InnovatIon
& Strong
CompetItIve
DrIve
an n ual r eport 2011
rave n I n DuStr I e S
po B ox 51 07
SIoux Fa llS, SD 57 1 17 -5 1 07
ww w.rave n I n D.Com
InnovatIon
In serving our key markets of precision agriculture, surveillance
and barrier films, we are helping to solve some of our world’s most
important challenges in the areas of hunger, safety, peace and stability.
at the core of our continued success is innovation backed by a strong
competitive drive.
In fiscal 2011, we enjoyed broad-based revenue gains and our
profitability improved despite significantly higher spending for new
capabilities and product development that will support long-term
growth. with an aggressive growth agenda and a strong capital base,
we are on course to realize even greater potential.
the following pages of this report show how raven will build on
its successes in fiscal 2011 by following a path of investing in new
products, new applications, acquisitions and capacity expansion.
InveStor
InFormatIon
Annual Meeting
may 24, 2011, 9:00 a.m. CDt
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 2011 was the 24th-
consecutive year we raised our annual dividend.
Raven Website
www.ravenind.com
Independent Registered Public Accounting Firm
pricewaterhouseCoopers llp
minneapolis, mn
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: 800-468-9716
website: www.shareowneronline.com
Form 10-K
raven Industries, Inc.’s Form 10-K for the fiscal
year ended January 31, 2011, 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.
Inquiries
mail to:
Contact:
raven Industries, Inc.
Investor relations
p.o. Box 5107
Sioux Falls, SD 57117-5107
phone:
605-336-2750
e-mail:
irinfo@ravenind.com
Affirmative Action Plan
raven Industries, Inc. and aerostar International,
Inc. are equal employment opportunity employers
with approved affirmative action plans.
InSIDe thIS report
letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
raven at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
operations review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
executive team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
10-K table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10K-2
management’s Discussion and analysis . . . . . . . . . . . . . . . . 10K-14
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10K-26
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside back cover
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Forward-Looking Statements
this annual report contains “forward-looking statements” within the meaning of Section 27a of the Securities act of 1933, as amended, and Section 21e of the
Securities exchange act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. without limiting
the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” and similar expressions are intended to identify forward-looking statements. the
company intends that all forward-looking statements be subject to the safe harbor provisions of the private Securities litigation reform act. although management
believes that the expectations reflected in forward-looking statements are based on reasonable assumptions, there is no assurance these assumptions are correct
or that these expectations will be achieved. assumptions involve important risks and uncertainties that could significantly affect results in the future. these risks
and uncertainties include, but are not limited to, those relating to weather conditions 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.
Financial
highlights
For the years
ended January 31,
2011
2010
change
(Dollars in thousands, except per-share data)
Operations
net sales
Operating income
net income
cash from operating activities
Depreciation and amortization
Per Share
net income—diluted
cash dividends
Book value
Performance
Operating income margin
Return on net sales
Return on average assets
Return on beginning shareholders’ equity
$314,708
60,203
40,537
$ 42,085
7,631
$237,782
43,220
28,574
$ 47,643
7,108
$2.24
0.64(a)
7.81
19.1%
12.9%
22.6%
30.4%
$1.58
0.55
7.38
18.2%
12.0%
18.2%
25.2%
Other Information
shares and stock units outstanding, year end (in thousands)
average number of employees
18,089
1,036
18,051
930
(a) Excludes a special dividend of $1.25 that was paid during the third quarter of fiscal 2011.
32.4%
39.3%
41.9%
-11.7%
7.4%
41.8%
16.4%
5.8%
4.9%
7.5%
24.2%
20.6%
0.2%
11.4%
Net Sales
(Dollars in millions)
234.0
217.5
204.5
314.7
279.9
237.8
Earnings Per Share
(Diluted, in dollars)
2.24
Regular Dividends Per Share
(Dollars)
0.64
1.70
1.58
1.53
1.39
1.32
0.55
0.52
0.44
0.36
0.28
’06
’07
’08
’09
’10
’11
’06
’07
’08
’09
’10
’11
’06
’07
’08
’09
’10
’11
sales in fiscal 2011 reached a record
$314.7 million, an increase of 32
percent over the prior year. growth was
broad-based across Raven’s markets
of precision agriculture, surveillance
systems and barrier films.
Raven achieved a new record of $2.24
per share, an increase of 42 percent over
the prior year. Earnings grew faster than
sales due to growth in higher margin
businesses and higher operating rates.
strong cash flow supports continued
growth in quarterly dividends. in
March 2011, Raven became one of
only 44 U.s. companies that have
increased their dividend every year
for the past 25 years.
2011 An n uAl R epoRt 1
314.700012
269.742868
224.785723
179.828578
134.871434
89.914289
44.957145
0.000000
2.240
1.792
1.344
0.896
0.448
0.000
0.64
0.56
0.48
0.40
0.32
0.24
0.16
0.08
0.00
’06
’07
’08
’09
’10
’11
’06
’07
’08
’09
’10
’11
’06
’07
’08
’09
’10
’11
tO OUR shaREhOlDERs,
cUstOMERs anD EMplOyEEs:
This past year at Raven was another one for the record books. In fact, it was a phenomenal year when
you consider our navigation through a fragile U.S. economy as well as a cautious business climate around
the world. What many do not realize is that our profits would have been even higher had we not
stepped up our investments in new products, new team members and expanded capacity.
Over the last 55 years, Raven has
grown into a strong and diversified
provider of specialized products and
services. One of the common themes
providing strength to our business
model is our application of technology
in developing systems solutions for
niche markets. this model is geared to
drive high-return sales, and is capital-
efficient, meaning we generate more
cash than we spend. this formula for
success has allowed us to consistently
outperform our peers.
Our results for the past year include:
• sales increased 32% to $315 million.
• net income rose 42% to $41 million,
while operating margins grew to
19.1% from 18.2%.
• Return on sales after tax equaled 12.9%.
• Return on equity, one of our key
metrics, improved to 30.4%.
• the year ended with no debt,
and $38.6 million in cash and
investments on the balance sheet.
• a total of $34.1 million was returned
to shareholders as we increased
the dividend for the 24th straight
year and distributed another special
dividend worth $22.5 million. We
have now paid a dividend for 38
consecutive years.
• We invested $22 million in the
future growth of the business units
through research and development,
capital equipment and facilities.
Driving Growth with Greater Intensity
We are engaged in tough competition
every day. and we aim to win. Our
commitment to compete in the areas of
service , innovation, peak performance
and quality creates a position in each of
our niche markets that is both defensible
and the basis for future growth. We also
know that a successful business cannot
grow without continuous investment.
today, Raven has reached the critical point
where scale and timing provide a window
for advancing our market positions.
as such, we are increasing our capital
commitments where we see the best
risk-adjusted returns. While the cost of
higher investment may temper bottom
line results over the near term, i believe
this is a great opportunity for Raven to
enter a new period of sustained growth.
We know this approach can work at
Raven. in fact, it has been the key driver
for long-term growth in our applied
technology Division (atD). Over the
years, we have developed a non-stop
cycle of building and managing a
portfolio of various growth investments.
Daniel A. Rykhus
President & Chief Executive Officer
2 RAven I n d ustR I es, I nc .
Raven versus the S&P 500
(excluding dividends, fiscal years ending January 31)
1600%
1400%
1200%
1000%
800%
600%
400%
200%
0%
-200%
RAVN Total Return
S&P 500 Total Return
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
Raven has significantly outperformed the s&p 500 index in total shareholder return over the past 10 years. Over that time Raven’s stock price has
grown 1,453% versus the s&p’s loss of 6%.
Raven versus the S&P 500
(excluding dividends)
this included specific activities in:
1600%
• new product development
1400%
• geographic market expansion
1200%
• acquisitions
1000%
800%
• partnership and strategic alliances
600%
400%
Every year we allocated significant
resources to five to ten growth initiatives.
200%
the majority of these business
0%
development activities had lead times
of 12 to 24 months; so our ability to
2002
manage a dynamic pipeline of growth
investments was critical. any letup
in this strategy would have adversely
impacted the downstream potential.
2001
-200%
2003
in hindsight this took courage, a focused
vision and a tolerance for risk. now we
aim to achieve the same level of intensity
across the entire corporation. i want to
show you how in each of our divisions
we are channeling our success into new
opportunities with greater intensity.
Applied Technology is on a Path of
Global Expansion
Our applied technology Division (atD)
had a solid year with sales up 16% and
operating profits up 21%. growth was
led by key new product introductions,
demand from the OEMs and continued
international growth.
the outlook for the U.s. economy is still
tenuous; but we believe that farm income
will improve further in the coming year.
the demand for increased productivity
will continue to drive sales of our growing
suite of precision ag products and
services. importantly, we find ourselves
at the early stages of an information
revolution in farming operations.
2005
2008
2006
For the coming year, we are focused
on the following investment programs:
2011
2004
2010
• concentrating new development
2009
2007
efforts to deliver additional
products to our lines of field
computers, autosteer systems,
planter controls and our slingshot™
agricultural information system.
(Fiscal years ending January 31)
• Expanding international market
presence farther into Eastern
Europe and the former soviet
Union as well as south america,
south africa and asia.
• Building out the manufacturing and
R&D footprints to provide improved
efficiencies and enough capacity to
support planned growth over the
next five to ten years.
Historic Growth in Engineered Films
all key market segments delivered
revenue growth for the Engineered Films
Division (EFD). the energy market was
particularly strong in 2010, driven by an
increase in domestic land-based
drilling activity. Overall division revenue
increases of 66% led to an improvement
of 92% in operating income. the strong
RAVN Total Return
sales revenue resulted in high plant
S&P 500 Total Return
utilization, plus we enjoyed a favorable
cost-pricing spread. the net effect was
a dramatic increase in our profitability.
We recognize that energy drilling
is currently the largest driver for
demand. however, as industrial and
construction activity improves, we can
expect a growing contribution from a
wider segment of the economy. While
the energy market segment was very
strong, the division would have posted
25% sales growth even with flat energy
market sales.
For the coming year, we are focused on
the following investment programs:
• continued capacity expansion in
both our traditional films and higher-
value, multi-layer barrier films.
• significant improvement in R&D
facilities, featuring two new lab
lines for product development
and state-of-the-art facilities for
our visiting strategic partners.
• Market development activities within
the agriculture, geomembrane and
energy markets. teaming up with key
suppliers, research organizations and
channel partners on various projects.
2011 An n uAl R epoRt 3
For the coming year, we are focused
on the following investment programs:
in the coming year, we are focused
on the following investment programs:
• teaming up with our key partners
to pursue additional new
markets for aerostat systems.
• pursuing proprietary products by
leveraging intellectual property
from other parts of Raven.
• Developing an untethered aerostat
• considering acquisition
platform with station-keeping
capability, as well as the ability to
carry a payload for surveillance and
secure communications through
an internally funded research
and development initiative.
• Expanding our capacity and
market presence in various sewn
products, including parachutes.
