Raven Industries Inc. Annual Report 2010

Plain-text annual report

20 01 economy, you can “Even in a bad opportunities.” ﬁnd good 1 3 Y R A U N A J D E D N E R A E Y L A C S I F E H T R O F T R O P E R L A U N N A Finding Opportunity Meeting our goal to “protect the core” last year led us to two courses of action. First, we optimized near-term results: (cid:115)(cid:0)(cid:51)(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:73)(cid:78)(cid:0)(cid:76)(cid:73)(cid:78)(cid:69)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:67)(cid:84)(cid:69)(cid:68)(cid:0)(cid:82)(cid:69)(cid:86)(cid:69)(cid:78)(cid:85)(cid:69)(cid:83) (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:71)(cid:82)(cid:79)(cid:83)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:77)(cid:65)(cid:82)(cid:71)(cid:73)(cid:78)(cid:83) (cid:115)(cid:0)(cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:65)(cid:82)(cid:69)(cid:70)(cid:85)(cid:76)(cid:76)(cid:89)(cid:0)(cid:84)(cid:65)(cid:82)(cid:71)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:67)(cid:65)(cid:80)(cid:73)(cid:84)(cid:65)(cid:76)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:78)(cid:68)(cid:73)(cid:84)(cid:85)(cid:82)(cid:69)(cid:83) (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:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:109)(cid:79)(cid:87)(cid:0)(cid:84)(cid:79)(cid:0)(cid:71)(cid:73)(cid:86)(cid:69)(cid:0)(cid:85)(cid:83)(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:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:109)(cid:69)(cid:88)(cid:73)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89) Second, we supported initiatives for long-term growth: (cid:115)(cid:0)(cid:41)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:0)(cid:78)(cid:69)(cid:88)(cid:84)(cid:0)(cid:71)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:84)(cid:69)(cid:67)(cid:72)(cid:78)(cid:79)(cid:76)(cid:79)(cid:71)(cid:73)(cid:69)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:33)(cid:80)(cid:80)(cid:76)(cid:73)(cid:69)(cid:68)(cid:0)(cid:52)(cid:69)(cid:67)(cid:72)(cid:78)(cid:79)(cid:76)(cid:79)(cid:71)(cid:89) (cid:115)(cid:0)(cid:33)(cid:68)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:67)(cid:65)(cid:80)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:37)(cid:78)(cid:71)(cid:73)(cid:78)(cid:69)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:38)(cid:73)(cid:76)(cid:77)(cid:83) (cid:115)(cid:0)(cid:33)(cid:68)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:37)(cid:76)(cid:69)(cid:67)(cid:84)(cid:82)(cid:79)(cid:78)(cid:73)(cid:67)(cid:0)(cid:51)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:83) (cid:115)(cid:0)(cid:51)(cid:85)(cid:67)(cid:67)(cid:69)(cid:83)(cid:83)(cid:70)(cid:85)(cid:76)(cid:76)(cid:89)(cid:0)(cid:69)(cid:78)(cid:84)(cid:69)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:83)(cid:73)(cid:90)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:33)(cid:69)(cid:82)(cid:79)(cid:83)(cid:84)(cid:65)(cid:82) (cid:55)(cid:72)(cid:73)(cid:76)(cid:69)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:80)(cid:82)(cid:79)(cid:108)(cid:84)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:76)(cid:79)(cid:87)(cid:69)(cid:82)(cid:12)(cid:0)(cid:84)(cid:72)(cid:73)(cid:83)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:82)(cid:69)(cid:83)(cid:80)(cid:69)(cid:67)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:80)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:67)(cid:79)(cid:78)(cid:83)(cid:73)(cid:68)(cid:69)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:66)(cid:65)(cid:68)(cid:0)(cid:69)(cid:67)(cid:79)(cid:78)(cid:79)(cid:77)(cid:89)(cid:14)(cid:0)(cid:33)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:71)(cid:82)(cid:79)(cid:87)(cid:84)(cid:72)(cid:0)(cid:83)(cid:84)(cid:82)(cid:65)(cid:84)(cid:69)(cid:71)(cid:73)(cid:69)(cid:83)(cid:0)(cid:87)(cid:69)(cid:0)(cid:72)(cid:65)(cid:86)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:80)(cid:76)(cid:65)(cid:67)(cid:69)(cid:0) (cid:87)(cid:73)(cid:76)(cid:76)(cid:0)(cid:67)(cid:82)(cid:69)(cid:65)(cid:84)(cid:69)(cid:0)(cid:79)(cid:80)(cid:80)(cid:79)(cid:82)(cid:84)(cid:85)(cid:78)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:67)(cid:79)(cid:77)(cid:69)(cid:14) Inside this Report (cid:44)(cid:69)(cid:84)(cid:84)(cid:69)(cid:82)(cid:0)(cid:84)(cid:79)(cid:0)(cid:51)(cid:72)(cid:65)(cid:82)(cid:69)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:82)(cid:83). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 (cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:48)(cid:82)(cid:79)(cid:108)(cid:76)(cid:69). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 (cid:47)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 (cid:37)(cid:76)(cid:69)(cid:86)(cid:69)(cid:78)(cid:13)(cid:57)(cid:69)(cid:65)(cid:82)(cid:0)(cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:51)(cid:85)(cid:77)(cid:77)(cid:65)(cid:82)(cid:89). . . . . . . . . . . . . . . . . . . . . . . . .16 (cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:51)(cid:69)(cid:71)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:48)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69) . . . . . . . . . . . . . . . . . . . . . . . .18 (cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:33)(cid:78)(cid:65)(cid:76)(cid:89)(cid:83)(cid:73)(cid:83). . . . . . . . . . . . . . . . . . . . . . . . . .19 (cid:51)(cid:84)(cid:79)(cid:67)(cid:75)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:49)(cid:85)(cid:65)(cid:82)(cid:84)(cid:69)(cid:82)(cid:76)(cid:89)(cid:0)(cid:48)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69) . . . . . . . . . . . . . . . . . . . . . . .31 (cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:7)(cid:83)(cid:0)(cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:79)(cid:78)(cid:0)(cid:41)(cid:78)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:76)(cid:0)(cid:35)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:0) (cid:0) (cid:79)(cid:86)(cid:69)(cid:82)(cid:0)(cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:73)(cid:78)(cid:71) . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 (cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:41)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:84)(cid:0)(cid:50)(cid:69)(cid:71)(cid:73)(cid:83)(cid:84)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:48)(cid:85)(cid:66)(cid:76)(cid:73)(cid:67)(cid:0)(cid:33)(cid:67)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:38)(cid:73)(cid:82)(cid:77) . . . .46 (cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:79)(cid:70)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 (cid:41)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:79)(cid:82)(cid:0)(cid:41)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78) . . . . . . . . . . . . . . . . . . . . .(cid:41)(cid:78)(cid:83)(cid:73)(cid:68)(cid:69)(cid:0)(cid:34)(cid:65)(cid:67)(cid:75)(cid:0)(cid:35)(cid:79)(cid:86)(cid:69)(cid:82) Financial Highlights Dollars in thousands, except per-share data Operations For the years ended January 31 2010 2009 Change Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 $279,913 –15.1% Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,220 28,574 46,394 30,770 –6.8% –7.1% Per Share Net income—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.58 $ 1.70 Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on beginning shareholders’ equity . . . . . . . . . . . . . . . . . . 0.55 7.38 18.2% 12.0% 18.2% 25.2% 0.52(a) 6.30 –7.1% 5.8% 17.1% 16.6% 11.0% 9.6% 9.1% 21.1% –13.7% 26.0% –3.1% Shares and stock units outstanding, year end (in thousands) . . . . 18,051 18,027 0.1% (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 $237.8 $217.5 $204.5 $168.1 $0.97 $1.70 $1.58 $1.53 $242 $246 $252 $262 $256 $1.39 $1.32 $201 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 The recession brought an end to ﬁve straight years of record revenues for Raven. Applied Technology and Engineered Films experienced lower sales, while revenues were ﬂat at Electronic Systems and Aerostar. We held the decline in net earnings to 7% despite 15% lower sales. This resulted from moving aggressively to cut costs and manage expenses, without sacriﬁcing investments in long-term growth opportunities. The slight reduction in sales per employee reﬂected a 13% lower average headcount. Our employees worked hard to improve efﬁciency, productivity, quality and customer satisfaction. 1 To Our Shareholders, Employees and Customers For the ﬁrst time since 2001, Raven did not have a record year. However, we performed at a high level in this environment, achiev- ing solid proﬁtability and strong cash ﬂow. We responded quickly and decisively to the rapidly changing conditions. Targeted pricing was implemented. We made cuts where needed and aggressively managed our costs. Unfortunately, this included reducing our workforce from 1,100 to 900 employees. At the same time, opera- tional efﬁciency and productivity improved throughout the company, as did quality and customer service. And we also found ways to invest in long-term growth when the opportunity arose. Ronald M. Moquist President & Chief Executive Ofﬁcer Sound Performance in a Difﬁcult Year Over the last 54 years, Raven has built a strong, diversiﬁed manufacturing base and is a leader in its niche markets. We do not depend on cheap labor or commodity-type products to be successful. Our business model is focused on driving high-margin sales and capital- efﬁcient growth. This allowed us to perform better than most manufacturers last year. 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(cid:85)(cid:202)(cid:1)(cid:202)(cid:204)(cid:156)(cid:204)(cid:62)(cid:143)(cid:202)(cid:156)(cid:118)(cid:202)(cid:102)(cid:153)(cid:176)(cid:153)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:202)(cid:220)(cid:62)(cid:195)(cid:202)(cid:192)(cid:105)(cid:204)(cid:213)(cid:192)(cid:152)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:195)(cid:133)(cid:62)(cid:192)(cid:105)(cid:133)(cid:156)(cid:143)(cid:96)(cid:105)(cid:192)(cid:195)(cid:202)(cid:62)(cid:195)(cid:202)(cid:220)(cid:105)(cid:202)(cid:136)(cid:152)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:96)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:96)(cid:136)(cid:219)(cid:136)(cid:96)(cid:105)(cid:152)(cid:96)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:211)(cid:206)(cid:192)(cid:96)(cid:202)(cid:195)(cid:204)(cid:192)(cid:62)(cid:136)(cid:125)(cid:133)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:133)(cid:62)(cid:219)(cid:105)(cid:202)(cid:171)(cid:62)(cid:136)(cid:96)(cid:202)(cid:62)(cid:202)(cid:202) (cid:202) (cid:96)(cid:136)(cid:219)(cid:136)(cid:96)(cid:105)(cid:152)(cid:96)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:206)(cid:199)(cid:202)(cid:86)(cid:156)(cid:152)(cid:195)(cid:105)(cid:86)(cid:213)(cid:204)(cid:136)(cid:219)(cid:105)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:195)(cid:176) Applied Technology Sales Down, Opportunities Up (cid:34)(cid:213)(cid:192)(cid:202)(cid:1)(cid:171)(cid:171)(cid:143)(cid:136)(cid:105)(cid:96)(cid:202)(cid:47)(cid:105)(cid:86)(cid:133)(cid:152)(cid:156)(cid:143)(cid:156)(cid:125)(cid:222)(cid:202)(cid:12)(cid:136)(cid:219)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:173)(cid:1)(cid:47)(cid:12)(cid:174)(cid:202)(cid:133)(cid:62)(cid:96)(cid:202)(cid:62)(cid:202)(cid:96)(cid:136)(cid:118)(cid:119)(cid:86)(cid:213)(cid:143)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:45)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:163)(cid:200)(cid:175)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202)(cid:220)(cid:62)(cid:195)(cid:202)(cid:156)(cid:118)(cid:118)(cid:202)(cid:211)(cid:123)(cid:175)(cid:202)(cid:62)(cid:195)(cid:202)(cid:118)(cid:62)(cid:192)(cid:147)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202) took a nosedive after two very proﬁtable years. High input costs, combined with lower commodity prices, reduced proﬁts for many (cid:1)(cid:147)(cid:105)(cid:192)(cid:136)(cid:86)(cid:62)(cid:152)(cid:202)(cid:125)(cid:192)(cid:156)(cid:220)(cid:105)(cid:192)(cid:195)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:76)(cid:105)(cid:143)(cid:136)(cid:105)(cid:219)(cid:105)(cid:202)(cid:118)(cid:62)(cid:192)(cid:147)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:76)(cid:105)(cid:202)(cid:121)(cid:62)(cid:204)(cid:202)(cid:204)(cid:156)(cid:202)(cid:195)(cid:143)(cid:136)(cid:125)(cid:133)(cid:204)(cid:143)(cid:222)(cid:202)(cid:213)(cid:171)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:86)(cid:156)(cid:147)(cid:136)(cid:152)(cid:125)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:93)(cid:202)(cid:62)(cid:195)(cid:202)(cid:136)(cid:152)(cid:171)(cid:213)(cid:204)(cid:202)(cid:86)(cid:156)(cid:195)(cid:204)(cid:195)(cid:202)(cid:96)(cid:192)(cid:156)(cid:171)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:86)(cid:156)(cid:147)(cid:147)(cid:156)(cid:96)(cid:136)(cid:204)(cid:222)(cid:202)(cid:171)(cid:192)(cid:136)(cid:86)(cid:105)(cid:195)(cid:202) (cid:195)(cid:204)(cid:62)(cid:76)(cid:136)(cid:143)(cid:136)(cid:226)(cid:105)(cid:176)(cid:202)(cid:47)(cid:133)(cid:105)(cid:202)(cid:118)(cid:156)(cid:192)(cid:105)(cid:86)(cid:62)(cid:195)(cid:204)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:156)(cid:192)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:86)(cid:156)(cid:147)(cid:76)(cid:136)(cid:152)(cid:105)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:136)(cid:195)(cid:202)(cid:121)(cid:62)(cid:204)(cid:202)(cid:204)(cid:156)(cid:202)(cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:163)(cid:228)(cid:175)(cid:93)(cid:202)(cid:76)(cid:213)(cid:204)(cid:202)(cid:220)(cid:105)(cid:202)(cid:62)(cid:192)(cid:105)(cid:202)(cid:171)(cid:192)(cid:156)(cid:141)(cid:105)(cid:86)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:62)(cid:202)(cid:147)(cid:156)(cid:96)(cid:105)(cid:195)(cid:204)(cid:202)(cid:136)(cid:152)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:202)(cid:136)(cid:152)(cid:202)(cid:1)(cid:47)(cid:12)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:176) (cid:20)(cid:192)(cid:156)(cid:220)(cid:204)(cid:133)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:195)(cid:93)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:86)(cid:213)(cid:195)(cid:204)(cid:156)(cid:147)(cid:105)(cid:192)(cid:195)(cid:93)(cid:202)(cid:136)(cid:152)(cid:204)(cid:105)(cid:192)(cid:152)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:62)(cid:143)(cid:202)(cid:105)(cid:221)(cid:171)(cid:62)(cid:152)(cid:195)(cid:136)(cid:156)(cid:152)(cid:93)(cid:202)(cid:171)(cid:143)(cid:213)(cid:195)(cid:202)(cid:171)(cid:62)(cid:192)(cid:204)(cid:152)(cid:105)(cid:192)(cid:195)(cid:133)(cid:136)(cid:171)(cid:195)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:62)(cid:86)(cid:181)(cid:213)(cid:136)(cid:195)(cid:136)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:143)(cid:62)(cid:213)(cid:152)(cid:86)(cid:133)(cid:202)(cid:62)(cid:202) planter control device for precisely controlling seed population based on varying soil fertility in the ﬁeld. We also recently introduced a cellular-based, high accuracy RTK tractor steering system. This product dramatically reduces the cost of building RTK towers for (cid:204)(cid:192)(cid:62)(cid:152)(cid:195)(cid:147)(cid:136)(cid:204)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:20)(cid:42)(cid:45)(cid:202)(cid:86)(cid:156)(cid:192)(cid:192)(cid:105)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:195)(cid:136)(cid:125)(cid:152)(cid:62)(cid:143)(cid:195)(cid:176)(cid:202)(cid:22)(cid:204)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:62)(cid:143)(cid:195)(cid:156)(cid:202)(cid:171)(cid:192)(cid:156)(cid:219)(cid:136)(cid:96)(cid:105)(cid:202)(cid:192)(cid:105)(cid:62)(cid:143)(cid:135)(cid:204)(cid:136)(cid:147)(cid:105)(cid:202)(cid:22)(cid:152)(cid:204)(cid:105)(cid:192)(cid:152)(cid:105)(cid:204)(cid:202)(cid:86)(cid:156)(cid:152)(cid:152)(cid:105)(cid:86)(cid:204)(cid:136)(cid:219)(cid:136)(cid:204)(cid:222)(cid:93)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:220)(cid:136)(cid:192)(cid:105)(cid:143)(cid:105)(cid:195)(cid:195)(cid:202)(cid:86)(cid:156)(cid:147)(cid:147)(cid:213)(cid:152)(cid:136)(cid:86)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:156)(cid:192)(cid:189)(cid:195)(cid:202) (cid:133)(cid:156)(cid:147)(cid:105)(cid:135)(cid:76)(cid:62)(cid:195)(cid:105)(cid:96)(cid:202)(cid:86)(cid:156)(cid:147)(cid:171)(cid:213)(cid:204)(cid:105)(cid:192)(cid:176)(cid:202)(cid:47)(cid:133)(cid:105)(cid:195)(cid:105)(cid:202)(cid:118)(cid:105)(cid:62)(cid:204)(cid:213)(cid:192)(cid:105)(cid:195)(cid:112)(cid:62)(cid:152)(cid:96)(cid:202)(cid:147)(cid:62)(cid:152)(cid:222)(cid:202)(cid:156)(cid:204)(cid:133)(cid:105)(cid:192)(cid:195)(cid:112)(cid:62)(cid:192)(cid:105)(cid:202)(cid:136)(cid:152)(cid:86)(cid:143)(cid:213)(cid:96)(cid:105)(cid:96)(cid:202)(cid:136)(cid:152)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:45)(cid:143)(cid:136)(cid:152)(cid:125)(cid:195)(cid:133)(cid:156)(cid:204)(cid:210)(cid:202)(cid:195)(cid:213)(cid:136)(cid:204)(cid:105)(cid:202)(cid:156)(cid:118)(cid:202)(cid:195)(cid:156)(cid:118)(cid:204)(cid:220)(cid:62)(cid:192)(cid:105)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:195)(cid:93)(cid:202)(cid:220)(cid:133)(cid:136)(cid:86)(cid:133)(cid:202) improve the ease of data collection, transmission, storage and analysis. 2 2 0 1 0 A N N U A L R E P O R T RAVEN We are partnering with major new accounts including Deere & Co., Monsanto, Buhler Versatile (Canada/Russia) and (cid:45)(cid:105)(cid:105)(cid:96)(cid:202)(cid:21)(cid:62)(cid:220)(cid:142)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:136)(cid:152)(cid:213)(cid:105)(cid:202)(cid:204)(cid:156)(cid:202)(cid:62)(cid:125)(cid:125)(cid:192)(cid:105)(cid:195)(cid:195)(cid:136)(cid:219)(cid:105)(cid:143)(cid:222)(cid:202)(cid:105)(cid:221)(cid:171)(cid:62)(cid:152)(cid:96)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:136)(cid:152)(cid:204)(cid:105)(cid:192)(cid:152)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:62)(cid:143)(cid:202)(cid:76)(cid:213)(cid:195)(cid:136)(cid:152)(cid:105)(cid:195)(cid:195)(cid:93)(cid:202)(cid:220)(cid:133)(cid:136)(cid:86)(cid:133)(cid:202)(cid:62)(cid:86)(cid:86)(cid:156)(cid:213)(cid:152)(cid:204)(cid:195)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:156)(cid:152)(cid:143)(cid:222)(cid:202)(cid:211)(cid:228)(cid:175)(cid:202)(cid:156)(cid:118)(cid:202)(cid:1)(cid:47)(cid:12)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:176) Acquisitions are not a critical part of our growth plan. But small, strategic investments—such as the Ranchview and SST deals we did last year—help to strengthen our product offering. A key initiative last year was improving the quality and reliability of our products. Warranty costs in ATD dropped 35% and customer satisfaction greatly improved. Engineered Films Faces Difﬁcult Markets (cid:45)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:136)(cid:152)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:13)(cid:152)(cid:125)(cid:136)(cid:152)(cid:105)(cid:105)(cid:192)(cid:105)(cid:96)(cid:202)(cid:19)(cid:136)(cid:143)(cid:147)(cid:195)(cid:202)(cid:12)(cid:136)(cid:219)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:173)(cid:13)(cid:19)(cid:12)(cid:174)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:211)(cid:153)(cid:175)(cid:93)(cid:202)(cid:76)(cid:213)(cid:204)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:62)(cid:143)(cid:143)(cid:222)(cid:202)(cid:220)(cid:105)(cid:202)(cid:105)(cid:221)(cid:105)(cid:86)(cid:213)(cid:204)(cid:105)(cid:96)(cid:202)(cid:220)(cid:105)(cid:143)(cid:143)(cid:112)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202) (cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:156)(cid:152)(cid:143)(cid:222)(cid:202)(cid:200)(cid:175)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:76)(cid:105)(cid:152)(cid:105)(cid:119)(cid:204)(cid:105)(cid:96)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:143)(cid:156)(cid:220)(cid:105)(cid:192)(cid:202)(cid:192)(cid:62)(cid:220)(cid:202)(cid:147)(cid:62)(cid:204)(cid:105)(cid:192)(cid:136)(cid:62)(cid:143)(cid:202)(cid:86)(cid:156)(cid:195)(cid:204)(cid:195)(cid:93)(cid:202)(cid:76)(cid:105)(cid:204)(cid:204)(cid:105)(cid:192)(cid:202)(cid:171)(cid:192)(cid:136)(cid:86)(cid:136)(cid:152)(cid:125)(cid:93)(cid:202)(cid:125)(cid:192)(cid:105)(cid:62)(cid:204)(cid:105)(cid:192)(cid:202)(cid:105)(cid:118)(cid:119)(cid:86)(cid:136)(cid:105)(cid:152)(cid:86)(cid:222)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:204)(cid:156)(cid:213)(cid:125)(cid:133)(cid:202)(cid:86)(cid:156)(cid:195)(cid:204)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:156)(cid:143)(cid:195)(cid:176)(cid:202)(cid:202) Our primary markets—energy and construction—continued to suffer. Pit liners sold into the energy market declined 40%, and (cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:86)(cid:156)(cid:152)(cid:195)(cid:204)(cid:192)(cid:213)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:211)(cid:120)(cid:175)(cid:176)(cid:202)(cid:21)(cid:156)(cid:220)(cid:105)(cid:219)(cid:105)(cid:192)(cid:93)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:147)(cid:62)(cid:192)(cid:125)(cid:136)(cid:152)(cid:195)(cid:202)(cid:136)(cid:147)(cid:171)(cid:192)(cid:156)(cid:219)(cid:105)(cid:96)(cid:93)(cid:202)(cid:125)(cid:192)(cid:156)(cid:220)(cid:136)(cid:152)(cid:125)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:163)(cid:211)(cid:176)(cid:211)(cid:175)(cid:202)(cid:204)(cid:156)(cid:202)(cid:163)(cid:200)(cid:176)(cid:228)(cid:175)(cid:176) Our strategy for the past three years has been to replace low-cost, low-margin commodity plastic sheeting with higher-margin custom engineered ﬁlms. Our efforts to date have not met expectations. Only 10% of our business has been converted to these highly engineered ﬁlms. The time and effort to execute the strategy was underestimated, but we remain committed. Much groundwork has been done, and we believe the conversion rate will start accelerating. We are planning for growth in EFD in the coming year, as the energy market improves and construction markets remain depressed. Good gains are expected in our geomembrane products for lining and capping landﬁlls, and for lining and covering water canals and reservoirs. Electronic Systems Experiences Higher Proﬁt (cid:45)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:136)(cid:152)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:13)(cid:143)(cid:105)(cid:86)(cid:204)(cid:192)(cid:156)(cid:152)(cid:136)(cid:86)(cid:202)(cid:45)(cid:222)(cid:195)(cid:204)(cid:105)(cid:147)(cid:195)(cid:202)(cid:12)(cid:136)(cid:219)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:173)(cid:13)(cid:45)(cid:12)(cid:174)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:213)(cid:171)(cid:202)(cid:211)(cid:175)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202)(cid:192)(cid:105)(cid:86)(cid:156)(cid:219)(cid:105)(cid:192)(cid:105)(cid:96)(cid:93)(cid:202)(cid:195)(cid:213)(cid:192)(cid:125)(cid:136)(cid:152)(cid:125)(cid:202)(cid:120)(cid:211)(cid:175)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:125)(cid:192)(cid:105)(cid:220)(cid:202)(cid:204)(cid:133)(cid:192)(cid:156)(cid:213)(cid:125)(cid:133)(cid:202) expanding our services to a small number of Fortune 500 companies in these primary markets: (cid:85)(cid:202)(cid:42)(cid:192)(cid:136)(cid:152)(cid:204)(cid:105)(cid:96)(cid:202)(cid:86)(cid:136)(cid:192)(cid:86)(cid:213)(cid:136)(cid:204)(cid:202)(cid:76)(cid:156)(cid:62)(cid:192)(cid:96)(cid:195)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:62)(cid:136)(cid:192)(cid:86)(cid:192)(cid:62)(cid:118)(cid:204)(cid:202)(cid:62)(cid:219)(cid:136)(cid:156)(cid:152)(cid:136)(cid:86)(cid:195) (cid:85)(cid:202)(cid:45)(cid:105)(cid:86)(cid:213)(cid:192)(cid:105)(cid:202)(cid:86)(cid:156)(cid:147)(cid:147)(cid:213)(cid:152)(cid:136)(cid:86)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:96)(cid:105)(cid:219)(cid:136)(cid:86)(cid:105)(cid:195)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:125)(cid:156)(cid:219)(cid:105)(cid:192)(cid:152)(cid:147)(cid:105)(cid:152)(cid:204)(cid:202)(cid:62)(cid:125)(cid:105)(cid:152)(cid:86)(cid:136)(cid:105)(cid:195) (cid:85)(cid:202)(cid:13)(cid:143)(cid:105)(cid:86)(cid:204)(cid:192)(cid:156)(cid:152)(cid:136)(cid:86)(cid:202)(cid:76)(cid:105)(cid:96)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:156)(cid:143)(cid:195) All three of these business segments performed at a high level and exceeded last year’s operating results. Our avionics busi- ness started the year strong and then tapered off as commercial airlines began cancelling or delaying delivery schedules. This is a trend that will probably continue in the year ahead, but it is mitigated by the fact that 70% of our avionics business is military and aerospace. The demand for secure communication devices for government agencies increased during the year as hackers and spies compromised America’s communications networks. This business should continue to grow. We were concerned that our third market, bed controls, would suffer the most because of the housing crisis. However, sales were only slightly down and proﬁt margins improved. ESD provides a reliable income stream and access to advanced manufacturing technologies that beneﬁt our other product areas. Contract electronics manufacturing is about quality, cost, speed, customer service and engineering support. We do these things very well. 3 Aerostar Sees Greater Demand, Proﬁtability Aerostar had a breakout year, as improved proﬁtability in military parachutes and growing demand for aerostats fueled operating income growth of 34%. Parachutes provided a big boost to Aerostar’s operating income, as we completed the ﬁnal year of a three-year contract for (cid:31)(cid:10)(cid:135)(cid:200)(cid:202)(cid:171)(cid:62)(cid:192)(cid:62)(cid:86)(cid:133)(cid:213)(cid:204)(cid:105)(cid:195)(cid:93)(cid:202)(cid:96)(cid:105)(cid:171)(cid:143)(cid:156)(cid:222)(cid:105)(cid:96)(cid:202)(cid:76)(cid:222)(cid:202)(cid:49)(cid:176)(cid:45)(cid:176)(cid:202)(cid:45)(cid:171)(cid:105)(cid:86)(cid:136)(cid:62)(cid:143)(cid:202)(cid:19)(cid:156)(cid:192)(cid:86)(cid:105)(cid:195)(cid:176)(cid:202)(cid:47)(cid:133)(cid:136)(cid:195)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:202)(cid:76)(cid:105)(cid:86)(cid:62)(cid:147)(cid:105)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:147)(cid:156)(cid:195)(cid:204)(cid:202)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:62)(cid:76)(cid:143)(cid:105)(cid:202)(cid:136)(cid:152)(cid:202)(cid:136)(cid:204)(cid:195)(cid:202)(cid:119)(cid:152)(cid:62)(cid:143)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:93)(cid:202)(cid:62)(cid:195)(cid:202)(cid:171)(cid:192)(cid:156)(cid:86)(cid:105)(cid:195)(cid:195)(cid:105)(cid:195)(cid:202) (cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:119)(cid:152)(cid:105)(cid:143)(cid:222)(cid:202)(cid:133)(cid:156)(cid:152)(cid:105)(cid:96)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:156)(cid:192)(cid:202)(cid:195)(cid:142)(cid:136)(cid:143)(cid:143)(cid:195)(cid:202)(cid:133)(cid:136)(cid:125)(cid:133)(cid:143)(cid:222)(cid:202)(cid:96)(cid:105)(cid:219)(cid:105)(cid:143)(cid:156)(cid:171)(cid:105)(cid:96)(cid:176)(cid:202)(cid:9)(cid:105)(cid:125)(cid:136)(cid:152)(cid:152)(cid:136)(cid:152)(cid:125)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:93)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:31)(cid:10)(cid:135)(cid:200)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:76)(cid:105)(cid:202)(cid:192)(cid:105)(cid:171)(cid:143)(cid:62)(cid:86)(cid:105)(cid:96)(cid:202)(cid:76)(cid:222)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:47)(cid:135)(cid:163)(cid:163)(cid:202) (cid:171)(cid:62)(cid:192)(cid:62)(cid:86)(cid:133)(cid:213)(cid:204)(cid:105)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:1)(cid:192)(cid:147)(cid:222)(cid:202)(cid:1)(cid:136)(cid:192)(cid:76)(cid:156)(cid:192)(cid:152)(cid:105)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:105)(cid:221)(cid:171)(cid:105)(cid:86)(cid:204)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:76)(cid:105)(cid:202)(cid:62)(cid:202)(cid:118)(cid:156)(cid:213)(cid:192)(cid:135)(cid:202)(cid:204)(cid:156)(cid:202)(cid:119)(cid:219)(cid:105)(cid:135)(cid:222)(cid:105)(cid:62)(cid:192)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:202)(cid:62)(cid:204)(cid:202)(cid:62)(cid:152)(cid:202)(cid:62)(cid:152)(cid:152)(cid:213)(cid:62)(cid:143)(cid:202)(cid:192)(cid:213)(cid:152)(cid:202)(cid:192)(cid:62)(cid:204)(cid:105)(cid:202)(cid:156)(cid:118)(cid:202)(cid:102)(cid:163)(cid:211)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:176)(cid:202)(cid:22)(cid:152)(cid:136)(cid:204)(cid:136)(cid:62)(cid:143)(cid:143)(cid:222)(cid:93)(cid:202) margins will suffer until we build up efﬁciencies. Our growth strategy for the past two years has focused on tethered aerostat systems for persistent surveillance. We not only provide the helium-ﬁlled blimp, but also the mobile trailer equipped with winch, generator, ﬁber optics and surveillance (cid:125)(cid:105)(cid:62)(cid:192)(cid:112)(cid:62)(cid:152)(cid:96)(cid:202)(cid:195)(cid:213)(cid:171)(cid:171)(cid:156)(cid:192)(cid:204)(cid:202)(cid:171)(cid:105)(cid:192)(cid:195)(cid:156)(cid:152)(cid:152)(cid:105)(cid:143)(cid:202)(cid:204)(cid:156)(cid:202)(cid:156)(cid:219)(cid:105)(cid:192)(cid:195)(cid:105)(cid:105)(cid:202)(cid:121)(cid:136)(cid:125)(cid:133)(cid:204)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:176)(cid:202)(cid:22)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:118)(cid:156)(cid:213)(cid:192)(cid:204)(cid:133)(cid:202)(cid:181)(cid:213)(cid:62)(cid:192)(cid:204)(cid:105)(cid:192)(cid:93)(cid:202)(cid:220)(cid:105)(cid:202)(cid:76)(cid:156)(cid:156)(cid:142)(cid:105)(cid:96)(cid:202)(cid:147)(cid:156)(cid:192)(cid:105)(cid:202)(cid:204)(cid:133)(cid:62)(cid:152)(cid:202)(cid:102)(cid:199)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:202)(cid:136)(cid:152)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202) orders for tethered aerostats for deployment in Afghanistan, with more to come. Aerostar has come a long way from the days when it was a hot air balloon and advertising blimp company. This operation is positioned for strong growth. Continued Difﬁcult Economy We don’t see the economy improving much in the coming year. Spending will remain soft as consumers increase their savings and (cid:192)(cid:105)(cid:96)(cid:213)(cid:86)(cid:105)(cid:202)(cid:96)(cid:105)(cid:76)(cid:204)(cid:176)(cid:202)(cid:32)(cid:105)(cid:220)(cid:202)(cid:192)(cid:105)(cid:195)(cid:136)(cid:96)(cid:105)(cid:152)(cid:204)(cid:136)(cid:62)(cid:143)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:86)(cid:156)(cid:147)(cid:147)(cid:105)(cid:192)(cid:86)(cid:136)(cid:62)(cid:143)(cid:202)(cid:86)(cid:156)(cid:152)(cid:195)(cid:204)(cid:192)(cid:213)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:195)(cid:204)(cid:62)(cid:222)(cid:202)(cid:96)(cid:105)(cid:171)(cid:192)(cid:105)(cid:195)(cid:195)(cid:105)(cid:96)(cid:202)(cid:213)(cid:152)(cid:204)(cid:136)(cid:143)(cid:202)(cid:105)(cid:221)(cid:86)(cid:105)(cid:195)(cid:195)(cid:202)(cid:136)(cid:152)(cid:219)(cid:105)(cid:152)(cid:204)(cid:156)(cid:192)(cid:222)(cid:202)(cid:136)(cid:195)(cid:202)(cid:195)(cid:156)(cid:171)(cid:171)(cid:105)(cid:96)(cid:202)(cid:213)(cid:171)(cid:176)(cid:202)(cid:202) (cid:47)(cid:133)(cid:105)(cid:202)(cid:96)(cid:156)(cid:220)(cid:152)(cid:204)(cid:213)(cid:192)(cid:152)(cid:202)(cid:204)(cid:133)(cid:62)(cid:204)(cid:202)(cid:195)(cid:204)(cid:62)(cid:192)(cid:204)(cid:105)(cid:96)(cid:202)(cid:136)(cid:152)(cid:202)(cid:12)(cid:105)(cid:86)(cid:105)(cid:147)(cid:76)(cid:105)(cid:192)(cid:202)(cid:211)(cid:228)(cid:228)(cid:199)(cid:202)(cid:96)(cid:105)(cid:143)(cid:136)(cid:219)(cid:105)(cid:192)(cid:105)(cid:96)(cid:202)(cid:62)(cid:202)(cid:76)(cid:156)(cid:96)(cid:222)(cid:202)(cid:76)(cid:143)(cid:156)(cid:220)(cid:202)(cid:204)(cid:156)(cid:202)(cid:1)(cid:147)(cid:105)(cid:192)(cid:136)(cid:86)(cid:62)(cid:189)(cid:195)(cid:202)(cid:220)(cid:156)(cid:192)(cid:142)(cid:105)(cid:192)(cid:195)(cid:176)(cid:202)(cid:45)(cid:136)(cid:152)(cid:86)(cid:105)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:192)(cid:105)(cid:86)(cid:105)(cid:195)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:76)(cid:105)(cid:125)(cid:62)(cid:152)(cid:93)(cid:202)(cid:220)(cid:105)(cid:202)(cid:133)(cid:62)(cid:219)(cid:105)(cid:202) (cid:143)(cid:156)(cid:195)(cid:204)(cid:202)(cid:152)(cid:105)(cid:62)(cid:192)(cid:143)(cid:222)(cid:202)(cid:110)(cid:176)(cid:120)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:202)(cid:141)(cid:156)(cid:76)(cid:195)(cid:93)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:213)(cid:152)(cid:105)(cid:147)(cid:171)(cid:143)(cid:156)(cid:222)(cid:147)(cid:105)(cid:152)(cid:204)(cid:202)(cid:192)(cid:62)(cid:204)(cid:105)(cid:202)(cid:152)(cid:156)(cid:220)(cid:202)(cid:136)(cid:195)(cid:202)(cid:133)(cid:156)(cid:143)(cid:96)(cid:136)(cid:152)(cid:125)(cid:202)(cid:141)(cid:213)(cid:195)(cid:204)(cid:202)(cid:76)(cid:105)(cid:143)(cid:156)(cid:220)(cid:202)(cid:163)(cid:228)(cid:175)(cid:176)(cid:202)(cid:47)(cid:133)(cid:105)(cid:202)(cid:147)(cid:62)(cid:152)(cid:213)(cid:118)(cid:62)(cid:86)(cid:204)(cid:213)(cid:192)(cid:136)(cid:152)(cid:125)(cid:202)(cid:195)(cid:105)(cid:86)(cid:204)(cid:156)(cid:192)(cid:202)(cid:133)(cid:62)(cid:195)(cid:202)(cid:76)(cid:105)(cid:105)(cid:152)(cid:202)(cid:105)(cid:195)(cid:171)(cid:105)- cially hard hit, shedding 5 million jobs in the last 10 years. Those jobs are the backbone of America’s middle class. Great countries (cid:62)(cid:192)(cid:105)(cid:202)(cid:76)(cid:213)(cid:136)(cid:143)(cid:204)(cid:202)(cid:156)(cid:152)(cid:202)(cid:62)(cid:202)(cid:195)(cid:204)(cid:192)(cid:156)(cid:152)(cid:125)(cid:202)(cid:147)(cid:62)(cid:152)(cid:213)(cid:118)(cid:62)(cid:86)(cid:204)(cid:213)(cid:192)(cid:136)(cid:152)(cid:125)(cid:202)(cid:76)(cid:62)(cid:195)(cid:105)(cid:176)(cid:202)(cid:22)(cid:204)(cid:202)(cid:136)(cid:195)(cid:202)(cid:204)(cid:136)(cid:147)(cid:105)(cid:202)(cid:204)(cid:156)(cid:202)(cid:192)(cid:105)(cid:147)(cid:62)(cid:142)(cid:105)(cid:202)(cid:186)(cid:31)(cid:62)(cid:96)(cid:105)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:49)(cid:45)(cid:1)(cid:187)(cid:202)(cid:136)(cid:152)(cid:204)(cid:156)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:171)(cid:156)(cid:220)(cid:105)(cid:192)(cid:118)(cid:213)(cid:143)(cid:202)(cid:76)(cid:192)(cid:62)(cid:152)(cid:96)(cid:202)(cid:204)(cid:133)(cid:62)(cid:204)(cid:202)(cid:133)(cid:62)(cid:195)(cid:202)(cid:76)(cid:105)(cid:105)(cid:152)(cid:202)(cid:62)(cid:204)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202) heart of our wealth creation. Don’t believe the cynics who say we can’t compete against cheap foreign labor. We can. Finding Good Opportunities in a Bad Economy In this stagnant economic environment, Raven’s growth will come from taking market share, developing new products, and geographic expansion. Even in a bad economy, there are good opportunities. We continue to see signiﬁcant opportunities in developing markets—including Eastern Europe, Russia and Brazil—as well as the developed markets of Canada, Europe and Australia. We will grow in these markets by aggressively investing in our sales and marketing infrastructure, as well as expanding our distributor networks. Last year we held R&D investment steady in spite of the poor economy. This year we will get more aggressive, increasing investment by 14%. We will use our strong ﬁnancial base to make strategic investments and acquisitions in growth areas where Raven already has a market presence. (cid:10)(cid:62)(cid:171)(cid:136)(cid:204)(cid:62)(cid:143)(cid:202)(cid:195)(cid:171)(cid:105)(cid:152)(cid:96)(cid:136)(cid:152)(cid:125)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:136)(cid:152)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:202)(cid:163)(cid:123)(cid:228)(cid:175)(cid:202)(cid:204)(cid:156)(cid:202)(cid:102)(cid:110)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:176)(cid:202)(cid:34)(cid:213)(cid:192)(cid:202)(cid:118)(cid:156)(cid:86)(cid:213)(cid:195)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:76)(cid:105)(cid:202)(cid:156)(cid:152)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:195)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:204)(cid:105)(cid:86)(cid:133)(cid:152)(cid:156)(cid:143)(cid:156)(cid:125)(cid:136)(cid:105)(cid:195)(cid:202)(cid:204)(cid:133)(cid:62)(cid:204)(cid:202)(cid:62)(cid:143)(cid:143)(cid:156)(cid:220)(cid:202)(cid:213)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:125)(cid:192)(cid:156)(cid:220)(cid:176)(cid:202) Operating Excellence and Strong Balance Sheet Cash has always been king at Raven. As I have said in past annual reports, cash is real: it can’t be manipulated. However, there is always a danger that too much cash becomes a safety net. When we accumulate more cash than we can effectively allocate to proﬁtable growth, we will give it back to our shareholders—either as a dividend or in the form of a stock buyback. (cid:34)(cid:213)(cid:192)(cid:202)(cid:86)(cid:156)(cid:152)(cid:195)(cid:105)(cid:192)(cid:219)(cid:62)(cid:204)(cid:136)(cid:219)(cid:105)(cid:202)(cid:86)(cid:62)(cid:195)(cid:133)(cid:202)(cid:195)(cid:204)(cid:192)(cid:62)(cid:204)(cid:105)(cid:125)(cid:222)(cid:202)(cid:195)(cid:105)(cid:192)(cid:219)(cid:105)(cid:96)(cid:202)(cid:213)(cid:195)(cid:202)(cid:105)(cid:195)(cid:171)(cid:105)(cid:86)(cid:136)(cid:62)(cid:143)(cid:143)(cid:222)(cid:202)(cid:220)(cid:105)(cid:143)(cid:143)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:171)(cid:62)(cid:195)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:86)(cid:213)(cid:204)(cid:202)(cid:76)(cid:62)(cid:86)(cid:142)(cid:202)(cid:86)(cid:62)(cid:171)(cid:136)(cid:204)(cid:62)(cid:143)(cid:202)(cid:105)(cid:221)(cid:171)(cid:105)(cid:152)(cid:96)(cid:136)(cid:204)(cid:213)(cid:192)(cid:105)(cid:195)(cid:202)(cid:76)(cid:222)(cid:202)(cid:102)(cid:123)(cid:176)(cid:199)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:176)(cid:202) (cid:44)(cid:105)(cid:96)(cid:213)(cid:86)(cid:136)(cid:152)(cid:125)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:136)(cid:152)(cid:219)(cid:105)(cid:152)(cid:204)(cid:156)(cid:192)(cid:222)(cid:202)(cid:62)(cid:96)(cid:96)(cid:105)(cid:96)(cid:202)(cid:102)(cid:163)(cid:176)(cid:120)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:202)(cid:204)(cid:156)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:76)(cid:62)(cid:143)(cid:62)(cid:152)(cid:86)(cid:105)(cid:202)(cid:195)(cid:133)(cid:105)(cid:105)(cid:204)(cid:93)(cid:202)(cid:62)(cid:195)(cid:202)(cid:136)(cid:152)(cid:219)(cid:105)(cid:152)(cid:204)(cid:156)(cid:192)(cid:222)(cid:202)(cid:204)(cid:213)(cid:192)(cid:152)(cid:195)(cid:202)(cid:136)(cid:147)(cid:171)(cid:192)(cid:156)(cid:219)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:120)(cid:176)(cid:206)(cid:56)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:120)(cid:176)(cid:211)(cid:56)(cid:176)(cid:202)(cid:202) 4 2 0 1 0 A N N U A L R E P O R T RAVEN Raven versus the S&P 500 (excluding dividends) $35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Raven Industries, Inc. S&P 500 If a person invested $2.40 in Raven stock or in the S&P 500 on January 31, 2000, 10 years later the investment in Raven would have been worth $28.58, while the S&P would have been valued at $1.85. Our ability to collect accounts receivable and avoid bad debt writeoffs was especially impressive. At a time when credit quality industry-wide has deteriorated, we had better collection turnover and fewer bad debts than the year before. Accounts receivable collections were cut from an average of 54 days to 52. Our sound risk management philosophy and strong cash position gives us a full range of strategic choices. We will continue to increase the dividend, take advantage of acquisition opportunities, and maintain a ﬂexible share repurchase program to balance our capital structure. The quarterly dividend grew 8% to 14 cents per share in July 2009. On March 20, 2010, Raven’s Board of Directors approved the 24th annual increase in the company’s quarterly dividend, to 16 cents per share. We have outperformed the S&P 500 Index in total shareholder return over the past 10 years, with Raven’s stock price growing 1,091% versus the S&P losing 23%. We were named by Forbes Magazine for the fourth consecutive year as one of the “Best Small Companies in America.” A Personal Perspective Our goals over the past decade have been consistent and straightforward: (cid:85)(cid:202)(cid:10)(cid:192)(cid:105)(cid:62)(cid:204)(cid:105)(cid:202)(cid:195)(cid:133)(cid:62)(cid:192)(cid:105)(cid:133)(cid:156)(cid:143)(cid:96)(cid:105)(cid:192)(cid:202)(cid:219)(cid:62)(cid:143)(cid:213)(cid:105)(cid:176) (cid:85)(cid:202)(cid:42)(cid:192)(cid:156)(cid:147)(cid:156)(cid:204)(cid:105)(cid:202)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:62)(cid:76)(cid:143)(cid:105)(cid:202)(cid:76)(cid:213)(cid:195)(cid:136)(cid:152)(cid:105)(cid:195)(cid:195)(cid:202)(cid:125)(cid:192)(cid:156)(cid:220)(cid:204)(cid:133)(cid:176) (cid:85)(cid:202)(cid:10)(cid:192)(cid:105)(cid:62)(cid:204)(cid:105)(cid:202)(cid:156)(cid:171)(cid:171)(cid:156)(cid:192)(cid:204)(cid:213)(cid:152)(cid:136)(cid:204)(cid:136)(cid:105)(cid:195)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:105)(cid:147)(cid:171)(cid:143)(cid:156)(cid:222)(cid:105)(cid:105)(cid:195)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:204)(cid:192)(cid:105)(cid:62)(cid:204)(cid:202)(cid:204)(cid:133)(cid:105)(cid:147)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:96)(cid:136)(cid:125)(cid:152)(cid:136)(cid:204)(cid:222)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:192)(cid:105)(cid:195)(cid:171)(cid:105)(cid:86)(cid:204)(cid:176) (cid:85)(cid:202)(cid:9)(cid:213)(cid:136)(cid:143)(cid:96)(cid:202)(cid:62)(cid:202)(cid:86)(cid:156)(cid:147)(cid:171)(cid:62)(cid:152)(cid:222)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:143)(cid:156)(cid:152)(cid:125)(cid:202)(cid:133)(cid:62)(cid:213)(cid:143)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:105)(cid:152)(cid:96)(cid:213)(cid:192)(cid:136)(cid:152)(cid:125)(cid:202)(cid:219)(cid:62)(cid:143)(cid:213)(cid:105)(cid:195)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:136)(cid:152)(cid:204)(cid:105)(cid:125)(cid:192)(cid:136)(cid:204)(cid:222)(cid:176) I always believed that my job was to get the right people in the right slots; to give them the authority to run their businesses; to make sure they have the resources to succeed; and to constantly challenge them to achieve greater results. I have been fortunate to have a Board of Directors who believed in the Raven vision and provided strong governance without micro-managing. It has been an honor to lead this great company for 10 years. I had a top-notch management team that executed the plan and knew how to make money—in good years and bad. On August 20, 2010, I pass the baton to the next team of leaders, (cid:86)(cid:156)(cid:152)(cid:119)(cid:96)(cid:105)(cid:152)(cid:204)(cid:202)(cid:204)(cid:133)(cid:62)(cid:204)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:86)(cid:156)(cid:147)(cid:171)(cid:62)(cid:152)(cid:222)(cid:202)(cid:136)(cid:195)(cid:202)(cid:136)(cid:152)(cid:202)(cid:125)(cid:156)(cid:156)(cid:96)(cid:202)(cid:133)(cid:62)(cid:152)(cid:96)(cid:195)(cid:176) (cid:47)(cid:156)(cid:202)(cid:62)(cid:143)(cid:143)(cid:202)(cid:204)(cid:133)(cid:156)(cid:195)(cid:105)(cid:202)(cid:22)(cid:202)(cid:220)(cid:62)(cid:195)(cid:202)(cid:171)(cid:192)(cid:136)(cid:219)(cid:136)(cid:143)(cid:105)(cid:125)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:195)(cid:105)(cid:192)(cid:219)(cid:105)(cid:93)(cid:202)(cid:147)(cid:222)(cid:202)(cid:204)(cid:133)(cid:62)(cid:152)(cid:142)(cid:195)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:222)(cid:156)(cid:213)(cid:192)(cid:202)(cid:195)(cid:213)(cid:171)(cid:171)(cid:156)(cid:192)(cid:204)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:86)(cid:156)(cid:152)(cid:119)(cid:96)(cid:105)(cid:152)(cid:86)(cid:105)(cid:176)(cid:202)(cid:20)(cid:156)(cid:156)(cid:96)(cid:76)(cid:222)(cid:105)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:125)(cid:156)(cid:156)(cid:96)(cid:202)(cid:143)(cid:213)(cid:86)(cid:142)(cid:176) Ronald M. Moquist President & CEO March 25, 2010 5 Business Proﬁ le While diversiﬁ cation reduces Raven’s downside risk, each operation uses these strategies to increase its opportunities: • Achieving a signiﬁ cant share in a niche market that offers proﬁ table expansion • Employing a business model that avoids labor-intensive commodity products—and offshore competition • Generating strong cash ﬂ ow to fund reinvestment and shareholder returns • Providing 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 Engineered Films • Ag equipment guidance systems: Cruizer™ • Spray equipment rate controllers: SCS Series™, Sidekick™ • Precision agricultural product application, steering and data management systems: Viper Pro™, Envizio Pro™ • Ag equipment boom management and application systems: SmartBoom™, AccuBoom™, AutoBoom™ • Tractor steering systems: SmarTrax™, SmartSteer™ • In-cab RTK correction signal transmission and high-speed Internet platform: Slingshot™ • Navigational guidance for ship pilots: Wheelhouse II™ • Extruded polyethylene ﬁ lm that can be formulated and tailored to a customer’s speciﬁ cations • String reinforced plastic (polyethylene) sheeting: DURA-SKRIM® • Silage bunker covers that protect grain and animal feed: FeedFresh™ • Vapor & gas retarders/barriers to prevent moisture from migrating through concrete slabs or walls: VaporBlock® • Concrete curing blankets that protect against cracking and excessive shrinking: Conkure™ • Domestic and international agricultural OEMs and sprayer manufacturers • Agricultural equipment aftermarket • Professional marine ship pilots • Energy and geomembrane: oilﬁ eld pit liners, ﬂ oating covers, remediation liners and covers, landﬁ ll caps and interim covers, pond and canal linings • Construction: temporary building enclosures, house wraps, disaster ﬁ lms, vapor retarders, gas barriers, concrete curing blankets • Manufactured housing: transit enclosures, house wraps • Industrial: multilayer packaging ﬁ lms, lamination ﬁ lms, containment tubing • Agriculture: temporary grain covers, silage bunker covers, poultry house ceilings, waste disposal liners Electronic Systems • 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 • Primarily Fortune 500 and industrial OEMs in North America • End markets served by customers include controls and instrumentation, aerospace/aviation, secure communication, defense • High-altitude research balloons carrying scientiﬁ c 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, scientiﬁ c use • Military parachutes • Clothing to protect from exposure to biochemicals, fuels and fumes, extreme cold water immersion • Customized inﬂ atable military decoys • U.S. and foreign governments • U.S. and international military forces • Homeland security • NASA • Scientiﬁ c agencies and universities Aerostar International 6 Sales by Operating Unit Income by Operating Unit Applied Technology Engineered Films Electronic Systems Aerostar Competitive Strengths Milestones (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:76)(cid:69)(cid:65)(cid:68)(cid:69)(cid:82)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:65)(cid:71)(cid:82)(cid:73)(cid:67)(cid:85)(cid:76)(cid:84)(cid:85)(cid:82)(cid:65)(cid:76)(cid:0)(cid:83)(cid:80)(cid:82)(cid:65)(cid:89)(cid:69)(cid:82)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:83) (cid:44)(cid:65)(cid:82)(cid:71)(cid:69)(cid:0)(cid:73)(cid:78)(cid:83)(cid:84)(cid:65)(cid:76)(cid:76)(cid:69)(cid:68)(cid:0)(cid:66)(cid:65)(cid:83)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:83)(cid:80)(cid:82)(cid:65)(cid:89)(cid:69)(cid:82)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:83) Solid brand recognition and distribution network (cid:55)(cid:73)(cid:68)(cid:69)(cid:0)(cid:82)(cid:65)(cid:78)(cid:71)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:80)(cid:82)(cid:69)(cid:67)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:65)(cid:71)(cid:82)(cid:73)(cid:67)(cid:85)(cid:76)(cid:84)(cid:85)(cid:82)(cid:65)(cid:76)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0) control total input costs (cid:37)(cid:88)(cid:67)(cid:69)(cid:76)(cid:76)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:70)(cid:84)(cid:69)(cid:82)(cid:13)(cid:83)(cid:65)(cid:76)(cid:69)(cid:0)(cid:83)(cid:85)(cid:80)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:84)(cid:72)(cid:82)(cid:79)(cid:85)(cid:71)(cid:72)(cid:0)(cid:65)(cid:0)(cid:83)(cid:84)(cid:82)(cid:79)(cid:78)(cid:71)(cid:12)(cid:0) (cid:67)(cid:69)(cid:78)(cid:84)(cid:82)(cid:65)(cid:76)(cid:73)(cid:90)(cid:69)(cid:68)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:0)(cid:83)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:78)(cid:69)(cid:84)(cid:87)(cid:79)(cid:82)(cid:75)(cid:0)(cid:79)(cid:70)(cid:0) precision ag specialists (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:54)(cid:69)(cid:82)(cid:84)(cid:73)(cid:67)(cid:65)(cid:76)(cid:76)(cid:89)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:71)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:77)(cid:65)(cid:78)(cid:85)(cid:70)(cid:65)(cid:67)(cid:84)(cid:85)(cid:82)(cid:69)(cid:82)(cid:26)(cid:0)(cid:79)(cid:70)(cid:70)(cid:69)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:69)(cid:88)(cid:84)(cid:82)(cid:85)(cid:68)(cid:69)(cid:68)(cid:0) blown ﬁ lm, lamination and conversion (cid:34)(cid:82)(cid:79)(cid:65)(cid:68)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:0)(cid:76)(cid:73)(cid:78)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:77)(cid:79)(cid:78)(cid:79)(cid:13)(cid:0)(cid:84)(cid:79)(cid:0)(cid:83)(cid:69)(cid:86)(cid:69)(cid:78)(cid:13)(cid:76)(cid:65)(cid:89)(cid:69)(cid:82)(cid:0) (cid:67)(cid:79)(cid:13)(cid:69)(cid:88)(cid:84)(cid:82)(cid:85)(cid:68)(cid:69)(cid:68)(cid:0)(cid:108)(cid:0)(cid:76)(cid:77)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:82)(cid:69)(cid:73)(cid:78)(cid:70)(cid:79)(cid:82)(cid:67)(cid:69)(cid:68)(cid:0)(cid:76)(cid:65)(cid:77)(cid:73)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:83)(cid:72)(cid:69)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:12)(cid:0) (cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:14)(cid:16)(cid:16)(cid:17)(cid:0)(cid:84)(cid:79)(cid:0)(cid:14)(cid:16)(cid:20)(cid:21)(cid:0)(cid:73)(cid:78)(cid:67)(cid:72)(cid:69)(cid:83)(cid:0)(cid:84)(cid:72)(cid:73)(cid:67)(cid:75) Superior target marketing (cid:50)(cid:6)(cid:36)(cid:0)(cid:84)(cid:69)(cid:65)(cid:77)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:83)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:73)(cid:90)(cid:69)(cid:68)(cid:0)(cid:83)(cid:79)(cid:76)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0) customers (cid:41)(cid:51)(cid:47)(cid:0)(cid:25)(cid:16)(cid:16)(cid:17)(cid:26)(cid:18)(cid:16)(cid:16)(cid:16)(cid:0)(cid:67)(cid:69)(cid:82)(cid:84)(cid:73)(cid:108)(cid:0)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) Developed key alliances with other precision ag (cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:82)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:69)(cid:88)(cid:80)(cid:65)(cid:78)(cid:68)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:82)(cid:69)(cid:65)(cid:67)(cid:72)(cid:0) (cid:41)(cid:78)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:80)(cid:69)(cid:78)(cid:69)(cid:84)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78) (cid:38)(cid:73)(cid:76)(cid:76)(cid:69)(cid:68)(cid:0)(cid:79)(cid:85)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:68)(cid:73)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:7)(cid:83)(cid:0)(cid:65)(cid:71)(cid:0)(cid:73)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:83)(cid:84)(cid:82)(cid:65)(cid:84)(cid:69)(cid:71)(cid:89)(cid:0) by teaming with SST, introducing Slingshot™ and acquiring Ranchview (cid:33)(cid:78)(cid:78)(cid:79)(cid:85)(cid:78)(cid:67)(cid:69)(cid:68)(cid:0)(cid:65)(cid:71)(cid:82)(cid:69)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:73)(cid:78)(cid:13)(cid:70)(cid:65)(cid:67)(cid:84)(cid:79)(cid:82)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:70)(cid:84)(cid:69)(cid:82)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0) (cid:83)(cid:84)(cid:69)(cid:69)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:83)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:108)(cid:0)(cid:82)(cid:83)(cid:84)(cid:0)(cid:84)(cid:82)(cid:65)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0)(cid:47)(cid:37)(cid:45)(cid:0)(cid:80)(cid:65)(cid:82)(cid:84)(cid:78)(cid:69)(cid:82) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:50)(cid:69)(cid:70)(cid:79)(cid:67)(cid:85)(cid:83)(cid:69)(cid:68)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:67)(cid:69)(cid:0)(cid:65)(cid:76)(cid:79)(cid:78)(cid:71)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:0)(cid:76)(cid:73)(cid:78)(cid:69)(cid:83)(cid:26)(cid:0) (cid:17)(cid:9)(cid:0)(cid:84)(cid:69)(cid:67)(cid:72)(cid:78)(cid:73)(cid:67)(cid:65)(cid:76)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:80)(cid:69)(cid:79)(cid:80)(cid:76)(cid:69)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:72)(cid:73)(cid:71)(cid:72)(cid:76)(cid:89)(cid:0)(cid:69)(cid:78)(cid:71)(cid:73)(cid:78)(cid:69)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:108)(cid:0)(cid:76)(cid:77)(cid:83)(cid:0) (cid:66)(cid:85)(cid:89)(cid:69)(cid:82)(cid:83)(cid:12)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:18)(cid:9)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:79)(cid:68)(cid:73)(cid:84)(cid:89)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:80)(cid:69)(cid:79)(cid:80)(cid:76)(cid:69)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0) distributors (cid:50)(cid:69)(cid:67)(cid:79)(cid:78)(cid:108)(cid:0)(cid:71)(cid:85)(cid:82)(cid:69)(cid:68)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:13)(cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:76)(cid:89)(cid:0)(cid:65)(cid:68)(cid:68)(cid:69)(cid:68)(cid:0) capabilities to produce higher quality products with (cid:65)(cid:0)(cid:83)(cid:77)(cid:65)(cid:76)(cid:76)(cid:69)(cid:82)(cid:12)(cid:0)(cid:66)(cid:69)(cid:84)(cid:84)(cid:69)(cid:82)(cid:0)(cid:84)(cid:82)(cid:65)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:83)(cid:84)(cid:65)(cid:70)(cid:70) (cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:68)(cid:0)(cid:76)(cid:65)(cid:66)(cid:0)(cid:65)(cid:67)(cid:67)(cid:82)(cid:69)(cid:68)(cid:73)(cid:84)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:69)(cid:79)(cid:83)(cid:89)(cid:78)(cid:84)(cid:72)(cid:69)(cid:84)(cid:73)(cid:67)(cid:0) (cid:33)(cid:67)(cid:67)(cid:82)(cid:69)(cid:68)(cid:73)(cid:84)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:41)(cid:78)(cid:83)(cid:84)(cid:73)(cid:84)(cid:85)(cid:84)(cid:69)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:33)(cid:68)(cid:86)(cid:65)(cid:78)(cid:67)(cid:69)(cid:68)(cid:0)(cid:77)(cid:65)(cid:78)(cid:85)(cid:70)(cid:65)(cid:67)(cid:84)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:69)(cid:67)(cid:72)(cid:78)(cid:79)(cid:76)(cid:79)(cid:71)(cid:89) (cid:38)(cid:85)(cid:76)(cid:76)(cid:13)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:82)(cid:26)(cid:0)(cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:0)(cid:84)(cid:72)(cid:82)(cid:79)(cid:85)(cid:71)(cid:72)(cid:0) (cid:69)(cid:78)(cid:71)(cid:73)(cid:78)(cid:69)(cid:69)(cid:82)(cid:73)(cid:78)(cid:71)(cid:12)(cid:0)(cid:77)(cid:65)(cid:78)(cid:85)(cid:70)(cid:65)(cid:67)(cid:84)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69) Close partnership with customers (cid:41)(cid:48)(cid:35)(cid:0)(cid:67)(cid:69)(cid:82)(cid:84)(cid:73)(cid:108)(cid:0)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:84)(cid:79)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0)(cid:76)(cid:69)(cid:65)(cid:68)(cid:13)(cid:70)(cid:82)(cid:69)(cid:69)(cid:0)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:82)(cid:79)(cid:78)(cid:73)(cid:67)(cid:83)(cid:0) assemblies (cid:41)(cid:51)(cid:47)(cid:0)(cid:25)(cid:16)(cid:16)(cid:17)(cid:26)(cid:18)(cid:16)(cid:16)(cid:16)(cid:0)(cid:67)(cid:69)(cid:82)(cid:84)(cid:73)(cid:108)(cid:0)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:41)(cid:78)(cid:86)(cid:69)(cid:78)(cid:84)(cid:79)(cid:82)(cid:89)(cid:0)(cid:84)(cid:85)(cid:82)(cid:78)(cid:83)(cid:0)(cid:73)(cid:78)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:20)(cid:14)(cid:22)(cid:56)(cid:0)(cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:20)(cid:14)(cid:19)(cid:56)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) total inventory investment dropped about $1 million (cid:37)(cid:88)(cid:67)(cid:69)(cid:69)(cid:68)(cid:69)(cid:68)(cid:0)(cid:71)(cid:79)(cid:65)(cid:76)(cid:0)(cid:79)(cid:78)(cid:0)(cid:73)(cid:78)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:89)(cid:0)(cid:66)(cid:89)(cid:0)(cid:22)(cid:5) (cid:33)(cid:80)(cid:80)(cid:82)(cid:79)(cid:65)(cid:67)(cid:72)(cid:69)(cid:68)(cid:0)(cid:71)(cid:79)(cid:65)(cid:76)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:25)(cid:16)(cid:5)(cid:0)(cid:79)(cid:78)(cid:13)(cid:84)(cid:73)(cid:77)(cid:69)(cid:0)(cid:68)(cid:69)(cid:76)(cid:73)(cid:86)(cid:69)(cid:82)(cid:89) (cid:39)(cid:65)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:65)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:0)(cid:73)(cid:78)(cid:0)(cid:83)(cid:69)(cid:67)(cid:85)(cid:82)(cid:69)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:85)(cid:78)(cid:73)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:51)(cid:79)(cid:76)(cid:69)(cid:0)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:53)(cid:14)(cid:51)(cid:14)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:83)(cid:67)(cid:73)(cid:69)(cid:78)(cid:84)(cid:73)(cid:108)(cid:0)(cid:67)(cid:0)(cid:82)(cid:69)(cid:83)(cid:69)(cid:65)(cid:82)(cid:67)(cid:72)(cid:0)(cid:66)(cid:65)(cid:76)(cid:76)(cid:79)(cid:79)(cid:78)(cid:83) (cid:47)(cid:86)(cid:69)(cid:82)(cid:0)(cid:21)(cid:16)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:82)(cid:73)(cid:69)(cid:78)(cid:67)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:77)(cid:65)(cid:78)(cid:85)(cid:70)(cid:65)(cid:67)(cid:84)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0) stratospheric balloons (cid:34)(cid:69)(cid:83)(cid:84)(cid:0)(cid:84)(cid:69)(cid:67)(cid:72)(cid:78)(cid:79)(cid:76)(cid:79)(cid:71)(cid:89)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:72)(cid:73)(cid:71)(cid:72)(cid:13)(cid:83)(cid:80)(cid:69)(cid:69)(cid:68)(cid:0)(cid:83)(cid:69)(cid:87)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:69)(cid:65)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0) (cid:79)(cid:70)(cid:0)(cid:83)(cid:80)(cid:69)(cid:67)(cid:73)(cid:65)(cid:76)(cid:84)(cid:89)(cid:0)(cid:70)(cid:65)(cid:66)(cid:82)(cid:73)(cid:67)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:108)(cid:0)(cid:76)(cid:77)(cid:83) Can rapidly adapt tethered aerostats to customer needs and quickly produce them (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) Reported record sales and operating proﬁ ts (cid:55)(cid:79)(cid:78)(cid:0)(cid:65)(cid:0)(cid:108)(cid:0)(cid:86)(cid:69)(cid:13)(cid:89)(cid:69)(cid:65)(cid:82)(cid:12)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:67)(cid:84)(cid:69)(cid:68)(cid:0)(cid:4)(cid:22)(cid:16)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)(cid:0)(cid:53)(cid:14)(cid:51)(cid:14)(cid:0)(cid:33)(cid:82)(cid:77)(cid:89)(cid:0) (cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:65)(cid:67)(cid:84)(cid:0)(cid:84)(cid:79)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0)(cid:52)(cid:13)(cid:17)(cid:17)(cid:0)(cid:80)(cid:65)(cid:82)(cid:65)(cid:67)(cid:72)(cid:85)(cid:84)(cid:69)(cid:83) (cid:41)(cid:78)(cid:73)(cid:84)(cid:73)(cid:65)(cid:76)(cid:0)(cid:68)(cid:69)(cid:76)(cid:73)(cid:86)(cid:69)(cid:82)(cid:73)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:69)(cid:84)(cid:72)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:65)(cid:69)(cid:82)(cid:79)(cid:83)(cid:84)(cid:65)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:77)(cid:69)(cid:69)(cid:84)(cid:0) (cid:104)(cid:80)(cid:69)(cid:82)(cid:83)(cid:73)(cid:83)(cid:84)(cid:69)(cid:78)(cid:84)(cid:0)(cid:83)(cid:85)(cid:82)(cid:86)(cid:69)(cid:73)(cid:76)(cid:76)(cid:65)(cid:78)(cid:67)(cid:69)(cid:118)(cid:0)(cid:78)(cid:69)(cid:69)(cid:68)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:33)(cid:70)(cid:71)(cid:72)(cid:65)(cid:78)(cid:73)(cid:83)(cid:84)(cid:65)(cid:78)(cid:0) Applied Technology Sales (dollars in millions) $103.1 $86.2 $64.3 $47.5 $45.5 $40.7 2005 2006 2007 2008 2009 2010 Engineered Films Sales (dollars in millions) $91.1 $85.3 $89.9 $82.8 $58.7 $63.8 2005 2006 2007 2008 2009 2010 Electronic Systems Sales (dollars in millions) $66.3 $68.0 $62.0 $63.5 $56.2 $47.0 2005 2006 2007 2008 2009 2010 Aerostar Sales (dollars in millions) $27.2 $27.2 $21.7 $18.0 $17.3 $14.7 2005 2006 2007 2008 2009 2010 7 Applied Technology Division Applied Technology’s information strategy is to provide a precision agriculture system for growers to turn ﬁeld data from their equipment into information they can use to improve productivity, efﬁciency and decision-making while reducing costs. Matthew T. Burkhart Division Vice President and General Manager— Applied Technology Division “ Facing a softer ag market, our focus turned to business development. We believe the next step in precision ag is to take information off of equipment in the ﬁeld, organize it, analyze it, and use it to improve decision-making. Investing in Slingshot, Ranchview and SST allows us to provide game-changing solutions for growers, offering us exciting potential for growth. ” 8 2 0 1 0 A N N U A L R E P O R T RAVEN Making Opportunities During the year, weakening farm income levels led growers and custom applicators to become cautious about equipment (cid:171)(cid:213)(cid:192)(cid:86)(cid:133)(cid:62)(cid:195)(cid:105)(cid:195)(cid:176)(cid:202)(cid:47)(cid:133)(cid:136)(cid:195)(cid:202)(cid:156)(cid:118)(cid:118)(cid:195)(cid:105)(cid:204)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:136)(cid:147)(cid:171)(cid:62)(cid:86)(cid:204)(cid:202)(cid:156)(cid:118)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:202)(cid:136)(cid:152)(cid:204)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:192)(cid:105)(cid:96)(cid:213)(cid:86)(cid:105)(cid:96)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:163)(cid:200)(cid:175)(cid:176)(cid:202)(cid:22)(cid:152)(cid:204)(cid:105)(cid:192)(cid:152)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:62)(cid:143)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:211)(cid:228)(cid:175)(cid:202)(cid:156)(cid:118)(cid:202) (cid:192)(cid:105)(cid:219)(cid:105)(cid:152)(cid:213)(cid:105)(cid:195)(cid:202)(cid:219)(cid:105)(cid:192)(cid:195)(cid:213)(cid:195)(cid:202)(cid:163)(cid:110)(cid:175)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:171)(cid:192)(cid:105)(cid:219)(cid:136)(cid:156)(cid:213)(cid:195)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:31)(cid:156)(cid:192)(cid:105)(cid:202)(cid:86)(cid:156)(cid:213)(cid:152)(cid:204)(cid:192)(cid:136)(cid:105)(cid:195)(cid:202)(cid:62)(cid:96)(cid:156)(cid:171)(cid:204)(cid:105)(cid:96)(cid:202)(cid:171)(cid:192)(cid:105)(cid:86)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:62)(cid:125)(cid:202)(cid:147)(cid:105)(cid:204)(cid:133)(cid:156)(cid:96)(cid:195)(cid:93)(cid:202)(cid:220)(cid:105)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:136)(cid:152)(cid:213)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:204)(cid:62)(cid:136)(cid:143)(cid:156)(cid:192)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202) materials and approach to each region, and we invested in sales staff and infrastructure in Canada and the former Soviet Republics—or Commonwealth of Independent States (CIS). Created Next Generation Precision Ag Platform—Our new approach, called Slingshot™, provides a suite of components and services not found anywhere else. Equipment operators have an industrial-grade modem placed in their cab. The modem uses cellular technology provided through our Ranchview acquisition, which is more reliable and covers more area than competing traditional radio frequency equipment. This gives growers real-time, high-speed Internet access to services they need: (cid:85)(cid:202)(cid:44)(cid:47)(cid:28)(cid:202)(cid:86)(cid:156)(cid:192)(cid:192)(cid:105)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:195)(cid:136)(cid:125)(cid:152)(cid:62)(cid:143)(cid:195)(cid:93)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:20)(cid:42)(cid:45)(cid:202)(cid:62)(cid:86)(cid:86)(cid:213)(cid:192)(cid:62)(cid:86)(cid:222)(cid:202)(cid:204)(cid:156)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:136)(cid:152)(cid:202)(cid:62)(cid:152)(cid:202)(cid:136)(cid:152)(cid:86)(cid:133) (cid:85)(cid:202)(cid:44)(cid:105)(cid:147)(cid:156)(cid:204)(cid:105)(cid:202)(cid:195)(cid:213)(cid:171)(cid:171)(cid:156)(cid:192)(cid:204)(cid:93)(cid:202)(cid:119)(cid:143)(cid:105)(cid:202)(cid:204)(cid:192)(cid:62)(cid:152)(cid:195)(cid:118)(cid:105)(cid:192)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:219)(cid:105)(cid:133)(cid:136)(cid:86)(cid:143)(cid:105)(cid:202)(cid:156)(cid:76)(cid:195)(cid:105)(cid:192)(cid:219)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202) (cid:45)(cid:143)(cid:136)(cid:152)(cid:125)(cid:195)(cid:133)(cid:156)(cid:204)(cid:202)(cid:86)(cid:62)(cid:152)(cid:202)(cid:76)(cid:105)(cid:202)(cid:213)(cid:195)(cid:105)(cid:96)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:44)(cid:62)(cid:219)(cid:105)(cid:152)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:152)(cid:156)(cid:152)(cid:135)(cid:44)(cid:62)(cid:219)(cid:105)(cid:152)(cid:202)(cid:171)(cid:192)(cid:105)(cid:86)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:62)(cid:125)(cid:202)(cid:133)(cid:62)(cid:192)(cid:96)(cid:220)(cid:62)(cid:192)(cid:105)(cid:176)(cid:202)(cid:22)(cid:152)(cid:204)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:105)(cid:96)(cid:202)(cid:136)(cid:152)(cid:202)(cid:27)(cid:62)(cid:152)(cid:213)(cid:62)(cid:192)(cid:222)(cid:202)(cid:211)(cid:228)(cid:163)(cid:228)(cid:93)(cid:202)(cid:220)(cid:105)(cid:202)(cid:76)(cid:105)(cid:143)(cid:136)(cid:105)(cid:219)(cid:105)(cid:202)(cid:136)(cid:204)(cid:195)(cid:202)(cid:86)(cid:213)(cid:204)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202) edge approach signiﬁcantly increases our long-term growth prospects. Developed Alliances—Relationships were established with market leaders during the year: (cid:85)(cid:202)(cid:9)(cid:213)(cid:133)(cid:143)(cid:105)(cid:192)(cid:202)(cid:136)(cid:195)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:119)(cid:192)(cid:195)(cid:204)(cid:202)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:156)(cid:192)(cid:202)(cid:147)(cid:62)(cid:152)(cid:213)(cid:118)(cid:62)(cid:86)(cid:204)(cid:213)(cid:192)(cid:105)(cid:192)(cid:202)(cid:204)(cid:156)(cid:202)(cid:136)(cid:152)(cid:195)(cid:204)(cid:62)(cid:143)(cid:143)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:195)(cid:204)(cid:105)(cid:105)(cid:192)(cid:136)(cid:152)(cid:125)(cid:202)(cid:195)(cid:222)(cid:195)(cid:204)(cid:105)(cid:147)(cid:202)(cid:62)(cid:204)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:118)(cid:62)(cid:86)(cid:204)(cid:156)(cid:192)(cid:222)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:62)(cid:143)(cid:195)(cid:156)(cid:202)(cid:156)(cid:118)(cid:118)(cid:105)(cid:192)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:62)(cid:195)(cid:202)(cid:62)(cid:152)(cid:202)(cid:62)(cid:118)(cid:204)(cid:105)(cid:192)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:202) addition. (cid:85)(cid:202)(cid:12)(cid:105)(cid:105)(cid:192)(cid:105)(cid:202)(cid:69)(cid:202)(cid:10)(cid:156)(cid:176)(cid:202)(cid:136)(cid:195)(cid:202)(cid:96)(cid:136)(cid:195)(cid:204)(cid:192)(cid:136)(cid:76)(cid:213)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:62)(cid:171)(cid:171)(cid:143)(cid:136)(cid:86)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:156)(cid:143)(cid:202)(cid:195)(cid:156)(cid:143)(cid:213)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:202)(cid:204)(cid:133)(cid:192)(cid:156)(cid:213)(cid:125)(cid:133)(cid:202)(cid:136)(cid:204)(cid:195)(cid:202)(cid:62)(cid:118)(cid:204)(cid:105)(cid:192)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:202)(cid:86)(cid:133)(cid:62)(cid:152)(cid:152)(cid:105)(cid:143)(cid:176) (cid:85)(cid:202)(cid:45)(cid:45)(cid:47)(cid:202)(cid:45)(cid:156)(cid:118)(cid:204)(cid:220)(cid:62)(cid:192)(cid:105)(cid:202)(cid:171)(cid:192)(cid:156)(cid:219)(cid:136)(cid:96)(cid:105)(cid:195)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:76)(cid:192)(cid:156)(cid:62)(cid:96)(cid:105)(cid:195)(cid:204)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:147)(cid:156)(cid:195)(cid:204)(cid:202)(cid:220)(cid:136)(cid:96)(cid:105)(cid:143)(cid:222)(cid:202)(cid:213)(cid:195)(cid:105)(cid:96)(cid:202)(cid:119)(cid:105)(cid:143)(cid:96)(cid:202)(cid:192)(cid:105)(cid:118)(cid:105)(cid:192)(cid:105)(cid:152)(cid:86)(cid:105)(cid:202)(cid:96)(cid:62)(cid:204)(cid:62)(cid:76)(cid:62)(cid:195)(cid:105)(cid:176)(cid:202) (cid:85)(cid:202)(cid:45)(cid:105)(cid:105)(cid:96)(cid:202)(cid:21)(cid:62)(cid:220)(cid:142)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:192)(cid:171)(cid:156)(cid:192)(cid:62)(cid:204)(cid:105)(cid:195)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:93)(cid:202)(cid:195)(cid:105)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:20)(cid:42)(cid:45)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:156)(cid:143)(cid:195)(cid:202)(cid:136)(cid:152)(cid:204)(cid:156)(cid:202)(cid:136)(cid:204)(cid:195)(cid:202)(cid:62)(cid:136)(cid:192)(cid:195)(cid:105)(cid:105)(cid:96)(cid:105)(cid:192)(cid:195)(cid:93)(cid:202)(cid:133)(cid:105)(cid:143)(cid:171)(cid:136)(cid:152)(cid:125)(cid:202)(cid:213)(cid:195)(cid:202)(cid:136)(cid:152)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:202)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:202)(cid:171)(cid:105)(cid:152)(cid:105)(cid:204)(cid:192)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202) in Australia, Canada, the CIS, and Eastern Europe. Improved Product Development—Three steps were taken to achieve this. We established a cross-functional quality improvement team, with the power to make process changes. We restructured our development approach to focus on product families. Testing was established as its own function, and we developed a more comprehensive and structured program. Leveraging Our Progress (cid:47)(cid:133)(cid:105)(cid:202)(cid:86)(cid:213)(cid:192)(cid:192)(cid:105)(cid:152)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:202)(cid:195)(cid:133)(cid:156)(cid:213)(cid:143)(cid:96)(cid:202)(cid:76)(cid:105)(cid:152)(cid:105)(cid:119)(cid:204)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:204)(cid:133)(cid:105)(cid:195)(cid:105)(cid:202)(cid:62)(cid:96)(cid:219)(cid:62)(cid:152)(cid:86)(cid:105)(cid:195)(cid:93)(cid:202)(cid:143)(cid:105)(cid:62)(cid:96)(cid:136)(cid:152)(cid:125)(cid:202)(cid:204)(cid:156)(cid:202)(cid:133)(cid:136)(cid:125)(cid:133)(cid:105)(cid:192)(cid:202)(cid:192)(cid:105)(cid:219)(cid:105)(cid:152)(cid:213)(cid:105)(cid:195)(cid:202)(cid:96)(cid:105)(cid:195)(cid:171)(cid:136)(cid:204)(cid:105)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:136)(cid:152)(cid:213)(cid:105)(cid:96)(cid:202)(cid:220)(cid:105)(cid:62)(cid:142)(cid:152)(cid:105)(cid:195)(cid:195)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:49)(cid:176)(cid:45)(cid:176)(cid:202) Here is where we will invest to achieve this: (cid:85)(cid:202)International growth: Our goal is to generate an increasing percentage of revenues from countries (cid:76)(cid:105)(cid:222)(cid:156)(cid:152)(cid:96)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:49)(cid:176)(cid:45)(cid:176)(cid:202) (cid:85) Information strategy:(cid:202)(cid:55)(cid:105)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:136)(cid:152)(cid:213)(cid:105)(cid:202)(cid:204)(cid:156)(cid:202)(cid:62)(cid:96)(cid:96)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:118)(cid:213)(cid:152)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:118)(cid:213)(cid:192)(cid:204)(cid:133)(cid:105)(cid:192)(cid:202)(cid:136)(cid:152)(cid:204)(cid:105)(cid:125)(cid:192)(cid:62)(cid:204)(cid:105)(cid:202)(cid:45)(cid:45)(cid:47)(cid:189)(cid:195)(cid:202)(cid:1)(cid:125)(cid:56)(cid:202)(cid:96)(cid:62)(cid:204)(cid:62)(cid:76)(cid:62)(cid:195)(cid:105)(cid:202)(cid:195)(cid:156)(cid:118)(cid:204)(cid:220)(cid:62)(cid:192)(cid:105)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202) Slingshot, creating precision agriculture’s strongest value-added information management solution. (cid:85) Acquisition and alliance strategy: We will deliver on the opportunities provided through our current agreements by integrating new technologies into our product line and reaching more growers around the globe. Viper Pro™ ﬁeld computer 9 Engineered Films Division One of the ﬁlms produced by this extruder is used for FeedFresh™. Dairy farmers were the original target for this silage cover, be- cause fresher grain increased milk production. Our market now includes feed cattle, as university studies indicate these animals experience stronger, faster weight gains by eating grain protected by FeedFresh. James D. Groninger Division Vice President and General Manager— Engineered Films Division “ Last year, most of our cus t omers w er e i n s ur vi val m od e: w a n ti n g t o m i n i m i z e t h e i r r i s k b y d o i n g w h a t t h e y h a d a l w a y s d o n e . T h e y w e r e n ’ t i n t e r e s t e d i n t r y i n g a n e w h i g h e r p e r f o r m a n c e ﬁ l m — w h i c h i s o u r v a l u e p r o p o s i t i o n . T h i s i s c h a n g i n g , g i v i n g u s t h e o p p o r t u n i t y t o i n c r e a s e o u r s a l e s a n d p r o ﬁ t a b i l i t y .” 10 2 0 1 0 A N N U A L R E P O R T RAVEN Finding Opportunity in a Tough Environment Engineered Films’ markets faced dramatic contractions last year. Energy market sales were down almost 40%. Construction (cid:220)(cid:62)(cid:195)(cid:202)(cid:156)(cid:118)(cid:118)(cid:202)(cid:211)(cid:120)(cid:175)(cid:93)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:147)(cid:62)(cid:152)(cid:213)(cid:118)(cid:62)(cid:86)(cid:204)(cid:213)(cid:192)(cid:105)(cid:96)(cid:202)(cid:133)(cid:156)(cid:213)(cid:195)(cid:136)(cid:152)(cid:125)(cid:202)(cid:96)(cid:105)(cid:86)(cid:143)(cid:136)(cid:152)(cid:105)(cid:96)(cid:202)(cid:120)(cid:228)(cid:175)(cid:176)(cid:202)(cid:47)(cid:133)(cid:105)(cid:202)(cid:62)(cid:125)(cid:192)(cid:136)(cid:86)(cid:213)(cid:143)(cid:204)(cid:213)(cid:192)(cid:62)(cid:143)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:136)(cid:152)(cid:96)(cid:213)(cid:195)(cid:204)(cid:192)(cid:136)(cid:62)(cid:143)(cid:202)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:195)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:62)(cid:76)(cid:156)(cid:213)(cid:204)(cid:202)(cid:211)(cid:120)(cid:175)(cid:202)(cid:105)(cid:62)(cid:86)(cid:133)(cid:176)(cid:202) (cid:55)(cid:133)(cid:136)(cid:143)(cid:105)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:143)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:62)(cid:202)(cid:211)(cid:153)(cid:175)(cid:202)(cid:96)(cid:105)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:202)(cid:136)(cid:152)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:93)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:96)(cid:136)(cid:219)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)(cid:202)(cid:213)(cid:195)(cid:105)(cid:96)(cid:202)(cid:62)(cid:202)(cid:152)(cid:213)(cid:147)(cid:76)(cid:105)(cid:192)(cid:202)(cid:156)(cid:118)(cid:202)(cid:195)(cid:204)(cid:192)(cid:62)(cid:204)(cid:105)(cid:125)(cid:136)(cid:105)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:192)(cid:105)(cid:147)(cid:62)(cid:136)(cid:152)(cid:202)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:62)(cid:76)(cid:143)(cid:105)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:86)(cid:192)(cid:105)(cid:62)(cid:204)(cid:105)(cid:202)(cid:156)(cid:171)(cid:171)(cid:156)(cid:192)(cid:204)(cid:213)(cid:152)(cid:136)- ties for growth. Increased Operating Efﬁciencies—This included the difﬁcult decision to cut our workforce by one-third before the year began. However, we stepped up employee training and leveraged capital investments made in prior years. As a result, a smaller number of people produced total pounds of ﬁlm that were only down 13% from a year ago, while still reducing scrap and rework costs. We also were able to buy resin at exceptional prices early in the year, strengthening our operating margin. These purchases will be difﬁcult to replicate, but we have the disciplines in place to continue seeking those opportunities. Strengthened Product Offerings—Our new Conkure™ wet curing blankets allow newly poured concrete to retain heat and moisture, protecting against cracking and shrinking. We believe this will become a signiﬁcant contributor for us in the next few years, following in the footsteps of FeedFresh™ silage covers and VaporBlock® underslab vapor retarders. We also installed a used cast extrusion line that we purchased at a favorable price. This allowed us to improve product quality and add new capabilities—such as creating a textured, reinforced geomembrane. In addition, we became an accredited lab under the Geosynthetic Accreditation Institute. This allows us to test and certify materials for our end users, rather than send- ing these to a third party. Customer-focused Sales Approach—We serve two types of customers with very different needs. To better reach and support them, we reorganized into two specialized sales groups. The technical sales force offers a solutions provider approach to those purchasing engineered ﬁlms. Our commodity product salespeople assist distribution ﬁrms, as well as engineers and speciﬁcation writers. This new system helps us create better customer relationships that should lead to higher sales. Creating Opportunity Our goal is to ﬁnd ways to improve margins and develop opportunities for growth. A number of strategies already are in place to promote this. (cid:85)(cid:202)More efﬁcient new product development: We are expanding our lab line capabilities so they can do faster testing of new resin chemistries as well as shorter trial runs. This allows us to reduce product development time, get newly designed products to customers much faster, and achieve this at a lower cost. (cid:85)(cid:202)Active sales effort: In addition to a better focused sales force, with more targeted marketing materials, we will step up our participation in trade shows and do selective advertising this year to raise product awareness. (cid:85)(cid:202)Increased market penetration: Sales momentum continues to build for our FeedFresh silage bunker covers and VaporBlock vapor and gas barrier ﬁlms. We expect this will result in higher sales and greater market penetration. (cid:55)(cid:105)(cid:202)(cid:76)(cid:105)(cid:143)(cid:136)(cid:105)(cid:219)(cid:105)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:195)(cid:202)(cid:62)(cid:192)(cid:105)(cid:202)(cid:152)(cid:156)(cid:220)(cid:202)(cid:171)(cid:62)(cid:195)(cid:204)(cid:202)(cid:186)(cid:195)(cid:213)(cid:192)(cid:219)(cid:136)(cid:219)(cid:62)(cid:143)(cid:202)(cid:147)(cid:156)(cid:96)(cid:105)(cid:176)(cid:187)(cid:202)(cid:10)(cid:213)(cid:195)(cid:204)(cid:156)(cid:147)(cid:105)(cid:192)(cid:195)(cid:202)(cid:62)(cid:192)(cid:105)(cid:202)(cid:147)(cid:156)(cid:192)(cid:105)(cid:202)(cid:192)(cid:105)(cid:86)(cid:105)(cid:171)(cid:204)(cid:136)(cid:219)(cid:105)(cid:202)(cid:204)(cid:156)(cid:202)(cid:171)(cid:213)(cid:192)(cid:86)(cid:133)(cid:62)(cid:195)(cid:136)(cid:152)(cid:125)(cid:202)(cid:219)(cid:62)(cid:143)(cid:213)(cid:105)(cid:135)(cid:62)(cid:96)(cid:96)(cid:105)(cid:96)(cid:202)(cid:119)(cid:143)(cid:147)(cid:195)(cid:202)(cid:204)(cid:133)(cid:62)(cid:204)(cid:202) offer additional capabilities at the same or a lower cost, or purchasing our commodity ﬁlms at competitive prices. We have