/09 6:29:31 PM
2006
2005
2004
2003
2002
2001
2000
1999
$204,528
—
204,528
53,231
37,284
—
37,284
37,494
$ 24,262
11 .9%
36 .7%
$ 5,056
$ 71,345
20,050
$ 51,295
3 .56
$ 25,602
106,157
9
$ 84,389
$168,086
—
168,086
43,200
27,862
—
27,862
27,955
$ 17,891
$142,727
—
142,727
33,759
21,981
(355)
21,626
21,716
$ 13,836
$119,589
1,314
120,903
27,515
16,861
204
17,065
17,254
$ 11,185
$112,018
6,497
118,515
23,851
13,788
(613)
13,175
13,565
$ 8,847
10 .6%
26 .9%
$ 15,298(c)
9 .7%
23 .8%
9 .3%
21 .5%
7 .5%
18 .4%
$ 3,075
$ 2,563
$ 2,371
$ 61,592
20,950
$ 40,642
2 .94
$ 19,964
88,509
—
$ 66,082
$ 55,710
11,895
$ 43,815
4 .68
$ 15,950
79,508
57
$ 66,471
$ 49,351
13,167
$ 36,184
3 .75
$ 16,455
72,816
151
$ 58,236
$ 45,308
13,810
$ 31,498
3 .28
$ 14,059
67,836
280
$ 52,032
$113,360
19,498
132,858
21,123
7,417(d)
3,331(e)
10,748
10,924
$ 6,411(d)(e)
4 .8%
11 .8%
$ 2,399
$ 51,817
13,935
$ 37,882
3 .72
$ 11,647
65,656
2,013
$ 47,989
$107,862
42,523
150,385
24,217
7,971
2,606(f)
10,577
10,503
$ 6,762(f)
4 .5%
10 .9%
$ 2,895
$ 55,371
14,702
$ 40,669
3 .77
$ 15,068
74,047
3,024
$ 54,519
$108,408
46,798
155,206
24,441
8,220
1,453
9,673
9,649
$ 6,182
4 .0%
10 .0%
$ 2,944
$ 60,279
15,128
$ 45,151
3 .98
$ 19,563
83,657
4,572
$ 62,293
0 .0%
5 .4
0 .0%
5 .4
0 .1%
6 .5
0 .3%
4 .4
0 .5%
5 .0
4 .0%
5 .9
5 .3%
5 .2
6 .8%
4 .9
$ 21,189
(11,435)
(6,946)
2,790
$ 1 .34
1 .32
0 .28
4 .67
$ 33 .15
16 .54
$ 31 .60
18,072
9,263
23 .9
845
$ 242
$ 43,619
$ 18,871
(7,631)
(19,063)
(7,823)
$ 0 .99
0 .97
0 .85(c)
3 .67
$ 26 .94
13 .08
$ 18 .38
17,999
6,269
18 .9
835
$ 201
$ 43,646
$ 19,732
(4,352)
(6,155)
9,225
$ 12,735
(9,166)
(5,830)
(2,261)
$ 18,496
(13,152)
(8,539)
(3,195)
$ 9,441
9,752
(14,227)
4,966
$ 10,375
6,323
(16,326)
372
$ 0 .77
0 .75
0 .17
3 .68
$ 15 .23
7 .56
$ 14 .11
18,041
3,560
18 .8
787
$ 181
$ 47,120
$ 0 .61
0 .60
0 .14
3 .21
$ 9 .20
4 .38
$ 7 .91
18,133
2,781
13 .2
784
$ 154
$ 42,826
$ 0 .48
0 .47
0 .13
2 .82
$ 5 .88
3 .02
$ 5 .64
18,424
2,387
12 .1
858
$ 138
$ 33,834
$ 0 .31
0 .31
0 .12
2 .53
$ 3 .48
1 .88
$ 3 .04
18,956
2,460
9 .8
1,082
$ 123
$ 38,239
$ 0 .26
0 .26
0 .11
2 .32
$ 3 .04
2 .25
$ 2 .40
23,496
2,749
9 .2
1,369
$ 110
$ 44,935
$ 8,326
(3,127)
(2,714)
2,485
$ 0 .22
0 .22
0 .10
2 .21
$ 3 .79
2 .54
$ 2 .67
28,164
3,014
12 .4
1,507
$ 103
$ 47,431
(b) Includes a special dividend of $1.25 per share that was paid in fiscal 2009.
(c) Includes a special dividend of $.625 per share that was paid in fiscal 2005.
(d) Includes $2.6 million of business repositioning charges, net of gains on plant sales, primarily in Electronic Systems and Aerostar.
(e) Includes the $3.1 million pretax gain ($1.4 million net of tax) on the sale of the company’s Plastic Tank Division.
(f) Includes the $1.2 million pretax gain ($764,000 net of tax) on the sale of assets of the company’s Glasstite subsidiary.
RAVEN 2009 ANNUAL REPORT 17
58585_Financials.indd 17
3/27/09 6:29:31 PM
BUSINESS SEGMENTS
For the years ended January 31
2004
2005
2006
2007
2008
2009
4,492
17,382
1,201
880
8,916
20,191
1,612
871
19,907
33,512
7,359
2,436
17,739
43,688
4,012
4,046
10,850
25,175
1,357
1,086
15,739
25,181
3,960
1,403
10,365
25,865
1,077
1,237
23,440
41,988
13,266
2,887
13,586
30,047
938
1,085
10,111
27,629
577
1,142
19,102
36,938
1,008
1,125
10,516(b)
23,701
1,372
876
Dollars in thousands
APPLIED TECHNOLOGY DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,098 $ 64,291 $ 45,515 $ 47,506 $ 40,726 $ 35,059
8,254
33,884
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,304
48,881
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
341
2,674
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
1,004
1,383
ENGINEERED FILMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,858 $ 85,316 $ 91,082 $ 82,794 $ 58,657 $ 42,636
10,563
10,919
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,941
35,862
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
712
3,120
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
1,611
4,303
ELECTRONIC SYSTEMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,983 $ 67,987 $ 66,278 $ 56,219 $ 47,049 $ 44,307
5,797
5,926
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,975
26,847
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
841
1,399
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
850
1,159
AEROSTAR
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,186 $ 17,290 $ 14,654 $ 18,009 $ 21,654 $ 20,725
4,219
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,744
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
383
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
444
INTERSEGMENT ELIMINATIONS
Sales
Engineered Films Division . . . . . . . . . . . . . . . . . . . . $ (210) $ (533) $ — $ — $ — $ —
—
(1,977)
Electronic Systems Division . . . . . . . . . . . . . . . . . . .
—
(25)
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(52)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(152)
REPORTABLE SEGMENTS TOTAL
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913 $233,957 $217,529 $204,528 $168,086 $142,727
54,896
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120,182
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,576
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
7,289
CORPORATE & OTHER
Operating (loss) from administrative expenses . . . . . . $ (8,502) $ (7,467) $ (6,806) $ (7,258) $ (6,494) $ (6,080)
Assets(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,532
24,233
306
425
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
244
469
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
TOTAL COMPANY
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913 $233,957 $217,529 $204,528 $168,086 $142,727
46,394
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144,415
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,001
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
7,758
Depreciation & amortization . . . . . . . . . . . . . . . . . . . .
34,356(b)
73,756
7,075
3,548
27,862(b)
88,509
7,541
3,841
38,302
119,764
16,522
5,885
37,284
106,157
10,358
5,151
41,145
147,861
6,635
7,344
45,108
102,953
16,012
5,490
48,612
116,332
6,253
6,907
44,542
90,587
10,088
4,751
1,506
9,941
156
499
3,609
7,492
542
389
2,133
6,837
179
359
707
8,161
812
375
(378)
(16)
(100)
(100)
14,753
466
293
31,529
382
437
16,811
510
395
15,570
270
400
—
—
—
—
—
—
—
—
—
—
—
—
27,706(c)
57,976
3,024
3,901
21,626(c)
79,508
3,330
4,145
3,092(c)
7,756
1,130
436
(a) Assets are principally cash, investments, deferred taxes and other receivables.
(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.
18 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 18
3/27/09 6:29:31 PM
FINANCIAL REVIEW AND ANALYSIS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance overall
financial disclosure by providing management’s analysis of the key drivers of year-over-year changes in key financial statement
elements, business segment results, and the impact of accounting principles on the company’s financial statements.
This discussion should be read in conjunction with the company’s January 31, 2009 financial statements and the accompanying notes.
The MD&A is organized as follows:
●
●
●
●
●
●
●
Executive Summary
Results of Operations—Segment Analysis
Outlook
Liquidity and Capital Resources
Off-balance Sheet Arrangements and Contractual Obligations
Critical Accounting Estimates
New Accounting Standards
EXECUTIVE SUMMARY
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural,
construction and military/aerospace markets, primarily in North America. The company operates in four business segments: Applied
Technology (formerly Flow Controls), Engineered Films, Electronic Systems and Aerostar.
Management uses a number of metrics to assess the company’s performance:
●
●
●
●
Segment net sales, gross margin, and operating income
Consolidated net sales, gross margin, operating income, net income, and earnings per share
Capital expenditures
Return on sales, assets, and equity
The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in the
Results of Operations—Segment Analysis section.