• combining our marine navigation
systems product lines with our
aerostat business group and
adding technical staff to pursue
integrated port security systems.
• Opening an R&D campus that will
include a test and demonstration
area for large aerostat systems.
Electronic Systems Adds
to Cash Flow Strength
Our Electronic systems Division (EsD)
made a positive contribution with
sales and operating income up 4% and
10%, respectively, over the prior year.
profitability improved despite supply-
chain issues that affected both sales and
margins. For the year, the mix of products
we shipped had a margin profile that
is consistent with our expectations for
this business and, overall, this unit is
generating solid cash flows.
EsD is, once again, preparing
to shift gears to find the best fit
for the right customers using our
specialized capabilities in low-volume
manufacturing solutions. We are
making a long-term commitment
to pursue new growth markets and
achieve better integration within the
Raven manufacturing network. EsD is
already an important supplier of key
components for our atD products,
including cruizer ii™ and Viperpro™.
opportunities that would
support our corporate-wide
product and technology plans.
• strengthening our product quality
and delivery through ongoing
process improvement initiatives.
A Strong Balance Sheet
Supports Our Vision
at the end of the fiscal year, our
cash and investment balances were
approximately $38.6 million, down from
$43.7 million a year ago. this includes
the impact of the special dividend of
$1.25 per share, or $22.5 million, that
was paid out to shareholders during
the third quarter. Our operating cash
flows for the year were down to $42.1
million from $47.6 million a year
earlier due to higher working capital
requirements. accounts receivable
increased to $40.0 million compared
with $34.3 million at January 31, 2010.
inventories were $43.7 million, up
from $34.5 million in the prior year.
as a result of strong growth
opportunities, as well as scaling
necessities, we are using cash to invest
in organic growth more aggressively
than in the recent past. however, when
we accumulate more cash than we can
effectively allocate to profitable growth,
we will return it to our shareholders,
either as a dividend or in the form of
a stock buyback. growing the annual
dividend remains an important goal.
On March 18, 2011, Raven’s Board of
Directors approved the 25th annual
increase in the company’s quarterly
dividend, to $0.18 per share. Raven is
one of only 44 U.s. companies that have
increased their dividend every year for
the past 25 years. We are honored to be a
part of this prestigious club.
“ Today, Raven has reached the
critical point where scale and
timing provide a window for
advancing our market positions.
While the cost of higher
investment may temper bottom
line results over the near term, I
believe this is a great opportunity
for Raven to enter a new period of
sustained growth.“
Daniel A. Rykhus
President &
Chief Executive Officer
Aerostar Takes Raven to New Heights
aerostar’s incredible year was led by
aerostats, which are used in military
and other applications for surveillance,
communication, reconnaissance and
intelligence gathering. aerostats also
fueled the segment’s operating income
growth of 67%. Raven’s ability to
work effectively with the U.s. military
and other government agencies has
positioned the company for continued
growth in fiscal 2012.
Raven started as a leader in the design
and manufacture of high-altitude
research balloons back in 1956. today we
have earned a stellar reputation as
a proven provider of customized high-
quality sewn and sealed products. Our
growth strategy for the past two years
has focused on tethered aerostats for
persistent ground surveillance systems
(pgss). We provide not only the helium-
filled blimp, but also the mobile trailer
equipped with winch, generator, fiber
optics and surveillance gear — and the
support personnel to train the flight
operations teams.
4 RAven I n d ustR I es, I nc .
Corporate Services Executives
From left to right:
Brian E. Meyer
Chief Information Officer
Mark L. West
Chief Technology Officer
Thomas Iacarella
Vice President & Chief Financial Officer
Barbara K. Ohme
Vice President—Administration
barrier films, we are helping to solve some
of our world’s most important challenges
in the areas of hunger, safety, peace and
stability, and environmental sustainability.
through the application, development
and acquisition of key technologies, Raven
is focused on creating new and innovative
solutions every day.
this is our time. We know what it takes
to succeed in a very competitive world.
We also know the great feeling that
comes from making a difference through
our work. With an aggressive growth
agenda and a strong capital base, we are
on a path to realize even greater potential
as we channel our past success into new
opportunities. i look forward to serving
all of Raven’s stakeholders today and
for years to come and i appreciate your
support and confidence in our company.
Daniel a. Rykhus
President & Chief Executive Officer
March 25, 2011
2011 An n uAl R epoRt 5
We Aim to Compete Hard and Win
it is said that actions speak louder
than words. Raven has significantly
outperformed the s&p 500 index in total
shareholder return over the past 10 years.
Over that time Raven’s stock price has
grown 1,453% versus the s&p’s loss of 6%.
We also were named by Forbes Magazine
as one of the “Best small companies in
america” for the fifth consecutive year.
On august 20, 2010, i was presented
with the privilege to lead Raven as
president and cEO and i accepted
this opportunity. i have been with the
company since 1990 and i am proud of
our success over that time. i am even
more excited about our future. today,
i see an energized organization that
embraces competition, innovation and
the growth opportunities before it. Our
strategy to compete is based on what we
call our four Dimensions of competition:
1. Service—providing extraordinary
service to our customers, employees
and communities.
2. Innovation—Delivering culturally
driven leaps forward in technology
and process.
3. Peak Performance—Engaging
in the personal and professional
development of body, mind and spirit.
4. Quality—providing the means by
which we continuously improve
our customers’ experience.
these are the competitive Dimensions
on which we will continue to distinguish
our company. We are actively engaged in
making foundational improvements that
will drive us to outstanding performance
levels in each of these Dimensions.
With this renewed commitment to
growth and innovation comes increased
accountability. We remain focused
on delivering strong financial results,
guided by:
• Our goal to grow net income by at
least 10% annually.
• Our targeted above-average gross
margins through continuous
operating improvements.
• Our objective to outperform industry
peers in the key metrics of ROa, ROs
and ROE.
• Our commitment to grow the annual
dividend, targeting 20% to 40% of
earnings for distribution.
During 2010, Ron Moquist retired from
Raven industries as our third president
and cEO. he also retired from our Board of
Directors. Ron was a great mentor to me
and a friend. Raven industries will benefit
greatly for many years to come from his
profound impact on our company.
today we remain strongly focused on
our mission to be one of america’s best
companies. in serving our key markets of
precision agriculture, surveillance and
RaVEn inDUstRiEs
a cOnsistEnt appROach
tO cREating ValUE
Even though Raven is comprised of four unique
operating units, we follow a consistent approach
in our pursuit of growth and high returns.
We seek profitable
expansion in niche
markets.
the business must have
above-average profit
margins and strong
prospects for growth.
We focus on solving the
customer’s problem.
our model is based on
innovation, speed and
strong engineering support.
We elevate customer
service to new levels.
support includes field
service, training, materials
management and value-
added distribution.
We continuously reinvest
in future growth.
capital is allocated across
new products, new
applications, acquisitions
and capacity expansion.
6 RAven I n d ustR I es, I nc .
oPeRaTIng UnIT
PRodUcT/SeRvIce
Applied Technology
Division (ATD)
precision agriculture products
and information management
tools to reduce costs and
improve farm yields.
• automated steering
• sprayer controls
• seed and fertilizer application
• gps guidance
• Field computers
• high-speed internet
• integrated information
platform
Engineered Films
Division (EFD)
high-quality flexible films
for applications in energy,
construction, agriculture, water
and environmental safety.
• Oil and gas pit liners
• pond liners
• silage covers
• Vapor and gas barriers
• string-reinforced sheets
• Multi-layer films
• string-reinforced enclosures
Aerostar Division
solutions for scientific and military
operations, research, surveillance
and communications using
specialized fabrics and films.
Electronic Systems
Division (ESD)
contract electronic manufacturing
services, primarily for low-volume/
high-mix industrial products.
• tethered aerostats
• Military parachutes
• high-altitude scientific
research balloons
• protective wear
• secure communications
• persistent surveillance
• Marine navigation systems
• integrated circuits
• secure communications
• Fuel actuators
• Motorized bed controls
• Defense electronics
• Box build assembly
• Value engineering
• test and quality control
Division Vice Presidents
From left to right:
David R. Bair
Division Vice President & General Manager
Electronic Systems Division
Matthew T. Burkhart
Division Vice President & General Manager
Applied Technology Division
James D. Groninger
Division Vice President & General Manager
Engineered Films Division
Lon E. Stroschein
Division Vice President & General Manager
Aerostar Division
FY 2011 ReSUlTS
KeY PeRFoRmance goalS
ATD earnings grew in
FY 2011, with strong
demand from domestic
and international markets.
Operating income was $31
million on net sales of
$100 million.
• increase sales of high-accuracy automatic steering systems.
• Expand the installed base of our slingshot™ information
management platform.
• accelerate international growth, plus new market entry
into china.
• increase the percentage of sales from new products.
• Expand distribution beyond the custom ag service providers,
targeting the farmer.
EFD earnings were up in
FY 2011, led by the energy
and agricultural markets.
Operating income was
$19 million on net sales
of $106 million.
• increase available capacity for both commodity-type and
specialty films.
• introduce new products, with a focus on barrier-type and
string-reinforced applications.
• Expand engineering and R&D support, including the
completion of a new research and development center.
• produce more finished products and capture greater value
through vertical integration.
Aerostar earnings reached
record levels in FY 2011,
due to successful tethered
aerostat and parachute
contract ramp-ups.
Operating income was
$9 million on net sales of
$49 million.
ESD earnings increased in
FY 2011, as supply chain
and product mix improved.
Operating income was
$10 million on net sales
of $66 million.
• add key personnel in engineering, procurement,
manufacturing and sales.
• achieve continuous growth in t-11 parachute production.
• secure a follow-on contract for pgss and new contracts with
foreign military.
• put an airship into the stratosphere with payload
capabilities for reconnaissance and communications.
• pursue prime contractor status for the government
services market.
• achieve successful start-up on new customer programs.
• improve both on-time delivery and schedule visibility for
future programs.
• improve product quality every step of the way from incoming
orders through shipments.
• grow sales of proprietary product lines, leveraging our
success with atD and aerostar component assemblies.