the people and capabilities to capitalize on this situation, and see this as a transition year in which we make progress toward our goal of higher sales and proﬁtability. FeedFresh™ silage cover 11 Electronic Systems Division Electronic Systems builds a number of secure communication–related products for military and government use. David R. Bair Division Vice President and General Manager— Electronic Systems Division “ Serving diverse markets helped us create opportunities. Avionics was strong for much of the year—and with some help from secure communications, we more than offset the softness in industrial controls. We capitalized on these opportunities by keeping our cost structure low, which gave us very solid proﬁtability and a high level of cash ﬂow compared with others in our industry. ” 12 2 0 1 0 A N N U A L R E P O R T RAVEN Capitalizing on Operational Opportunities Industrial controls was our ﬁrst market to be affected by the economic downturn two years ago. Accounting for about 14% of sales last year, it appears to have stabilized. Avionics has been a trailing market indicator. This was strong for the ﬁrst eight (cid:147)(cid:156)(cid:152)(cid:204)(cid:133)(cid:195)(cid:202)(cid:156)(cid:118)(cid:202)(cid:143)(cid:62)(cid:195)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:93)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:136)(cid:76)(cid:213)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:156)(cid:219)(cid:105)(cid:192)(cid:202)(cid:200)(cid:228)(cid:175)(cid:202)(cid:156)(cid:118)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:105)(cid:221)(cid:171)(cid:105)(cid:86)(cid:204)(cid:202)(cid:136)(cid:204)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:76)(cid:105)(cid:202)(cid:195)(cid:143)(cid:156)(cid:220)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:147)(cid:213)(cid:86)(cid:133)(cid:202)(cid:156)(cid:118)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:86)(cid:213)(cid:192)(cid:192)(cid:105)(cid:152)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:45)(cid:105)(cid:86)(cid:213)(cid:192)(cid:105)(cid:202)(cid:86)(cid:156)(cid:147)(cid:147)(cid:213)(cid:152)(cid:136)(cid:86)(cid:62)- (cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:136)(cid:195)(cid:202)(cid:62)(cid:118)(cid:118)(cid:105)(cid:86)(cid:204)(cid:105)(cid:96)(cid:202)(cid:76)(cid:222)(cid:202)(cid:147)(cid:136)(cid:143)(cid:136)(cid:204)(cid:62)(cid:192)(cid:222)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:125)(cid:156)(cid:219)(cid:105)(cid:192)(cid:152)(cid:147)(cid:105)(cid:152)(cid:204)(cid:202)(cid:195)(cid:171)(cid:105)(cid:152)(cid:96)(cid:136)(cid:152)(cid:125)(cid:176)(cid:202)(cid:22)(cid:204)(cid:202)(cid:147)(cid:62)(cid:96)(cid:105)(cid:202)(cid:213)(cid:171)(cid:202)(cid:62)(cid:76)(cid:156)(cid:213)(cid:204)(cid:202)(cid:211)(cid:228)(cid:175)(cid:202)(cid:156)(cid:118)(cid:202)(cid:192)(cid:105)(cid:219)(cid:105)(cid:152)(cid:213)(cid:105)(cid:195)(cid:176) As a low volume/high mix manufacturer operating in a competitive market niche, we have never relied on sales growth to advance our business. Our goal is to run the operation so it generates a good level of proﬁt and cash ﬂow. That is what we achieved. Improved Operating Performance—Several factors contributed to this. Special product builds in the ﬁrst half offered favor- able margins. Consolidating operations into one facility reduced ﬁxed costs, as well as those associated with moving products between buildings. Then we employed Lean manufacturing techniques to improve operational efﬁciencies. We also reduced (cid:156)(cid:213)(cid:192)(cid:202)(cid:133)(cid:105)(cid:62)(cid:96)(cid:86)(cid:156)(cid:213)(cid:152)(cid:204)(cid:202)(cid:76)(cid:222)(cid:202)(cid:147)(cid:156)(cid:192)(cid:105)(cid:202)(cid:204)(cid:133)(cid:62)(cid:152)(cid:202)(cid:163)(cid:228)(cid:175)(cid:176)(cid:202)(cid:1)(cid:195)(cid:202)(cid:62)(cid:202)(cid:192)(cid:105)(cid:195)(cid:213)(cid:143)(cid:204)(cid:93)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:136)(cid:152)(cid:86)(cid:156)(cid:147)(cid:105)(cid:202)(cid:192)(cid:105)(cid:86)(cid:156)(cid:219)(cid:105)(cid:192)(cid:105)(cid:96)(cid:202)(cid:152)(cid:136)(cid:86)(cid:105)(cid:143)(cid:222)(cid:202)(cid:156)(cid:152)(cid:202)(cid:211)(cid:175)(cid:202)(cid:133)(cid:136)(cid:125)(cid:133)(cid:105)(cid:192)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:176) (cid:55)(cid:105)(cid:202)(cid:147)(cid:156)(cid:219)(cid:105)(cid:96)(cid:202)(cid:118)(cid:156)(cid:192)(cid:220)(cid:62)(cid:192)(cid:96)(cid:202)(cid:156)(cid:152)(cid:202)(cid:105)(cid:219)(cid:105)(cid:192)(cid:222)(cid:202)(cid:156)(cid:76)(cid:141)(cid:105)(cid:86)(cid:204)(cid:136)(cid:219)(cid:105)(cid:202)(cid:195)(cid:105)(cid:204)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:34)(cid:152)(cid:135)(cid:204)(cid:136)(cid:147)(cid:105)(cid:202)(cid:96)(cid:105)(cid:143)(cid:136)(cid:219)(cid:105)(cid:192)(cid:222)(cid:202)(cid:136)(cid:147)(cid:171)(cid:192)(cid:156)(cid:219)(cid:105)(cid:96)(cid:202)(cid:195)(cid:136)(cid:125)(cid:152)(cid:136)(cid:119)(cid:86)(cid:62)(cid:152)(cid:204)(cid:143)(cid:222)(cid:93)(cid:202)(cid:152)(cid:105)(cid:62)(cid:192)(cid:143)(cid:222)(cid:202)(cid:192)(cid:105)(cid:62)(cid:86)(cid:133)(cid:136)(cid:152)(cid:125)(cid:202)(cid:153)(cid:228)(cid:175)(cid:176)(cid:202)(cid:47)(cid:133)(cid:136)(cid:195)(cid:202) reﬂected our efforts to improve front-end processes, including engineering change orders and new product introductions. The idea is to prevent minor issues at the start of a process from snowballing into problems and costs later on. These actions also contributed to higher productivity, which is measured as sales divided by the number of employees. We (cid:105)(cid:221)(cid:86)(cid:105)(cid:105)(cid:96)(cid:105)(cid:96)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:200)(cid:175)(cid:202)(cid:125)(cid:156)(cid:62)(cid:143)(cid:176)(cid:202) We approached inventory management with renewed vigor—paying attention not only to how much we have and where it is, but why we have slow-moving inventory and what to do about it. As a result, we ended the year with inventory investment (cid:96)(cid:156)(cid:220)(cid:152)(cid:202)(cid:76)(cid:222)(cid:202)(cid:147)(cid:156)(cid:192)(cid:105)(cid:202)(cid:204)(cid:133)(cid:62)(cid:152)(cid:202)(cid:102)(cid:163)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:136)(cid:147)(cid:171)(cid:192)(cid:156)(cid:219)(cid:105)(cid:96)(cid:202)(cid:136)(cid:152)(cid:219)(cid:105)(cid:152)(cid:204)(cid:156)(cid:192)(cid:222)(cid:202)(cid:204)(cid:213)(cid:192)(cid:152)(cid:195)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:123)(cid:176)(cid:206)(cid:56)(cid:202)(cid:204)(cid:156)(cid:202)(cid:123)(cid:176)(cid:200)(cid:56)(cid:176) Added a New Customer—This ﬁrm operates in the secure communications market, but also does business in other areas where we may be of assistance. We expect production to start later this year—with the timing dictated in part by government approvals—and that this could become a signiﬁcant customer for us. Further Improving Operations The biggest challenge we face in the current year will be supply chain issues. Lead times are getting longer for a number of components, whose manufacturers have not yet added staff and production to meet increased demand. In addition, electronic (cid:86)(cid:156)(cid:147)(cid:171)(cid:156)(cid:152)(cid:105)(cid:152)(cid:204)(cid:195)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:62)(cid:136)(cid:192)(cid:86)(cid:192)(cid:62)(cid:118)(cid:204)(cid:202)(cid:96)(cid:105)(cid:195)(cid:136)(cid:125)(cid:152)(cid:105)(cid:96)(cid:202)(cid:147)(cid:156)(cid:192)(cid:105)(cid:202)(cid:204)(cid:133)(cid:62)(cid:152)(cid:202)(cid:211)(cid:228)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:195)(cid:202)(cid:62)(cid:125)(cid:156)(cid:202)(cid:86)(cid:62)(cid:152)(cid:202)(cid:76)(cid:105)(cid:202)(cid:133)(cid:62)(cid:192)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:143)(cid:156)(cid:86)(cid:62)(cid:204)(cid:105)(cid:176)(cid:202)(cid:55)(cid:105)(cid:202)(cid:62)(cid:192)(cid:105)(cid:202)(cid:62)(cid:96)(cid:96)(cid:192)(cid:105)(cid:195)(cid:195)(cid:136)(cid:152)(cid:125)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:136)(cid:195)(cid:195)(cid:213)(cid:105)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:192)(cid:105)(cid:105)(cid:202)(cid:220)(cid:62)(cid:222)(cid:195)(cid:92)(cid:202) (cid:163)(cid:174)(cid:202)(cid:96)(cid:156)(cid:136)(cid:152)(cid:125)(cid:202)(cid:62)(cid:202)(cid:76)(cid:105)(cid:204)(cid:204)(cid:105)(cid:192)(cid:202)(cid:141)(cid:156)(cid:76)(cid:202)(cid:156)(cid:118)(cid:202)(cid:125)(cid:105)(cid:204)(cid:204)(cid:136)(cid:152)(cid:125)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:147)(cid:62)(cid:204)(cid:105)(cid:192)(cid:136)(cid:62)(cid:143)(cid:202)(cid:136)(cid:152)(cid:204)(cid:156)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:171)(cid:136)(cid:171)(cid:105)(cid:143)(cid:136)(cid:152)(cid:105)(cid:195)(cid:93)(cid:202)(cid:211)(cid:174)(cid:202)(cid:220)(cid:156)(cid:192)(cid:142)(cid:136)(cid:152)(cid:125)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:86)(cid:213)(cid:195)(cid:204)(cid:156)(cid:147)(cid:105)(cid:192)(cid:195)(cid:202)(cid:156)(cid:152)(cid:202)(cid:143)(cid:156)(cid:152)(cid:125)(cid:105)(cid:192)(cid:202)(cid:204)(cid:105)(cid:192)(cid:147)(cid:202)(cid:118)(cid:156)(cid:192)(cid:105)(cid:86)(cid:62)(cid:195)(cid:204)(cid:195)(cid:93)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202) 3) partnering with vendors to hold critical parts in bonded inventory for us. Despite this operating environment, we continue to set aggressive performance goals: (cid:85)(cid:202)Improve on-time delivery: (cid:34)(cid:213)(cid:192)(cid:202)(cid:152)(cid:105)(cid:220)(cid:202)(cid:125)(cid:156)(cid:62)(cid:143)(cid:202)(cid:136)(cid:195)(cid:202)(cid:153)(cid:110)(cid:175)(cid:176) (cid:85)(cid:202)Increase inventory turns:(cid:202)(cid:55)(cid:105)(cid:202)(cid:133)(cid:62)(cid:219)(cid:105)(cid:202)(cid:62)(cid:152)(cid:202)(cid:156)(cid:76)(cid:141)(cid:105)(cid:86)(cid:204)(cid:136)(cid:219)(cid:105)(cid:202)(cid:156)(cid:118)(cid:202)(cid:120)(cid:56)(cid:176) (cid:85)(cid:202)Maintain operating margins: This will be done in the face of relatively ﬂat sales. (cid:85)(cid:202)Increase productivity: We plan to use Kaizen and Lean events to further streamline processes and boost efﬁciencies again this year. (cid:55)(cid:105)(cid:202)(cid:62)(cid:143)(cid:195)(cid:156)(cid:202)(cid:133)(cid:62)(cid:219)(cid:105)(cid:202)(cid:204)(cid:220)(cid:156)(cid:202)(cid:156)(cid:204)(cid:133)(cid:105)(cid:192)(cid:202)(cid:156)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:62)(cid:143)(cid:202)(cid:125)(cid:156)(cid:62)(cid:143)(cid:195)(cid:92)(cid:202)(cid:163)(cid:174)(cid:202)(cid:204)(cid:156)(cid:202)(cid:62)(cid:96)(cid:96)(cid:202)(cid:62)(cid:152)(cid:156)(cid:204)(cid:133)(cid:105)(cid:192)(cid:202)(cid:86)(cid:213)(cid:195)(cid:204)(cid:156)(cid:147)(cid:105)(cid:192)(cid:93)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:211)(cid:174)(cid:202)(cid:204)(cid:156)(cid:202)(cid:192)(cid:105)(cid:86)(cid:105)(cid:136)(cid:219)(cid:105)(cid:202)(cid:1)(cid:45)(cid:153)(cid:163)(cid:228)(cid:228)(cid:202)(cid:86)(cid:105)(cid:192)(cid:204)(cid:136)(cid:119)(cid:86)(cid:62)- (cid:204)(cid:136)(cid:156)(cid:152)(cid:112)(cid:204)(cid:133)(cid:105)(cid:202)(cid:62)(cid:105)(cid:192)(cid:156)(cid:195)(cid:171)(cid:62)(cid:86)(cid:105)(cid:202)(cid:105)(cid:181)(cid:213)(cid:136)(cid:219)(cid:62)(cid:143)(cid:105)(cid:152)(cid:204)(cid:202)(cid:156)(cid:118)(cid:202)(cid:22)(cid:45)(cid:34)(cid:202)(cid:153)(cid:228)(cid:228)(cid:228)(cid:202)(cid:86)(cid:105)(cid:192)(cid:204)(cid:136)(cid:119)(cid:86)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:93)(cid:202)(cid:220)(cid:133)(cid:136)(cid:86)(cid:133)(cid:202)(cid:62)(cid:96)(cid:96)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:86)(cid:192)(cid:105)(cid:96)(cid:136)(cid:76)(cid:136)(cid:143)(cid:136)(cid:204)(cid:222)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:147)(cid:62)(cid:192)(cid:142)(cid:105)(cid:204)(cid:176) Secure communication component 13 Aerostar International Aerostar’s ability to create smaller and lighter tethered aerostats, which can be transported faster over difﬁcult terrain, should result in a strong increase in sales from this line com- pared with last year. Mark L. West President— Aerostar International, Inc. “ Aerostar was started with what were considered technologies from ‘old’ parts of Raven, such as high-speed sewing and sealing. We created opportunities by developing new products, including tethered aerostats, for markets that the company had never before served. And in the process, we are adding great new value to shareholders—in the near and long term. ” 14 2 0 1 0 A N N U A L R E P O R T RAVEN Maximizing Opportunities The federal government continues to fund the programs that contribute the bulk of Aerostar’s revenues, so we were not as affected by the economic downturn. This operation met most of its goals and ended the year with a number of new contracts. Won a New Parachute Contract(cid:112)(cid:47)(cid:133)(cid:105)(cid:202)(cid:204)(cid:133)(cid:192)(cid:105)(cid:105)(cid:135)(cid:222)(cid:105)(cid:62)(cid:192)(cid:202)(cid:31)(cid:10)(cid:135)(cid:200)(cid:202)(cid:171)(cid:62)(cid:192)(cid:62)(cid:86)(cid:133)(cid:213)(cid:204)(cid:105)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:93)(cid:202)(cid:220)(cid:133)(cid:136)(cid:86)(cid:133)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:136)(cid:76)(cid:213)(cid:204)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:62)(cid:76)(cid:143)(cid:105)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:93)(cid:202)(cid:86)(cid:156)(cid:152)- (cid:86)(cid:143)(cid:213)(cid:96)(cid:105)(cid:96)(cid:202)(cid:62)(cid:204)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:105)(cid:152)(cid:96)(cid:202)(cid:156)(cid:118)(cid:202)(cid:27)(cid:62)(cid:152)(cid:213)(cid:62)(cid:192)(cid:222)(cid:202)(cid:211)(cid:228)(cid:163)(cid:228)(cid:176)(cid:202)(cid:34)(cid:213)(cid:192)(cid:202)(cid:62)(cid:76)(cid:136)(cid:143)(cid:136)(cid:204)(cid:222)(cid:202)(cid:204)(cid:156)(cid:202)(cid:96)(cid:105)(cid:143)(cid:136)(cid:219)(cid:105)(cid:192)(cid:202)(cid:181)(cid:213)(cid:62)(cid:143)(cid:136)(cid:204)(cid:222)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:195)(cid:202)(cid:156)(cid:152)(cid:135)(cid:204)(cid:136)(cid:147)(cid:105)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:156)(cid:152)(cid:135)(cid:76)(cid:213)(cid:96)(cid:125)(cid:105)(cid:204)(cid:202)(cid:133)(cid:105)(cid:143)(cid:171)(cid:105)(cid:96)(cid:202)(cid:213)(cid:195)(cid:202)(cid:220)(cid:136)(cid:152)(cid:202)(cid:118)(cid:156)(cid:143)(cid:143)(cid:156)(cid:220)(cid:135)(cid:156)(cid:152)(cid:202)(cid:220)(cid:156)(cid:192)(cid:142)(cid:202) (cid:118)(cid:156)(cid:192)(cid:202)(cid:47)(cid:135)(cid:163)(cid:163)(cid:202)(cid:171)(cid:62)(cid:192)(cid:62)(cid:86)(cid:133)(cid:213)(cid:204)(cid:105)(cid:195)(cid:176)(cid:202)(cid:47)(cid:133)(cid:136)(cid:195)(cid:202)(cid:119)(cid:219)(cid:105)(cid:135)(cid:222)(cid:105)(cid:62)(cid:192)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:192)(cid:62)(cid:86)(cid:204)(cid:202)(cid:195)(cid:133)(cid:156)(cid:213)(cid:143)(cid:96)(cid:202)(cid:125)(cid:105)(cid:152)(cid:105)(cid:192)(cid:62)(cid:204)(cid:105)(cid:202)(cid:62)(cid:171)(cid:171)(cid:192)(cid:156)(cid:221)(cid:136)(cid:147)(cid:62)(cid:204)(cid:105)(cid:143)(cid:222)(cid:202)(cid:102)(cid:200)(cid:228)(cid:202)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:156)(cid:204)(cid:62)(cid:143)(cid:202)(cid:192)(cid:105)(cid:219)(cid:105)(cid:152)(cid:213)(cid:105)(cid:195)(cid:176)(cid:202)(cid:22)(cid:204)(cid:202)(cid:192)(cid:105)(cid:171)(cid:192)(cid:105)(cid:195)(cid:105)(cid:152)(cid:204)(cid:195)(cid:202)(cid:62)(cid:76)(cid:156)(cid:213)(cid:204)(cid:202)(cid:62)(cid:202) (cid:211)(cid:228)(cid:175)(cid:202)(cid:171)(cid:192)(cid:156)(cid:96)(cid:213)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:136)(cid:152)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:202)(cid:118)(cid:192)(cid:156)(cid:147)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:31)(cid:10)(cid:135)(cid:200)(cid:176)(cid:202) Expanded High-altitude Research Balloon Program(cid:112)(cid:34)(cid:213)(cid:192)(cid:202)(cid:192)(cid:105)(cid:143)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:133)(cid:136)(cid:171)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202)(cid:32)(cid:1)(cid:45)(cid:1)(cid:202)(cid:86)(cid:156)(cid:152)(cid:204)(cid:136)(cid:152)(cid:213)(cid:105)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:76)(cid:192)(cid:136)(cid:152)(cid:125)(cid:202)(cid:156)(cid:171)(cid:171)(cid:156)(cid:192)(cid:204)(cid:213)(cid:152)(cid:136)(cid:204)(cid:136)(cid:105)(cid:195)(cid:176)(cid:202)(cid:47)(cid:133)(cid:105)(cid:202) (cid:62)(cid:125)(cid:105)(cid:152)(cid:86)(cid:222)(cid:202)(cid:192)(cid:105)(cid:147)(cid:62)(cid:136)(cid:152)(cid:195)(cid:202)(cid:86)(cid:156)(cid:147)(cid:147)(cid:136)(cid:204)(cid:204)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:192)(cid:105)(cid:195)(cid:105)(cid:62)(cid:192)(cid:86)(cid:133)(cid:202)(cid:76)(cid:62)(cid:143)(cid:143)(cid:156)(cid:156)(cid:152)(cid:202)(cid:171)(cid:192)(cid:156)(cid:125)(cid:192)(cid:62)(cid:147)(cid:93)(cid:202)(cid:62)(cid:152)(cid:96)(cid:202)(cid:220)(cid:105)(cid:202)(cid:105)(cid:221)(cid:171)(cid:105)(cid:86)(cid:204)(cid:202)(cid:204)(cid:133)(cid:105)(cid:195)(cid:105)(cid:202)(cid:195)(cid:62)(cid:143)(cid:105)(cid:195)(cid:202)(cid:220)(cid:136)(cid:143)(cid:143)(cid:202)(cid:136)(cid:152)(cid:86)(cid:192)(cid:105)(cid:62)(cid:195)(cid:105)(cid:202)(cid:62)(cid:125)(cid:62)(cid:136)(cid:152)(cid:202)(cid:136)(cid:152)(cid:202)(cid:119)(cid:195)(cid:86)(cid:62)(cid:143)(cid:202)(cid:211)(cid:228)(cid:163)(cid:163)(cid:176)(cid:202)(cid:22)(cid:152)(cid:202) (cid:62)(cid:96)(cid:96)(cid:136)(cid:204)(cid:136)(cid:156)(cid:152)(cid:93)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:118)(cid:105)(cid:96)(cid:105)(cid:192)(cid:62)(cid:143)(cid:202)(cid:76)(cid:213)(cid:96)(cid:125)(cid:105)(cid:204)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:211)(cid:228)(cid:163)(cid:228)(cid:202)(cid:136)(cid:152)(cid:86)(cid:143)(cid:213)(cid:96)(cid:105)(cid:195)(cid:202)(cid:62)(cid:152)(cid:202)(cid:62)(cid:143)(cid:143)(cid:156)(cid:86)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:202)(cid:204)(cid:156)(cid:202)(cid:86)(cid:156)(cid:219)(cid:105)(cid:192)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:86)(cid:156)(cid:195)(cid:204)(cid:195)(cid:202)(cid:156)(cid:118)(cid:202)(cid:121)(cid:222)(cid:136)(cid:152)(cid:125)(cid:202)(cid:156)(cid:213)(cid:192)(cid:202)(cid:21)(cid:136)(cid:45)(cid:105)(cid:152)(cid:204)(cid:136)(cid:152)(cid:105)(cid:143)(cid:210)(cid:202)(cid:62)(cid:136)(cid:192)(cid:195)(cid:133)(cid:136)(cid:171)(cid:202)(cid:204)(cid:133)(cid:136)(cid:195)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:93)(cid:202)(cid:220)(cid:133)(cid:136)(cid:86)(cid:133)(cid:202)(cid:136)(cid:195)(cid:202) planned for the spring. Made Major Progress in Tethered Aerostats(cid:112)(cid:22)(cid:152)(cid:202)(cid:34)(cid:86)(cid:204)(cid:156)(cid:76)(cid:105)(cid:192)(cid:202)(cid:220)(cid:105)(cid:202)(cid:220)(cid:105)(cid:192)(cid:105)(cid:202)(cid:136)(cid:152)(cid:219)(cid:136)(cid:204)(cid:105)(cid:96)(cid:202)(cid:204)(cid:156)(cid:202)(cid:195)(cid:133)(cid:156)(cid:220)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:195)(cid:222)(cid:195)(cid:204)(cid:105)(cid:147)(cid:202)(cid:204)(cid:156)(cid:202)(cid:192)(cid:105)(cid:171)(cid:192)(cid:105)(cid:195)(cid:105)(cid:152)(cid:204)(cid:62)(cid:204)(cid:136)(cid:219)(cid:105)(cid:195)(cid:202)(cid:156)(cid:118)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:49)(cid:176)(cid:45)(cid:176)(cid:202) military. We paired our equipment with a high performance video camera. As a result of their interest, we began shipments of tethered aerostats for use in Afghanistan late last year. We have expanded production capacity to support strong shipment levels throughout the current year. These aerostats will be used for surveillance and protection of our troops in forward operat- ing bases in Afghanistan. We also believe there will be interest from Homeland Security and disaster response agencies. In addition, we are working with major defense contractors to become their aerostat manufacturer of choice. Strengthened Operating Income(cid:112)(cid:1)(cid:202)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:62)(cid:76)(cid:143)(cid:105)(cid:202)(cid:119)(cid:152)(cid:62)(cid:143)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:202)(cid:118)(cid:156)(cid:192)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:31)(cid:10)(cid:135)(cid:200)(cid:202)(cid:171)(cid:192)(cid:156)(cid:125)(cid:192)(cid:62)(cid:147)(cid:202)(cid:220)(cid:62)(cid:195)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:147)(cid:62)(cid:136)(cid:152)(cid:202)(cid:96)(cid:192)(cid:136)(cid:219)(cid:105)(cid:192)(cid:202)(cid:76)(cid:105)(cid:133)(cid:136)(cid:152)(cid:96)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:206)(cid:123)(cid:175)(cid:202) increase in operating income on relatively ﬂat sales. Production start-up costs inherent in new contracts may hold proﬁts down (cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:86)(cid:213)(cid:192)(cid:192)(cid:105)(cid:152)(cid:204)(cid:202)(cid:222)(cid:105)(cid:62)(cid:192)(cid:176)(cid:202)(cid:21)(cid:156)(cid:220)(cid:105)(cid:219)(cid:105)(cid:192)(cid:93)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:143)(cid:105)(cid:195)(cid:195)(cid:156)(cid:152)(cid:195)(cid:202)(cid:143)(cid:105)(cid:62)(cid:192)(cid:152)(cid:105)(cid:96)(cid:202)(cid:136)(cid:152)(cid:202)(cid:204)(cid:133)(cid:105)(cid:202)(cid:31)(cid:10)(cid:135)(cid:200)(cid:202)(cid:171)(cid:192)(cid:156)(cid:125)(cid:192)(cid:62)(cid:147)(cid:202)(cid:195)(cid:133)(cid:156)(cid:213)(cid:143)(cid:96)(cid:202)(cid:133)(cid:105)(cid:143)(cid:171)(cid:202)(cid:213)(cid:195)(cid:202)(cid:204)(cid:156)(cid:202)(cid:192)(cid:105)(cid:62)(cid:86)(cid:133)(cid:202)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:62)(cid:76)(cid:136)(cid:143)(cid:136)(cid:204)(cid:222)(cid:202)(cid:147)(cid:213)(cid:86)(cid:133)(cid:202)(cid:195)(cid:156)(cid:156)(cid:152)(cid:105)(cid:192)(cid:202)(cid:220)(cid:136)(cid:204)(cid:133)(cid:202) the T-11 contract. Dramatic Growth Expected For a number of years we have been laying the groundwork for signiﬁcant revenue growth. Our current-year sales goal represents a nearly 50% increase. While operating income as a percentage of sales is expected to be lower, stronger revenues should drive total operating income higher. Here are the strategies we will use to support this expansion. (cid:85)(cid:202)Efﬁcient T-11 start up: Our objective is to reach full production quickly—with a June target date—while minimizing start-up costs. This should be possible because we face only half of the system changes needed than when we began (cid:147)(cid:62)(cid:142)(cid:136)(cid:152)(cid:125)(cid:202)(cid:31)(cid:10)(cid:135)(cid:200)(cid:202)(cid:171)(cid:62)(cid:192)(cid:62)(cid:86)(cid:133)(cid:213)(cid:204)(cid:105)(cid:195)(cid:176) (cid:85)(cid:202)Effective aerostat ramp up: We are increasing our manufacturing capacity, revamping our production facilities, and adding staff to keep up with the current workload as well as product development. This will be a major focus of our attention. (cid:85)(cid:202)Successful airship ﬂight: We expect this will lead to advances in product development and create interest among potential partners and customers. Military parachutes 15 Eleven-Year Financial Summary Dollars in thousands, except per-share data OPERATIONS FOR THE YEAR Net sales Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sold businesses(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income as % of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income as % of beginning equity . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCIAL POSITION Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt / total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory turnover (CGS / average inventory)(b) . . . . . . . . . . . . . . . . . . . CASH FLOWS PROVIDED BY (USED IN) Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . COMMON STOCK DATA Net income per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock price range during year High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Low. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares and stock units outstanding, year-end (in thousands) . . . . . . . . . Number of shareholders, year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER DATA Price / earnings ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales per employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the years ended January 31 2009 2010 2008 $237,782 — 237,782 67,852 43,220 — 43,220 43,322 $ 28,574 12.0% 25.2% $ 9,911 $117,747 25,960 $ 91,787 4.54 $ 33,029 170,309 — $133,251 0.0% 5.3 $ 47,643 (13,396) (9,867) 24,417 $ $ $ 1.58 1.58 0.55 7.38 33.18 15.37 28.58 18,051 7,767 18.1 930 $ 256 $ 74,718 $279,913 — 279,913 73,448 46,394 — 46,394 46,901 $ 30,770 11.0% 26.0% $ 31,884(c) $ 98,073 23,322 $ 74,751 4.21 $ 35,880 144,415 — $113,556 0.0% 5.2 $ 39,037 (7,000) (36,969) (5,005) $ 1.71 1.70 1.77(c) 6.30 $ 47.82 20.60 $ 21.81 18,027 8,268 12.8 1,070 $ 262 $ 80,361 $233,957 — 233,957 63,676 41,145 — 41,145 42,224 $ 27,802 11.9% 28.3% $ 7,966 $100,869 22,108 $ 78,761 4.56 $ 35,743 147,861 — $118,275 0.0% 5.3 $ 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 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. (b) All years reflect the reclassification of R&D expense from cost of goods sold. (See Note 1.) (c) Includes special dividends of $1.25 per share in fiscal 2009 and $.625 per share in fiscal 2005. 16 2 0 1 0 A N N U A L R E P O R T RAVEN 2007 2006 2005 2004 2003 2002 2001 2000 $217,529 — 217,529 57,540 38,302 — 38,302 38,835 $ 25,441 $204,528 — 204,528 55,714 37,284 — 37,284 37,494 $ 24,262 $168,086 — 168,086 45,212 27,862 — 27,862 27,955 $ 17,891 $142,727 — 142,727 35,488 21,981 (355) 21,626 21,716 $ 13,836 $119,589 1,314 120,903 28,828 16,861 204 17,065 17,254 $ 11,185 $112,018 6,497 118,515 25,340 13,788 (613) 13,175 13,565 $ 8,847 11.7% 30.1% 11.9% 36.7% $ 6,507 $ 5,056 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 $ 2,399 $ 73,219 16,464 $ 56,755 4.45 $ 36,264 119,764 — $ 98,268 $ 71,345 20,050 $ 51,295 3.56 $ 25,602 106,157 9 $ 84,389 $ 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 $ 51,817 13,935 $ 37,882 3.72 $ 11,647 65,656 2,013 $ 47,989 $113,360 19,498 132,858 21,740 7,417(d) 3,331(e) 10,748 10,924 $ 6,411(d)(e) 4.8% 11.8% $107,862 42,523 150,385 24,853 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 0.0% 5.4 0.0% 5.9 0.0% 5.8 0.1% 6.1 0.3% 4.8 0.5% 5.1 4.0% 4.5 5.3% 3.8 $ 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 $ 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 $ 0.77 0.75 0.17 3.68 $ 15.23 7.56 $ 14.11 18,041 3,560 18.8 787 $ 181 $ 47,120 $ 12,735 (9,166) (5,830) (2,261) $ $ $ 0.61 0.60 0.14 3.21 9.20 4.38 7.91 18,133 2,781 13.2 784 $ 154 $ 42,826 $ 18,496 (13,152) (8,539) (3,195) $ $ $ 0.48 0.47 0.13 2.82 5.88 3.02 5.64 18,424 2,387 12.1 858 $ 138 $ 33,834 $ 9,441 9,752 (14,227) 4,966 $ $ $ 0.31 0.31 0.12 2.53 3.48 1.88 3.04 18,956 2,460 9.8 1,082 $ 123 $ 38,239 $ 10,375 6,323 (16,326) 372 $ $ $ 0.26 0.26 0.11 2.32 3.04 2.25 2.40 23,496 2,749 9.2 1,369 $ 110 $ 44,935 (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. 