2009
%
change
2008
%
change
2007
Financial highlights for fiscal years ended January 31,
Dollars in thousands except per-share data
Results of Operations
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$279,913
24.3%
$ 46,394
$ 30,770
$ 1.70
20%
13%
11%
11%
Free Cash Flow and Payments to Shareholders
Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash returned to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,037
(8,001)
$ 31,036
$ 31,884
5,180
$ 37,064
Performance Measures
Return on net sales (net income / net sales) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets (net income / average assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on beginning equity (net income / beginning equity) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.0%
21.1%
26.0%
$233,957
8%
$217,529
25 .3%
$ 41,145
$ 27,802
$ 1 .53
7%
9%
10%
$ 27,151
(6,635)
$ 20,516
$ 7,966
592
$ 8,558
11 .9%
20 .8%
28 .3%
25 .2%
$ 38,302
$ 25,441
$ 1 .39
$ 26,313
(16,522)
$ 9,791
$ 6,507
4,201
$ 10,708
11 .7%
22 .5%
30 .1%
RAVEN 2009 ANNUAL REPORT 19
58585_Financials.indd 19
3/27/09 6:29:31 PM
FINANCIAL REVIEW AND ANALYSIS (continued)
Results of Operations
The company posted record sales, operating income, net income, diluted earnings per share, and operating cash flow for fiscal 2009.
The results were fueled by a strong agricultural market and new product introductions in the Applied Technology segment and, to a
lesser extent, shipments under government contracts at Aerostar. The 20% increase in net sales is the result of year-over-year sales
growth in Applied Technology (60%), Aerostar (57%), and Engineered Films (5%). The 13% rise in operating income is primarily the
result of sales growth and positive operating leverage generated by Applied Technology. The increase in operating income fell short of
the growth in sales as a result of negative operating leverage at Electronic Systems as sales volume slipped in the latest year due to the
loss of a customer and the weak economy. In addition, Engineered Films margins contracted as competitive pricing pressures created
by the slowdown in construction activity prevented the pass-through of increased plastic resin costs.
After three very strong quarters in fiscal 2009, the fourth quarter was significantly affected by the weakening economy and related
declines in commodity prices. Fourth quarter sales of $59.9 million were up 3%, and net income was 22% lower than the fourth
quarter of fiscal 2008. The collapse of construction and oil and gas drilling markets at Engineered Films pushed that segment into an
operating loss. Weaker agricultural commodity prices reduced the growth rate in Applied Technology.
Fiscal 2008 consolidated net sales increased 8% to $234.0 million from $217.5 million in fiscal 2007. The agricultural market was
improving during the year, and the resulting 41% increase in Applied Technology sales boosted profitability. Shipments of U.S. Army
parachutes helped Aerostar’s turnaround from a relatively weak fiscal 2007 performance. A very strong fiscal 2007 at Engineered
Films resulted from disaster film shipments that did not repeat in fiscal 2008. The company reported year-over-year improvements in
operating income, net income, diluted earnings per share, and operating cash flow.
Free Cash Flow and Payments to Shareholders
The company continues to generate strong free cash flow as a result of solid earnings, excellent cash flow from operations, and modest
capital expenditures. During fiscal 2009, $37.1 million was returned to shareholders through stock repurchases, quarterly dividends
and a special dividend of $22.5 million paid in November 2008.
Performance Measures
The company continues to generate solid returns on net sales, average assets and beginning equity, which are important gauges of
Raven’s ability to efficiently produce profits. The return on sales dropped from 11.9% in fiscal 2008 to 11.0% in fiscal 2009, primarily
as a result of pricing pressures at Engineered Films.
RESULTS OF OPERATIONS—SEGMENT ANALYSIS
Applied Technology
Applied Technology provides electronic and Global Positioning System (GPS) products designed to reduce operating costs and
improve yields for the agriculture market.
Financial highlights for fiscal years ended January 31,
Dollars in thousands
Applied Technology
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$103,098
40.2%
$ 33,884
%
change
60%
77%
2008
$64,291
37 .9%
$19,102
%
change
41%
89%
2007
$45,515
32 .1%
$10,111
APPLIED TECHNOLOGY
Net Sales
(dollars in millions)
$103.1
Operating
Income
(dollars in millions)
$33.9
Fiscal 2009 net sales of $103.1 million increased $38.8 million (60%) and operating income of
$33.9 million increased $14.8 million (77%) over fiscal 2008.
Fiscal 2009 fourth quarter net sales of $19.6 million increased $3.0 million (18%) and operating
income of $5.3 million increased $752,000 (17%) over fourth quarter fiscal 2008 levels.
$64.3
$45.5
$19.1
$10.1
2007 2008 2009
2007 2008 2009
20 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 20
3/27/09 6:29:32 PM
Several factors contributed to the strong fourth quarter and fiscal 2009 results:
●
Healthy global farm fundamentals.
highs; however, agricultural market fundamentals remained strong and continued to influence growers’ capital investment
decisions, increasing demand for Applied Technology precision agriculture equipment.
Commodity prices were strong through the first nine months of the year but fell from their
●
Investments in select global markets.
fiscal 2008—during a period of 60% overall sales growth.
International sales increased to 17% of segment sales in fiscal 2009 compared with 16% in
●
Increased acceptance of precision agriculture.
(standard, precision, steering, and Autoboom™) reflecting strong customer demand for flagship sprayer products as well
as newer products such as the Cruizer™, a simple and affordable guidance system targeted at new entrants to the precision
agriculture market.
Double-digit year-over-year sales growth was achieved for all product categories
●
Positive operating leverage.
Gross margins of 40.2% in fiscal 2009 compared favorably to fiscal 2008 gross margins of 37.9%.
Fiscal 2009 selling expense was $7.5 million, or 7.3% of net sales, compared with fiscal 2008 selling expense of $5.3 million,
or 8.2% of net sales. These improvements reflect positive operating leverage generated through increased sales volume.
Fiscal 2008 net sales of $64.3 million increased $18.8 million (41%) and operating income of $19.1 million rose $9.0 million (89%)
over fiscal 2007.
Fiscal 2008 results were primarily attributable to the following:
●
Healthy global farm fundamentals.
and other feed grains.
Worldwide agricultural conditions were strong as a result of record prices for corn, soybeans
●
Investments in select global markets.
marketing expenditures in select global markets.
Fiscal 2008 international sales increased 43% from fiscal 2007 as a result of sales and
●
Increased acceptance of precision agriculture.
by strong demand for anhydrous ammonia control systems.
Standard sprayer control system deliveries were solid throughout the period, led
●
Positive operating leverage.
Fiscal 2008 selling expenses were $5.3 million or 8.2% of net sales compared with fiscal 2007 selling expenses of $4.5 million
or 9.9% of net sales. These improvements reflect positive operating leverage generated through increased sales volume.
Gross margins of 37.9% in fiscal 2008 compared favorably to fiscal 2007 gross margins of 32.1%.
Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial, construction, geomembrane and agricultural applications.
Financial highlights for fiscal years ended January 31,
Dollars in thousands
Engineered Films
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
2009
$89,858
16.1%
%
change
2008
%
change
2007
5%
$85,316
(6%)
$91,082
24 .8%
29 .4%
$10,919
(38%)
$17,739
(24%)
$23,440
ENGINEERED FILMS
Net Sales
(dollars in millions)
$91.1
$89.9
$85.3
Operating
Income
(dollars in millions)
$23.4
Fiscal 2009 net sales of $89.9 million increased $4.5 million (5%) while operating income of
$10.9 million decreased $6.8 million (38%) versus fiscal 2008.
$17.7
$10.9
2007 2008 2009
2007 2008 2009
RAVEN 2009 ANNUAL REPORT 21
FINANCIAL REVIEW AND ANALYSIS (continued)
Fiscal 2009 results were primarily due to the following:
●
Sales increased as a result of higher volume coupled with a modest increase in selling prices. Strong sales of
Sales volume.
pit and pond lining films to the oil and gas market and higher agriculture sales were partially offset by a decline in sales to the
manufactured housing market.
●
Depressed margins reflected volatile material costs, increased price competition, and poor economic
Margin contraction.
conditions. Competitive pricing pressures, especially in the construction market, hindered the ability to pass on higher resin
costs. This meant production costs outpaced increases in selling prices. Gross margins decreased from 24.8% in fiscal 2008 to
16.1% in fiscal 2009.
●
Selling expenses.
Fiscal 2009 selling expenses of $3.5 million were relatively flat year-over-year.
Fiscal 2009 fourth quarter net sales of $14.5 million decreased $5.7 million (28%) from the fourth quarter of fiscal 2008. In addition,
the segment posted a fourth quarter fiscal 2009 operating loss of $178,000 compared with operating income of $3.4 million in the
fourth quarter of fiscal 2008.
Fiscal 2009 fourth quarter results were affected by the following;
●
Dysfunctional credit markets and plunging asset values resulted in weak economic activity in the fourth
Global recession.
quarter of fiscal 2009. As a result of the reduction in economic activity, energy prices plunged, leading to the decline in the oil
and gas exploration market. Similarly, as the flow of credit slowed and economic uncertainty rose, the commercial construction
markets suffered. Consequently, the two largest markets for Engineered Films were both depressed in the quarter.