2011 An n uAl R epoRt 7
Net Sales
Net Sales
Net Sales
neT
100.1
Net Sales
SaleS*
86.2
100.1
100.1
86.2
86.2
100.1
86.2
Operating Income
Operating Income
Operating Income
oPeRaTIng
Operating Income
31.1
Income*
25.7
31.1
31.1
25.7
25.7
31.1
25.7
’10
’10
’10
’11
’11
’11
’10
’10
’10
’11
’11
’11
’10
’11
’10
’11
105.8
105.8
105.8
105.8
63.8
63.8
63.8
63.8
’10 ’11
’10 ’11
’10 ’11
19.2
19.2
19.2
10.2
10.2
10.2
19.2
10.2
’10
’10
’10
’11
’11
’11
’10 ’11
’10
’11
48.8
48.8
48.8
27.2
27.2
27.2
48.8
27.2
’10
’10
’10
’11
’11
’11
9.4
9.4
9.4
9.4
5.6
5.6
5.6
5.6
’10 ’11
’10 ’11
’10 ’11
’10
’11
’10 ’11
65.9
65.9
65.9
63.5
63.5
63.5
65.9
63.5
9.9
9.9
9.9
9.9
9.0
9.0
9.0
9.0
’10 ’11
’10 ’11
’10 ’11
* Dollars in millions
’10
’10
’10
’11
’11
’11
’10 ’11
’10
’11
100
100
100
80
80
80
100
60
60
60
80
40
40
40
60
20
20
20
40
0
0
0
20
0
106.0
106.0
106.0
84.8
84.8
84.8
106.0
63.6
63.6
63.6
84.8
42.4
42.4
42.4
63.6
21.2
21.2
21.2
42.4
0.0
0.0
0.0
21.2
0.0
49.0
49.0
49.0
39.2
39.2
39.2
49.0
29.4
29.4
29.4
39.2
19.6
19.6
19.6
29.4
9.8
9.8
9.8
19.6
0.0
0.0
0.0
9.8
0.0
66.0
66.0
66.0
52.8
52.8
52.8
66.0
39.6
39.6
39.6
52.8
26.4
26.4
26.4
39.6
13.2
13.2
13.2
26.4
0.0
0.0
0.0
13.2
0.0
31.000000
31.000000
31.000000
26.571429
26.571429
26.571429
22.142857
31.000000
22.142857
22.142857
17.714286
26.571429
17.714286
17.714286
13.285714
22.142857
13.285714
13.285714
8.857143
17.714286
8.857143
8.857143
4.428571
13.285714
4.428571
4.428571
0.000000
8.857143
0.000000
0.000000
4.428571
0.000000
19.000000
19.000000
19.000000
16.285714
16.285714
16.285714
13.571429
19.000000
13.571429
13.571429
10.857143
16.285714
10.857143
10.857143
8.142857
13.571429
8.142857
8.142857
5.428571
10.857143
5.428571
5.428571
2.714286
8.142857
2.714286
2.714286
0.000000
5.428571
0.000000
0.000000
2.714286
0.000000
9.000000
9.000000
9.000000
7.714286
7.714286
7.714286
6.428571
9.000000
6.428571
6.428571
5.142857
7.714286
5.142857
5.142857
3.857143
6.428571
3.857143
3.857143
2.571429
5.142857
2.571429
2.571429
1.285714
3.857143
1.285714
1.285714
0.000000
2.571429
0.000000
0.000000
1.285714
0.000000
10.000000
10.000000
10.000000
8.571429
8.571429
8.571429
7.142857
10.000000
7.142857
7.142857
5.714286
8.571429
5.714286
5.714286
4.285714
7.142857
4.285714
4.285714
2.857143
5.714286
2.857143
2.857143
1.428571
4.285714
1.428571
1.428571
0.000000
2.857143
0.000000
0.000000
1.428571
0.000000
appliED
tEchnOlOgy
DiVisiOn
Since 1978, Raven has played a key role in the growth of precision agriculture – the use of
electronic controls, global Positioning System (gPS) products and information management tools
designed to reduce operating costs and improve farm yields around the world.
FY 2011 in Review
Why Customers Choose Raven
Expansion of our core product lines
success in farming has always
and growth in international markets
been about using less and getting
led to a 16% increase in sales to $100
more. With Raven, you can simply
million. We produced solid operating
do it better. customers make
margins, introduced several new
Raven their top choice because:
products, and launched our slingshot™
information management platform
during a recovering market.
1. We offer a broad precision ag
product line backed by solid
technical support from our
international growth continued to
distribution partners, dedicated
outpace U.s. growth. south america
field staff and knowledgeable
produced strong growth results and
service team. We invest heavily
canada was solidly led by automated
in training and other resource
steering and slingshot sales. Western
tools to ensure our customers
Europe continues to be held back by
experience the highest level
the general economy. however, Eastern
of service in our industry.
Europe is recovering well.
2. Our OEM partners, the major
“ The future of precision ag is all
about integration, information
and innovation. Our strategy is
to provide innovative products to
both our OEM and aftermarket
partners and an information
system that collects, transmits,
and stores data, while offering
decision support tools in an
easy-to-use format. Putting our
high-speed infrastructure in place
provides the gateway for open
communications with a growing
Demand from our original equipment
ag equipment manufacturers,
host of content providers and
manufacturer (OEM) partners remained
value our innovation and
allows end users to improve the
strong throughout the year, and
leading-edge technology.
efficiency of their operations.”
especially into last fall. continued
We’re also nimble, which helps
Matthew T. Burkhart
Division Vice President
and General Manager
strength and growing optimism in the
them adapt more quickly to
ag market, coupled with attractive tax
the changing marketplace.
incentives for end users to purchase
equipment, drove strong demand for
agricultural equipment. We also were
successful in adding new OEM partners
and expanding our product portfolio
with many existing OEMs this past year.
3. Our competitive advantage
includes the ability to integrate
our technology across multiple
machinery platforms. it’s clear that
the end user wants an integrated
platform in the cab and simplicity
of operation for their precision
8 RAven I n d ustR I es, I nc .
the latest innovation, slingshot™ (on left), uses wireless connectivity over cell phone networks to give cost-effective secure access to critical operating information.
Raven’s OmniRow™ advanced planter control system (on right) allows for variable-rate seeding and automatic section control.
ag products. With slingshot we
purchases of both new machinery and
deliver on our current backlog as well
can now deliver the fastest, most
productivity enhancements for the
as the anticipated demand.
reliable wireless connection to the
installed equipment base.
tractor cab, helping to solve the
problem of managing information
from the field to the home office.
Outlook for FY 2012
We expect continued growth in sales
and profits.
We look for strong international
growth, specifically in south america,
Eastern Europe and Russia. china
will begin shipping this year through
a master distributor, who serves
the largest agricultural regions.
plus, slingshot will be deployed in
several new markets, including
Key Performance Goals
• increase sales of high-accuracy
automatic steering systems.
• Expand the installed base of
our slingshot information
management platform.
• accelerate international growth.
global growth is spurring the race
australia and south africa.
to increase our food supply, leading to
increased demand for farm commodities.
higher pricing will translate into greater
financial strength for growers who
want to increase their output through
challenges include availability
and pricing of raw materials and
components. however, we have been
steadily increasing our capacity to
• increase the percentage of sales from
new products.
• Expand distribution beyond custom ag
service providers, targeting the farmer.
2011 An n uAl R epoRt 9
EnginEERED
FilMs
DiVisiOn
Raven is a leading supplier of high-quality flexible films and sheeting for
custom applications in energy, industrial, environmental, construction and agricultural
markets throughout the United States and abroad.
FY 2011 in Review
With strong demand across several
from the elements during the
building and remodeling process.
sectors of the economy, Engineered
Other achievements included better
Films broke the $100 million sales mark
equipment performance related to
for the first time, reaching $106 million.
geomembrane films and growing
Record tonnage paced our sales growth,
acceptance by engineers and specification
and when combined with favorable
writers for more of our products. this is a
margins, produced significantly improved
critical step for generating new orders.
operating income.
Within our major end markets, the
energy sector was the strongest, driven by
increased drilling – and demand for our
pit liners – in response to higher oil prices.
Demand for our agricultural products
was also strong as the country enjoyed
a good harvest season. For example,
Why Customers Choose Raven
We combine vertical manufacturing
integration and a deep distribution
channel to understand and meet
customer needs. customers make
Raven their top choice because:
our FeedFresh™ covers that increase the
1. We provide quality, service and
nutritional value of silage, sold very well
this season.
While the broader construction
industry was still down, we were up for
the year due to our strong distribution
capability. Our material is tested
at each processing point to assure
quality. We meet time commitments
to our customers, providing finished
goods when they need them.
network. We gained market share in
2. We offer breadth of product since we
this segment because of our quality
and service. We deal primarily in the
commercial segment that includes
a wide range of remodeling projects.
Our string-reinforced enclosure
films offer builders protection
utilize three important production
technologies—extrusion, conversion
and lamination. We can provide
more customized solutions for our
customers’ needs from a single source.
“ This year marks a greater
commitment to technical skills
and product development
capabilities. We now have
the facilities to bring in large
customers to create and test
new applications at a controlled
level before producing at
high volumes. We also have a
significant capacity expansion
underway. At Raven we
modify standard equipment
configurations to produce
specialty films. The incremental
investment for producing high-
value films is a key factor in
generating strong profits.”
James D. Groninger
Division Vice President
and General Manager
10 RAve n I n dustR I es, I nc .
Raven continues to expand with the recent addition of cast extrusion (on left). Our 300,000 square foot south Dakota operation produces one of the widest
ranges of size, material and thickness in the industry. Raven geomembrane sheeting (on right) is used as a rainshed cover to divert rainwater from entering
active landfills.
3. We have national distribution that
the construction and industrial markets
Key Performance Goals
gives us a competitive advantage
for incremental sales growth as the
with the ability to service warehouse
economy improves.
• increase production capacity
for both commodity-type
distributors, who in turn supply
general contractors and local
tradesmen. Every region in the country
has its own development focus with
different product requirements.
Outlook for FY 2012
We expect continued growth in sales
and profits.
Our growth is expected to be paced by
our geomembrane and agricultural end
markets. there is also opportunity in
We have upgraded some of our
films and specialty films.
equipment in order to increase our
production capacity by about 30%. While
some capacity is coming on-line today, we
have other lines scheduled for mid-year
and the fourth quarter of fiscal 2012.
We do not expect significant swings
in resin pricing, but we are prepared for
them. Raw materials are still a major
factor affecting our profitability, but as
we move up in volume we gain a more
favorable position with our vendors.
• Develop and introduce new
products. We see great potential
for barrier-type and string-
reinforced specialty products.
• Expand our engineering and
R&D support, including the
completion of a new research
and development center.
• produce more finished products
and capture greater value
through vertical integration.
2011 An n uAl R epoRt 11
aEROstaR
DiVisiOn
Since 1956, Raven has been a pioneer in aerospace. Today, the aerostar division
continues to engineer and build high-altitude research balloons for naSa. Tethered aerostats
for global military and commercial applications including communications, intelligence, surveillance
and reconnaissance build on our knowledge of lighter-than-air design and materials.
FY 2011 in Review
strong customer relationship that forms
new orders for aerostats and
successful execution of our parachute
contracts led to a 79% increase in sales
the basis for future programs, as well
as the creativity and manufacturing
technology that support innovation.
“ We are focused in two areas:
to $49 million. Operating margins
1) lighter-than-air solutions,
remained strong despite ongoing
which include aerostats, airships
investments and project start-up costs.
and high-altitude research
balloons and 2) parachutes
and protective wear. The use of
aerostats by the U.S. military for
persistent surveillance of war
zones is gaining real traction
as a cost-effective alternative
to unmanned vehicles that
require a significant investment
in ground infrastructure. In
addition, our recent successes
have caused us to be more
aggressive than ever in developing
new business opportunities
around the globe that take
advantage of our core strengths.”