2 0 1 0 A N N U A L R E P O R T RAVEN 17 Business Segments 2010 Dollars in thousands APPLIED TECHNOLOGY DIVISION Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,217 25,722 Operating income. . . . . . . . . . . . . . . . . . . . . . 51,029 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941 Capital expenditures . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . 1,677 ENGINEERED FILMS DIVISION Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,783 10,232 Operating income. . . . . . . . . . . . . . . . . . . . . . 35,999 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,460 Capital expenditures . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . 3,707 ELECTRONIC SYSTEMS DIVISION Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,525 8,979 Operating income. . . . . . . . . . . . . . . . . . . . . . 21,216 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 Capital expenditures. . . . . . . . . . . . . . . . . . . . 939 Depreciation and amortization . . . . . . . . . . . . AEROSTAR Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,244 5,634 Operating income. . . . . . . . . . . . . . . . . . . . . . 10,462 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 Capital expenditures. . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . 398 INTERSEGMENT ELIMINATIONS Sales (210) (2,776) (1) 60 (92) Engineered Films Division . . . . . . . . . . . . . . $ Electronic Systems Division . . . . . . . . . . . . . Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income. . . . . . . . . . . . . . . . . . . . . . Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REPORTABLE SEGMENTS TOTAL Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 50,627 Operating income. . . . . . . . . . . . . . . . . . . . . . 118,614 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,023 Capital expenditures. . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . 6,721 CORPORATE & OTHER Operating (loss) from administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,407) 51,695 279 387 Assets(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures. . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . TOTAL COMPANY Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 43,220 Operating income. . . . . . . . . . . . . . . . . . . . . . 170,309 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,302 Capital expenditures. . . . . . . . . . . . . . . . . . . . 7,108 Depreciation and amortization . . . . . . . . . . . . (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. 18 2 0 1 0 A N N U A L R E P O R T RAVEN For the years ended January 31 2009 2008 2007 2006 2005 $103,098 33,884 48,881 2,674 1,383 $ 89,858 10,919 35,862 3,120 4,303 $ 61,983 5,926 26,847 1,399 1,159 $ 27,186 4,219 8,744 383 444 $ (210) (1,977) (25) (52) (152) $279,913 54,896 120,182 7,576 7,289 $ 64,291 19,102 36,938 1,008 1,125 $ 85,316 17,739 43,688 4,012 4,046 $ 67,987 10,365 25,865 1,077 1,237 $ 17,290 1,506 9,941 156 499 $ 45,515 10,111 27,629 577 1,142 $ 91,082 23,440 41,988 13,266 2,887 $ 66,278 10,850 25,175 1,357 1,086 $ 14,654 707 8,161 812 375 $ 47,506 13,586 30,047 938 1,085 $ 82,794 19,907 33,512 7,359 2,436 $ 56,219 8,916 20,191 1,612 871 $ 18,009 2,133 6,837 179 359 $ 40,726 10,516(b) 23,701 1,372 876 $ 58,657 15,739 25,181 3,960 1,403 $ 47,049 4,492 17,382 1,201 880 $ 21,654 3,609 7,492 542 389 $ $ (533) (378) (16) (100) (100) — $ — — — — — $ — — — — — — — — — $233,957 48,612 116,332 6,253 6,907 $217,529 45,108 102,953 16,012 5,490 $204,528 44,542 90,587 10,088 4,751 $168,086 34,356(b) 73,756 7,075 3,548 $ (8,502) 24,233 425 469 $ (7,467) 31,529 382 437 $ (6,806) 16,811 510 395 $ (7,258) 15,570 270 400 $ (6,494) 14,753 466 293 $279,913 46,394 144,415 8,001 7,758 $233,957 41,145 147,861 6,635 7,344 $217,529 38,302 119,764 16,522 5,885 $204,528 37,284 106,157 10,358 5,151 $168,086 27,862(b) 88,509 7,541 3,841 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. It provides management’s analysis of the primary 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, 2010 financial statements and the accompanying notes. The MD&A is organized as follows: (cid:77) (cid:28)(cid:73)(cid:54)(cid:52)(cid:70)(cid:69)(cid:58)(cid:71)(cid:54) (cid:42)(cid:70)(cid:62)(cid:62)(cid:50)(cid:67)(cid:74) (cid:77) (cid:41)(cid:54)(cid:68)(cid:70)(cid:61)(cid:69)(cid:68) (cid:64)(cid:55) (cid:38)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:64)(cid:63)(cid:68)(cid:79)(cid:42)(cid:54)(cid:56)(cid:62)(cid:54)(cid:63)(cid:69) (cid:24)(cid:63)(cid:50)(cid:61)(cid:74)(cid:68)(cid:58)(cid:68) (cid:77) (cid:38)(cid:70)(cid:69)(cid:61)(cid:64)(cid:64)(cid:60) (cid:77) (cid:35)(cid:58)(cid:66)(cid:70)(cid:58)(cid:53)(cid:58)(cid:69)(cid:74) (cid:50)(cid:63)(cid:53) (cid:26)(cid:50)(cid:65)(cid:58)(cid:69)(cid:50)(cid:61) (cid:41)(cid:54)(cid:68)(cid:64)(cid:70)(cid:67)(cid:52)(cid:54)(cid:68) (cid:77) (cid:38)(cid:55)(cid:55)(cid:9)(cid:51)(cid:50)(cid:61)(cid:50)(cid:63)(cid:52)(cid:54) (cid:42)(cid:57)(cid:54)(cid:54)(cid:69) (cid:24)(cid:67)(cid:67)(cid:50)(cid:63)(cid:56)(cid:54)(cid:62)(cid:54)(cid:63)(cid:69)(cid:68) (cid:50)(cid:63)(cid:53) (cid:26)(cid:64)(cid:63)(cid:69)(cid:67)(cid:50)(cid:52)(cid:69)(cid:70)(cid:50)(cid:61) (cid:38)(cid:51)(cid:61)(cid:58)(cid:56)(cid:50)(cid:69)(cid:58)(cid:64)(cid:63)(cid:68) (cid:77) (cid:26)(cid:67)(cid:58)(cid:69)(cid:58)(cid:52)(cid:50)(cid:61) (cid:24)(cid:52)(cid:52)(cid:64)(cid:70)(cid:63)(cid:69)(cid:58)(cid:63)(cid:56) (cid:28)(cid:68)(cid:69)(cid:58)(cid:62)(cid:50)(cid:69)(cid:54)(cid:68) (cid:77) (cid:37)(cid:54)(cid:72) (cid:24)(cid:52)(cid:52)(cid:64)(cid:70)(cid:63)(cid:69)(cid:58)(cid:63)(cid:56) (cid:42)(cid:69)(cid:50)(cid:63)(cid:53)(cid:50)(cid:67)(cid:53)(cid:68) Reclassification of Research and Development Expenses (cid:41)(cid:54)(cid:68)(cid:54)(cid:50)(cid:67)(cid:52)(cid:57) (cid:50)(cid:63)(cid:53) (cid:53)(cid:54)(cid:71)(cid:54)(cid:61)(cid:64)(cid:65)(cid:62)(cid:54)(cid:63)(cid:69) (cid:6)(cid:41)(cid:4)(cid:27)(cid:7) (cid:54)(cid:73)(cid:65)(cid:54)(cid:63)(cid:68)(cid:54)(cid:68) (cid:58)(cid:63)(cid:52)(cid:61)(cid:70)(cid:53)(cid:54) (cid:52)(cid:64)(cid:68)(cid:69)(cid:68) (cid:67)(cid:54)(cid:61)(cid:50)(cid:69)(cid:54)(cid:53) (cid:69)(cid:64) (cid:65)(cid:67)(cid:64)(cid:53)(cid:70)(cid:52)(cid:69) (cid:53)(cid:54)(cid:71)(cid:54)(cid:61)(cid:64)(cid:65)(cid:62)(cid:54)(cid:63)(cid:69) (cid:50)(cid:63)(cid:53) (cid:68)(cid:58)(cid:56)(cid:63)(cid:58)(cid:55)(cid:58)(cid:52)(cid:50)(cid:63)(cid:69) (cid:54)(cid:63)(cid:57)(cid:50)(cid:63)(cid:52)(cid:54)(cid:62)(cid:54)(cid:63)(cid:69)(cid:68) (cid:64)(cid:55) (cid:54)(cid:73)(cid:58)(cid:68)(cid:69)(cid:58)(cid:63)(cid:56) (cid:65)(cid:67)(cid:64)(cid:53)(cid:70)(cid:52)(cid:69)(cid:68)(cid:10) (cid:25)(cid:54)(cid:56)(cid:58)(cid:63)(cid:63)(cid:58)(cid:63)(cid:56) (cid:58)(cid:63) (cid:55)(cid:58)(cid:68)(cid:52)(cid:50)(cid:61) (cid:14)(cid:12)(cid:13)(cid:12)(cid:8) (cid:56)(cid:67)(cid:64)(cid:68)(cid:68) (cid:62)(cid:50)(cid:67)(cid:56)(cid:58)(cid:63)(cid:68) (cid:72)(cid:54)(cid:67)(cid:54) (cid:50)(cid:55)(cid:55)(cid:54)(cid:52)(cid:69)(cid:54)(cid:53) (cid:51)(cid:74) (cid:69)(cid:57)(cid:54) (cid:67)(cid:54)(cid:52)(cid:61)(cid:50)(cid:68)(cid:68)(cid:58)(cid:55)(cid:58)(cid:52)(cid:50)(cid:69)(cid:58)(cid:64)(cid:63) (cid:64)(cid:55) (cid:41)(cid:4)(cid:27) (cid:54)(cid:73)(cid:65)(cid:54)(cid:63)(cid:68)(cid:54)(cid:68)(cid:8) (cid:67)(cid:54)(cid:62)(cid:64)(cid:71)(cid:58)(cid:63)(cid:56) (cid:69)(cid:57)(cid:54)(cid:62) (cid:55)(cid:67)(cid:64)(cid:62) (cid:52)(cid:64)(cid:68)(cid:69) (cid:64)(cid:55) (cid:56)(cid:64)(cid:64)(cid:53)(cid:68) (cid:68)(cid:64)(cid:61)(cid:53) (cid:69)(cid:64) (cid:50) (cid:68)(cid:54)(cid:65)(cid:50)(cid:67)(cid:50)(cid:69)(cid:54) item below gross profit. As a result, the Applied Technology Division’s gross margins were recomputed and adjusted from 40.2% to 45.2% for fiscal (cid:14)(cid:12)(cid:12)(cid:21)(cid:8) (cid:50)(cid:63)(cid:53) (cid:15)(cid:19)(cid:10)(cid:21)(cid:3) (cid:69)(cid:64) (cid:16)(cid:16)(cid:10)(cid:17)(cid:3) (cid:55)(cid:64)(cid:67) (cid:55)(cid:58)(cid:68)(cid:52)(cid:50)(cid:61) (cid:14)(cid:12)(cid:12)(cid:20)(cid:10) (cid:43)(cid:57)(cid:54) (cid:58)(cid:62)(cid:65)(cid:50)(cid:52)(cid:69) (cid:64)(cid:55) (cid:69)(cid:57)(cid:54) (cid:67)(cid:54)(cid:52)(cid:61)(cid:50)(cid:68)(cid:68)(cid:58)(cid:55)(cid:58)(cid:52)(cid:50)(cid:69)(cid:58)(cid:64)(cid:63) (cid:64)(cid:55) (cid:41)(cid:4)(cid:27) (cid:54)(cid:73)(cid:65)(cid:54)(cid:63)(cid:68)(cid:54)(cid:68) (cid:64)(cid:63) (cid:56)(cid:67)(cid:64)(cid:68)(cid:68) (cid:62)(cid:50)(cid:67)(cid:56)(cid:58)(cid:63)(cid:68) (cid:72)(cid:50)(cid:68) (cid:63)(cid:64)(cid:69) (cid:68)(cid:58)(cid:56)(cid:63)(cid:58)(cid:55)(cid:58)(cid:52)(cid:50)(cid:63)(cid:69) (cid:55)(cid:64)(cid:67) (cid:69)(cid:57)(cid:54) (cid:52)(cid:64)(cid:62)(cid:65)(cid:50)(cid:63)(cid:74)(cid:5)(cid:68) (cid:64)(cid:69)(cid:57)(cid:54)(cid:67) (cid:68)(cid:54)(cid:56)(cid:62)(cid:54)(cid:63)(cid:69)(cid:68)(cid:10) (cid:24)(cid:53)(cid:53)(cid:58)(cid:69)(cid:58)(cid:64)(cid:63)(cid:50)(cid:61)(cid:61)(cid:74)(cid:8) (cid:41)(cid:4)(cid:27) (cid:54)(cid:73)(cid:65)(cid:54)(cid:63)(cid:68)(cid:54)(cid:68) (cid:69)(cid:57)(cid:50)(cid:69) (cid:72)(cid:54)(cid:67)(cid:54) (cid:65)(cid:67)(cid:54)(cid:71)(cid:58)(cid:64)(cid:70)(cid:68)(cid:61)(cid:74) (cid:52)(cid:61)(cid:50)(cid:68)(cid:68)(cid:58)(cid:55)(cid:58)(cid:54)(cid:53) (cid:50)(cid:68) (cid:68)(cid:54)(cid:61)(cid:61)(cid:58)(cid:63)(cid:56)(cid:8) (cid:56)(cid:54)(cid:63)(cid:54)(cid:67)(cid:50)(cid:61) (cid:50)(cid:63)(cid:53) (cid:50)(cid:53)(cid:62)(cid:58)(cid:63)(cid:58)(cid:68)(cid:69)(cid:67)(cid:50)(cid:69)(cid:58)(cid:71)(cid:54) (cid:54)(cid:73)(cid:65)(cid:54)(cid:63)(cid:68)(cid:54)(cid:68) (cid:72)(cid:54)(cid:67)(cid:54) (cid:50)(cid:61)(cid:68)(cid:64) (cid:67)(cid:54)(cid:52)(cid:61)(cid:50)(cid:68)(cid:68)(cid:58)(cid:55)(cid:58)(cid:54)(cid:53) (cid:69)(cid:64) (cid:69)(cid:57)(cid:54) (cid:68)(cid:54)(cid:65)(cid:50)(cid:67)(cid:50)(cid:69)(cid:54) (cid:41)(cid:4)(cid:27) (cid:54)(cid:73)(cid:65)(cid:54)(cid:63)(cid:68)(cid:54)(cid:68) (cid:61)(cid:58)(cid:63)(cid:54)(cid:10) (cid:43)(cid:57)(cid:54) (cid:67)(cid:54)(cid:52)(cid:61)(cid:50)(cid:68)(cid:68)(cid:58)(cid:55)(cid:58)(cid:52)(cid:50)(cid:69)(cid:58)(cid:64)(cid:63)(cid:68) (cid:57)(cid:50)(cid:53) (cid:63)(cid:64) (cid:50)(cid:55)(cid:55)(cid:54)(cid:52)(cid:69) (cid:64)(cid:63) (cid:50)(cid:63)(cid:74) (cid:68)(cid:54)(cid:56)(cid:62)(cid:54)(cid:63)(cid:69)(cid:5)(cid:68) (cid:65)(cid:67)(cid:54)(cid:71)(cid:58)(cid:64)(cid:70)(cid:68)(cid:61)(cid:74) (cid:67)(cid:54)(cid:65)(cid:64)(cid:67)(cid:69)(cid:54)(cid:53) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:63)(cid:56) (cid:58)(cid:63)(cid:52)(cid:64)(cid:62)(cid:54) (cid:64)(cid:67) consolidated operating income. Components of consolidated operating income for the fiscal years ended January 31, 2009 and 2008, as originally reported and as reclassified, were as follows: Dollars in thousands For the year ended January 31, 2009 For the year ended January 31, 2008 As reported As reclassified As reported As reclassified Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,913 212,032 $279,913 206,465 $233,957 174,809 $233,957 170,281 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,881 24.3% — 21,487 73,448 26.2% 5,848 21,206 59,148 25.3% — 18,003 63,676 27.2% 4,925 17,606 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,394 $ 46,394 $ 41,145 $ 41,145 EXECUTIVE SUMMARY Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, construction and (cid:62)(cid:58)(cid:61)(cid:58)(cid:69)(cid:50)(cid:67)(cid:74)(cid:11)(cid:50)(cid:54)(cid:67)(cid:64)(cid:68)(cid:65)(cid:50)(cid:52)(cid:54) (cid:62)(cid:50)(cid:67)(cid:60)(cid:54)(cid:69)(cid:68)(cid:8) (cid:65)(cid:67)(cid:58)(cid:62)(cid:50)(cid:67)(cid:58)(cid:61)(cid:74) (cid:58)(cid:63) (cid:37)(cid:64)(cid:67)(cid:69)(cid:57) (cid:24)(cid:62)(cid:54)(cid:67)(cid:58)(cid:52)(cid:50)(cid:10) (cid:43)(cid:57)(cid:54) (cid:52)(cid:64)(cid:62)(cid:65)(cid:50)(cid:63)(cid:74) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:54)(cid:68) (cid:58)(cid:63) (cid:55)(cid:64)(cid:70)(cid:67) (cid:51)(cid:70)(cid:68)(cid:58)(cid:63)(cid:54)(cid:68)(cid:68) (cid:68)(cid:54)(cid:56)(cid:62)(cid:54)(cid:63)(cid:69)(cid:68)(cid:22) (cid:24)(cid:65)(cid:65)(cid:61)(cid:58)(cid:54)(cid:53) (cid:43)(cid:54)(cid:52)(cid:57)(cid:63)(cid:64)(cid:61)(cid:64)(cid:56)(cid:74) (cid:6)(cid:55)(cid:64)(cid:67)(cid:62)(cid:54)(cid:67)(cid:61)(cid:74) (cid:29)(cid:61)(cid:64)(cid:72) (cid:26)(cid:64)(cid:63)(cid:69)(cid:67)(cid:64)(cid:61)(cid:68)(cid:7)(cid:8) (cid:28)(cid:63)(cid:56)(cid:58)(cid:63)(cid:54)(cid:54)(cid:67)(cid:54)(cid:53) (cid:29)(cid:58)(cid:61)(cid:62)(cid:68)(cid:8) (cid:28)(cid:61)(cid:54)(cid:52)(cid:69)(cid:67)(cid:64)(cid:63)(cid:58)(cid:52) (cid:42)(cid:74)(cid:68)(cid:69)(cid:54)(cid:62)(cid:68) (cid:50)(cid:63)(cid:53) (cid:24)(cid:54)(cid:67)(cid:64)(cid:68)(cid:69)(cid:50)(cid:67)(cid:10) Management uses a number of metrics to assess the company’s performance: (cid:77) (cid:26)(cid:64)(cid:63)(cid:68)(cid:64)(cid:61)(cid:58)(cid:53)(cid:50)(cid:69)(cid:54)(cid:53) (cid:63)(cid:54)(cid:69) (cid:68)(cid:50)(cid:61)(cid:54)(cid:68)(cid:8) (cid:56)(cid:67)(cid:64)(cid:68)(cid:68) (cid:62)(cid:50)(cid:67)(cid:56)(cid:58)(cid:63)(cid:68)(cid:8) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:63)(cid:56) (cid:58)(cid:63)(cid:52)(cid:64)(cid:62)(cid:54)(cid:8) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:63)(cid:56) (cid:62)(cid:50)(cid:67)(cid:56)(cid:58)(cid:63)(cid:68)(cid:8) (cid:63)(cid:54)(cid:69) (cid:58)(cid:63)(cid:52)(cid:64)(cid:62)(cid:54) (cid:50)(cid:63)(cid:53) (cid:54)(cid:50)(cid:67)(cid:63)(cid:58)(cid:63)(cid:56)(cid:68) (cid:65)(cid:54)(cid:67) (cid:68)(cid:57)(cid:50)(cid:67)(cid:54) (cid:77) (cid:26)(cid:50)(cid:68)(cid:57) (cid:55)(cid:61)(cid:64)(cid:72) (cid:55)(cid:67)(cid:64)(cid:62) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:64)(cid:63)(cid:68) (cid:50)(cid:63)(cid:53) (cid:65)(cid:50)(cid:74)(cid:62)(cid:54)(cid:63)(cid:69)(cid:68) (cid:69)(cid:64) (cid:68)(cid:57)(cid:50)(cid:67)(cid:54)(cid:57)(cid:64)(cid:61)(cid:53)(cid:54)(cid:67)(cid:68) (cid:77) (cid:41)(cid:54)(cid:69)(cid:70)(cid:67)(cid:63) (cid:64)(cid:63) (cid:68)(cid:50)(cid:61)(cid:54)(cid:68)(cid:8) (cid:50)(cid:68)(cid:68)(cid:54)(cid:69)(cid:68) (cid:50)(cid:63)(cid:53) (cid:54)(cid:66)(cid:70)(cid:58)(cid:69)(cid:74) (cid:77) (cid:42)(cid:54)(cid:56)(cid:62)(cid:54)(cid:63)(cid:69) (cid:63)(cid:54)(cid:69) (cid:68)(cid:50)(cid:61)(cid:54)(cid:68)(cid:8) (cid:56)(cid:67)(cid:64)(cid:68)(cid:68) (cid:65)(cid:67)(cid:64)(cid:55)(cid:58)(cid:69)(cid:8) (cid:56)(cid:67)(cid:64)(cid:68)(cid:68) (cid:62)(cid:50)(cid:67)(cid:56)(cid:58)(cid:63)(cid:68)(cid:8) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:63)(cid:56) (cid:58)(cid:63)(cid:52)(cid:64)(cid:62)(cid:54) (cid:50)(cid:63)(cid:53) (cid:64)(cid:65)(cid:54)(cid:67)(cid:50)(cid:69)(cid:58)(cid:63)(cid:56) (cid:62)(cid:50)(cid:67)(cid:56)(cid:58)(cid:63)(cid:68) 2 0 1 0 (cid:24) (cid:37) (cid:37) (cid:44) (cid:24) (cid:35) (cid:41) (cid:28) (cid:39) (cid:38) (cid:41) (cid:43) RAVEN 19 Financial Review and Analysis (continued) The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in the Results of Operations—Segment Analysis section. Financial highlights for fiscal years ended January 31, Dollars in thousands, except per share data 2010 % change 2009 % change 2008 Results of Operations Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 Gross margins(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,220 Operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,574 Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.58 (a) The company’s gross margins may not be comparable to industry peers due to variability in the classification of expenses across industries in which the company operates. (7)% $ 30,770 1.70 (7)% $ 11% $ 27,802 1.53 11% $ (15)% $279,913 13% $ 41,145 20% $233,957 (7)% $ 46,394 28.5% 18.2% 26.2% 16.6% 27.2% 17.6% Cash Flow and Payments to Shareholders Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,643 Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Common stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,911 — Cash returned to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,911 $ 39,037 $ 31,884 5,180 $ 37,064 $ 27,151 $ 7,966 592 $ 8,558 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) 12.0% 18.2% 25.2% 11.0% 21.1% 26.0% 11.9% 20.8% 28.3% Results of Operations—Fiscal 2010 versus Fiscal 2009 The slump in global economic activity that began negatively affecting the company’s financial results in the last quarter of fiscal 2009 continued through fiscal 2010. During the second half of fiscal 2010, global economies began to show signs of a recovery from the unprecedented volatility and disruption. However, there is substantial uncertainty as to the strength and sustainability of the economic recovery. The 15% decrease in net sales is the result of year-over-year sales declines in Applied Technology (16%) and Engineered Films (29%). Electronic Systems and Aerostar sales were relatively flat year-over-year. Expectations of lower farm income and economic uncertainty caused growers and custom spray applicators to defer purchases, which negatively affected substantially all of Applied Technology’s product categories. The impact of the weak economy on Engineered Films’ largest markets resulted in year-over-year declines of energy market sales (40%) and construction market sales (25%). Electronic Systems sales were up 2% year-over-year, reflecting increased deliveries of avionics and secure communication electronics to meet rising demand from government agencies and the aerospace market, which was partially offset by a smaller customer base. Aerostar sales were flat compared with last year, as increased deliveries of MC-6 Army parachutes, aerostats and research balloons were offset by decreased deliveries of protective wear. Applied Technology operating margins contracted year-over-year, reflecting the negative impact of lower sales on operating leverage. However, disciplined margin management, operational efficiencies and higher productivity brought improved operating margins for Engineered Films, Electronic Systems and Aerostar. Consequently, the 7% year-over-year decrease in operating income was less severe than the 15% drop in sales. While fourth quarter revenues of $55.8 million were down 7%, net income grew 25% from the fourth quarter of fiscal 2009. Applied Technology quarterly sales fell 12%, resulting from the negative impact of lower farm income and economic uncertainty. Electronic Systems fourth quarter sales declined 14% due to lower sales of secure communication electronics, reflecting lower demand from government agencies, and slower avionics deliveries, as commercial airlines began cancelling or delaying delivery schedules. Aerostar’s quarterly sales dropped 12%, as fiscal 2009 fourth quarter results included nearly $3 million of MC-6 parachute deliveries that were delayed from the prior quarter due to contract modifications. Engineered Films fourth quarter sales rose 15% due to increased business activity and higher energy prices, as growth in emerging markets drove oil prices to levels adequate to support an increase in drilling activity. This resulted in a 40% increase in fourth quarter sales of pit and pond lining films to the oil and gas exploration markets from the prior year. Fourth quarter net income of $5.8 million rose 25% year-over-year. Disciplined margin management at Engineered Films led to $2.4 million of operating income versus an operating loss of $178,000 in the fourth quarter of fiscal 2009. Management responded quickly and decisively to the freefall in business activity experienced in the fourth quarter of fiscal 2009 by tightly managing expenses and decreasing headcount—necessary steps to align the division with the weak business environment. 20 2 0 1 0 A N N U A L R E P O R T RAVEN Results of Operations—Fiscal 2009 versus Fiscal 2008 In fiscal 2009, the company posted record sales, operating income, net income, diluted earnings per share and operating cash flow. 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 was the result of year-over-year sales growth in Applied Technology (60%), Aerostar (57%) and Engineered Films (5%). The 13% rise in operating income was 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, when sales volume slipped 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. Strategic Investments In November 2009, the company made two significant investments. These enhanced Applied Technology’s information strategy of providing a comprehensive precision agriculture system to improve productivity and efficiency by transforming field data into knowledge. Site-Specific Technology Development Group, Inc. (SST) The company acquired a 20% interest in SST, a privately held agricultural software development and information services provider, for $5.0 million. Raven and SST are strategically aligned to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market. Ranchview, Inc. (Ranchview) The company purchased substantially all of the assets of Ranchview, Inc., a privately held Canadian start-up company for $1.5 million cash and contingent consideration valued at $2.3 million. Raven has agreed to pay additional consideration on a quarterly basis of 6% on future sales of Ranchview products, up to a maximum payment of $4.0 million. Ranchview developed products that use cellular networks instead of traditional radio systems that are typically used to deliver RTK (Real Time Kinematic) corrections to GPS enabled equipment. Cash Flow and Payments to Shareholders Raven continues to generate strong operating cash flows, hitting a record $47.6 million in fiscal 2010 due to company earnings and lower accounts receivable and inventory levels. Working capital levels reflected both lower business activity and improved management of working capital. During fiscal 2010, $9.9 million was returned to shareholders through quarterly dividends. The quarterly cash dividend increased from 13 cents per share to 14 cents per share beginning in the second quarter. This represents the 23rd consecutive increase in the annual dividend (excluding special dividends). 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 Despite challenging economic conditions, 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. Raven generated a record 12% return on sales in fiscal 2010. Improved operating efficiencies and cost containment overcame the negative impact of weak market conditions on the company’s net sales and earnings. 2 0 1 0 A N N U A L R E P O R T RAVEN 21 Financial Review and Analysis (continued) 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 2010 % change 2009 % change 2008 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $86,217 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,889 Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,722 Operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.8% 43.9% (16)% $103,098 46,591 (19)% 60% $64,291 28,640 63% 45.2% 44.5% (24)% $ 33,884 77% $19,102 32.9% 29.7% APPLIED TECHNOLOGY Net Sales (dollars in millions) Operating Income (dollars in millions) $103.1 $33.9 $86.2 $25.7 $64.3 $19.1 Fiscal 2010 net sales of $86.2 million decreased $16.9 million (16%) and operating income of $25.7 million was down $8.2 million (24%) versus fiscal 2009. Lower sales and operating income were due primarily to a decrease in sales volume partially offset by modest selling price increases. Fiscal 2010 fourth quarter net sales of $17.3 million were off $2.4 million (12%) and operating income of $4.1 million fell $1.1 million (21%). 2008 2009 2010 2008 2009 2010 A number of factors contributed to the drop in full-year and fourth quarter comparative results: (cid:77) Economic uncertainty. The government’s calendar 2009 farm income forecast was significantly lower than 2008 actual levels. Farm production costs declined from prior-year levels; however, they were outpaced by the decline in crop prices. Expectations of lower farm income and economic uncertainty led growers and custom spray applicators to defer purchases. These factors had a negative impact on substantially all of the segment’s product categories. (cid:77) New product sales. Products that enable entry into new markets, have new applications, or are customized are included in the new product sales category for 24 months from their release date. Fiscal 2010 new product sales decreased from a year ago, reflecting the highly successful fiscal 2009 launches of innovative field computers. (cid:77) International sales. International sales of $17.1 million fell $1.7 million (9%) year-over-year. Net sales outside the U.S. accounted for 20% of segment sales in fiscal 2010 versus 18% in fiscal 2009. Declines in some markets were partially offset by expansion into regions not previously served. (cid:77) Negative operating leverage. Gross margins of 43.9% in fiscal 2010 fell from 45.2% in fiscal 2009. Selling expenses in the latest year were $7.0 million, or 8.1% of net sales, compared with $7.5 million, or 7.3% of net sales, for fiscal 2009. The change in profits and selling expenses as a percentage of sales reflected the negative impact of falling sales on operating leverage. (cid:77) Research and development. R&D expenses of $5.2 million were flat between the two years; however, they increased as a percentage of net sales—6.0% for fiscal 2010 versus 5.0% for fiscal 2009. Focused investments in R&D are critical to product development, which will support future growth and competitive position in the marketplace. Fiscal 2009 net sales of $103.1 million increased $38.8 million (60%) and operating income of $33.9 million grew $14.8 million (77%) over fiscal 2008. The increase in sales and operating income was due primarily to higher sales volume and modest selling price increases. These factors contributed to higher sales volume and strong operating results: (cid:77) Healthy global farm fundamentals. Commodity prices were strong through the first nine months of the year but fell from their highs. However, agricultural market fundamentals remained strong and continued to influence growers’ capital investment decisions, increasing demand for Applied Technology precision agriculture equipment. (cid:77) Investments in select global markets. International sales rose to 18% of segment sales in fiscal 2009 compared with 16% in fiscal 2008, an increase of $8.7 million. (cid:77) Increased acceptance of precision agriculture. Double-digit year-over-year sales growth was achieved for all product categories (standard, precision, steering and AutoboomTM). This reflected strong customer demand for flagship sprayer products as well as newer products such as the CruizerTM—a simple and affordable guidance system targeted at new entrants to the precision agriculture market. 