●
Sales volume.
levels due to the factors mentioned above.
Fourth quarter 2009 sales to the energy and construction markets fell nearly 30% below fourth quarter fiscal 2008
●
Margin contraction.
materials purchased prior to the precipitous drop in commodity prices.
Lower sales volume resulted in negative operating leverage, and margins were depressed by high-cost raw
Fiscal 2008 net sales of $85.3 million decreased $5.8 million (6%) and operating income of $17.7 million was down $5.7 million
(24%) from fiscal 2007.
Fiscal 2008 results were driven by the following:
●
Strong sales of pit and pond lining films to the oil and gas market were led by increased drilling activity,
Sales volume.
reflecting high oil and gas prices. Increased shipments of vapor retarders resulted from higher market share and industry growth.
These increases were offset by a $9.9 million decrease in disaster film shipments due to a benign hurricane season. Sales
declined to the manufactured housing market due to the economic challenges faced by that industry.
●
Margin contraction.
pricing pressures prevented the pass-through of increased resin costs in the form of higher selling prices.
Selling prices decreased approximately 3% from fiscal 2007 despite higher raw material costs. Competitive
●
Overhead.
and second quarters of fiscal 2008 negatively affected fiscal 2008 gross margins compared with one year earlier.
Increased depreciation and start-up costs associated with new extruders that were placed into service during the first
●
Selling expenses.
costs offset by increased product development expense.
Fiscal 2008 selling expenses of $3.4 million were unchanged from fiscal 2007, reflecting lower personnel
22 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 22
3/27/09 6:29:32 PM
Electronic Systems
Electronic Systems is a total-solutions provider of electronics manufacturing services, primarily to
North American original equipment manufacturers.
Financial highlights for fiscal years ended January 31,
Dollars in thousands
Electronic Systems
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
2009
%
change
2008
%
change
$61,983
(9%)
$67,987
3%
11.3%
16 .9%
2007
$66,278
18 .0%
ELECTRONIC SYSTEMS
Net Sales
(dollars in millions)
$66.3 $68.0
$62.0
Operating
Income
(dollars in millions)
$10.9
$10.4
$ 5,926
(43%)
$10,365
(4%)
$10,850
$5.9
Fiscal 2009 net sales of $62.0 million decreased $6.0 million (9%) and operating income of
$5.9 million declined $4.4 million (43%) from fiscal 2008.
Fiscal 2009 fourth quarter net sales of $16.1 million were off $450,000 (3%) and operating income
of $2.2 million increased $299,000 (15%) from fourth quarter fiscal 2008.
The fiscal 2009 fourth quarter and full-year comparative results reflected the following:
2007 2008 2009
2007 2008 2009
●
Hand-held bed control shipments have been negatively affected by lower consumer spending
Slower consumer spending.
on non-essential home-related products, indicating the influence of financial uncertainty on consumer sentiment and a soft
construction market.
●
Loss of a customer.
non-repeat close-out order.
Prior year results included $7 million of sales to a former customer (which was acquired) and a profitable
●
Increased sales of aviation electronics.
earlier.
Strong sales of avionics partially offset the negative impact of the factors mentioned
●
Negative operating leverage.
favorable product mix. Third and fourth quarter operating expenses were reduced by consolidating manufacturing space, which
led to improved gross margins in the second half of the year.
Gross margins suffered as a result of negative operating leverage on lower sales and a less
●
Selling expenses.
Selling expenses of $1.1 million (1.7% of sales) were consistent with the prior year.
Fiscal 2008 net sales of $68.0 million increased $1.7 million (3%) and operating income of $10.4 million decreased $485,000 (4%)
versus fiscal 2007.
Fiscal 2008 comparative results were primarily due to the following:
●
Slower consumer spending.
home-related products.
Hand-held bed control shipments decreased as a result of lower consumer spending on non-essential
●
Increased sales of aviation electronics.
spending.
Strong sales of avionics partially offset the negative impact of slower consumer
●
Product mix.
Gross profit margins were negatively affected by a less favorable product mix.
●
Selling expense.
Selling expenses of $1.2 million (1.7% of sales) were consistent with the prior year.
58585_Financials.indd 23
3/27/09 6:29:33 PM
RAVEN 2009 ANNUAL REPORT 23
FINANCIAL REVIEW AND ANALYSIS (continued)
Aerostar
Aerostar manufactures military parachutes, protective wear, custom-shaped inflatable products, and high-altitude aerostats for
government and commercial research.
Financial highlights for fiscal years ended January 31,
Dollars in thousands
Aerostar
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
2009
%
change
2008
%
change
$27,186
57%
$17,290
18%
18.7%
12 .8%
$ 4,219
180%
$ 1,506
113%
2007
$14,654
10 .4%
$ 707
AEROSTAR
Net Sales
(dollars in millions)
$27.2
Operating
Income
(dollars in millions)
$4.2
Fiscal 2009 net sales of $27.2 million increased $9.9 million (57%) and operating income of
$4.2 million rose $2.7 million (180%) over fiscal 2008.
Fourth quarter fiscal 2009 net sales of $10.2 million and operating income of $1.8 million
compared favorably with fourth quarter fiscal 2008 net sales of $5.6 million and operating income
of $689,000.
$17.3
$14.7
$1.5
$0.7
Fiscal 2009 fourth quarter and full-year comparative results were primarily attributable to
the following:
2007 2008 2009
2007 2008 2009
●
Shipments of protective wear and MC-6 parachutes increased year-over-year. Deliveries under the
Government contracts.
$20.7 million MC-6 Army parachute and $6.5 million protective wear contract began in the fourth quarter of fiscal 2008.
Fourth quarter 2009 parachute sales included nearly $3 million of deliveries that were delayed from the prior quarter.
●
Positive operating leverage.
2008, bolstered by increased MC-6 Army parachute and protective wear shipments.
Gross margins of 18.7% in fiscal 2009 compared favorably with gross margins of 12.8% in fiscal
●
Selling expenses.
2008, reflecting the benefits of a higher sales volume.
Fiscal 2009 selling expenses of $860,000 were 3.2% of net sales compared with 4.1% of net sales in fiscal
Fiscal 2008 net sales of $17.3 million increased $2.6 million (18%) and fiscal 2008 operating income grew $799,000 (113%) over
fiscal 2007.
Fiscal 2008 comparative results were primarily attributable to the following:
●
Government contracts.
Regular shipments of protective wear and MC-6 parachutes began in the fourth quarter of fiscal 2008.
●
Positive operating leverage.
2007. This reflected increased MC-6 Army parachute and protective wear shipments and higher research balloon profits.
Gross margins of 12.8% in fiscal 2008 compared favorably with gross margins of 10.4% in fiscal
●
Selling expenses.
of net sales in fiscal 2007, showing the benefits of increased sales volume.
Fiscal 2008 selling expenses were 4.1% of net sales compared with 5.6%
Corporate Expenses (administrative expenses, income taxes, and interest income and other, net)
NET OPERATING MARGIN
(percent)
18.2%
17.6%17.6%
16.6%
16.6%
Dollars in thousands
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses as a % of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$8,502
3.0%
$ 507
34.4%
2008
$7,467
3 .2%
$1,079
34 .2%
2007
$6,806
3 .1%
$ 533
34 .5%
15.2%
Administrative expenses increased 14% in fiscal 2009 compared with fiscal 2008, as a result of
higher compensation and professional service expense. Administrative expenses rose 10% in fiscal
2008 compared with fiscal 2007, and were primarily driven by higher compensation expense.
24 RAVEN 2009 ANNUAL REPORT
2004 2005 2006 2007 2008 2009
58585_Financials.indd 24
3/27/09 6:29:34 PM
Fiscal 2009 “interest income and other, net” declined 53% from fiscal 2008, primarily as a result of lower interest income due to a
decrease in interest rates. Fiscal 2008 “interest income and other, net” increased over 2007 as a result of higher average cash, cash
equivalent, and short-term investment balances.
The effective tax rate for fiscal 2009 was 34.4%, versus 34.2% for fiscal 2008 and 34.5% for fiscal 2007. The fiscal 2009 and 2008
tax rates were favorably affected by an increase in the U.S. federal tax deduction from income attributable to manufacturing activities,
partially offset by higher state and local taxes.
OUTLOOK
Management anticipates a challenging and uncertain year in fiscal 2010. Sales and earnings are expected to fall short of the record
levels achieved in fiscal 2009.
The company’s outlook includes a continued downturn for the economy in fiscal 2010, and it factors in a long and slow recovery.
Management intends to focus on optimizing performance regardless of the economic situation, and being ready to take advantage
of opportunities as they present themselves. For the near term, this means growing the business at previous target rates is no longer
the imperative.
To preserve the resources that could be depleted by a recession, management plans to implement a new three-part strategy. First:
protect the core. This means getting rid of everything that is non-core (from assets to product lines), defending core assets (such as
businesses that have performed well in the past but will struggle in a recession), protecting core values and beliefs, and continuing to
pay dividends to shareholders. Second: generate and preserve cash. This includes controlling the balance sheet and improving working
capital turnover through tactics such as increasing inventory turns and cutting expenses. Third: continue to invest in quality initiatives
when it comes to customers, suppliers, products and R&D.