Lon E. Stroschein
Division Vice President
and General Manager
12 RAve n I n dustR I es, I nc .
the majority of our growth last year
was driven by tethered aerostats, largely
through the Office of the secretary of
Defense. Even though we are a relative
newcomer to large-scale tethered
aerostats, as well as the larger category
of communications, intelligence,
surveillance and reconnaissance (cisR),
we are strongly positioned to serve the
specialized needs of the government.
aerostar has developed a very strong
niche. there is no company in the U.s.
that knows more about sewing and
sealing specialty fabrics than we do. this
includes our t-11 parachute program and
protective wear products. Our success has
led to more conversations and potential
new opportunities in both areas.
Our high-altitude airships and
research balloons are mainly supplied to
nasa. While we do not anticipate much
growth over the near term, we enjoy a
Why Customers Choose Raven
success for our customers is
measured by product performance and
the service to back it up. customers
make Raven their top choice because:
1. We listen and try to give the
customer exactly what they
want. We’re committed to make
products better and safer, which
in the surveillance arena allows
people in the field to do their job
while staying out of harm’s way.
plus, our products perform at a
price point that has great appeal
in this era of scrutiny over value
for money spent.
2. We have experience in government
contracting. We strive to answer
every inquiry as quickly as we can,
aiming to stay ahead of what the
customer might need next.
changes in the world security environment have led to a new focus on wide-area surveillance and strategic monitoring. Raven’s aerostats can be flown over
land or over the sea. Examples of payloads include audio and imagery surveillance, communication relay, reconnaissance and atmospheric sampling.
3. We provide service that surpasses
While we are working to win
Key Performance Goals
customer expectations. We want
new contracts for persistent ground
to earn and keep the reputation as
surveillance with the U.s. government,
a trusted partner.
we are also receiving interest from
Outlook for FY 2012
We expect continued growth in sales
and profits.
other customers for applications such
as border patrol.
We see further growth potential
this year in parachutes, as well as a
substantial new opportunity within
aerostats will continue to be
the protective wear segment. plus, we
• Build our business platform in the
areas of engineering, procurement,
manufacturing and sales.
• achieve continuous growth in t-11
parachutes production.
• secure a follow-on contract for
pgss, as well as new contracts with
foreign military customers.
a growth driver. We believe that
aim to grow our high-altitude platform
• put an airship into the stratosphere
aerostats will take a greater share of
with targeted products being more
for an extended period of time
surveillance spending. While there are
cisR-oriented.
limitations to the range we can cover
compared with that of fixed-wing
unmanned aerial vehicles, we can
provide ground reconnaissance value
per dollar at a fraction of the cost of
competing technologies.
with payload capabilities for
reconnaissance and communications.
• Enter the government services
market for sustainment of
deployed aerostat systems.
2011 An n uAl R epoRt 13
ElEctROnic
systEMs
DiVisiOn
Raven’s electronic Systems division is a total solution provider of contract
electronic manufacturing services primarily for low-volume/high-mix industrial
products that stand up to harsh environments with great reliability.
FY 2011 in Review
Why Customers Choose Raven
Our customer base produced sales
We focus on a select base of
that were up slightly to $66 million.
customers with specialized needs.
higher profitability resulted from an
customers make Raven their top
improved product mix.
choice because:
in avionics, which comprised over one
1. We are very responsive to the needs
half of total division sales, we continue
of our customers. Our program
to provide assemblies to a large
managers are responsible for the
supplier for major airline programs. Our
coordination of all technical and
industrial controls business rebounded
business aspects associated with
for the year, primarily with sales of bed
a customer’s program.
controls to our major customer.
2. We help customers lower total
Our business of supplying
cost. We can perform design-
subassemblies for Raven’s atD products
for-manufacturability analyses,
was up significantly versus a year ago. We
focus on quality and productivity
are currently producing circuit boards for a
improvements, and reduce
wider range of Raven products, including
cycle times.
cruizer ii™, Viper pro™ and Envizio™.
3. We offer a full suite of engineering
the growth we experienced last
services to support new product
year was partially offset by a decline in
introductions, including rapid
secure communications revenue as a
prototyping and design evaluation
number of projects reached completion.
builds. Raven employs customer
the addition of a new account in the
value teams to ensure attention
secure communications market should
to every critical aspect of new
help mitigate this.
program start-ups, as well as
measuring ongoing productivity
and service levels.
“ We understand our customers’ need
to improve product performance
and reduce total costs. Our
division is on a path of continuous
improvement. For example, we
are further reducing cycle time
with process changes and we have
recently increased the number of
quality engineers. Going forward
we are pursuing a broader set of
growth opportunities in the areas
of secure communications and
industrial controls. At the same
time, we can become a more
valuable partner serving Raven’s
manufacturing network.”
David R. Bair
Division Vice President
and General Manager
14 RAve n I n dustR I es, I nc .
Raven’s contract electronic manufacturing services include design support, rapid prototyping, material procurement, circuit card and system assembly, in-circuit
test, environmental stress screening, repair and warranty, and product distribution. the Electronic systems Division is certified to isO 9001:2008.
Outlook for FY 2012
supply chain issues, particularly in
Key Performance Goals
We expect a stable year in revenues and
profits, as well as good cash flow generation,
with a decline in avionics to be largely
avionics, will remain a key challenge
with lead times continuing to stretch
out on key components.
offset by growth in other programs.
Despite the increased investments
specifically, we anticipate that two
new customer programs will support
our sales levels for the coming year. One
program is in industrial controls and the
other is in secure communications.
this year in quality engineering, we
look to maintain the current level of
operating margins through internal
process improvements.
• achieve successful start-up on new
customer programs.
• improve both on-time delivery
and schedule visibility for future
programs.
• improve product quality every step
of the way, from incoming orders
through shipments.
• grow sales of proprietary product
lines, leveraging our success with
atD and aerostar assemblies.
2011 An n uAl R epoRt 15
BOaRD OF
DiREctORs
Anthony W. Bour (a)(c)
President &
Chief Executive Officer
showplace Wood products, inc.
David A. Christensen (b)(c)
Former President &
Chief Executive Officer
Raven industries, inc.
Thomas S. Everist (b)(c)
Chairman of the Board
Raven Industries, Inc.
President
the everist company
Mark E. Griffin (b)(c)
President &
Chief Executive Officer
lewis Drugs, inc.
Conrad J. Hoigaard (b)(c)
Chairman of the Board
hoigaard’s inc.
Kevin T. Kirby (a)(b)(c)
President
Kirby investment corporation
Cynthia H. Milligan (a)(c)
Dean Emeritus
college of Business administration
University of nebraska, lincoln
Daniel A. Rykhus
President &
Chief Executive Officer
Raven industries, inc.
a = audit committee b = personnel and compensation committee c = governance committee
ExEcUtiVE
tEaM
David R. Bair – Division Vice president & general Manager – Electronic systems Division, age: 54, service 12 years
Matthew T. Burkhart – Division Vice president & general Manager – applied technology Division, age: 35, service 3 years
James D. Groninger – Division Vice president & general Manager – Engineered Films Division, age: 52, service 24 years
Thomas Iacarella – Vice president & chief Financial Officer, age: 57, service 19 years
Brian E. Meyer – chief information Officer, age: 48, service 6 months
Barbara K. Ohme – Vice president – administration, age: 63, service 23 years
Daniel A. Rykhus – president & chief Executive Officer, age: 46, service 21 years
Lon E. Stroschein – Vice president & general Manager – aerostar Division, age: 36, service 3 years
Mark L. West – chief technology Officer, age: 57, service 29 years
16 RAve n I n dustR I es, I nc .
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2011
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
South Dakota
(State of incorporation)
205 E. 6th Street, P.O. Box 5107, Sioux Falls, SD
(Address of principal executive offices)
46-0246171
(IRS Employer Identification No.)
57117- 5107
(zip code)
Registrant's telephone number including area code (605) 336-2750
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, $1 par value
Name of Each Exchange on which Registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements
for the past ninety days.
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes
Yes
Yes
Yes
No
No
No
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes
No
The aggregate market value of the registrant's common stock held by non-affiliates at July 31, 2010 was approximately $570,364,695. The aggregate
market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $35.03, on July 31, 2010, which was
as of the last business day of the registrant's most recently completed second fiscal quarter. The number of shares outstanding on March 25, 2011 was
18,075,906.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 24, 2011, is incorporated by reference into
Part III to the extent described therein.
PART I
Item 1.
BUSINESS
Item 1A.
RISK FACTORS
Item 1B.
UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
Item 4.
PROPERTIES
LEGAL PROCEEDINGS
REMOVED AND RESERVED
PART II
Item 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Quarterly Information (Unaudited)
Stock Performance
Item 6.
SELECTED FINANCIAL DATA
Six-year Financial Summary
Business Segments
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Executive Summary
Results of Operations - Segment Analysis
Outlook
Liquidity and Capital Resources
Off-Balance Sheet Arrangements and Contractual Obligations
Critical Accounting Estimates
New Accounting Standards
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9A.
CONTROLS AND PROCEDURES
Item 9B.
OTHER INFORMATION
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11.
Item 12.
Item 13.
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
INDEX TO EXHIBITS
SIGNATURES
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
3
6
9
9
9
9
10
10
11
12
12
13
14
14
17
21
22
23
23
25
25
26
27
28
29
30
31
32
33
46
46
46
47
47
47
47
47
48
49
50
51
52
PART I
ITEM 1.
BUSINESS
Raven Industries, Inc. was incorporated in February 1956 under the laws of the State of South Dakota and began operations later
that same year. Raven is an industrial manufacturer providing a variety of products. The company markets its products around the
world and has its principal operations in the United States of America. Raven began operations as a manufacturer of high-altitude
research balloons before diversifying into the industrial, agricultural, construction and military/aerospace markets. The company
employs approximately 1,100 people on active status and is headquartered at 205 E. Sixth Street, Sioux Falls, SD 57104 - telephone
(605) 336-2750. The company's Internet address is http://www.ravenind.com and its common stock trades on the NASDAQ Global
Select Market under the symbol RAVN. The company has adopted a Code of Conduct applicable to all officers, directors, and
employees, which is available on the website. Information on the company's website is not part of this filing.
All reports (including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K) and proxy
and information statements filed with the Securities and Exchange Commission (SEC) are available through a link from the
company's website to the SEC website. All such information is available as soon as reasonably practicable after it has been
electronically filed. Filings can also be obtained free of charge by contacting the company, the SEC's Public Reference Room at
100 F Street N.E., Washington, DC 20549, through the SEC's website at http://www.sec.gov, or by calling the SEC at 1-800-
SEC-0330.