22 2 0 1 0 A N N U A L R E P O R T RAVEN (cid:77) Positive operating leverage. Gross margins of 45.2% in fiscal 2009 compared favorably to fiscal 2008 gross margins of 44.5%. Fiscal 2009 selling expenses were $7.5 million, or 7.3% of net sales, compared with fiscal 2008 selling expenses of $5.3 million, or 8.2% of net sales. These improvements came from positive operating leverage generated through increased sales volume. 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 2010 % change 2009 % change 2008 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,783 13,013 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,232 Operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.0% 20.4% (29)% $89,858 (10)% 14,502 5% $85,316 (32)% 21,236 16.1% 24.9% (6)% $10,919 (38)% $17,739 12.2% 20.8% Fiscal 2010 net sales of $63.8 million decreased $26.1 million (29%) while operating income of $10.2 million was off $687,000 (6%) versus fiscal 2009. Lower sales and operating income reflected falling sales volume and selling prices. The year-over-year change was driven primarily by the following factors: ENGINEERED FILMS Net Sales (dollars in millions) Operating Income (dollars in millions) $89.9 $17.7 $85.3 $63.8 $10.9 $10.2 (cid:77) Depressed markets. Dysfunctional credit markets and plunging asset values resulted in weak economic activity. Energy prices plunged as a result of the reduction in economic activity, leading to the decline in the oil and gas exploration market throughout the majority of the year. Similarly, as the flow of credit slowed and economic uncertainty rose, the commercial construction markets suffered. Agricultural commodity prices also fell sharply, resulting in a softening of the agricultural market. The impact of the recession was felt across all of the division’s markets, with sales to the two largest markets—energy and construction—decreasing approximately 40% and 25%, respectively. 2008 2009 2010 2008 2009 2010 (cid:77) Sales volume and selling prices. Selling prices decreased approximately 16% and sales volume, as measured by pounds shipped, fell 17% year-over-year. These negative trends reflected market disruptions, competitive pricing pressures stemming from excess industry capacity and lower resin costs due to relatively low natural gas prices. (cid:77) Cost containment. Management responded quickly and decisively to the freefall in business activity experienced in the fourth quarter of fiscal 2009. The necessary steps were taken to align the division with the weak business environment, by tightly managing expenses and decreasing headcount. (cid:77) Margin preservation. Poor economic conditions, volatile material costs and competitive pricing pressures squeezed margins. However, the impact of these factors was more than offset by opportune purchases of prime grade resin and cost containments. Consequently, gross margins increased from 16.1% to 20.4%. (cid:77) Selling expenses. Selling expenses increased to 3.8% of sales from 3.6% in the prior year. Selling expenses of $2.4 million decreased 25% year-over-year, through reductions in personnel and promotional expenses. However, this lagged the 29% drop in sales. Fiscal 2010 fourth quarter net sales of $16.7 million increased $2.2 million (15%) from the fourth quarter of fiscal 2009. In addition, the segment posted fourth quarter fiscal 2010 operating income of $2.4 million compared with an operating loss of $178,000 in the fourth quarter of fiscal 2009. Fiscal 2010 fourth quarter results were affected by the following: (cid:77) Market stabilization. Sales and profit comparisons were favorable, as fourth quarter fiscal 2009 financial results were deeply affected by the freefall in business activity. (cid:77) Sales volume. Higher sales for the quarter were largely volume driven. Greater business activity and growth in emerging markets drove oil prices to levels adequate to support an increase in drilling activity. As a result, fourth quarter sales of pit and pond lining films to the oil and gas exploration markets rose 40% as distributors replenished inventory levels. (cid:77) Margin expansion. Gross margins increased from 3.6% for last year’s fourth quarter to 18.5%. Last year’s margins were negatively affected by a sudden decrease in sales volume on a relatively high-cost base and high-cost inventory. 2 0 1 0 A N N U A L R E P O R T RAVEN 23 Financial Review and Analysis (continued) Fiscal 2009 net sales of $89.9 million increased $4.5 million (5%) while operating income of $10.9 million fell $6.8 million (38%) versus fiscal 2008. Fiscal 2009 results were driven by these trends: (cid:77) Sales volume and selling prices. Sales increased due to higher volume coupled with a modest increase in selling prices. Strong sales of 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. (cid:77) Margin contraction. Depressed margins reflected volatile material costs, increased price competition and poor economic 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 24.9% in fiscal 2008 to 16.1% in fiscal 2009. (cid:77) Selling expenses. Fiscal 2009 selling expenses of $3.2 million were relatively flat year-over-year. 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 2010 % change 2009 % change 2008 ELECTRONIC SYSTEMS Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,525 10,258 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,979 Operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1% 16.1% 2% $61,983 7,218 42% 11.6% (9)% $67,987 (38)% 11,557 17.0% 52% $ 5,926 (43)% $10,365 9.6% 15.2% Net Sales (dollars in millions) $68.0 $62.0 $63.5 Operating Income (dollars in millions) $10.4 $9.0 $5.9 Fiscal 2010 net sales of $63.5 million increased $1.5 million (2%) and operating income of $9.0 million grew $3.1 million (52%) from fiscal 2009. Fiscal 2010 full-year comparative results reflected the following: (cid:77) Growth from existing customers. The 2% rise in sales was attributable to higher deliveries of avionics (10%) and secure communication electronics (20%) to meet increased demand from government agencies and the aerospace market, partially offset by a smaller customer base. (cid:77) Margin expansion. Gross margins expanded as a result of positive operating leverage produced through increased sales to existing customers, favorable product mix and cost controls—such as headcount reductions and facility consolidation. 2008 2009 2010 2008 2009 2010 (cid:77) Selling expenses. Selling expenses of $1.2 million (1.8% of sales) were consistent with the prior year. Fiscal 2010 fourth quarter net sales of $13.8 million fell $2.3 million (14%) and operating income of $2.0 million decreased $288,000 (13%) from fourth quarter fiscal 2009. Fiscal 2010 fourth quarter comparative results reflected the following: (cid:77) Secure communication electronics and avionics. Fourth quarter sales declined 14% due to lower sales of secure communication electronics, reflecting lower demand from government agencies, and slower avionics deliveries, as commercial airlines began cancelling or delaying delivery schedules. Approximately 70% of avionics sales are related to military aircraft, which mitigate the negative impact of disruptions on commercial deliveries. 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. The following factors affected fiscal 2009 full-year comparative results: (cid:77) Slower consumer spending. Hand-held bed control shipments were negatively affected by lower consumer spending on non-essential home-related products, reflecting the influence of financial uncertainty on consumer sentiment and a soft construction market. (cid:77) Loss of a customer. Fiscal 2008 results included $7 million of sales to a former customer (which was acquired) and a profitable non- repeat close-out order. 24 2 0 1 0 A N N U A L R E P O R T RAVEN (cid:77) Increased sales of avionics. Strong sales of avionics partially offset the negative impact of the factors mentioned earlier. (cid:77) Negative operating leverage. Gross margins suffered from negative operating leverage on lower sales and a less favorable product mix. Fiscal 2009 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. (cid:77) Selling expenses. Selling expenses of $1.1 million (1.7% of sales) were consistent with the prior year. Aerostar Aerostar manufactures military parachutes, protective wear, custom-shaped inflatable products and high-altitude and tethered aerostats for government and commercial research. Financial highlights for fiscal years ended January 31, Dollars in thousands Aerostar 2010 % change 2009 % change 2008 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,244 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,632 Gross margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,634 Operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.7% 24.3% 0% $27,186 5,189 28% 19.1% 57% $17,290 2,343 121% 13.6% 34% $ 4,219 180% $ 1,506 15.5% 8.7% AEROSTAR Net Sales (dollars in millions) Operating Income (dollars in millions) $27.2 $27.2 $5.6 $17.3 $4.2 Fiscal 2010 net sales of $27.2 million were flat and operating income of $5.6 million grew $1.4 million (34%) over fiscal 2009. Fiscal 2010 fourth quarter net sales of $8.9 million decreased $1.3 million (12%) and operating income of $2.1 million increased $299,000 (17%) versus fiscal 2009. $1.5 Fiscal 2010 fourth quarter and full-year comparative results were primarily attributable to the following: (cid:77) Sales volumes. Flat year-over-year sales reflected increased deliveries of MC-6 Army parachutes, aerostats and research balloons, which were offset by decreased deliveries of protective wear due to the completion of a large contract in January 2009. Fourth quarter sales dropped 12% as fiscal 2009 fourth quarter results included nearly $3 million of MC-6 parachute deliveries that were delayed from the prior quarter due to contract modifications. 2008 2009 2010 2008 2009 2010 (cid:77) Margin expansion. The improvement in gross and operating margins came from increased parachute manufacturing efficiencies. Final production runs and deliveries of the MC-6 parachute contract were made at the end of fiscal 2010. Fiscal 2010 was the most profitable year for the program, primarily due to the higher efficiency level attained. (cid:77) Selling expenses. Selling expenses of $800,000 (2.9% of sales) were consistent with the prior year. Fiscal 2009 net sales of $27.2 million increased $9.9 million (57%) and operating income of $4.2 million grew $2.7 million (180%) over fiscal 2008. Fiscal 2009 comparative results were primarily affected by the following items: (cid:77) Government contracts. Shipments of protective wear and MC-6 parachutes increased year-over-year. Deliveries under the $20.7 million MC-6 Army parachute and $6.5 million protective wear contracts began in the fourth quarter of fiscal 2008. (cid:77) Positive operating leverage. Gross margins of 19.1% in fiscal 2009 compared favorably with gross margins of 13.6% in fiscal 2008, bolstered by increased MC-6 Army parachute and protective wear shipments. (cid:77) Selling expenses. Fiscal 2009 selling expenses of 3.1% of net sales compared favorably with 4.1% of net sales in fiscal 2008. Selling expenses of $856,000 increased 22% year-over-year; however, the increase lagged the 57% rise in sales. 2 0 1 0 A N N U A L R E P O R T RAVEN 25 Financial Review and Analysis (continued) Corporate Expenses (administrative expenses, income taxes and interest income and other, net) Dollars in thousands 2010 2009 2008 Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,407 Administrative expenses as a % of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102 Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1% $8,502 $7,467 3.0% 3.2% $ 507 $1,079 34.0% 34.4% 34.2% NET OPERATING MARGIN (percent) 18.2% 17.6% 17.6% 18.2% 16.6% 16.6% Administrative expenses declined 13% in fiscal 2010 compared with fiscal 2009, driven by headcount reductions and lower incentive compensation and legal expenses. Administrative expenses increased 14% in fiscal 2009 compared with fiscal 2008, as a result of higher compensation and professional service expense. “Interest income and other, net” consists mainly of interest income, bank fees and foreign currency transaction gain or loss. The year-over-year declines of $405,000 in fiscal 2010 and $572,000 in fiscal 2009 were attributable primarily to a decrease in interest income due to lower interest rates. Effective tax rates for the three years presented were favorably affected by the U.S. federal tax deduction from income attributable to manufacturing activities. 2005 2006 2007 2008 2009 2010 OUTLOOK Management expects to be challenged by a difficult operating environment in fiscal 2011, due to high unemployment, weak residential and consumer construction and continued de-leveraging of consumer and corporate balance sheets. Despite this subdued economic outlook, management anticipates near-term growth through market share gains, new products and geographic expansion. Long-term growth will be driven by 1) research and development, 2) capital investment in new products and technologies, 3) strategic investments to augment existing products and markets and 4) continued expansion of the company’s global reach. The successful execution of the company’s fiscal 2010 strategy of preserving and generating cash and tightly managing costs has strengthened the company’s core businesses. Applied Technology Management anticipates fiscal 2011 sales growth to be in the 10% range. New product sales—including those developed through the Ranchview acquisition—and international market growth are expected to offset weakness in the domestic agriculture market. Global opportunities continue, due to rising global demand for food, heightened environmental concerns and broadening recognition of precision agriculture as a modest capital investment with rapid returns. Applied Technology continues to see significant opportunities in developing markets—such as Eastern Europe, Russia and Brazil—and developed markets—such as Canada, Europe and Australia. Previous investments in product development and global expansion, along with the recent investments in SST and Ranchview, position Applied Technology as a premier total precision solutions provider (GPS steering devices, planting and spraying controls, data collection, transmission, storage and analysis). In addition, the division will benefit from the continued focus on “ease of use” and product “localization.” Engineered Films Engineered Films financial results have been affected by global economic weakness and associated declines in oil and gas consumption and construction activity. However, the prompt re-alignment of the cost structure with market conditions has strengthened the division’s position for fiscal 2011. Fiscal 2011 revenue growth is targeted in the 10% range on a constant dollar basis. The volatile pricing environment could materially affect actual sales levels. Management anticipates increased sales of geomembrane products for lining and capping landfills, water canals and reservoirs. In addition, Engineered Films continues to develop new products, and market innovative products such as FeedFreshTM silage covers and VaporBlock PlusTM radon barriers. Ultimately, Engineered Films growth is dependent on the reversal of the severe economic contraction, particularly in the oil and gas drilling and construction markets. Electronic Systems In fiscal 2011, management anticipates Electronic Systems to maintain a good level of profit and cash flow on relatively flat sales. Lower avionics revenues are expected to be substantially offset by higher sales of secure communications and controls. Aerostar Management believes revenue growth of 50% or more can be achieved by Aerostar in the coming year. The three-year MC-6 parachute contract, completed at the end of fiscal 2010, will be replaced by deliveries on the T-11 parachute contract in fiscal 2011. In addition, Aerostar’s growth 26 2 0 1 0 A N N U A L R E P O R T RAVEN strategy, which focused on tethered aerostat systems for use in persistent surveillance by the military, is beginning to generate significant sales orders. More than $7 million in orders were received in the fourth quarter of fiscal 2010. Aerostar will continue to capitalize on opportunities in the tethered aerostat market throughout fiscal 2011 and expects significant growth in this product line. The profit impact of higher sales is expected to be partially offset by start-up costs on new contracts. Corporate and other Administrative costs in fiscal 2011 are expected to approach fiscal 2009 levels due to higher compensation costs. The increase in the U.S. manufacturer’s tax deduction should reduce the company’s effective income tax rate by approximately one percentage point, although this could be offset if the research and development income tax credit is not renewed in the U.S. LIQUIDITY AND CAPITAL RESOURCES The company’s liquidity and capital resources are strong despite the global economic recession. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been Raven’s primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows, will be enough to fund the company’s operating, investing and financing activities. Raven’s cash needs are seasonal, with working capital demands strongest in the first quarter. As a result, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in working capital. Cash, cash equivalents and short-term investments totaled $43.7 million at January 31, 2010, a $27.4 million increase from $16.3 million on the same date in 2009. In November 2008, the company paid a special cash dividend of $22.5 million. In addition, Raven has an uncollateralized credit agreement that provides an $8.0 million line of credit. The credit line is expected to be renewed during fiscal 2011, as the maturity date on the current line of credit is September 1, 2010. Operating Activities Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services and employee compensation. Management evaluates working capital levels through the computation of average day’s sales outstanding and inventory turnover. Average day’s sales outstanding is a measure of the company’s efficiency in enforcing its credit policy. The inventory turnover ratio is a metric used to evaluate the effectiveness of inventory management, with further consideration given to balancing the disadvantages of excess inventory with the risk of delayed customer deliveries. Cash provided by operating activities was $47.6 million in fiscal 2010 compared with $39.0 million in fiscal 2009. The increase in operating cash flows is the result of favorable variability in working capital needs, partially offset by lower company earnings. Reductions in inventory and accounts receivable have combined to generate $7.9 million in cash versus cash consumed of $4.2 million in fiscal 2009. Lower business levels, disciplined inventory management (inventory turnover of 5.3X in fiscal 2010 versus 5.2X in fiscal 2009) and improved cash collections (average day’s sales outstanding of 52 days in fiscal 2010 versus 54 days in fiscal 2009) resulted in strong operating cash flows. Additionally, year-over-year variability in accounts payable generated $2.9 million in cash, as compared with $963,000 in fiscal 2009, due to more favorable payment terms. This favorable cash impact was partially offset by a decrease in accrued liabilities, which reflected lower compensation accruals and the acceleration of a $1.1 million cash contribution to the employee 401(k) plan, due to a change in the plan design. Fiscal 2010 bad debt recoveries of $183,000 compared favorably to prior-year expense of $629,000, reflecting lower sales and more stable economic conditions— particularly as it related to the company’s international exposure. 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, lower 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 earlier, 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. 2 0 1 0 A N N U A L R E P O R T RAVEN 27 Financial Review and Analysis (continued) Investing Activities Cash used in investing activities totaled $13.4 million in fiscal 2010, $7.0 million in fiscal 2009 and $4.4 million in fiscal 2008. The fiscal 2010 increase of $6.4 million reflected a $4.5 million increase in net purchases of short-term investments and $6.5 million of cash outlays for the SST and Ranchview investments, partially offset by a $4.7 million decrease in capital expenditures. Additional cash consumed between fiscal 2009 and 2008 was due primarily to higher capital expenditures to support the increased manufacturing requirements of Applied Technology. Management anticipates fiscal 2011 capital spending of roughly $8 million. Financing Activities Cash used in financing activities is primarily for dividend payments and repurchases of common stock. Financing activities consumed cash of $9.9 million in fiscal 2010 compared with $37.0 million in fiscal 2009 and $8.3 million in fiscal 2008. CASH FLOWS FROM OPERATIONS (dollars in millions) $47.6 $39.0 $26.3 $27.2 $21.2 $18.9 The quarterly cash dividend was increased by 8 percent to 14 cents per share in the second quarter of fiscal 2010. Quarterly dividends of $9.9 million, or 55 cents per share, were paid in the current year compared with $9.4 million, or 52 cents per share, in fiscal 2009. In addition, a special dividend of $1.25 per share was paid in November 2008. The $22.5 million special dividend was in response to Raven’s strong cash position and commitment to return excess cash to shareholders. Treasury stock purchases totaled $5.2 million for fiscal 2009. No treasury stock purchases were made in fiscal 2010, as the share repurchase program was suspended in July 2008. 2005 2006 2007 2008 2009 2010 The change between fiscal 2009 and 2008 financing activity cash flows was the result of an increase in quarterly dividends, stock repurchases and the fiscal 2009 special dividend. Repurchases of the company’s common stock totaled $5.2 million (161,100 shares) in fiscal 2009 in contrast to $592,000 (20,150 shares) in fiscal 2008. The fiscal 2009 quarterly dividend of 13 cents per share increased from 11 cents per share one year earlier. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS As of January 31, 2010, 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, 2010, 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less than 1 year 1-3 years 3-5 years More than 5 years Total $ — $ — $ — $ — $ — — 4,156 — — 304 5,512 42,359 — 234 229 42,359 — 70 528 — — — 599 — — 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 4.0% as of January 31, 2010, and expires September 2010. The line of credit is reduced by outstanding letters of credit totaling $1.3 million. (b) The total liability for uncertain tax positions at January 31, 2010, was $3.5 million. The company is not able to reasonably estimate the timing of future payments relating to non-current tax benefits. $48,175 $42,822 $598 $599 $4,156 CRITICAL ACCOUNTING ESTIMATES Critical accounting policies are those that require the application of judgment when valuing assets and liabilities on the company’s balance sheet. 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 2005 2006 2007 2008 2009 2010 28 2 0 1 0 A N N U A L R E P O R T RAVEN 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 life cycle, inventory value declines slowly or the product has alternative uses. Management uses its manufac- turing 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 Raven’s customers may result in unexpected excess material. Electronic Systems 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. BOOK VALUE PER SHARE (dollars) $7.38 $6.52 $6.30 $5.45 $4.67 $3.67 Warranties 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. 2005 2006 2007 2008 2009 2010 Allowance for Doubtful Accounts Determining the level of the allowance for doubtful accounts requires management’s best estimate of the amount of probable credit losses based on historical writeoff experience by segment and an estimate of the collectibility of any known problem accounts. Factors that are considered beyond historical experience include the length of time the receivables are outstanding, the current business climate and the customer’s current financial condition. Revenue Recognition 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. Goodwill Management assesses goodwill for impairment annually—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 by reporting units. Reporting units are the company’s reportable segments, except that Aerostar’s goodwill is related specifically to its high-altitude research balloon operation and is accordingly evaluated independently from Aerostar’s other operations. In the first step of goodwill impairment testing, the corporate discount rate is calculated so that the discounted cash flows are equal to Raven’s net enterprise value. The corporate discount rate is then increased when evaluating any individual reporting unit due to any additional risk factors inherent within the unit versus the corporation as a whole. A discounted cash flow analysis is then completed for the reporting unit using the adjusted discount rate. The discounted cash flow assumptions primarily include forecasted sales and costs and the discount rate. Management evaluates the merits of each significant assumption used to determine the fair value of the reporting unit. The estimated fair value of the reporting unit is then compared with its net assets. If the estimated fair value of the reporting unit is less than the net assets of the reporting unit, an impairment loss is possible and a more refined measurement of the impairment loss would take place. This is the second step of the goodwill impairment testing, in which management may use market comparisons and recent transactions to assign the fair value of the reporting unit to all of the assets and liabilities of that unit. The valuation methodologies in both steps of goodwill impairment testing 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. 