Applied Technology
Applied Technology will seek to capitalize on previous investments in product development and domestic and international expansion.
It plans to accomplish this by leveraging its position as a total precision solutions provider (GPS steering devices, planting and
spraying controls and data collection) and by capitalizing on increased acceptance of precision agriculture as an essential means of
softening the impact of volatile input costs.
Engineered Films
Engineered Films was severely affected by the freefall in fiscal 2009 fourth quarter business activity, reflecting the global recession,
plunging oil prices and a drop in construction activity. This business depends on increased penetration of existing markets and
the introduction of innovative products. The segment continues to market new products such as FeedFresh™ sileage covers and
VaporBlock Plus™ radon barriers. Ultimately, Engineered Films is dependent on the reversal of the severe economic contraction,
particularly in the oil and gas drilling and construction markets.
Electronic Systems
Sales of printed circuit board assemblies for the aviation industry and secure communication devices for government agencies are
expected to be more recession-resistant than consumer bed control sales.
Aerostar
Continued shipments under the MC-6 Army parachute contract, and sales of high-altitude airships and aerostats are expected to be
relatively secure from the current recession.
58585_Financials.indd 25
3/27/09 6:29:34 PM
RAVEN 2009 ANNUAL REPORT 25
FINANCIAL REVIEW AND ANALYSIS (continued)
LIQUIDITY AND CAPITAL RESOURCES
Cash Position
Cash, cash equivalents, and short-term investments totaled $16.3 million at January 31, 2009, a $6.5 million decrease from
$22.8 million on the same date in 2008. Management expects that current cash, combined with continued positive operating cash
flows and the company’s short-term line of credit, will be sufficient to fund day-to-day operations. Raven’s uncollateralized credit
agreement provides an $8.0 million line of credit. The credit line is expected to be renewed during fiscal 2010, as the maturity date
on the current line of credit is July 1, 2009. Management anticipates that its capital spending in fiscal 2010 will not exceed $6 million.
The company’s cash needs are seasonal, with working capital demands strongest in the first quarter.
Operating Activities
Fiscal 2009 cash provided by operating activities was $39.0 million, an increase of $11.9 million from $27.2 million in fiscal 2008.
The improvement in fiscal 2009 operating cash flows versus one year earlier was due primarily to company earnings, improved
inventory levels and a higher accounts payable balance. Inventory declined to $36.0 million in fiscal 2009 from $36.5 million in
fiscal 2008. Lower Engineered Films inventories were partially offset by higher levels at Applied Technology. Accounts payable at
January 31, 2009, of $9.4 million was up 13% from one year ago, reflecting more favorable payment terms. Partially offsetting these
cash flow improvements was cash consumed to finance higher accounts receivable. Accounts receivable rose from $36.5 million in
fiscal 2008 to $40.3 million at January 31, 2009, with Applied Technology sales growth and seasonal payment terms offered to the
agricultural market accounting for the majority of the increase. Fiscal 2009 bad debt expense of $629,000 was up $538,000 from the
prior year. This reflected specific customer receivable writeoffs, as well as additional reserves for increased international exposure.
Fiscal 2008 cash provided by operating activities was $27.2 million, an $838,000 increase compared with operating cash inflows in
fiscal 2007. The fiscal 2008 improvement 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. As of January 31, 2008, accounts
receivable and inventory balances increased by $5.2 million and $8.5 million, respectively, in support of Applied Technology growth.
Investing Activities
Cash used in investing activities was $7.0 million in fiscal 2009, $4.4 million in fiscal 2008, and
$18.7 million in 2007. The change between fiscal 2009 and 2008 was primarily due to higher
capital expenditures to support the increased manufacturing requirements of Applied Technology.
The change between fiscal 2008 and 2007 was mostly due to a fluctuation in capital investment.
Fiscal 2008 capital expenditures of $6.6 million decreased from the prior year’s $16.5 million,
when $13.3 million was invested in Engineered Films manufacturing capacity and facilities. As
part of the company’s strategy to preserve cash, capital expenditures are expected to be less than
$6 million in fiscal 2010, and that will be closely monitored.
CASH FLOWS FROM
OPERATIONS
(dollars in millions)
$39.0
$26.3 $27.2
$21.2
$19.7 $18.9
2004 2005 2006 2007 2008 2009
26 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 26
3/27/09 6:29:34 PM
Financing Activities
Cash consumed by financing activities was $37.0 million in fiscal 2009, $8.3 million in fiscal 2008, and $10.3 million in fiscal 2007.
The change between fiscal 2009 and 2008 was the result of an increase in dividends and stock repurchases. The fiscal 2009 quarterly
dividend of 13 cents per share increased from 11 cents per share one year earlier. In addition to the quarterly dividend, a special
dividend of $1.25 per share was paid during the fourth quarter of fiscal 2009. The special dividend was in response to the company’s
strong cash position and commitment to return excess cash to shareholders. The change between fiscal 2008 and fiscal 2007 was due
to a reduction in repurchases of the company’s stock, partially offset by an increase in the quarterly dividend. Repurchases of the
company’s common stock totaled $5.2 million (161,100 shares) in fiscal 2009, $592,000 (20,150 shares) in fiscal 2008, and
$4.2 million (146,247 shares) in fiscal 2007. The company has suspended repurchases of common stock, which, along with lower
expected capital investments, is expected to help protect quarterly dividend payments throughout fiscal 2010.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of January 31, 2009, 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 $1.3 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, 2009, and for the next five years is shown below.
Dollars in thousands
Contractual Obligations:
Line of credit(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unconditional purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
—
462
4,840
39,034
—
$44,336
Less than
1 year
1-3
years
3-5
years
$
—
264
203
39,034
—
$39,501
$ —
198
479
—
—
$677
$ —
—
546
—
—
$546
More
than
5 years
$ —
—
3,612
—
—
$3,612
RETURN ON
AVERAGE ASSETS
(percent)
24.9%
21.3%
22.5%
20.8%21.1%
18.2%
(a) $8.0 million line bears interest at 2.25% as of January 31, 2009, and expires July 2009. The line of credit is reduced by outstanding letters of
credit totaling $1.3 million.
(b) The total liability for uncertain tax positions under FIN 48 at January 31, 2009, was $2.9 million. The company is not able to reasonably
estimate the timing of future payments relating to non-current tax benefits.
2004 2005 2006 2007 2008 2009
58585_Financials.indd 27
3/27/09 6:29:35 PM
RAVEN 2009 ANNUAL REPORT 27
FINANCIAL REVIEW AND ANALYSIS (continued)
CRITICAL ACCOU TING
N
ESTIMATES
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 Raven operating unit, 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.
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.
BOOK VALUE PER SHARE
(dollars)
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.
$5.45
$4.67
$3.68 $3.67
$6.52
$6.30
Revenue Recognition
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
2004 2005 2006 2007 2008 2009
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.
28 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 28
3/27/09 6:29:35 PM
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.
NEW ACCOUNTING STANDARDS
At the beginning of fiscal 2009, the company adopted 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 are separately disclosed by level
within the fair value hierarchy. The adoption of SFAS No. 157 did not have a material impact on the company’s consolidated results of
operations, financial condition or cash flows.
At the beginning of fiscal 2009, the company adopted 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.
The adoption of SFAS No. 159 did not have a material impact on the company’s consolidated results of operations, financial condition
or cash flows.
At the beginning of fiscal 2009, the company adopted SFAS No. 141(R), Business Combinations, which changes the accounting
for business acquisitions. 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 affect
income tax expense. SFAS No. 141(R) had no immediate impact upon adoption by the company, but will affect business combinations
closing after February 1, 2009.
In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about (a) how
and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for and (c) how
derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The company
does not anticipate that the adoption of SFAS No. 161 will have a material effect on its consolidated results of operations, financial
condition or cash flows.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the list of
factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized
intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The new guidance applies to (1) intangible assets
that are acquired individually or with a group of other assets, and (2) intangible assets acquired in both business combinations and
asset acquisitions. Under FSP No. FAS 142-3, entities estimating the useful life of a recognized intangible asset must consider
their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider
assumptions that market participants would use about renewal or extension. FSP No. FAS 142-3 is effective as of the beginning of
the company’s 2010 fiscal year. The company does not anticipate that the adoption of FSP No. 142-3 will have a material effect on its
consolidated results of operations or financial condition.
RAVEN 2009 ANNUAL REPORT 29
MONTHLY CLOSING STOCK PRICE AND VOLUME
e
c
i
r
P
50
40
30
20
10
0
Feb08 Mar08 Apr08 May08 Jun08
Jul08 Aug08 Sep08 Oct08 Nov08 Dec08
Jan09
Shares Traded (in thousands)
Closing Stock Price (in dollars)
QUARTERLY INFORMATION (Unaudited)
e
m
u
l
o
V
3000
1500
0
Net
Sales
Gross
Profit
Operating
Income
Dollars in thousands
except per-share data
FISCAL 2009
First Quarter . . . . . $ 75,166 $22,015 $16,641 $16,759 $10,882 $0.60 $0.60 $32.80 $25.94 $0.13
0.13
10,488
Second Quarter . . .
0.13
12,548
Third Quarter . . . . .
1.38(b)
Fourth Quarter . . . .