The company has four business segments: Applied Technology Division, Engineered Films Division, Aerostar Division and
Electronic Systems Division. Many of the past and present product lines are an extension of technology and production methods
developed in the original balloon business. Product lines have been grouped in these segments based on common technologies,
production methods and raw materials; however, more than one business segment may serve each of the product markets identified
above.
Business segment financial information is found on the following pages:
13
17
43
"Business Segments"
"Results of Operations – Segment Analysis"
"Note 13. Business Segments and Major Customer Information"
BUSINESS SEGMENTS
Applied Technology
Products in this segment are electronic and Global Positioning System (GPS) devices. They are used primarily on agricultural
sprayers for precision farming applications. The company has developed products for field location control, chemical injection
and automated steering. In the fourth quarter of fiscal 2010, Raven invested in Site-Specific Technology Development Group,
Inc., a software company, and purchased the assets of Ranchview, Inc., a developer of GPS signal correction and wireless internet
connectivity via cell phone networks. These investments are expected to position Applied Technology with tools to improve grower
decision-making along with the hardware to execute these decisions in the field.
A field sales force sells the agricultural control products in this segment to original equipment manufacturers (OEMs) and
independent third-party distributors. The segment also markets using precision agriculture representatives on location in key
geographic areas, including Canada, Europe, Ukraine and Australia. The company's competitive advantage in this segment is
product reliability, ease of use, product availability and service after the sale.
Engineered Films
This segment produces rugged reinforced plastic sheeting for industrial, construction and agricultural applications.
3
The company's sales force sells plastic sheeting to independent third-party distributors in each of the various markets it serves.
The company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest
sheeting converters in the United States. Engineered Films believes its ability to both extrude and convert films allows it to provide
a more customized solution to customer needs. A number of suppliers of sheeting compete with Raven on both price and product
availability. Engineered Films is the company's most capital-intensive business segment, requiring regular investments in new
extrusion capacity along with printers and conversion equipment. This segment's capital expenditures were $8.5 million in fiscal
2011, $1.5 million in fiscal 2010 and $3.1 million in fiscal 2009.
Aerostar
Aerostar sells high-altitude and tethered aerostats for government and commercial research. It produces military parachutes,
uniforms and protective wear for U.S. government agencies and as a subcontractor. It also manufactures other sewn and sealed
products on a contract basis.
Sales are made in response to competitive bid requests. High-altitude research balloons are sold directly to government agencies
(usually funded by the National Aeronautics and Space Administration) or commercial users. Aerostar is the only balloon supplier
for high-altitude research in the United States.
Electronic Systems
The company has focused this segment's capabilities in electronics 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.
EMS sales are made in response to competitive bid requests by customers. The level and nature of competition varies with the
type of product, but the company frequently competes with a number of EMS manufacturers on any given bid request. The markets
in which the company participates are highly competitive, with customers having many suppliers from which to choose.
MAJOR CUSTOMER INFORMATION
Sales in fiscal 2011, 2010 and 2009 to Goodrich Corporation, a customer of the Electronic Systems segment, accounted for 13%,
16% and 13%, respectively, of consolidated sales. While Electronic Systems expects revenue from this customer to decline, the
company does not anticipate any sudden disruptions to this relationship.
SEASONAL WORKING CAPITAL REQUIREMENTS
Some seasonal demand exists in Applied Technology's agricultural market. Applied Technology builds product in the fall for winter
and spring delivery. Certain sales to agricultural customers offer spring payment terms for fall and early winter shipments. The
resulting fluctuations in inventory and accounts receivable have required, and may require, seasonal short-term financing.
FINANCIAL INSTRUMENTS
The principal financial instruments that the company maintains are cash, cash equivalents, short-term investments and accounts
receivable. The company manages the interest rate, credit and market risks associated with these accounts through periodic reviews
of the carrying value of assets and liabilities and establishment of appropriate allowances in connection with the company policies.
The company does not use off-balance sheet financing, except to enter into operating leases.
The company uses derivative financial instruments to manage foreign currency risk. The use of these financial instruments has
had no material effect on consolidated results of operations, financial condition or cash flows.
RAW MATERIALS
The company obtains a wide variety of materials from several vendors. Principal materials include numerous electronic components
for the Electronic Systems and Applied Technology segments, various plastic resins for the Engineered Films segment and fabrics
for the Aerostar segment. The Engineered Films segment has experienced volatile resin prices over the past three years. Price
increases could not always be passed on to customers due to weak demand and a competitive pricing environment. The Electronic
Systems segment will experience variability in lead times for components as business cycles impact demand. However, predicting
future material shortages and the related potential impact on Raven is not possible.
4
PATENTS
The company owns a number of patents. However, Raven does not believe that its business, as a whole, is materially dependent
on any one patent or related group of patents. It believes the successful manufacture and sale of its products generally depend
more upon its technical expertise, speed to market and manufacturing skills.
RESEARCH AND DEVELOPMENT
The business segments conduct ongoing research and development efforts. Most of the company's research and development
expenditures are directed toward new products in the Applied Technology and Aerostar segments. Total company research and
development costs are presented on the Consolidated Statements of Income.
ENVIRONMENTAL MATTERS
Except as described below, the company believes that, in all material respects, it is in compliance with applicable federal, state
and local environmental laws and regulations. Expenditures relating to compliance for operating facilities incurred in the past
have not significantly affected the company's capital expenditures, earnings or competitive position.
In connection with the sale of substantially all of the assets of the company's Glasstite, Inc. subsidiary in fiscal 2000, the company
has agreed to assume responsibility for the investigation and remediation of any pre-October 29, 1999 environmental contamination
at the company's former Glasstite pickup-truck topper facility in Dunnell, Minnesota as required by the Minnesota Pollution
Control Agency (MPCA) or the United States Environmental Protection Agency (EPA).
The company and the purchasers of the company's Glasstite subsidiary conducted environmental assessments of the properties.
Although these assessments continue to be evaluated by the MPCA on the basis of the data available, there is no reason to believe
that any activities that might be required as a result of the findings of the assessments will have a material effect on the company's
results of operations, financial position or cash flows. The company had $58,000 accrued at January 31, 2011, its best estimate of
probable costs to be incurred related to these matters.
BACKLOG
As of February 1, 2011, the company's order backlog totaled $76.0 million. Backlog amounts as of February 1, 2010 and 2009
were $74.7 million and $80.4 million, respectively. Because the length of time between order and shipment varies considerably
by business segment and customers can change delivery schedules or potentially cancel orders, the company does not believe that
backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.
EMPLOYEES
As of January 31, 2011, the company had 1,112 employees, 1,101 in an active status. Following is a summary of active employees
by segment: Electronic Systems - 252; Applied Technology - 313; Engineered Films - 177; Aerostar - 296; Administration - 63.
Management believes its employee relations are satisfactory.
5
EXECUTIVE OFFICERS
NAME, AGE AND POSITION
Daniel A. Rykhus, 46
President and Chief Executive Officer
BIOGRAPHICAL DATA
Mr. Rykhus became the company's President and Chief Executive Officer
in 2010. He joined Raven in 1990 as Director of World Class Manufacturing,
was General Manager of the Applied Technology Division from 1998
through 2009, and served as Executive Vice President from 2004 through
2010.
Thomas Iacarella, 57
Vice President and Chief Financial Officer
Mr. Iacarella joined Raven in 1991 as Corporate Controller and has been
the company's Chief Financial Officer, Secretary and Treasurer since 1998.
Prior to joining the company, he held positions with Tonka Corporation and
the accounting firm now known as Ernst & Young.
David R. Bair, 54
Division Vice President and General Manager -
Electronic Systems Division
Mr. Bair joined Raven in 1999 as Division Vice President and General
Manager of the Electronic Systems Division.
James D. Groninger, 52
Division Vice President and General Manager -
Engineered Films Division
Mr. Groninger joined Raven in 1986 and in 1995 became Manager of
Glasstite, Inc. He has been Division Vice President and General Manager
of the Engineered Films Division since 2004.
Barbara K. Ohme, 63
Vice President - Administration
Ms. Ohme joined Raven in 1987 as Employment Manager and has been the
company's Vice President of Administration since 2004.
Matthew T. Burkhart, 35
Division Vice President and General Manager -
Applied Technology Division
Mr. Burkhart was named Division Vice President and General Manager of
the Applied Technology Division on February 1, 2010. He joined Raven in
2008 as Director of Sales and became General Manager - Applied
Technology Division on February 1, 2009. Prior to joining the company,
he was a Branch Manager for Johnson Controls.
Lon E. Stroschein, 36
Division Vice President and General Manager -
Aerostar Division
Mr. Stroschein was named Vice President and General Manager of the
Aerostar Division in October 2010. He joined Raven in 2008 as
International Sales Manager for Applied Technology. Prior to joining
Raven, he was a bank Vice President and was a member of the executive
staff for a U.S. Senator.
ITEM 1A. RISK FACTORS
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are “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 the company believes that the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there is no assurance that such assumptions are correct or that these expectations will be achieved. Such
assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and
uncertainties include, but are not limited to, those relating to weather conditions and commodity prices, which could affect certain
of the company's primary markets, such as agriculture and construction and oil and gas well drilling; or changes in competition,
6
raw material availability, technology or relationships with the company's largest customers any of which could adversely impact
any of the company's product lines, as well as other risks described below. The foregoing list is not exhaustive and the company
disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date
of such statements.
RISKS RELATING TO THE COMPANY
The company operates in markets that involve significant risks, many of which are beyond the company's control. Based on current
information, the company believes that the following identifies the most significant risk factors that could affect its businesses.
However, the risks and uncertainties the company faces are not limited to those discussed below. There could be other unknown
or unpredictable economic, business, competitive or regulatory factors, including factors that the company currently believes to
be immaterial, that could have material adverse effects on the company's financial position, liquidity and results of operations.
Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to
anticipate results or trends in future periods.
Weather conditions could affect certain of the company's markets such as agriculture and construction.
The company's Applied Technology Division is largely dependent on the ability of farmers and agricultural subcontractors known
as custom operators to purchase agricultural equipment that includes its products. If such farmers experience adverse weather
conditions resulting in poor growing conditions, or experience unfavorable crop prices or expenses, potential buyers may be less
likely to purchase agricultural equipment. Accordingly, weather conditions may adversely affect sales in the Applied Technology
Division.
Weather conditions can also adversely affect sales in the company's Engineered Films Division. To the extent weather conditions
curtail construction activity, sales of the segment's plastic sheeting will likely decrease.
Price fluctuations in and shortages of raw materials could have a significant impact on the company's ability to sustain and
grow earnings.
The company's Engineered Films Division (EFD) consumes significant amounts of plastic resin, the costs of which primarily
reflect market prices for natural gas. These prices are subject to worldwide supply and demand as well as other factors beyond
the control of the company. Although EFD is sometimes able to pass such price increases to its customers, significant variations
in the cost of plastic resins can affect the company's operating results from period to period. Unusual supply disruptions, such as
caused by a natural disaster, could cause suppliers to invoke “force majeure” clauses in their supply agreements, causing shortages
of material. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic
conditions and could vary significantly depending on the market served. If the company is not able to fully offset the effects of
material availability and costs, financial results could be adversely affected.