2 0 1 0 A N N U A L R E P O R T RAVEN 29 Financial Review and Analysis (continued) Based on the analysis performed during the fourth quarter of fiscal 2010, the fair values of each of the company’s reporting units were in excess of their carrying values by more than 60%; therefore, no impairment indicators were noted through the step one impairment analysis, and a step two analysis was not considered necessary. Long-lived Assets For long-lived assets—including intangibles; investments in affiliates; and property, plant and equipment—management tests for recoverability whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. Property, plant and equipment are depreciated over the estimated lives of the assets using accelerated methods, which reduces the likelihood of an impairment loss. Management periodically discusses any significant changes in the utilization of long-lived assets, which may result from—but are not limited to—an adverse change in the asset’s physical condition or a significant adverse change in the business climate. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining its fair value. 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 In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification), which became the single source of authoritative generally accepted accounting principles (GAAP) in the United States, other than rules and interpretive releases issued by the Securities and Exchange Commission (SEC). The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and instead establishes two levels of guidance: authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification became non-authoritative. The company adopted the Codification in the third quarter of fiscal 2010, which resulted in no changes to the content of the company’s financial statements or disclosures. At the beginning of fiscal 2010, the company adopted FASB guidance that amends required disclosures about derivative instruments and hedging activities. This guidance 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. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows. At the beginning of fiscal 2010, the company adopted FASB guidance that amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets and apply 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. 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. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows. In June 2009, the FASB amended its guidance on accounting for variable interest entities. This guidance alters the approach to determining the primary beneficiary of a variable interest entity, and requires companies to more frequently assess whether they must consolidate variable interest entities. The guidance is effective for the first annual reporting period beginning after November 15, 2009, and for interim periods within that first annual reporting period. The adoption of this guidance on February 1, 2010, is not expected to have a material impact on the company’s consolidated results of operations, financial condition or cash flows. In October 2009, the FASB issued guidance on the accounting for multiple-deliverable revenue arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate of selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand-alone basis. This guidance also expands the required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The guidance is effective beginning February 1, 2011, with early adoption permitted. The company has adopted the new guidance prospectively from the beginning of the fiscal year and determined that there is no material impact on its consolidated results of operations, financial condition, cash flows or disclosures, as the company had no significant multiple-deliverable arrangements during or at the end of the fiscal year. 30 2 0 1 0 A N N U A L R E P O R T RAVEN Monthly Closing Stock Price and Volume 40 30 e c i r P 20 10 0 Feb09 Mar09 Apr09 May09 Jun09 Jul09 Aug09 Sep09 Oct09 Nov09 Dec09 Jan10 Shares Traded (in thousands) Closing Stock Price (in dollars) Quarterly Information (Unaudited) e m u l o V 3000 1500 0 Net Sales Dollars in thousands, except per-share data FISCAL 2010 First Quarter . . . . . . . $ 65,222 56,586 Second Quarter . . . . . 60,158 Third Quarter . . . . . . . Fourth Quarter . . . . . . 55,816 Total Year . . . . . . . . . $237,782 FISCAL 2009 First Quarter . . . . . . . . . Second Quarter . . . . . . . Third Quarter . . . . . . . . . Fourth Quarter . . . . . . . . Total Year . . . . . . . . . . . FISCAL 2008 First Quarter . . . . . . . . . . . . . . . . Second Quarter Third Quarter . . . . . . . . . Fourth Quarter . . . . . . . . Total Year . . . . . . . . . . . $ 75,166 69,278 75,538 59,931 $ 279,913 $ 58,103 55,653 61,842 58,359 $ 233,957 Gross Profit As Reclassified(a) As Reported Operating Income Pretax Income Net Income Net Income Per Share(b) Basic Diluted Common Stock Market Price High Low Cash Dividends Per Share $18,970 13,821 15,510 14,034 $62,335 $ 22,015 15,786 18,001 12,079 $ 67,881 $ 17,374 13,407 15,299 13,068 $ 59,148 $20,428 15,112 16,918 15,394 $67,852 $ 23,288 17,197 19,564 13,399 $ 73,448 $ 18,400 14,445 16,504 14,327 $ 63,676 $14,113 9,306 11,119 8,682 $43,220 $ 16,641 10,312 12,371 7,070 $ 46,394 $ 12,838 8,543 10,940 8,824 $ 41,145 9,411 11,116 8,681 $14,114 $ 9,231 $0.51 0.34 0.40 0.32 $43,322 $28,574 $1.58 6,204 7,293 5,846 $ 16,759 10,488 12,548 7,106 $ 46,901 $ 13,025 8,857 11,254 9,088 $ 42,224 $ 10,882 6,815 8,385 4,688 $ 30,770 $ 8,540 5,843 7,398 6,021 $ 27,802 $ 0.60 0.38 0.47 0.26 $ 1.71 $ 0.47 0.32 0.41 0.33 $ 1.54 $0.51 0.34 0.40 0.32 $1.58 $ 0.60 0.38 0.46 0.26 $ 1.70 $ 0.47 0.32 0.41 0.33 $ 1.53 $24.65 $15.37 23.99 31.00 24.47 32.43 33.18 24.04 $33.18 $15.37 $ 32.80 39.50 47.82 33.24 $ 47.82 $ 30.84 39.36 45.85 42.75 $ 45.85 $ 25.94 29.46 25.79 20.60 $ 20.60 $ 26.20 28.39 33.42 27.57 $ 26.20 $0.13 0.14 0.14 0.14 $0.55 $ 0.13 0.13 0.13 1.38(c) $ 1.77 $ 0.11 0.11 0.11 0.11 $ 0.44 (a) All quarters reflect the reclassification of R&D expense from cost of goods sold. (See Note 1.) (b) Net income per share is computed discretely by quarter and may not add to the full year. (c) A special dividend of $1.25 per share was paid during the fourth quarter of fiscal 2009. 2 0 1 0 A N N U A L R E P O R T RAVEN 31 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, 2010, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of January 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on page 46 of this Annual Report. Ronald M. Moquist President & Chief Executive Officer March 31, 2010 Thomas Iacarella Vice President & Chief Financial Officer 32 2 0 1 0 A N N U A L R E P O R T RAVEN Consolidated Balance Sheets Dollars in thousands, except per-share data ASSETS Current assets 2010 As of January 31 2009 2008 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,684 3,000 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,327 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,475 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,471 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,790 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,747 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,029 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,699 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,834 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,309 $ 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 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,398 12,256 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,306 Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,960 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,433 13,281 608 23,322 $ 8,374 12,804 930 22,108 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,098 7,537 7,478 Commitments and contingencies Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,251 113,556 118,275 Common shares, par value $1.00 per share Authorized—100,000,000 Outstanding—2010: 18,029,733; 2009: 18,012,251 2008: 18,120,513 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . $170,309 $144,415 $147,861 The accompanying notes are an integral part of the consolidated financial statements. 2 0 1 0 A N N U A L R E P O R T RAVEN 33 Consolidated Statements of Income Dollars in thousands, except per-share data Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 2010 For the years ended January 31 2009 $279,913 2008 $233,957 Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,930 206,465 170,281 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,852 Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,843 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 18,789 Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,220 73,448 5,848 21,206 46,394 63,676 4,925 17,606 41,145 Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102) (507) (1,079) Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,322 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,748 46,901 16,131 42,224 14,422 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,574 $ 30,770 $ 27,802 Net income per common share: —Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.58 1.58 $ $ 1.71 1.70 $ $ 1.54 1.53 The accompanying notes are an integral part of the consolidated financial statements. 34 2 0 1 0 A N N U A L R E P O R T RAVEN Consolidated Statements of Shareholders’ Equity and Comprehensive Income Dollars in thousands, except per-share data Balance January 31, 2007. . . . . . . . . . . $ 32,307 $1 Par common stock Paid-in capital Treasury stock Shares Cost Retained earnings Accumulated other comprehensive income (loss) Total $ 2,341 (14,267,433) $ (47,590) $ 113,103 $ (1,893) $ 98,268 Net income . . . . . . . . . . . . . . . . . . . Postretirement benefits, net of $84 income tax . . . . . . . . . Foreign currency translation . . . . . . . . Total comprehensive income . . . . . . . Change in accounting for uncertain tax positions . . . . . . . . . Dividends ($.44 per share) . . . . . . . . Purchase of stock . . . . . . . . . . . . . . . Stock surrendered upon exercise of stock options . . . . . . . . . . . . . . Employees’ stock options exercised. . . Share-based compensation . . . . . . . . Tax benefit from exercise — — — — — — — — — — 4 — (47) 148 — (1,462) 1,170 904 — — — — — (20,150) — — — — — — — — (592) — — — 27,802 — — (716) (7,970) — — — — of stock options . . . . . . . . . . . . . . Balance January 31, 2008. . . . . . . . . . . — 32,408 479 3,436 — (14,287,583) — (48,182) — 132,219 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 — — — — — — — — — 7 18 — — — — — — — 30,770 — — — — (161,100) — — (5,180) (9,381) (22,528) — (34) 83 4 (1,258) 1,176 1,024 — — — — — — — — — of stock options . . . . . . . . . . . . . . Balance January 31, 2009. . . . . . . . . . . — 32,461 128 4,531 — (14,448,683) — (53,362) — 131,080 Net income . . . . . . . . . . . . . . . . . . . Postretirement benefits, net of ($122) income tax . . . . . . . Foreign currency translation . . . . . . . . Total comprehensive income . . . . . . . Dividends ($.55 per share) . . . . . . . . Stock surrendered upon exercise of stock options . . . . . . . . . . . . . . Employees’ stock options exercised. . . Share-based compensation . . . . . . . . Tax cost from exercise — — — — — — — 11 (51) 65 3 (1,319) 1,374 1,031 — — — — — — — — — — — — — — 28,574 — — (9,922) — — — of stock options . . . . . . . . . . . . . . — Balance January 31, 2010. . . . . . . . $32,478 $5,604 (14,448,683) $(53,362) $149,732 (24) — — — — 156 131 — — — — — — — (1,606) — 698 (246) — — — — — — — (1,154) — (226) 179 — — — — 27,802 156 131 28,089 (716) (7,966) (592) (1,509) 1,318 904 479 118,275 30,770 698 (246) 31,222 (9,374) (22,510) (5,180) (1,292) 1,259 1,028 128 113,556 28,574 (226) 179 28,527 (9,911) (1,370) 1,439 1,034 — $(1,201) (24) $133,251 The accompanying notes are an integral part of the consolidated financial statements. 2 0 1 0 A N N U A L R E P O R T RAVEN 35 Consolidated Statements of Cash Flows Dollars in thousands Cash flows from operating activities: For the years ended January 31 2009 2010 2008 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,574 Adjustments to reconcile net income to net cash provided $ 30,770 $27,802 by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in fair value of acquisition-related contingent consideration . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments related to business acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,611 497 94 (183) 95 1,034 10,935 (14) 47,643 (3,302) (3,500) 500 (5,000) (2,000) (94) (13,396) (9,911) — — 44 (9,867) 7,345 413 — 629 216 1,028 (1,346) (18) 39,037 (8,001) (2,100) 3,600 — (488) (11) (7,000) (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 — (269) (29) (4,433) (7,966) (592) 479 (191) (8,270) Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 (73) 41 24,417 Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year 16,267 . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,684 (5,005) 21,272 $ 16,267 14,489 6,783 $21,272 The accompanying notes are an integral part of the consolidated financial statements. 36 2 0 1 0 A N N U A L R E P O R T RAVEN Notes to Financial Statements Note 1. Summary of Significant Accounting Policies BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Raven Industries, Inc. and its wholly owned subsidiaries (the company 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 operates three divisions (Applied Technology [for- merly 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. Certain amounts in the prior years’ consolidated financial state- ments have been reclassified to conform to the current year presentation. In the past, research and development expense was included in cost of goods sold and selling, general and administra- tive expenses on the face of the Consolidated Statements of Income. For the current year’s Consolidated Statements of Income “research and development expenses” is a separate line item. INVESTMENT IN AFFILIATE An affiliate investment over which the company has significant influence, but neither a controlling interest nor a majority interest in the risks or rewards of the investee, is accounted for using the equity method. The investment balance is included in “other assets, net.” The company considers whether the value of any of its equity method investments has been impaired whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the company considered any such decline to be other than temporary (based on various factors, including historical financial results, product development activities and the overall health of the affiliate’s industry), a write-down would be recorded. USE OF ESTIMATES Preparing the 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 statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. FOREIGN CURRENCY The company’s subsidiaries that operate outside the United States use 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 average 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 equiva- lents. Cash and cash equivalent balances are principally concen- trated in checking, money market and savings 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. 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, con- tract terms and usefulness. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and are depreci- ated over the estimated useful lives of the assets using acceler- ated methods. The estimated useful lives used for computing depreciation are as follows: Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing equipment by segment Applied Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Engineered Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electronic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aerostar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures, office equipment and other 15 - 39 years 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. The company capitalizes certain costs incurred in connection with developing or obtaining internal-use software in accordance with the accounting guidance for such costs. Capitalized software costs totaled $855,000 in fiscal 2010 and $297,000 in fiscal 2009. There were no capitalized software costs in fiscal 2008. The costs are included in “property, plant and equipment, net” on the Consoli- dated Balance Sheets. Software costs that do not meet capitaliza- tion criteria are expensed as incurred. There was no amortization 2 0 1 0 A N N U A L R E P O R T RAVEN 37 Notes to Financial Statements (continued) probable that an asset has been impaired or a liability has been incurred, and the amount of the loss can be reasonably 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 obliga- tions 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 compo- nent of “cost of goods sold.” OPERATING EXPENSES The primary types of operating expenses are classified in the income statement as follows: Cost of goods sold Direct material costs Material acquisition and handling costs Direct labor Factory overhead including depreciation Inventory obsolescence Product warranties Research and development expenses Selling, general and administrative expenses Personnel costs Professional service fees Material and supplies Facility allocation Personnel costs Professional service fees Advertising Promotions Information technology equipment depreciation Office supplies Research and development expenses include costs related to product development and significant enhancements of existing products. Gross margins were affected by the reclassification of research and development expenses out of cost of goods sold to a separate item below gross profit. Additionally, R&D expenses that were previously classified as selling, general and administrative expenses were also reclassified to the separate R&D expenses line. The reclassification had no affect on any segment’s previously reported operating income or consolidated operating income. expense related to capitalized software in fiscal 2010, 2009 or 2008, and future amortization expense will be included in depreciation. 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. For business combinations prior to February 1, 2009, earn-out payments to sellers are added to goodwill when payable under the terms of the purchase agreement. For business combina- tions after February 1, 2009, earn-out payments are accrued at fair value as of the purchase date, and payments reduce the accrual without affecting goodwill. Any change in the fair value of the contingent consideration after the acquisition date is recognized in the statements of income. 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. INSURANCE OBLIGATIONS Raven employs insurance policies to cover workers’ compensation and general liability costs. Liabilities are accrued related to claims filed and estimates for claims incurred but not reported. To the extent these obligations will be reimbursed by insurance, the expected insurance policy benefit is included as a component of “other current assets.” CONTINGENCIES The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. An estimate of the loss on these matters is charged to operations when it is 38 2 0 1 0 A N N U A L R E P O R T RAVEN Components of consolidated operating income for the fiscal years ended January 31, 2009 and 2008, as originally reported and as reclassified, were as follows: became non-authoritative. The company adopted the Codification in the third quarter of fiscal 2010, which resulted in no changes to the content of the company’s financial statements or disclosures. For the year ended January 31, 2009 For the year ended January 31, 2008 As reported As reclassified As reported As reclassified Dollars in thousands Net sales . . . . . . . . . . . . Cost of goods sold . . . . . . $279,913 212,032 $279,913 206,465 $233,957 174,809 $233,957 170,281 Gross profit. . . . . . . . . . . Gross margins . . . . . . . . . Research and development 67,881 24.3% 73,448 26.2% 59,148 25.3% 63,676 27.2% expenses . . . . . . . . . . . — 5,848 — 4,925 Selling, general and administrative expenses . . 21,487 21,206 18,003 17,606 Operating income . . . . . $ 46,394 $ 46,394 $ 41,145 $ 41,145 The company’s gross margins may not be comparable to industry peers due to variability in the classification of these expenses across the industries in which the company operates. 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. 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 allowance to reflect realizable value, when necessary. Accruals are maintained for uncertain tax positions. NEW ACCOUNTING STANDARDS In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification), which became the single source of authoritative generally accepted accounting principles (GAAP) in the United States, other than rules and interpretive releases issued by the Securities and Exchange Commission (SEC). The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and instead establishes two levels of guidance: authori- tative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification At the beginning of fiscal 2010, the company adopted FASB guidance that amends required disclosures about derivative instruments and hedging activities. This guidance 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. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows. At the beginning of fiscal 2010, the company adopted FASB guidance that amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets and apply 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. 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. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows. In June 2009, the FASB amended its guidance on accounting for variable interest entities. This guidance alters the approach to determining the primary beneficiary of a variable interest entity, and requires companies to more frequently assess whether they must consolidate variable interest entities. The guidance is effec- tive for the first annual reporting period beginning after Novem- ber 15, 2009, and for interim periods within that first annual reporting period. The adoption of this guidance on February 1, 2010, is not expected to have a material impact on the company’s consolidated results of operations, financial condition or cash flows. In October 2009, the FASB issued guidance on the accounting for multiple-deliverable revenue arrangements. This guidance estab- lishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate of selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand-alone basis. This guidance also expands the required disclosures related to a vendor’s multiple- deliverable revenue arrangements. The guidance is effective begin- ning February 1, 2011, with early adoption permitted. The company has adopted the new guidance prospectively from the beginning of 2 0 1 0 A N N U A L R E P O R T RAVEN 39 Notes to Financial Statements (continued) the fiscal year and determined that there is no material impact on its consolidated results of operations, financial condition, cash flows or disclosures, as the company had no significant multiple-deliver- able arrangements during or at the end of the fiscal year. Note 2. Selected Balance Sheet Information Following are the components of selected balance sheet items: Dollars in thousands As of January 31 2010 2009 2008 Accounts receivable, net: Trade accounts . . . . . . . . . . . . . . . . . . . . $ 34,624 $ 40,891 (613) Allowance for doubtful accounts . . . . . . . . . . (297) $ 36,831 (293) $ 34,327 $ 40,278 $ 36,538 Inventories: Finished goods . . . . . . . . . . . . . . . . . . . . $ 6,283 $ 6,062 3,258 In process . . . . . . . . . . . . . . . . . . . . . . . 26,657 Materials . . . . . . . . . . . . . . . . . . . . . . . . 4,172 24,020 $ 4,975 3,631 27,923 $ 34,475 $ 35,977 $ 36,529 Other current assets: Insurance policy benefit . . . . . . . . . . . . . . . $ 2,300 $ 2,119 890 Prepaid expenses and other . . . . . . . . . . . . . 490 $ 2,549 406 $ 2,790 $ 3,009 $ 2,955 Property, plant and equipment, net: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,227 $ 1,227 22,593 Buildings and improvements . . . . . . . . . . . . 62,504 Machinery and equipment . . . . . . . . . . . . . . (50,444) Accumulated depreciation . . . . . . . . . . . . . . 22,973 64,119 (55,290) $ 1,227 21,523 57,563 (44,570) $ 33,029 $ 35,880 $ 35,743 Other assets, net: Amortizable assets: Purchased technology . . . . . . . . . . . . . . . $ 3,200 $ 2,300 1,314 Other intangibles . . . . . . . . . . . . . . . . . (2,143) Accumulated amortization . . . . . . . . . . . . 1,633 (2,648) $ 2,300 1,172 (1,740) Investment in affiliate . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net 2,185 5,010 1,580 59 1,471 — 1,482 59 1,732 — 2,540 75 $ 8,834 $ 3,012 $ 4,347 Accrued liabilities: Salaries and benefits . . . . . . . . . . . . . . . . . $ 1,148 $ 1,891 2,581 Vacation . . . . . . . . . . . . . . . . . . . . . . . . 1,333 401(k) contributions . . . . . . . . . . . . . . . . . 3,615 Insurance obligations . . . . . . . . . . . . . . . . . 436 Profit sharing . . . . . . . . . . . . . . . . . . . . . 1,004 Warranties . . . . . . . . . . . . . . . . . . . . . . . 1,266 Taxes—accrued and withheld . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,155 2,693 180 3,959 217 1,259 1,574 1,226 $ 2,109 2,415 1,184 4,010 490 684 1,061 851 $ 12,256 $ 13,281 $ 12,804 Other liabilities: Postretirement benefits . . . . . . . . . . . . . . . . $ 5,283 $ 4,637 — Acquisition-related contingent consideration . . . 2,900 Uncertain tax positions. . . . . . . . . . . . . . . . 2,301 3,514 $ 5,246 — 2,232 $ 11,098 $ 7,537 $ 7,478 40 2 0 1 0 A N N U A L R E P O R T RAVEN Note 3. Accumulated Other Comprehensive Income (Loss) Other comprehensive income refers to revenue, expenses, gains and losses that under U.S. generally accepted accounting princi- ples are recorded as an element of shareholders’ equity but are excluded from net income. The components of accumulated other comprehensive income (loss) are shown below: As of January 31 Dollars in thousands Foreign currency translation. . . . . . . . . . . . . . $ Post-retirement benefits . . . . . . . . . . . . . . . . 2010 56 (1,257) 2009 $ (123) (1,031) 2008 123 (1,729) $ Total accumulated other comprehensive loss . . . $(1,201) $(1,154) $(1,606) Note 4. Supplemental Cash Flow Information Dollars in thousands For the years ended January 31 2010 2009 2008 Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . $ 6,325 1,552 Inventories . . . . . . . . . . . . . . . . . . . . . . . (49) Prepaid expenses and other assets . . . . . . . . 2,934 Accounts payable . . . . . . . . . . . . . . . . . . . (520) Accrued and other liabilities . . . . . . . . . . . . 