7,106
Total Year . . . . . . . . $279,913 $67,881 $46,394 $46,901 $30,770 $1.71 $1.70 $47.82 $20.60 $1.77
69,278
75,538
59,931
10,312
12,371
7,070
15,786
18,001
12,079
39.50
47.82
33.24
29.46
25.79
20.60
6,815
8,385
4,688
0.38
0.46
0.26
0.38
0.47
0.26
Net
Income
Pretax
Income
High
Net Income
Per Share(a)
Basic Diluted
Common Stock
Market Price
Low
Cash
Dividends
Per Share
FISCAL 2008
First Quarter . . . . . . . $ 58,103
55,653
Second Quarter . . . .
61,842
Third Quarter . . . . . .
58,359
Fourth Quarter . . . . .
Total Year . . . . . . . . . $233,957
FISCAL 2007
First Quarter . . . . . . . $ 58,465
50,381
Second Quarter . . . .
57,435
Third Quarter . . . . . .
Fourth Quarter . . . . .
51,248
Total Year . . . . . . . . . $217,529
$17,374
13,407
15,299
13,068
$59,148
$12,838
8,543
10,940
8,824
$41,145
$13,025
8,857
11,254
9,088
$42,224
$ 8,540
5,843
7,398
6,021
$27,802
$15,891
12,183
14,480
12,328
$54,882
$11,477
7,872
10,540
8,413
$38,302
$11,615
7,937
10,713
8,570
$38,835
$ 7,502
5,127
6,968
5,844
$25,441
$0 .47
0 .32
0 .41
0 .33
$1 .54
$0 .41
0 .28
0 .39
0 .32
$1 .41
$0 .47
0 .32
0 .41
0 .33
$1 .53
$0 .41
0 .28
0 .38
0 .32
$1 .39
$30 .84
39 .36
45 .85
42 .75
$45 .85
$42 .16
42 .70
32 .64
35 .35
$42 .70
$26 .20
28 .39
33 .42
27 .57
$26 .20
$31 .22
25 .89
25 .89
25 .46
$25 .46
$0 .11
0 .11
0 .11
0 .11
$0 .44
$0 .09
0 .09
0 .09
0 .09
$0 .36
(a) Net income per share is computed discretely by quarter and may not add to the full year.
(b) A special dividend of $1.25 per share was paid during the fourth quarter of fiscal 2009.
30 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 30
3/27/09 6:29:36 PM
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, 2009, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of January 31, 2009, 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
Ronald M. Moquist
President & Chief Executive Officer
Thomas Iacarella
Thomas Iacarella
Vice President & Chief Financial Officer
March 24, 2009
58585_Financials.indd 31
3/27/09 6:29:37 PM
RAVEN 2009 ANNUAL REPORT 31
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except per-share data
ASSETS
Current assets
2009
As of January 31
2008
2007
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,267
—
40,278
35,977
2,542
3,009
98,073
35,880
7,450
3,012
$144,415
$ 21,272
1,500
36,538
36,529
2,075
2,955
100,869
35,743
6,902
4,347
$147,861
$
6,783
4,000
31,336
28,071
1,761
1,268
73,219
36,264
6,604
3,677
$119,764
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,433
13,281
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
608
Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,322
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shares, par value $1 .00 per share
Authorized—100,000,000
Outstanding—2009: 18,012,251; 2008: 18,120,513
2007: 18,039,223
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . $144,415
113,556
7,537
$ 8,374
12,804
930
22,108
$ 6,093
9,579
792
16,464
7,478
5,032
118,275
98,268
$147,861
$119,764
The accompanying notes are an integral part of the consolidated financial statements.
32 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 32
3/27/09 6:29:37 PM
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands, except per-share data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended January 31
2008
$233,957
2009
$279,913
2007
$217,529
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
212,032
174,809
162,647
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,881
59,148
54,882
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . .
21,487
18,003
16,580
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,394
41,145
38,302
Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(507)
(1,079)
(533)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,901
42,224
38,835
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,131
14,422
13,394
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,770
$ 27,802
$ 25,441
Net income per common share:
— Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.71
— Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.70
$ 1 .54
$ 1 .53
$ 1 .41
$ 1 .39
The accompanying notes are an integral part of the consolidated financial statements.
58585_Financials.indd 33
3/27/09 6:29:37 PM
RAVEN 2009 ANNUAL REPORT 33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
Paid-in
Dollars in thousands, except per-share data
capital
Balance January 31, 2006 . . . . . . . . . . . $ 32,194 $ 1,401
$1 Par
common
stock
Accumulated
other
comprehensive
income
(loss)
Retained
earnings
Treasury stock
Shares
Cost
(14,121,186) $ (43,389) $ 94,170 $
Total
13 $ 84,389
Net income . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income . . . . . . .
Adoption of SFAS No .158,
net of $1,015 income tax . . . . . . .
Dividends ($ .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 31, 2007 . . . . . . . . . . .
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 . . . . . . . . . . . . . .
Balance January 31, 2008 . . . . . . . . . . .
—
—
—
—
—
—
—
—
1
—
—
—
—
—
25,441
—
—
(21)
—
—
(146,247)
—
—
(4,201)
—
(6,508)
—
(1,885)
—
—
(28)
141
—
(854)
718
605
—
—
—
—
—
—
—
—
—
—
—
—
25,441
(21)
25,420
(1,885)
(6,507)
(4,201)
(882)
859
605
—
32,307
470
2,341
—
(14,267,433)
—
(47,590)
—
113,103
—
(1,893)
470
98,268
—
—
—
—
—
—
—
—
—
—
4
—
(47)
148
—
(1,462)
1,170
904
—
—
—
—
—
(20,150)
—
—
—
—
—
—
—
—
(592)
—
—
—
27,802
—
27,802
—
—
(716)
(7,970)
—
—
—
—
156
131
—
—
—
—
—
—
156
131
28,089
(716)
(7,966)
(592)
(1,509)
1,318
904
—
32,408
479
3,436
—
(14,287,583)
—
(48,182)
—
132,219
—
(1,606)
479
118,275
—
—
—
—
—
—
Net income . . . . . . . . . . . . . . . . . . . .
Postretirement benefits,
net of $375 income tax . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income . . . . . . .
Dividends ($ .52 per share) . . . . . . . .
Dividends (special–$1 .25 per share) .
Purchase of stock . . . . . . . . . . . . . . .
Stock surrendered upon exercise
of stock options . . . . . . . . . . . . . .
Employees’ stock options exercised .
Share-based compensation . . . . . . . .
Tax benefit from exercise
128
of stock options . . . . . . . . . . . . . .
Balance January 31, 2009 . . . . . . . . . $32,461 $4,531
(34)
83
4
(1,258)
1,176
1,024
—
—
—
7
18
—
—
—
—
—
—
—
—
30,770
—
30,770
—
—
698
(246)
—
—
(161,100)
—
—
(5,180)
(9,381)
(22,528)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
698
(246)
31,222
(9,374)
(22,510)
(5,180)
(1,292)
1,259
1,028
128
(14,448,683) $(53,362) $131,080 $(1,154) $113,556
—
—
—
—
The accompanying notes are an integral part of the consolidated financial statements.
34 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 34
3/27/09 6:29:37 PM
For the years ended January 31
2007
2008
2009
$30,770
$27,802
$25,441
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization 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 . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,345
413
629
216
1,028
(1,346)
(18)
39,037
(8,001)
(2,100)
3,600
(499)
(7,000)
Cash flows from financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit on stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(31,884)
(5,180)
128
(33)
(36,969)
6,944
400
91
(779)
904
(8,187)
(24)
27,151
(6,635)
(3,100)
5,600
(298)
(4,433)
(7,966)
(592)
479
(191)
(8,270)
5,445
440
40
(293)
605
(5,380)
15
26,313
(16,522)
(6,000)
4,000
(142)
(18,664)
(6,507)
(4,201)
470
(39)
(10,277)
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(73)
41
2
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,005)
21,272
$16,267
14,489
6,783
$21,272
(2,626)
9,409
$ 6,783
The accompanying notes are an integral part of the consolidated financial statements.
58585_Financials.indd 35
3/27/09 6:29:37 PM
RAVEN 2009 ANNUAL REPORT 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 subsidiar-
ies (the company or Raven). The company is an industrial
manufacturer providing a variety of products to customers
within the industrial, agricultural, construction and military/
aerospace markets primarily in North America. Raven oper-
ates three divisions (Applied Technology [formerly known as
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
Preparing 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. These affect the reported amounts
of assets and liabilities as of the date of the financial state-
ments 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 the local currency as their 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
foreign currency 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 or fewer months to be cash
equivalents. Cash and cash equivalent balances are principally
concentrated in checking, money market and sweep accounts
with Wells Fargo Bank, Wells Fargo Brokerage Services,
LLC., and Merrill Lynch & Co. (Bank of America).
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The allowance for doubtful accounts
is the company’s best estimate of the amount of probable
credit losses. This is based on historical writeoff experience
by segment and an estimate of the collectibility of any known
problem accounts.
36 RAVEN 2009 ANNUAL REPORT
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
15 - 39 years
Applied Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures, office equipment and other . . . . . . . . . . . . . . . .