Electronic components, used by both the Applied Technology Division and Electronic Systems Division, are sometimes in short
supply, impacting our ability to meet customer demand.
If a supplier of raw materials or components were unable to deliver due to shortage or financial difficulty, any of the company's
segments could be adversely affected.
Fluctuations in commodity prices can increase our costs and decrease our sales.
Agricultural income levels are affected by agricultural commodity prices and input costs. As a result, changes in commodity prices
that reduce agricultural income levels could have a negative effect on the ability of growers and their contractors to purchase the
company's precision agriculture products manufactured by its Applied Technology Division.
Exploration for oil and natural gas fluctuates with their price. Plastic sheeting manufactured and sold by our Engineered Films
Division is sold as pit and pond liners to contain water used in the drilling process. Lower prices for oil and natural gas could
reduce exploration activities and demand for our products. Plastic sheeting manufacture uses plastic resins which are subject to
change in price as the cost of natural gas changes. Accordingly, volatility in oil and natural gas prices may negatively affect our
cost of goods sold or cause us to change prices, which could adversely affect our sales and profitability.
Failure to develop and market new technologies and products could impact the company's competitive position and have an
adverse effect on the company's financial results.
The company's operating results in its Applied Technology and to a lesser extent, its Engineered Films and Aerostar segments, are
largely dependent on the ability to renew the pipeline of new products and to bring those products to market. This ability could
be adversely affected by difficulties or delays in product development such as the inability to identify viable new products,
successfully complete research and development, obtain relevant regulatory approvals, obtain intellectual property protection, or
7
gain market acceptance of new products and services. Because of the lengthy development process, technological challenges and
intense competition, there can be no assurance that any of the products the company is currently developing, or could begin to
develop in the future, will achieve substantial commercial success. In addition, sales of the company's new products could replace
sales of some of its current products, offsetting the benefit of even a successful product introduction.
The company's Electronic Systems Division is dependent on a small number of customers and faces competitive risks.
The company's Electronic Systems Division (ESD) is dependent on a small number of customers with the top customer representing
over half of ESD sales. Accordingly, the ESD segment is dependent on the continued growth, viability and financial stability of
its customers, which consist of original equipment manufacturers of avionics, consumer beds and secure telecommunication
equipment. Future sales are dependent on the success of the company's customers, some of which operate in businesses associated
with rapid technological change and consequent product obsolescence. Developments adverse to major customers or their products,
or the failure of a major customer to pay for components or services, could have an adverse effect on the performance of ESD.
Further, ESD competes against many providers of electronics manufacturing services. Certain competitors have substantially
greater resources and more geographically diversified international operations than ESD. This segment may also be at a competitive
disadvantage with respect to price when compared to manufacturers with lower cost structures, particularly those with more
offshore facilities located where labor and other costs are lower. The company also faces competition from the manufacturing
operations of current and future customers, who are continually evaluating the merits of manufacturing products internally against
the advantages of outsourcing to electronics manufacturing services providers. Accordingly, to compete effectively, ESD must
continue to provide technologically advanced manufacturing services, maintain strict quality standards, respond flexibly and
rapidly to customers' design and schedule changes and deliver products globally on a reliable basis at competitive prices. Customers
may cancel their orders, change production quantities or delay production. Start-up costs and inefficiencies related to new or
transferred programs can adversely affect operating results and such costs may not be recoverable if such new programs or
transferred programs are cancelled.
The company's Aerostar segment depends on the U.S. government for a significant portion of its sales, creating uncertainty
in the timing of and funding for projected contracts.
A significant portion of Aerostar's sales are to the U.S. government or U.S. government agencies as a prime or sub-contractor.
Government spending has historically been cyclical. A decrease in U.S. government defense or near-space research spending or
changes in spending allocation could result in one or more of the company's programs being reduced, delayed or terminated.
Reductions in the company's existing programs, unless offset by other programs and opportunities, could adversely affect its ability
to sustain and grow its future sales and earnings. The company's U.S. government sales are funded by the federal budget, which
operates on an October-to-September fiscal year. Changes in congressional schedules, negotiations for program funding levels or
unforeseen world events can interrupt the funding for a program or contract. Funds for multi-year contracts can be changed in
subsequent years in the appropriations process.
In addition, the U.S. government has increasingly relied on indefinite delivery, indefinite quantity (IDIQ) contracts and other
procurement vehicles that are subject to a competitive bidding and funding process even after the award of the basic contract,
adding an additional element of uncertainty to future funding levels. Delays in the funding process or changes in funding can
impact the timing of available funds or can lead to changes in program content or termination at the government's convenience.
The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on the company's
future sales and earnings.
The company derives a portion of its revenues from foreign markets, which subjects the company to risk of changes in
government policies and laws or worldwide economic conditions.
The company's sales outside the U.S. were $25 million in fiscal 2011. The company's financial results could be affected by changes
in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and
similar organizations. These conditions include, but are not limited to, changes in a country's or region's economic or political
conditions; trade regulations affecting production, pricing and marketing of products; local labor conditions and regulations;
reduced protection of intellectual property rights in some countries; changes in the regulatory or legal environment; restrictions
on currency exchange activities; burdensome taxes and tariffs and other trade barriers. International risks and uncertainties,
including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced sales
and reduced profitability associated with such sales.
Adverse economic conditions in the major industries the company serves may materially affect segment performance and
consolidated results of operations.
The company's results of operations are impacted by the market fundamentals of the primary industries served. Significant declines
of economic activity in the agricultural, oil and gas exploration, construction, industrial, aerospace/aviation, communication,
defense and other major markets served may adversely affect segment performance and consolidated results of operations.
8
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
The company maintains the following properties in connection with its operations, all of which the company owns, unless indicated
otherwise:
Location
Sioux Falls, SD
Sulphur Springs, TX
Huron, SD
St. Louis, MO
Madison, SD
Austin, TX
Stockholm, SK
* Leased
Square
Feet
150,000
131,000
73,000
59,000
35,000
27,000
25,000
24,000
*14,000
23,000
10,000
64,000
24,000
24,000
20,000
*7,000
*7,000
Function
Corporate office; electronics manufacturing
Plastic sheeting manufacturing
Warehouse
Plastic sheeting manufacturing and sewing
Warehouse and offices
Training facility and manufacturing
Tethered aerostat and inflatable
manufacturing
Electronics manufacturing
Tethered aerostat inflation and testing
Training and product development facility
Machine shop
Research balloon manufacturing
Sewing plant
Electronics manufacturing
Sewing plant
Product development facility
Warehouse
Business segments
All
Engineered Films
Engineered Films
Engineered Films; Aerostar
Engineered Films; Aerostar
Applied Technology
Aerostar
Electronic Systems
Aerostar
Applied Technology
Applied Technology
Aerostar
Aerostar
Electronic Systems
Aerostar
Applied Technology; Aerostar
Applied Technology
Most of the company's manufacturing plants also serve as distribution centers and contain offices for sales, engineering and
manufacturing support staff. The company believes that its properties are suitable and adequate to meet existing production needs.
Additionally, the productive capacity in the company's facilities is substantially being utilized. The company plans to build a new
Applied Technology manufacturing facility on land purchased in fiscal 2011.
In addition, the company owns 6.95 acres of
undeveloped land adjacent to the other owned property in Sioux Falls, which is available for expansion.
ITEM 3.
LEGAL PROCEEDINGS
The company is responsible for investigation and remediation of environmental contamination at one of its sold facilities (see
“Item 1, Business - Environmental Matters”). In addition, the company is involved as a defendant in lawsuits, claims or disputes
arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time.
Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage.
Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations,
financial position or cash flows.
ITEM 4.
REMOVED AND RESERVED
9
PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Raven's common stock is traded on the NASDAQ Global Select Market under the symbol RAVN. The following table shows
quarterly financial results, quarterly high and low closing sales prices per share of Raven's common stock as reported by NASDAQ,
and dividends declared for the periods indicated:
QUARTERLY INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Net
Sales
Gross
Profit
Operating
Income
Pretax
Income
Net
Income
Net Income
Per Share(a)
Basic
Diluted
Common Stock
Market Price
Low
High
Cash
Dividends
Per Share
FISCAL 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 85,030
73,174
85,823
70,681
$ 27,171
20,389
24,887
18,982
$ 19,505
12,623
17,866
10,209
$19,557
12,529
17,883
10,313
$12,945
8,353
11,833
7,406
$ 0.72
0.46
0.65
0.41
$ 0.72
0.46
0.65
0.41
$ 31.79
38.18
42.11
49.59
$ 26.54
28.66
30.00
40.01
$
0.16
0.16
1.41(b)
0.16
Total Year
$ 314,708
$ 91,429
$ 60,203
$60,282
$40,537
$ 2.24
$ 2.24
$ 49.59
$ 26.54
$
1.89
FISCAL 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 65,222
56,586
60,158
55,816
$ 20,428
15,112
16,918
15,394
$ 14,113
9,306
11,119
8,682
$14,114
9,411
11,116
8,681
$ 9,231
6,204
7,293
5,846
$ 0.51
0.34
0.40
0.32
$ 0.51
0.34
0.40
0.32
$ 24.65
31.00
32.43
33.18
$ 15.37
23.99
24.47
24.04
$
0.13
0.14
0.14
0.14
Total Year
$ 237,782
$ 67,852
$ 43,220
$43,322
$28,574
$ 1.58
$ 1.58
$ 33.18
$ 15.37
$
0.55
FISCAL 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 75,166
69,278
75,538
59,931
$ 23,288
17,197
19,564
13,399
$ 16,641
10,312
12,371
7,070
$16,759
10,488
12,548
7,106
$10,882
6,815
8,385
4,688
$ 0.60
0.38
0.47
0.26
$ 0.60
0.38
0.46
0.26
$ 32.80
39.50
47.82
33.24
$ 25.94
29.46
25.79
20.60
$
0.13
0.13
0.13
1.38(c)
Total Year
$ 279,913
$ 73,448
$ 46,394
$46,901
$30,770
$ 1.71
$ 1.70
$ 47.82
$ 20.60
$
1.77
(a)
(b)
(c)
Net income per share is computed discretely by quarter and may not add to the full year.
A special dividend of $1.25 per share was paid during the third quarter of fiscal 2011.
A special dividend of $1.25 per share was paid during the fourth quarter of fiscal 2009.
As of January 31, 2011, the company had approximately 7,500 shareholders of record. A substantially greater number of the
company's common stock is held by beneficial holders whose shares are held of record by banks, brokers and other financial
institutions.
10
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES,
S&P 1500 INDUSTRIAL MACHINERY INDEX AND RUSSELL 2000 INDEX
Raven 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, 2006, held this for five years and reinvested the dividends, have seen its value increase to
$174.50.