693 Customer advances . . . . . . . . . . . . . . . . . $10,935 $ (4,603) 447 (35) 963 2,194 (312) $ (1,346) $ (5,216) (8,403) 218 2,437 2,648 129 $ (8,187) Cash paid during the year for income taxes . . . $13,816 $15,072 $14,068 Note 5. Acquisition of and Investments in Businesses and Technologies In November 2009, the company acquired a 20% interest in Site-Specific Technology Development Group, Inc. (SST) for $5.0 million. SST is a privately held agricultural software develop- ment and information services provider. Raven and SST are strate- gically aligned to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market. As of January 31, 2010, the company’s investment balance is included in “other assets, net” on the Consolidated Balance Sheets. The company accounts for its interest in SST using the equity method of accounting. At January 31, 2010, the carrying value of the investment in SST exceeded the company’s share of the underlying net assets of SST by $5.0 million. A portion of the excess relates to $1.1 million of technology-related assets that are amortized over a seven-year period. The remainder of the excess is attributable to goodwill. In November 2009, the company purchased substantially all of the assets of Ranchview, Inc., a privately held Canadian corporation for $1.5 million cash and contingent consideration valued at $2.3 million. Raven has agreed to pay additional consideration on a quarterly basis of 6% on future sales of Ranchview products, up to a maximum payment of $4 million. Any change in the fair value of the contingent consideration after the acquisition date will be recognized in the statements of income. Ranchview, a start-up company, developed products that use cellular networks instead of the traditional radio systems that are typically used to deliver RTK (Real Time Kinematic) corrections to GPS enabled equipment. RTK corrections improve the accuracy of GPS equipment. The network can also be used to provide high-speed Internet access. The allocation of the purchase price is summarized below: Dollars in thousands Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Existing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,734 900 175 Raven’s contribution expense was $1,085,000, $1,158,000 and $1,020,000 for fiscal 2010, 2009 and 2008, 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 investments. The accumulated benefit obligation for these benefits is shown below: For the years ended January 31 2010 2009 2008 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,809 Dollars in thousands The goodwill associated with Ranchview is deductible for tax purposes. Purchased identifiable intangible assets are amortized on a straight-line basis over their respected useful lives. The estimated useful life is six years for existing technology and five to seven years for the remaining intangibles. The results of operations of Ranchview for periods prior to the company’s acquisition were not material to the company’s Consol- idated Statements of Income and, accordingly, pro forma results of operations have not been presented. This operation has been combined into the Applied Technology Division. Note 6. Goodwill and Other Intangibles Goodwill The changes in the carrying amount of goodwill by reporting segment are shown below: Dollars in thousands Balance at January 31, 2007 . . . . . . Acquisition earn-outs . . . . . . . . . . . Balance at January 31, 2008 . . . . . . Acquisition earn-outs . . . . . . . . . . . Balance at January 31, 2009 . . . . . . Goodwill acquired during the year . . . Acquisition earn-outs . . . . . . . . . . . Balance at January 31, 2010 . . . Applied Technology Engineered Films Electronic Systems Aerostar Total $ 5,611 5,909 $96 298 — 96 548 — 96 6,457 2,734 — 515 — $96 $9,706 $ 433 — 433 — 433 — — $ 464 $ 6,604 298 — 6,902 464 548 — 7,450 464 — 2,734 515 — $433 $464 $10,699 Intangible Assets Estimated future amortization expense based on the current carry- ing value of amortizable intangible assets for fiscal periods 2011 through 2015 is $610,000, $581,000, $225,000, $219,000 and $187,000, respectively. Note 7. Employee Retirement Benefits The company has a 401(k) plan covering substantially all employ- ees. Prior to January 1, 2010, the company contributed 3% of qualified payroll. Starting January 1, 2010, the company began matching employee contributions up to a maximum of 4% of pay. Benefit obligation at beginning of year Service cost . . . . . . . . . . . . . . . . . . . . . . . Interest cost. . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss and assumption changes . . . . . . . . $4,840 55 332 476 $5,447 67 361 (847) $5,213 90 307 (2) Total recognized in net and other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . Retiree benefits paid . . . . . . . . . . . . . . . . . 863 (191) (419) (188) 395 (161) Benefit obligation at end of year . . . . . . . . . . $5,512 $4,840 $5,447 The liability and expense reflected in the balance sheet and income statement were as follows: For the years ended January 31 Dollars in thousands 2010 2009 Beginning liability balance . . . . . . . . . . . . . . $4,840 515 Employer expense . . . . . . . . . . . . . . . . . . . 348 Other comprehensive (income) loss . . . . . . . . $ 5,447 654 (1,073) Total recognized in net and other comprehensive income . . . . . . . . . . . . . . 863 Retiree benefits paid . . . . . . . . . . . . . . . . . (191) Ending liability balance. . . . . . . . . . . . . . . . Current portion . . . . . . . . . . . . . . . . . . . . 5,512 (229) (419) (188) 4,840 (203) 2008 $5,213 635 (240) 395 (161) 5,447 (201) Long-term portion . . . . . . . . . . . . . . . . . . . $5,283 $ 4,637 $5,246 Assumptions used: Discount rate . . . . . . . . . . . . . . . . . . . . . Wage inflation rate . . . . . . . . . . . . . . . . . . 6.00% 3.00% 7.00% 3.00% 6.75% 4.00% The discount rate is based on matching rates of return on high- quality fixed-income investments with the timing and amount of expected benefit payments. No material fluctuations in retiree benefit payments are expected in future years. The assumed health care cost trend rate for fiscal 2010 was 9.51% compared with 8.97% and 10.38% for fiscal 2009 and 2008. 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 approx- imately $800,000. The rate to which the fiscal 2010 health care cost trend rate is assumed to decline is 4.50%, which is the ultimate trend rate. The fiscal year that the rate reaches the ultimate trend rate is expected to be fiscal 2030. 2 0 1 0 A N N U A L R E P O R T RAVEN 41 Notes to Financial Statements (continued) Note 8. Warranties Changes in the warranty accrual were as follows: Significant components of the company’s deferred tax assets and liabilities were as follows: Dollars in thousands 2010 2009 2008 Dollars in thousands As of January 31 As of January 31 2010 2009 2008 Beginning balance . . . . . . . . . . . . . . . . . . . $ 1,004 2,426 Accrual for warranties . . . . . . . . . . . . . . . . . (2,171) . . . . . . . Settlements made (in cash or in kind) $ 684 2,760 (2,440) $ 397 1,390 (1,103) Ending balance . . . . . . . . . . . . . . . . . . . . . $ 1,259 $ 1,004 $ 684 Note 9. Income Taxes The reconciliation of income tax computed at the federal statutory rate to the company’s effective income tax rate was as follows: 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 2010 2009 2008 35.0% 35.0% 35.0% 1.3 (2.1) (0.7) 0.5 1.5 (2.0) (0.7) 0.6 1.5 (2.1) (0.7) 0.5 34.0% 34.4% 34.2% Significant components of the company’s income tax provision were as follows: Dollars in thousands For the years ended January 31 2010 2009 2008 Income taxes: Currently payable . . . . . . . . . . . . . . . . . . . $14,653 95 Deferred . . . . . . . . . . . . . . . . . . . . . . . . $15,915 216 $15,201 (779) $14,748 $16,131 $14,422 Deferred Tax Assets Deferred income taxes reflect the net effects of temporary differ- ences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 42 2 0 1 0 A N N U A L R E P O R T RAVEN Current deferred tax assets: Accounts receivable . . . . . . . . . . . . . . . . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . Accrued vacation . . . . . . . . . . . . . . . . . . . Insurance obligations . . . . . . . . . . . . . . . . Warranty obligations. . . . . . . . . . . . . . . . . Other accrued liabilities . . . . . . . . . . . . . . . 103 344 857 553 441 173 $ 211 408 840 489 352 242 Non-current deferred tax assets (liabilities): Postretirement benefits . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . Uncertain tax positions . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,471 2,542 1,849 (1,970) 1,180 521 1,580 1,623 (1,556) 969 446 1,482 $ 105 271 781 456 225 237 2,075 1,836 (478) 741 441 2,540 Net deferred tax asset. . . . . . . . . . . . . . . . $ 4,051 $ 4,024 $4,615 Pre-tax book income for the U.S. companies was $42.8 million and was $569,000 for the Canadian subsidiary. As of January 31, 2010, undistributed earnings of the Canadian subsidiary were considered to have been reinvested indefinitely and, accordingly, the company has not provided United States income taxes on such earnings. Uncertain Tax Positions Effective February 1, 2007, Raven adopted new guidance for accounting for unrecognized tax benefits. Upon adoption, the company reported a net $716,000 increase in the liability for unrecognized tax benefits, which was recorded as a reduction to the February 1, 2007 beginning retained earnings balance. A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows: Dollars in thousands Gross unrecognized tax benefits at beginning of For the years ended January 31 2010 2009 2008 year . . . . . . . . . . . . . . . . . . . . . . . . . . $2,269 $1,793 $1,328 Increases in tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . 463 Decreases as a result of a lapse in applicable statute of limitations . . . . . . . . . . . . . . . . (76) Gross unrecognized tax benefits at end of 539 (63) 465 — year . . . . . . . . . . . . . . . . . . . . . . . . . . $2,656 $2,269 $1,793 During the fiscal year ended January 31, 2010, 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 $1.7 million, $1.5 mil- lion and $1.2 million as of January 31, 2010, January 31, 2009, and January 31, 2008, respectively. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31, 2010, January 31, 2009, and January 31, 2008, accrued interest and penalties were $858,000, $631,000 and $439,000, respectively. The company files tax returns, including returns for its subsidiaries, with various federal, state and local jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. As of January 31, 2010, federal tax returns filed in the U.S., Canada and Switzerland for fiscal years ended January 31, 2007 - 2009 remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2004 - 2009 remain subject to examination by state and local tax authorities. Note 10. Financing Arrangements Raven has an uncollateralized credit agreement providing a line of credit of $8.0 million with a maturity date of September 1, 2010, bearing interest at the prime rate with a minimum rate of 4.00%. Letters of credit totaling $1.3 million have been issued under the line, primarily to support self-insured workers’ compensation bonding requirements. No borrowings were outstanding as of January 31, 2010, 2009 or 2008, and $6.7 million was available at January 31, 2010. 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 facilities under operating leases. Total rent and lease expense was $328,000, $353,000 and $268,000 in fiscal 2010, 2009 and 2008, respectively. Future minimum lease payments under non-cancelable operating leases for fiscal periods 2011 to 2013 are $234,000, $48,000 and $22,000, respectively, with all leases scheduled to expire during fiscal 2013. Note 11. Share-based Compensation At January 31, 2010, Raven had two shareholder approved share- based compensation plans, which are described below. The com- pensation cost for these plans was $1,034,000, $1,028,000 and $904,000 in fiscal 2010, 2009 and 2008, respectively. The related income tax benefit recorded in the income statement was $184,000, $200,000 and $154,000 for fiscal 2010, 2009 and 2008, respectively. Compensation cost capitalized as part of inventory is not significant. 2000 Stock Option and Compensation Plan The 2000 Stock Option and Compensation Plan 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. Fiscal 2010 compensa- tion cost included $144,000 of expense recognized as a result of a 4,800 share stock award. Fiscal 2009 compensation cost included $135,000 of expense recognized as a result of a 5,500 share stock award. There were 255,025 shares of the company’s common stock reserved for future stock awards and stock option grants under the plan at January 31, 2010. Options are granted with exercise prices not less than market value at the date of grant. The stock options vest over a four-year period and expire after five years. Options contain retirement and change in control provisions that may accelerate the vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The company uses historical data to estimate option exercise and employee termination within the valuation model. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions by grant year: For the years ended January 31 2010 2009 2008 Risk-free interest rate . . . . . . . . . . . . . . . . . Expected dividend yield . . . . . . . . . . . . . . . . Expected volatility factor . . . . . . . . . . . . . . . Expected option term (in years) . . . . . . . . . . . 4.50 Weighted average grant date fair value . . . . . . $11.28 2.03% 1.73% 1.64% 2.12% 49.69% 46.32% 4.25 $ 8.08 3.07% 1.28% 40.62% 4.25 $11.45 Option activity for the year ended January 31, 2010, was as follows: Weighted average exercise price Aggregate intrinsic value (in thousands) Number of options Weighted average remaining contractual term (years) Outstanding at beginning of year . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . Exercised . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . Outstanding at end of 382,975 81,200 (65,225) (2,400) $27.93 30.05 22.06 27.24 year . . . . . . . . . . . . . . 396,550 $29.33 $428 Options exercisable at end of year . . . . . . . . . . . . . . 187,963 $29.96 $129 2.85 1.83 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 $314,000, $1.9 million and $3.5 million during the years ended January 31, 2010, 2009, and 2008, respectively. As of January 31, 2010, the total compensation cost for non-vested awards not yet recognized in the company’s statements of income was $1.5 million, net of the effect of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.62 years. 2 0 1 0 A N N U A L R E P O R T RAVEN 43 Notes to Financial Statements (continued) Deferred Stock Compensation Plan for Directors The Deferred Stock Compensation Plan for Directors of Raven Industries, Inc. is administered by the Governance Committee of the board of directors. 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. 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 underlying shares. Outstanding stock units for the year ended January 31, 2010, were as follows: Outstanding at beginning of year . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred retainers . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Converted into common shares . . . . . . . . . . . . . . . . . . Number of units 15,107 4,996 714 409 — Outstanding at end of year . . . . . . . . . . . . . . . . . . . . 21,226 Weighted average price $21.81 28.02 28.02 26.44 — $28.58 Note 12. 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 outstand- ing 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 2010, 2009 and 2008, 338,081, 167,942 and 90,338 options, 44 2 0 1 0 A N N U A L R E P O R T RAVEN respectively, were excluded from the diluted net income per-share calculation. Details of the computation are presented below: For the years ended January 31 2010 2009 2008 28,574 $ 30,770 $ 27,802 Numerator: Net income (in thousands). . . . . $ Denominator: Weighted average common shares outstanding . . . . . . . . 18,020,552 18,031,020 18,099,600 Weighted average stock units outstanding . . . . . . . . . . . . 19,580 13,451 8,580 Denominator for basic calculation . . . . . . . . . . . . . 18,040,132 18,044,471 18,108,180 Weighted average common shares outstanding . . . . . . . . 18,020,552 18,031,020 18,099,600 Weighted average stock units outstanding . . . . . . . . . . . . Dilutive impact of stock options. . Denominator for diluted 19,580 3,304 13,451 35,771 8,580 95,883 calculation . . . . . . . . . . . . . 18,043,436 18,080,242 18,204,063 Net income per share–basic . . . . $ Net income per share–diluted . . . $ 1.58 1.58 $ $ 1.71 1.70 $ $ 1.54 1.53 Note 13. Business Segments and Major Customer Information The company’s reportable segments are defined by their common technologies, production processes and inventories. These seg- ments reflect Raven’s organization into three Raven divisions and the Aerostar subsidiary. Raven Canada and Raven GmbH are included in the Applied Technology Division. Substantially all of the company’s long-lived assets are located in the United States. Applied Technology products are electronic and Global Positioning System (GPS) devices. They are used primarily on agricultural sprayers for precision farming applications. The segment has developed products for field location control, chemical injection and automated steering. Engineered Films produces rugged rein- forced plastic sheeting for industrial, construction and agriculture applications. Electronic System’s capabilities are focused on elec- tronics manufacturing services (EMS) for commercial customers with a focus on high-mix, low-volume production. Assemblies manufactured by the Electronic Systems segment include avionics, secure communication, environmental controls and other products where high quality is critical. Aerostar sells high-altitude and tethered aerostats for government and commercial research, and military parachutes. It produces uniforms and protective wear for U.S. government agencies as a subcontractor and also manufac- tures other sewn and sealed products on a contract basis. 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 reporting structure. Sales to a customer of the Electronic Systems segment accounted for 16%, 13% and 11% of consolidated sales in fiscal 2010, 2009 and 2008, respectively, and 13%, 18% and 14%, of consolidated accounts receivable at the end of fiscal 2010, 2009 and 2008, respectively. Foreign sales are attributed to product delivered to non-U.S. loca- tions. Sales to countries outside the United States, primarily to Canada, were as follows: Dollars in thousands For the years ended January 31 2010 2009 2008 Applied Technology . . . . . . . . . . . . . . . . . $17,140 1,383 Engineered Films . . . . . . . . . . . . . . . . . . . 495 Electronic Systems . . . . . . . . . . . . . . . . . . 1,219 Aerostar . . . . . . . . . . . . . . . . . . . . . . . . $18,847 2,034 568 1,004 $10,104 1,803 6,852 1,310 Total foreign sales . . . . . . . . . . . . . . . . $20,237 $22,453 $20,069 Business segment information is as follows: Dollars in thousands For the years ended January 31 2010 2009 2008 APPLIED TECHNOLOGY DIVISION Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,217 $103,098 33,884 Operating income . . . . . . . . . . . . . . . . . . 48,881 Assets . . . . . . . . . . . . . . . . . . . . . . . . . 2,674 Capital expenditures . . . . . . . . . . . . . . . . 1,383 Depreciation and amortization . . . . . . . . . . 25,722 51,029 941 1,677 ENGINEERED FILMS DIVISION Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,783 $ 89,858 10,919 Operating income . . . . . . . . . . . . . . . . . . 35,862 Assets. . . . . . . . . . . . . . . . . . . . . . . . . 3,120 Capital expenditures . . . . . . . . . . . . . . . . 4,303 Depreciation and amortization . . . . . . . . . . 10,232 35,999 1,460 3,707 ELECTRONIC SYSTEMS DIVISION Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,525 $ 61,983 5,926 Operating income . . . . . . . . . . . . . . . . . . 26,847 Assets. . . . . . . . . . . . . . . . . . . . . . . . . 1,399 Capital expenditures . . . . . . . . . . . . . . . . 1,159 Depreciation and amortization . . . . . . . . . . 8,979 21,216 290 939 AEROSTAR Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,244 $ 27,186 4,219 Operating income . . . . . . . . . . . . . . . . . . 8,744 Assets. . . . . . . . . . . . . . . . . . . . . . . . . 383 Capital expenditures . . . . . . . . . . . . . . . . 444 Depreciation and amortization . . . . . . . . . . 5,634 10,462 332 398 $ 64,291 19,102 36,938 1,008 1,125 $ 85,316 17,739 43,688 4,012 4,046 $ 67,987 10,365 25,865 1,077 1,237 $ 17,290 1,506 9,941 156 499 INTERSEGMENT ELIMINATIONS Sales Engineered Films Division . . . . . . . . . . . $ Electronic Systems Division . . . . . . . . . . . Aerostar . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . Assets. . . . . . . . . . . . . . . . . . . . . . . . . (210) $ (210) $ (2,776) (1) 60 (92) (1,977) (25) (52) (152) (533) (378) (16) (100) (100) REPORTABLE SEGMENTS TOTAL Sales . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 $279,913 54,896 Operating income . . . . . . . . . . . . . . . . . . 120,182 Assets . . . . . . . . . . . . . . . . . . . . . . . . . 7,576 Capital expenditures . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . 7,289 CORPORATE & OTHER(a) Operating (loss) from administrative 50,627 118,614 3,023 6,721 $233,957 48,612 116,332 6,253 6,907 expenses . . . . . . . . . . . . . . . . . . . . . $ (7,407) $ (8,502) $ (7,467) 31,529 382 437 Assets . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . 51,695 279 387 24,233 425 469 TOTAL COMPANY Sales . . . . . . . . . . . . . . . . . . . . . . . . . $237,782 $279,913 46,394 Operating income . . . . . . . . . . . . . . . . . . 144,415 Assets . . . . . . . . . . . . . . . . . . . . . . . . . 8,001 Capital expenditures . . . . . . . . . . . . . . . . 7,758 Depreciation and amortization . . . . . . . . . . 43,220 170,309 3,302 7,108 $233,957 41,145 147,861 6,635 7,344 (a) Assets are principally cash, investments, deferred taxes and other receivables. 2 0 1 0 A N N U A L R E P O R T RAVEN 45 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 (the “Company”) at January 31, 2010, 2009 and 2008 and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2010 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, 2010 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 32 of the 2010 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. Effective February 1, 2007, as described in Note 9 to the consolidated financial statements, the Company changed the manner in which it accounts for unrecognized tax benefits. As described in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for business combinations affecting business combinations closing after February 1, 2009. 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. Minneapolis, Minnesota March 31, 2010 46 2 0 1 0 A N N U A L R E P O R T RAVEN Board of Directors From left to right: 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 Kevin T. Kirby President Kirby Investment Corporation Sioux Falls, SD Director since 2007 Ronald M. Moquist President & Chief Executive Ofﬁcer Raven Industries, Inc. Sioux Falls, SD Director since 1999 Conrad J. Hoigaard Former Chairman of the Board Raven Industries, Inc. Chairman of the Board Hoigaard’s Inc. Minneapolis, MN Director since 1976 Cynthia H. Milligan Dean Emeritus College of Business Administration University of Nebraska, Lincoln Lincoln, NE Director since 2001 Mark E. Grifﬁn President & Chief Executive Ofﬁcer Lewis Drugs, Inc. Sioux Falls, SD Director since 1987 Daniel A. Rykhus Executive Vice President Raven Industries, Inc. Sioux Falls, SD Director since 2008 Thomas S. Everist Chairman of the Board Raven Industries, Inc. President The Everist Company Sioux Falls, SD Director since 1996 The Raven Board held four regular and two special meetings in ﬁscal year 2010. In May 2009, it increased the quarterly dividend for the 23rd-consecutive year. Audit Committee Anthony W. Bour, Chair 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 Thomas S. Everist 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. 47 Executive Team David R. Bair Division Vice President & General Manager–Electronic Systems Division, Age: 53, Service 11 years Matthew T. Burkhart Division Vice President & General Manager–Applied Technology Division, Age: 34, Service 2 years James D. Groninger Division Vice President & General Manager–Engineered Films Division, Age: 51, Service 23 years Thomas Iacarella Vice President & Chief Financial Ofﬁcer, Age: 56, Service 18 years Ronald M. Moquist President & Chief Executive Ofﬁcer, Age: 64, Service 34 years Barbara K. Ohme Vice President–Administration, Age: 62, Service 22 years Daniel A. Rykhus Executive Vice President, Age: 45, Service 20 years Mark L. West President–Aerostar International, Inc., Age: 56, Service 28 years Raven Corporate Ofﬁcers 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 48 Investor Information Annual Meeting May 25, 2010, 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 2010 was the 23nd- consecutive year we raised our annual dividend. Raven Website www.ravenind.com Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Minneapolis, MN Total Return Index Base Year = 100 Stock Quotations Listed on the Nasdaq NGS Stock Market—RAVN 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 Raven Industries, Inc.’s Form 10-K for the ﬁscal year ended January 31, 2010, which has been ﬁled with the Securities and Exchange Commission, is available free of charge on the company’s website, or upon written request to the Investor Relations Department. Afﬁrmative Action Plan Raven Industries, Inc. and Aerostar International, Inc. are Equal Employment Opportunity Employers with approved afﬁrmative action plans. Inquiries Raven Industries, Inc. Attention: Investor Relations P.O. Box 5107 Sioux Falls, SD 57117-5107 Phone: 605-336-2750 200 150 100 50 0 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Raven Industries Inc SP1500 Industrial Machinery Russell 2000 Index Adding Value for Shareholders Raven stock continues to outperform its industrial peers and the overall market in shareholder return. Investors who bought $100 of the company’s stock on January 31, 2005, held this for ﬁve years and reinvested the dividends, have seen its value increase to $174.24. This 12% cumulative growth rate outpaced the S&P 1500 Industrial Index’s minor loss (at $99.59) and the Russell 2000’s slight gain (to $103.25). L I , k o o r b h t r o N , 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 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 the company’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, Inc. P.O. Box 5107 Sioux Falls, SD 57117-5107 www.ravenind.com 00070122

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