3 - 5 years
5 - 12 years
3 - 5 years
3 - 5 years
3 - 7 years
Maintenance and repairs are charged to expense in the year
incurred and renewals and betterments are capitalized. The
cost and related accumulated depreciation of assets sold or
disposed of are removed from the accounts, and the resulting
gain or loss is reflected in operations.
INTANGIBLE ASSETS
Intangible assets, primarily comprised of technologies
acquired through acquisition, are recorded at cost 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
Raven recognizes goodwill as the excess cost of an acquired
entity over the net amount assigned to assets acquired and
liabilities assumed. 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
reporting 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. An impairment loss is recognized
when the carrying 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.
58585_Financials.indd 36
3/27/09 6:29:37 PM
INSURANCE OBLIGATIONS
Raven employs insurance policies to cover workers’ compen-
sation 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 esti-
mate 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 reason-
ably estimated. While the settlement of any claims cannot be
determined at this time, management believes that any liability
resulting from these claims will be substantially covered by
insurance. Accordingly, management does not believe that
the ultimate outcome of these matters will have a significant
impact on its results of operations, financial position or
cash flows.
REVENUE RECOGNITION
Raven recognizes revenue when products are shipped because
there is persuasive evidence of an arrangement, the sales
price is determinable, collectability is reasonably 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
on 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 expense (principally, labor and
material costs) was $5.8 million, $4.4 million and $2.6 million
for fiscal 2009, 2008, and 2007, respectively.
SHARE-BASED COMPENSATION
The company records compensation expense related to its
share-based compensation plans using the fair value method.
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
periods when the temporary differences will affect taxable
income. Deferred tax assets are reduced by a valuation allow-
ance to reflect realizable value, when necessary. Accruals are
maintained for uncertain tax positions.
NEW ACCOUNTING STANDARDS
At the beginning of fiscal 2009, the company adopted 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 are
separately disclosed by level within the fair value hierarchy.
The adoption of SFAS No. 157 did not have a material impact
on the company’s consolidated results of operations, financial
condition or cash flows.
At the beginning of fiscal 2009, the company adopted 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. The adoption of SFAS No. 159 did
not have a material impact on the company’s consolidated
results of operations, financial condition or cash flows.
At the beginning of fiscal 2009, the company adopted SFAS
No. 141(R), Business Combinations, which changes the
accounting for business acquisitions. SFAS No. 141(R)
requires an entity to recognize the assets acquired, liabilities
assumed, contractual contingencies, and contingent consider-
ation at their fair value on the acquisition date. It also requires
acquisition-related costs to be expensed as incurred, restruc-
turing 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 affect income
tax expense. SFAS No. 141(R) had no immediate impact upon
adoption by the company, but will affect business combina-
tions closing after February 1, 2009.
In March 2008, the Financial Accounting Standards Board
(FASB) issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities–an amendment of FASB
Statement No. 133. SFAS No. 161 requires enhanced disclo-
sures about (a) how and why derivative instruments are used,
(b) how derivative instruments and related hedged items are
accounted for and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The company does not
anticipate that the adoption of SFAS No. 161 will have a mate-
rial effect on its consolidated results of operations, financial
condition or cash flows.
In April 2008, the FASB issued FSP No. FAS 142-3,
Determination of the Useful Life of Intangible Assets, which
amends the list of factors an entity should consider in devel-
oping renewal or extension assumptions used in determining
the useful life of recognized intangible assets under SFAS No.
142, Goodwill and Other Intangible Assets. The new guidance
RAVEN 2009 ANNUAL REPORT 37
58585_Financials.indd 37
3/27/09 6:29:37 PM
NOTES TO FINANCIAL STATEMENTS (continued)
Note 3. Supplemental Cash Flow Information
For the years ended January 31
2007
2008
2009
Dollars in thousands
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . $ (4,603) $ (5,216) $ (2,097)
(262)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
(284)
Prepaid expenses and other assets . . . . . . . .
(1,770)
Accounts payable . . . . . . . . . . . . . . . . . . . . .
(1,045)
Accrued and other liabilities . . . . . . . . . . . . .
78
Customer advances . . . . . . . . . . . . . . . . . . .
$ (1,346) $ (8,187) $ (5,380)
(8,403)
218
2,437
2,648
129
447
(35)
963
2,194
(312)
Cash paid during the year for
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $15,072
$14,068
$13,759
Note 4. Goodwill and Other Intangibles
Goodwill
The changes in the carrying amount of goodwill by reporting
segment are shown below:
Applied
Technology
$ 5,408
Dollars in thousands
Balance at January 31, 2006 . . . .
Acquisition earn-outs . . . . . . . . .
Balance at January 31, 2007 . . . .
Acquisition earn-outs . . . . . . . . .
Balance at January 31, 2008 . . . .
Acquisition earn-outs . . . . . . . . .
Balance at January 31, 2009 . . $6,457
Engineered Electronic
Systems
$ 433
—
433
—
433
—
$433
Films
$ 96
203 —
96
298 —
96
548 —
$96
5,611
5,909
Aerostar
$ 464
—
464
—
464
—
$464
Total
$ 6,401
203
6,604
298
6,902
548
$7,450
Intangible Assets
Estimated future amortization expense based on the current
carrying value of amortizable intangible assets for fiscal
periods 2010 through 2014 is $441,000, $414,000, $383,000,
$30,000, and $24,000, respectively.
Note 5. Employee Retirement Benefits
The company has a 401(k) plan covering substantially all
employees and contributed 3% of qualified payroll. Raven’s
contribution expense was $1,158,000, $1,020,000, and
$935,000 for fiscal 2009, 2008 and 2007, 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 operating cash and invest-
ments. Raven 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 (loss).
applies to (1) intangible assets that are acquired individually or
with a group of other assets and (2) intangible assets acquired
in both business combinations and asset acquisitions. Under
FSP No. FAS 142-3, entities estimating the useful life of a
recognized intangible asset must consider their historical expe-
rience in renewing or extending similar arrangements or, in the
absence of historical experience, must consider assumptions
that market participants would use about renewal or exten-
sion. FSP No. FAS 142-3 is effective as of the beginning of the
company’s 2010 fiscal year. The company does not anticipate
that the adoption of FSP No. 142-3 will have a material effect
on its consolidated results of operations or financial condition.
Note 2. Selected Balance Sheet Information
Following are the components of selected balance sheet items:
As of January 31
2008
2007
Dollars in thousands
Accounts receivable, net:
Trade accounts . . . . . . . . . . . . . . . . . . . . . . . $40,891
(613)
Allowance for doubtful accounts . . . . . . . . .
$40,278
2009
Inventories, net:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . $ 6,062
3,258
In process . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,657
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,977
Other current assets:
Insurance policy benefit . . . . . . . . . . . . . . . . $ 2,119
890
Prepaid expenses and other . . . . . . . . . . . . .
$ 3,009
Property, plant and equipment, net:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,227
22,593
Buildings and improvements . . . . . . . . . . . . .
62,504
Machinery and equipment . . . . . . . . . . . . . .
(50,444)
Accumulated depreciation . . . . . . . . . . . . . .
$35,880
Other assets, net:
Amortizable assets:
Purchased technology . . . . . . . . . . . . . . . . $ 2,300
1,314
Other intangibles . . . . . . . . . . . . . . . . . . .
(2,143)
Accumulated amortization . . . . . . . . . . . .
1,471
1,482
59
$ 3,012
Deferred income taxes . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities:
Salaries and benefits . . . . . . . . . . . . . . . . . . $ 1,891
2,581
Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,333
401(k) contributions . . . . . . . . . . . . . . . . . . .
3,615
Insurance obligations . . . . . . . . . . . . . . . . . .
436
Profit sharing . . . . . . . . . . . . . . . . . . . . . . . .
1,004
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,266
Taxes–accrued and withheld . . . . . . . . . . . .
1,155
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,281
Other liabilities:
Postretirement benefits . . . . . . . . . . . . . . . . $ 4,637
2,900
Uncertain tax positions . . . . . . . . . . . . . . . .
$ 7,537
38 RAVEN 2009 ANNUAL REPORT
$36,831
(293)
$36,538
$31,594
(258)
$31,336
$ 4,975
3,631
27,923
$36,529
$ 3,750
2,612
21,709
$28,071
$ 2,549
406
$ 2,955
$ 651
617
$ 1,268
$ 1,227
21,523
57,563
(44,570)
$35,743
$ 1,227
21,494
52,552
(39,009)
$36,264
$ 2,300
1,172
(1,740)
1,732
2,540
75
$ 4,347
$ 3,380
1,305
(2,729)
1,956
1,607
114
$ 3,677
$ 2,109
2,415
1,184
4,010
490
684
1,061
851
$12,804
$ 1,722
2,212
1,109
1,743
553
397
1,227
616
$ 9,579
$ 5,246
2,232
$ 7,478
$ 5,032
—
$ 5,032
58585_Financials.indd 38
3/27/09 6:29:37 PM
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 . 158
Dollars in thousands
Non-current deferred tax assets . . . . . . . . . $ 592
118,749
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
2,132
Other liabilities . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive
Before Adjustment
$ 1,015
1,015
2,900
After
$ 1,607
119,764
5,032
Note 6. Warranties
Changes in the warranty accrual were as follows:
Dollars in thousands
2009
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 684
2,760
Accrual for warranties . . . . . . . . . . . . . . . . . . . . .