Company / Index
2006
2007
2008
2009
2010
2011
Raven Industries, Inc.
$ 100.00
$
91.05
$
97.37
$
74.90
$ 100.24
$ 174.50
S&P 1500 Industrial Machinery
Russell 2000
100.00
100.00
114.82
110.51
121.05
99.70
67.90
62.97
92.53
86.78
124.67
114.00
Year Ended January 31
5-Year
CAGR(a)
12%
5%
3%
(a) compound annual growth rate
11
ITEM 6.
SELECTED FINANCIAL DATA
SIX-YEAR FINANCIAL SUMMARY
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
OPERATIONS
Net sales
Gross profit
Operating income
Income before income taxes
Net income
Net income % of sales
Net income % of beginning equity
Cash dividends(a)
FINANCIAL POSITION
Current assets
Current liabilities
Working capital
Current ratio
Property, plant and equipment
Total assets
Shareholders' equity
Long-term debt / total capitalization
Inventory turnover (COS / average inventory)
CASH FLOWS PROVIDED BY (USED IN)
Operating activities
Investing activities
Financing activities
Change in cash
COMMON STOCK DATA
EPS — basic
EPS — diluted
Cash dividends per share(a)
Book value per share (b)
Stock price range during the year
High
Low
Close
Shares and stock units outstanding, year-end
Number of shareholders, year-end
OTHER DATA
Price / earnings ratio (c)
Average number of employees
Sales per employee
Backlog
For the years ended January 31
2011
2010
2009
2008
2007
2006
$314,708
91,429
60,203
60,282
$ 40,537
$237,782
67,852
43,220
43,322
$ 28,574
$279,913
73,448
46,394
46,901
$ 30,770
$233,957
63,676
41,145
42,224
$ 27,802
$217,529
57,540
38,302
38,835
$ 25,441
$204,528
55,714
37,284
37,494
$ 24,262
12.9%
30.4%
$ 34,095
$
12.0%
25.2%
9,911
11.0%
26.0%
$ 31,884
$
11.9%
28.3%
7,966
$
11.7%
30.1%
6,507
$
11.9%
36.7%
5,056
$128,181
34,335
$ 93,846
3.73
$ 41,522
187,760
$141,214
$117,747
25,960
$ 91,787
4.54
$ 33,029
170,309
$133,251
$ 98,073
23,322
$ 74,751
4.21
$ 35,880
144,415
$113,556
$100,869
22,108
$ 78,761
4.56
$ 35,743
147,861
$118,275
$ 73,219
16,464
$ 56,755
4.45
$ 36,264
119,764
$ 98,268
$ 71,345
20,050
$ 51,295
3.56
$ 25,602
106,157
$ 84,389
0.0%
5.6
0.0%
5.3
0.0%
5.2
0.0%
5.3
0.0%
5.4
0.0%
5.9
$ 42,085
(11,418)
(33,834)
(3,121)
$ 47,643
(13,396)
(9,867)
24,417
$ 39,037
(7,000)
(36,969)
(5,005)
$ 27,151
(4,433)
(8,270)
14,489
$ 26,313
(18,664)
(10,277)
(2,626)
$ 21,189
(11,435)
(6,946)
2,790
$
$
$
2.24
2.24
1.89
7.81
49.59
26.54
47.24
18,089
7,456
$
$
$
1.58
1.58
0.55
7.38
33.18
15.37
28.58
18,051
7,767
$
$
$
1.71
1.70
1.77
6.30
47.82
20.60
21.81
18,027
8,268
$
$
$
1.54
1.53
0.44
6.52
45.85
26.20
30.02
18,130
8,700
$
$
$
1.41
1.39
0.36
5.45
42.70
25.46
28.43
18,044
8,992
$
$
$
1.34
1.32
0.28
4.67
33.15
16.54
31.60
18,072
9,263
21.1
1,036
304
$
$ 75,972
18.1
930
256
$
$ 74,718
12.8
1,070
262
$
$ 80,361
19.6
930
252
$
$ 66,628
20.5
884
246
$
$ 44,237
23.9
845
242
$
$ 43,619
(a) Includes special dividends of $1.25 per share in fiscal 2011 and 2009.
(b) Shareholders' equity divided by common shares and stock units outstanding.
(c) Closing stock price divided by EPS — diluted.
12
BUSINESS SEGMENTS
(IN THOUSANDS)
APPLIED TECHNOLOGY DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
ENGINEERED FILMS DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
AEROSTAR DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
ELECTRONIC SYSTEMS DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
INTERSEGMENT ELIMINATIONS
Sales
Engineered Films Division
Aerostar
Electronic Systems Division
Operating income
Assets
REPORTABLE SEGMENTS TOTAL
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
CORPORATE & OTHER(a)
Operating loss (from admin expenses)
Assets
Capital expenditures
Depreciation and amortization
2011
2010
2009
2008
2007
2006
For the years ended January 31
$ 100,090
31,135
52,669
1,769
2,238
$ 86,217
25,722
51,029
941
1,677
$ 103,098
33,884
48,881
2,674
1,383
$ 64,291
19,102
36,938
1,008
1,125
$ 45,515
10,111
27,629
577
1,142
$ 47,506
13,586
30,047
938
1,085
$ 105,838
19,622
46,519
8,450
3,452
(b)
$ 63,783
10,232
35,999
1,460
3,707
$ 89,858
10,919
35,862
3,120
4,303
$ 85,316
17,739
43,688
4,012
4,046
$ 91,082
23,440
41,988
13,266
2,887
$ 82,794
19,907
33,512
7,359
2,436
$ 48,787
9,407
18,140
2,190
757
$ 65,852
9,917
23,385
609
823
$ 27,244
5,634
10,462
332
398
$ 27,186
4,219
8,744
383
444
$ 17,290
1,506
9,941
156
499
$ 14,654
707
8,161
812
375
$ 18,009
2,133
6,837
179
359
$ 63,525
8,979
21,216
290
939
$ 61,983
5,926
26,847
1,399
1,159
$ 67,987
10,365
25,865
1,077
1,237
$ 66,278
10,850
25,175
1,357
1,086
$ 56,219
8,916
20,191
1,612
871
$
(307)
(32)
(5,520)
(94)
(186)
$
$
(210)
(1)
(2,776)
60
(92)
$
(210)
(25)
(1,977)
(52)
(152)
$
(533)
(16)
(378)
(100)
(100)
$
—
—
—
—
—
—
—
—
—
—
$ 314,708
69,987
140,527
13,018
7,270
(b)
$ 237,782
50,627
118,614
3,023
6,721
$ 279,913
54,896
120,182
7,576
7,289
$ 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
$
(9,784)
47,233
954
361
$
$
$
(7,407)
51,695
279
387
(8,502)
24,233
425
469
$
$
(7,467)
31,529
382
437
(6,806)
16,811
510
395
(7,258)
15,570
270
400
TOTAL COMPANY
$ 314,708
Sales
60,203
Operating income
187,760
Assets
13,972
Capital expenditures
7,631
Depreciation and amortization
(a) Assets are principally cash, investments and deferred taxes.
(b) Includes a $451 pre-tax gain on disposition of assets.
(b)
$ 237,782
43,220
170,309
3,302
7,108
$ 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
13
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, 2011 financial statements and the accompanying
notes.
The MD&A is organized as follows:
•
•
•
•
•
•
•
Executive Summary
Results of Operations - Segment Analysis
Outlook
Liquidity and Capital Resources
Off-balance Sheet Arrangements and Contractual Obligations
Critical Accounting Estimates
New Accounting Standards
EXECUTIVE SUMMARY
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural,
construction and military/aerospace markets, primarily in North America. The company operates in four business segments: Applied
Technology, Engineered Films, Electronic Systems and Aerostar.
Management uses a number of metrics to assess the company's performance:
•
•
•
•
Consolidated net sales, gross margins, operating income, operating margins, net income and earnings per share
Cash flow from operations and shareholder returns
Return on sales, assets and equity
Segment net sales, gross profit, gross margins, operating income and operating margins
The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in
the Results of Operations - Segment Analysis section.
14
dollars in thousands, except per-share data
2011
For the years ended January 31
%
%
change
change
2010
2009
Results of Operations
Net sales
Gross margins (a)
Operating income
Operating margins (a)
Net income
Diluted income per share
Cash Flow and Payments to Shareholders
Cash flow from operating activities
Cash dividends
Common stock repurchases
Cash returned to shareholders
Performance Measures
Return on net sales(b)
Return on average assets(c)
Return on beginning equity(d)
$ 314,708
32%
$ 237,782
(15)%
$ 279,913
$
$
$
$
$
$
29.1%
60,203
19.1%
40,537
2.24
42,085
34,095
—
34,095
12.9%
22.6%
30.4%
39%
42%
42%
$
$
$
$
$
$
28.5%
43,220
18.2%
28,574
1.58
47,643
9,911
—
9,911
12.0%
18.2%
25.2%
(7)%
(7)%
(7)%
$
$
$
$
$
$
26.2%
46,394
16.6%
30,770
1.70
39,037
31,884
5,180
37,064
11.0%
21.1%
26.0%
(a) The company's gross and operating margins may not be comparable to industry peers due to variability in the classification of expenses
across industries in which the company operates.
(b) Net income divided by sales
(c) Net income divided by average assets
(d) Net income divided by beginning equity
Results of Operations - Fiscal 2011 versus Fiscal 2010
Fiscal 2011 was the most profitable year in the company's history as record sales and increased productivity led to record earnings
per share. Sales rose 32% to $314.7 million and diluted earnings increased 42% to $2.24 per share as a result of sales growth in
Applied Technology (16%), Engineered Films (66%) and Aerostar (79%).
Applied Technology benefited from strong U.S. farm fundamentals as commodity prices—corn, soybeans and other feed grains
—remained above historical levels. Economic growth in major economies and economic, income and population growth in
emerging markets continued to spur increased demand for food and support healthy worldwide agriculture fundamentals.
Engineered Films' primary end markets—energy, geomembrane, industrial, agriculture and construction—rebounded from prior
year recessionary levels. Aerostar capitalized on strong demand from the U.S. military for persistent ground surveillance systems.
Electronic Systems benefited from higher demand for avionics and increased sourcing of assemblies to Applied Technology
partially offset by weaker deliveries of circuit boards for secure communication devices.
Applied Technology
Fiscal 2011 sales of $100.1 million grew $13.9 million (16%) and operating income of $31.1 million rose $5.4 million (21%).
The primary drivers of the full-year results were strong sales of application controls (i.e. control systems, flow meters, valves)
and steering and guidance products (i.e. assisted-steering, GPS receivers) and the highly successful first quarter launch of
Slingshot™—an information platform which improves data collection, transmission, storage and analysis and provides RTK
correction of GPS signals for high accuracy steering solutions.