Settlements made (in cash or in kind) . . . . . . . . .
(2,440)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . $1,004
As of January 31
2008
$ 397
1,390
(1,103)
$ 684
2007
$ 569
1,317
(1,489)
$ 397
income (loss) . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . .
(8)
100,153
(1,885)
(1,885)
(1,893)
98,268
The accumulated benefit obligation for these benefits is
shown below:
Note 7. 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
Benefit obligation at beginning of year . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in net and other
comprehensive income . . . . . . . . . . . . . . . . . .
Retiree benefits paid . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . .
For the years ended January 31
2008
$5,213
90
307
(2)
2009
$5,447
67
361
(847)
2007
$4,928
84
278
89
(419)
(188)
$4,840
395
(161)
$5,447
(166)
$5,213
Tax at U .S . federal statutory rate . . . . . . . . . . . . . . .
State and local income taxes,
net of U .S . federal benefit . . . . . . . . . . . . . . . . . .
Tax benefit on qualified production activities . . . . . .
Tax credit for research activities . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended
January 31
2008
35 .0%
2009
35.0%
2007
35 .0%
1.5
(2.0)
(0.7)
0.7
34.4%
1 .5
(2 .1)
(0 .7)
0 .5
34 .2%
1 .1
(1 .0)
(0 .5)
(0 .1)
34 .5%
The liability and expense reflected in the balance sheet and
income statement were as follows:
Significant components of the company’s income tax
provision were as follows:
Dollars in thousands
Beginning liability balance . . . . . . . . . . . . . . . . . .
Employer expense . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . .
Total recognized in net and other
comprehensive income . . . . . . . . . . . . . . . . . .
Initial effect of adopting SFAS No . 158 . . . . . . . . .
Retiree benefits paid . . . . . . . . . . . . . . . . . . . . . .
Ending liability balance . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . .
Assumptions used:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wage inflation rate . . . . . . . . . . . . . . . . . . . . . . .
For the years ended January 31
2008
$5,213
635
(240)
2009
$5,447
654
(1,073)
2007
$1,883
596
—
(419)
—
(188)
4,840
(203)
$4,637
395
—
(161)
5,447
(201)
$5,246
2,900
(166)
5,213
(181)
$5,032
7.00%
3.00%
6 .75%
4 .00%
6 .00%
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 2009 was
8.97% compared with 10.38% and 9.64% for fiscal 2008
and 2007. 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 $700,000. The rate to
which the fiscal 2009 health care cost trend rate is assumed to
decline is 5.50%, which is the ultimate trend rate. The fiscal
year that the rate reaches the ultimate trend rate is expected to
be fiscal 2029.
Dollars in thousands
Income taxes:
Currently payable . . . . . . . . . . . . . . . . . . . . . $15,915
216
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,131
$15,201
(779)
$14,422
$13,687
(293)
$13,394
For the years ended January 31
2007
2008
2009
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:
Dollars in thousands
Current deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance obligations . . . . . . . . . . . . . . . . . . . . . .
Warranty obligations . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets (liabilities):
Postretirement benefits . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . .
As of January 31
2008
2009
2007
$ 211
408
840
489
352
242
2,542
$ 105
271
781
456
225
237
2,075
1,623
(1,556)
969
446
1,482
$4,024
1,836
(478)
741
441
2,540
$4,615
$ 91
240
711
357
139
223
1,761
1,758
(405)
—
254
1,607
$3,368
RAVEN 2009 ANNUAL REPORT 39
58585_Financials.indd 39
3/27/09 6:29:37 PM
NOTES TO FINANCIAL STATEMENTS (continued)
Uncertain Tax Positions
Effective February 1, 2007, Raven adopted the provisions
of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48). Upon its adoption, the company
reported a net $716,000 increase in the liability for unrecog-
nized tax benefits, which was recorded as a reduction to
the February 1, 2007 beginning retained earnings balance.
At the adoption date, the company had gross unrecognized
tax benefits of $1.3 million ($1.6 million including interest
and penalties). The following table summarizes the activity
related to the gross unrecognized tax benefits (excluding
interest and penalties):
Dollars in thousands
Gross unrecognized tax benefits at beginning of year . . . .
Increases in tax positions related to the current year . . . . .
Decreases as a result of a lapse in applicable
For the years
ended January 31
2008
2009
$1,793
539
$1,328
465
statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross unrecognized tax benefits at end of year . . . . . . . . .
(63)
$2,269
—
$1,793
During the fiscal year ended January 31, 2009, the only change
to uncertain tax positions related to prior years resulted from
the lapse of a statute of limitations. 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 $1.5 million and
$1.2 million as of January 31, 2009 and January 31, 2008,
respectively.
Raven recognizes interest and penalties accrued related to
unrecognized tax benefits in income tax expense. At January
31, 2009 and January 31, 2008, accrued interest and penalties
were $631,000 and $439,000, respectively.
The company files tax returns, including returns for its
subsidiaries, with various federal, state, and local jurisdic-
tions. Uncertain tax positions are related to tax years that
remain subject to examination. As of January 31, 2009,
federal tax returns filed in the U.S., Canada and Switzerland
for fiscal years ended January 31, 2006 - 2008 remain subject
to examination by federal tax authorities. In state and local
jurisdictions, tax returns for fiscal years ended January 31,
2003 - 2008 remain subject to examination by state and local
tax authorities.
Note 8. Financing Arrangements
Raven has an uncollateralized credit agreement providing a
line of credit of $8.0 million with a maturity date of July 1,
2009, bearing interest at 1.00% under the prime rate. Letters
of credit totaling $1.3 million have been issued under the
line, primarily to support self-insured workers’ compensa-
tion bonding requirements. No borrowings were outstanding
as of January 31, 2009, 2008 or 2007, and $6.7 million was
available at January 31, 2009. There have been no borrowings
under the credit line in the last three fiscal years.
Wells Fargo Bank, N.A. provides Raven’s line of credit and
holds the majority of its 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
$353,000, $268,000, and $351,000 in fiscal 2009, 2008 and
2007, respectively. Future minimum lease payments under
non-cancelable operating leases for fiscal periods 2010 to 2012
are $264,000, $176,000, and $22,000, respectively, with all
leases scheduled to expire during fiscal 2012.
Note 9. Share-based Compensation
At January 31, 2009, Raven had two share-based compensa-
tion plans, which are described below. The compensation
cost for these plans was $1,028,000, $904,000, and $605,000
in fiscal 2009, 2008, and 2007, respectively. The related
income tax benefit recorded in the income statement was
$153,000, $154,000, and $110,000 for fiscal 2009, 2008, and
2007, respectively. Compensation cost capitalized as part of
inventory at January 31, 2009, 2008, and 2007 was $60,000,
$54,000 and $40,000, respectively.
2000 Stock Option and Compensation Plan
The 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 stock awards and incentive or non-qualified options with
terms not to exceed 10 years. Included in the fiscal 2009
compensation cost was $135,000 of expense recognized as
a result of a stock award of 5,500 shares. There are 339,225
shares of the company’s common stock reserved for future
stock awards and stock option grants under the plan at January
31, 2009. 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.
40 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 40
3/27/09 6:29:38 PM
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model, with the
following weighted average assumptions by grant year:
Risk-free interest rate . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . .
Expected volatility factor . . . . . . . . . . . . . . . .
Expected option term (in years) . . . . . . . . . . .
For the years ended January 31
2007
2008
2009
4 .45%
3 .07%
1.64%
1 .29%
2.12%
1 .28%
38 .97%
40 .62%
46.32%
4 .25
4 .25
4.25
Weighted average grant date fair value . . . . . $ 8.08
$11 .45
$ 9 .51
Option activity for the year ended January 31, 2009, was
as follows:
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.
Outstanding stock units for the year ended January 31, 2009,
were 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred retainers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Converted into common shares . . . . . . . . . . . . . . . . . . . . .
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . .
Number
of units
9,878
3,820
546
864
—
15,107
Weighted
average
price
$30 .02
36 .65
36 .65
28 .92
—
$21 .81
Outstanding at
beginning of year . . . . . . .
Granted . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . .
Outstanding at
end of year . . . . . . . . . . . .
Options exercisable at
end of year . . . . . . . . . . . .
373,031
95,800
(83,456)
(2,400)
$25.96
24.51
15.09
31.26
382,975
$27.93
$ —
174,388
$27.39
$ —
2 .93
1 .82
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
exercised was $1.9 million, $3.5 million and $3.7 million
during the years ended January 31, 2009, 2008 and 2007,
respectively. As of January 31, 2009, the total compensa-
tion 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
recognized over a weighted average period of 2.57 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
by the company in the name of the non-employee director.
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
directors retire from the board. The plan is administered by the
Governance Committee of the board of directors.
Note 10. 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
exercise prices were greater than the average market price
of the company’s common stock during those periods. For
fiscal 2009, 2008, and 2007, 167,942, 90,338, and 96,075
options, respectively, were excluded from the diluted net
income per-share calculation. Details of the computation are
presented below:
For the years ended January 31
2008
2009
2007
Numerator:
Net income (in thousands) . . . . . . . . . $ 30,770
Denominator:
Weighted average common
$ 27,802
$ 25,441
shares outstanding . . . . . . . . . . . 18,031,020
18,099,600
18,082,606
Weighted average stock
units outstanding . . . . . . . . . . . . .
Denominator for
basic calculation . . . . . . . . . . . . . 18,044,471
13,451
8,580
3,602
18,108,180
18,086,208
Weighted average common
shares outstanding . . . . . . . . . . . 18,031,020
18,099,600
18,082,606
Weighted average stock
units outstanding . . . . . . . . . . . . .
Dilutive impact of stock options . . . .
Denominator for
diluted calculation . . . . . . . . . . . . 18,080,242
13,451
35,771
8,580
95,883
3,602
186,705
18,204,063
18,272,913
Net income per share–basic . . . . . . . $ 1.71
Net income per share–diluted . . . . . $ 1.70
$ 1 .54
$ 1 .53
$ 1 .41
$ 1 .39
RAVEN 2009 ANNUAL REPORT 41
58585_Financials.indd 41
3/27/09 6:29:38 PM
NOTES TO FINANCIAL STATEMENTS (continued)
Note 11. Business Segments and
Major Customer Information
The company’s reportable segments are defined by their
common technologies, production processes and inven-
tories. These segments reflect Raven’s organization into
three Raven divisions and the Aerostar subsidiary.
Raven Canada and Raven GmbH are included in the
Applied Technology Division.
Applied Technology provides electronic and Global
Positioning System (GPS) products designed to reduce
operating costs and improve yields for the agriculture market.
Engineered Films produces rugged reinforced plastic sheet-
ing for industrial, construction, geomembrane and agriculture
applications. Electronic Systems provides electronics manu-
facturing services to avionics, secure communication and other
markets. Aerostar manufactures military parachutes, protective
wear, custom-shaped inflatable products and high-altitude
aerostats for government and commercial research.
The company measures the performance of its segments
based on their operating income excluding 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.
At the beginning of fiscal 2009, Raven revised the disclo-
sure of each segments’ sales and operating income to reflect
increased intersegment activity. Transactions between operat-
ing segments are now eliminated in a separate caption entitled
“intersegment eliminations” to arrive at consolidated sales,
operating income, and assets.
Business segment information is as follows:
For the years ended January 31
2008
2009
2007
Dollars in thousands
APPLIED TECHNOLOGY DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,098
33,884
Operating income . . . . . . . . . . . . . . . . . .
48,881
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,674
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
1,383
ENGINEERED FILMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,858
10,919
Operating income . . . . . . . . . . . . . . . . . .
35,862
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,120
Capital expenditures . . . . . . . . . . . . . . . .
4,303
Depreciation & amortization . . . . . . . . . .
$ 64,291
19,102
36,938
1,008
1,125
$ 85,316
17,739
43,688
4,012
4,046
$ 45,515
10,111
27,629
577
1,142
$ 91,082
23,440
41,988
13,266
2,887
$ 61,983
5,926
26,847
1,399
1,159
ELECTRONIC SYSTEMS DIVISION
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
AEROSTAR
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,186
4,219
Operating income . . . . . . . . . . . . . . . . . .
8,744
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
383
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
444
INTERSEGMENT ELIMINATIONS
Sales
Engineered Films Division . . . . . . . . . .
Electronic Systems Division . . . . . . . . .
Aerostar . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORTABLE SEGMENTS TOTAL
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913
54,896
Operating income . . . . . . . . . . . . . . . . . .
120,182
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,576
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
7,289
CORPORATE & OTHER(a)
Operating (loss) from
administrative expenses . . . . . . . . . . .
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . .
Depreciation & amortization . . . . . . . . . .
TOTAL COMPANY
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913
46,394
Operating income . . . . . . . . . . . . . . . . . .
144,415
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,001
Capital expenditures . . . . . . . . . . . . . . . .
7,758
Depreciation & amortization . . . . . . . . . .
24,233
425
469
$ 67,987
10,365
25,865
1,077
1,237
$ 17,290
1,506
9,941
156
499
$233,957
48,612
116,332
6,253
6,907
$233,957
41,145
147,861
6,635
7,344
$ 66,278
10,850
25,175
1,357
1,086
$ 14,654
707
8,161
812
375
$ —
—
—
—
—
$217,529
45,108
102,953
16,012
5,490
$ (6,806)
16,811
510
395
$217,529
38,302
119,764
16,522
5,885
$ (210) $ (533)
(378)
(16)
(100)
(100)
(1,977)
(25)
(52)
(152)
$ (8,502) $ (7,467)
31,529
382
437
(a) Assets are principally cash, investments, deferred taxes and other receivables.
Sales to a customer of the Electronic Systems segment
accounted for 13%, 11%, and 10% of consolidated sales in
fiscal 2009, 2008, and 2007, respectively, and 18%, 14% and
14%, of consolidated accounts receivable at the end of fiscal
2009, 2008, and 2007, respectively.
Sales to countries outside the United States, primarily to
Canada, were as follows:
Dollars in thousands
Applied Technology . . . . . . . . . . . . . . . . . . . . . $17,705
1,949
Engineered Films . . . . . . . . . . . . . . . . . . . . . . .
557
Electronic Systems . . . . . . . . . . . . . . . . . . . . . .
Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
966
Total foreign sales . . . . . . . . . . . . . . . . . . . . $21,177
For the years ended January 31
2007
2008
2009
$7,081
$10,104
2,060
1,803
8,718
6,852
868
1,310
$18,727
$20,069
Note 12. Quarterly Information (Unaudited)
The company’s quarterly information is presented on page 30.
42 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 42
3/27/09 6:29:38 PM
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, 2009, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended January 31, 2009 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, 2009 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 2009 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 5 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 7 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 24, 2009
58585_Financials.indd 43
3/27/09 6:29:38 PM
RAVEN 2009 ANNUAL REPORT 43
BOARD OF DIRECTORS
Anthony W. Bour
President & Chief Executive Officer
Showplace Wood Products, Inc.
Sioux Falls, SD
Director since 1995
David A. Christensen
Former President &
Chief Executive Officer
Raven Industries, Inc.
Sioux Falls, SD
Director since 1971
Thomas S. Everist
Chair-elect
Raven Industries, Inc.
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
Daniel A. Rykhus
Executive Vice President
Raven Industries, Inc.
Sioux Falls, SD
Director since 2008
The Raven Board held four regular meetings in fiscal year 2009.
In March 2008, it increased the quarterly dividend for the 22nd-consecutive year
and approved a special dividend in August.
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 two
meetings to review and approve executive compensation
plans, policies and practices, and key succession plans.
Governance Committee
Cynthia H. Milligan, Chair
Anthony W. Bour
David A. Christensen
Thomas S. Everist
Mark E. Griffin
Conrad J. Hoigaard
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: 52, Service 10 years
Matthew T. Burkhart
General Manager–Applied Technology Division, Age: 33, Service 1 year
James D. Groninger
Thomas Iacarella
Division Vice President & General Manager–Engineered Films Division, Age: 50, Service 22 years
Vice President & Chief Financial Officer, Age: 55, Service 17 years
Ronald M. Moquist
President & Chief Executive Officer, Age: 63, Service 33 years
Barbara K. Ohme
Daniel A. Rykhus
Mark L. West
Vice President–Administration, Age: 61, Service 21 years
Executive Vice President, Age: 44, Service 19 years
President–Aerostar International, Inc., Age: 55, Service 27 years
44 RAVEN 2009 ANNUAL REPORT
58585_Financials.indd 44
3/27/09 6:29:51 PM
INVESTOR INFORMATION
Annual Meeting
May 21, 2009, 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 a substantial portion of earnings to
shareholders through regular dividends. Each year our board of
directors reviews Raven’s dividend and will increase it when
the new level is sustainable. Fiscal 2009 represented the 22nd-
consecutive year we raised our annual dividend.
Raven Web Site
www.ravenind.com
Stock Quotations
Listed on the Nasdaq NGS Stock Market—RAVN
Total Return Index
Base Year = 100
250
200
150
100
50
0
Jan 2004
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, 2009, 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.
Inquir esi
Raven Industries, Inc.
Attention: Investor Relations
P.O. Box 5107
Sioux Falls, SD 57117-5107
Phone: 605-336-2750
Providing a Positive Return
If an investor purchased $100 of
Raven stock on January 31, 2004,
held it for the next five years and
reinvested the dividends, its value
would have increased to $178.47.
This 12% cumulative growth rate
represents a gain compared with
the S&P 1500 Industrial Index’s
$96.77 and the Russell 2000’s
$81.48.
Jan 2005
Jan 2006
Jan 2007
Jan 2008
Jan 2009
Raven Industries Inc
SP1500 Industrial Machinery
Russell 2000 Index
L
I
,
o
g
a
c
i
h
C
,
d
r
a
o
B
n
g
i
s
e
D
e
v
i
t
a
e
r
C
:
n
g
i
s
e
D
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 and commodity prices, which could affect sales and profitability in some
of the company’s primary markets, such as agriculture, construction, and oil and gas well drilling; 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
58585_Cover_u3.indd 1
4/3/09 2:54:57 AM