Engineered Films
Fiscal 2011 sales of $105.8 million increased $42.1 million (66%) and operating income of $19.6 million increased $9.4 million
(92%). Economic growth and expectations for continued economic growth—particularly in emerging markets—pushed oil prices
to levels adequate to support an increase in drilling activity, which accelerated demand for pit liners. Additionally, sales of
FeedFresh™ silage covers grew due to healthy farm conditions and broadened appreciation of the value proposition of this highly
15
engineered film. Sales of construction films (particularly in the fourth quarter) and industrial films rose as business activity
rebounded from recessionary levels. Full-year operating margins improved, reflecting improved capacity utilization and
productivity gains.
Aerostar
Fiscal 2011 sales of $48.8 million grew $21.5 million (79%) and operating income of $9.4 million rose $3.8 million (67%). The
sales and operating income gains were driven by increased demand for tethered aerostat systems for persistent military surveillance.
Full-year operating margins were down slightly year-over-year as margin gains due to tethered aerostat sales and resulting
profitability were offset by start-up costs related to the T-11 Army Airborne parachute contract and higher product development
and selling expenses to support the tethered aerostats business.
Electronic Systems
Fiscal 2011 sales of $65.9 million increased $2.3 million (4%) and operating income of $9.9 million grew $0.9 million (10%).
Full-year results were positively impacted by avionics sales growth, despite supply chain disruptions, and increased sourcing of
assemblies to Applied Technology partially offset by weaker deliveries of circuit boards for secure communication devices. Product
mix had a favorable impact on full-year operating margins.
Results of Operations - Fiscal 2010 versus Fiscal 2009
The 15% decrease in net sales was 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 were 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 and operating
leverage on profitability. 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.
Cash Flow and Payments to Shareholders
The company continues to generate strong operating cash flows and maintain a strong capital base. In the first quarter of fiscal
2011, the quarterly dividend was raised from 14 cents per share to 16 cents per share, representing the 24th consecutive annual
increase in the dividend (excluding special dividends). During fiscal 2011, $34.1 million was returned to shareholders through
quarterly dividends totaling $11.5 million, or 64 cents per share, and a special dividend of $22.5 million, or $1.25 per share. The
special dividend was paid on September 30, 2010 in response to the company’s strong cash position and commitment to return
excess cash to shareholders.
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.
Performance Measures
The company continues to generate solid returns on net sales, average assets and beginning equity, which are important gauges
of Raven's ability to efficiently produce profits. Raven generated a record 12.9% return on sales in fiscal 2011 as the company
continues to capitalize on competitive advantages in niche markets.
16
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 the fiscal years ended January 31,
dollars in thousands
Net sales
Gross profit
Gross margins
Operating income
Operating margins
2011
% change
$ 100,090
45,106
45.1%
$
31,135
31.1%
16%
19%
21%
$
$
2010
86,217
37,889
43.9%
25,722
29.8%
% change
(16)%
(19)%
(24)%
$
$
2009
103,098
46,591
45.2%
33,884
32.9%
Fiscal 2011 net sales of $100.1 million increased $13.9 million (16%) and operating income of $31.1 million was up $5.4 million
(21%) versus fiscal 2010.
Fiscal 2011 fourth quarter net sales of $22.3 million grew $5.0 million (29%) and operating income of $5.9 million rose $1.7
million (42%).
Several factors contributed to the strong full-year and fourth quarter comparative results:
•
•
• Market conditions. U.S. farm fundamentals were strong as commodity prices—corn, soybeans and other feed grains—
remained above historical levels. In addition, global market conditions were healthy as population and income growth
in emerging economies continued to spur increased demand for food.
Sales volume and selling prices. Fiscal 2011 sales growth was driven by higher volume and modest selling price increases.
The growth in volume reflects solid year-over-year demand for Slingshot™, application controls and guidance and
steering products.
New product sales. Year-to-date new product sales reflected the success of Slingshot™—an information platform which
improves data collection, transmission, storage and analysis and provides RTK correction of GPS signals for high accuracy
steering solutions.
International sales. Net sales outside the U.S. accounted for 21% of segment sales in fiscal 2011 versus 20% in fiscal
2010. International sales of $21.3 million rose $4.2 million (25%) year-over-year led by strong Slingshot™ demand in
Canada. Economic growth and strong farm fundamentals in Argentina and Brazil drove strong overall demand in South
America. This growth was partially offset by a decrease in Australian sales due to weak market conditions.
Gross Margins. Gross margins of 45.1% in fiscal 2011 rose from 43.9% in fiscal 2010 due to the positive effect of higher
sales and strong operating leverage on profitability.
Operating expenses. Full-year operating expenses decreased from 14.1% of sales in fiscal 2010 to 14.0% in fiscal 2011.
Strong sales and growth opportunities drove a $1.1 million (16%) increase in selling expenses and research and
development expenses increased $0.7 million (14%) to support product development and strategic initiatives.
•
•
•
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.
A number of factors contributed to the drop in full-year comparative results:
•
•
•
•
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.
New product sales. Fiscal 2010 new product sales decreased from one year earlier due to the highly successful fiscal
2009 launch of innovative field computers.
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.
Negative operating leverage. Gross margins of 43.9% in fiscal 2010 fell from 45.2% in fiscal 2009 reflecting the negative
17
•
impact of falling sales and operating leverage on profitability.
Operating expenses. Full-year operating expenses increased to 14.1% of sales in fiscal 2010 from 12.3% in fiscal 2009.
Selling expenses decreased $0.5 million (7%) and lagged the drop in sales. Research and development expenses were
flat year-over-year.
Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial, construction, geomembrane and agricultural
applications.
Financial highlights for the fiscal years ended January 31,
2011
$ 105,838
22,708
dollars in thousands
Net sales
Gross profit
Gross margins
Operating income
Operating margins
(a) Includes a $451 pre-tax gain on the disposition of assets.
21.5%
19,622
18.5%
$
(a)
% change
66%
75%
92%
$
$
2010
63,783
13,013
20.4%
10,232
16.0%
% change
(29)%
(10)%
(6)%
$
$
2009
89,858
14,502
16.1%
10,919
12.2%
Fiscal 2011 net sales of $105.8 million increased $42.1 million (66%) while operating income of $19.6 million was up $9.4 million
(92%) versus fiscal 2010.
Fiscal 2011 fourth quarter net sales of $24.3 million grew $7.6 million (45%) and operating income of $3.0 million rose $0.6
million (27%).
Several factors contributed to the strong full-year and fourth quarter comparative results:
•
•
•
•
Improved market conditions. Business activity and confidence rose as credit markets improved and asset values stabilized.
Crude oil prices rose to levels adequate to support increased drilling activity and strengthened energy market demand for
pit liners. Similarly, as credit began flowing and economic uncertainty diminished, the construction and agriculture
markets rose from recessionary levels.
Sales volume and selling prices. Input cost increases drove a 13% increase in selling prices. Sales volume, as measured
by pounds shipped, increased over 50%, as Engineered Films’ largest markets—energy and construction—rebounded
from prior year depressed levels. Recovery of crude oil prices from their lows in early calendar 2009 drove additional
oil and gas drilling activity and increased demand for pit liners as sales to the energy market more than doubled. Sales
of industrial and construction films rose double digits. Deliveries of agriculture films rose more than 60%. Sales of
FeedFresh™ silage covers gained traction due to healthy farm conditions and broadened appreciation of the value-added
benefits of this highly engineered film. Grain cover sales improved year-over-year due to strong yields and a short harvest
cycle.
Capacity Utilization. Full-year operating margins expanded from 16.0% to 18.5% as a result of improved capacity
utilization. Fourth quarter profit margins fell from 14.4% to 12.5% as a result of less favorable leverage and increased
purchases of outside materials due to capacity constraints caused by planned maintenance.
Operating expenses. Full-year operating expenses were 3.3% of sales in fiscal 2011 versus 4.4% in fiscal 2010. The
increase in selling expenses of $0.7 million (30%) lagged the 66% increase in sales. Research and development expenses
were flat year-over-year.
Fiscal 2010 net sales of $63.8 million decreased $26.1 million (29%) while operating income of $10.2 million was off $0.7 million
(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:
•
•
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. 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.
Sales volume and selling prices. Selling prices decreased approximately 16% and sales volume as measured by pounds
18
•
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.
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.
• Margin preservation. Poor economic conditions, volatile material costs and competitive pricing pressures continued to
squeeze 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%.
Operating expenses. Full-year operating expenses increased to 4.4% of sales in fiscal 2010 from 4.0% in fiscal 2009.
Research and development expenses were flat year-over-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.
•
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 the fiscal years ended January 31,
dollars in thousands
Net sales
Gross profit
Gross margins
Operating income
Operating margins
$
$
2011
48,787
12,475
25.6%
9,407
19.3%
% change
79%
88%
67%
$
$
2010
27,244
6,632
24.3%
5,634
20.7%
% change
0%
28%
34%
$
$
2009
27,186
5,189
19.1%
4,219
15.5%
Fiscal 2011 net sales of $48.8 million increased $21.5 million (79%) and operating income of $9.4 million grew $3.8 million
(67.0%) over fiscal 2010.
Fiscal 2011 fourth quarter net sales of $12.0 million increased $3.0 million (34%) and operating income of $2.3 million increased
$0.2 million (10%) versus fiscal 2010.
Fiscal 2011 full-year and fourth quarter comparative results were primarily attributable to the following:
•
•
Tethered aerostats. Aerostar capitalized on strong demand from the U.S. military for persistent ground surveillance
systems to be deployed in Afghanistan. This segment provides the helium filled blimp, along with the fiber optics and
deployment system. The blimp is then equipped with surveillance equipment and flown on a tether at over 1,500 feet
above ground level to enable persistent surveillance of a wide area.
Volatility in aerostat deliveries. Sequentially, fiscal 2011 quarterly sales of aerostats varied materially ($8.2 million in
the first quarter; $3.2 million in the second quarter; $7.4 million in the third quarter and $3.6 million in the fourth quarter)
as design changes and funding shifts have impacted the timing of deliveries.
• Military parachutes. Fiscal 2011 full-year and fourth quarter parachute revenue increased over 20% as the T-11 parachutes
•
•
ramped to full production and deliveries under the T-11 spares contract began.
Gross Margins. Full-year gross margins improved year-over-year. The negative effect of T-11 parachute start-up costs
in the first half of the year and increased overhead was partially offset by a more favorable product mix as the relative
contribution of tethered aerostats to total sales grew.
Operating expenses. Operating expenses of $3.1 million or 6.3% of sales increased $2.1 million from $1.0 million or
3.7% of sales as a result of higher selling expenses and significant investments in research and development primarily
to support aerostat development.
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 results were driven by the following:
•
Sales volumes. Flat year-over-year sales reflected increased deliveries of MC-6 Army parachutes, aerostats and research
balloons, offset by decreased deliveries of protective wear due to the completion of a large contract in January 2009.
• Margin expansion. The improvement in gross and operating margins came from increased parachute manufacturing
efficiencies. Final production runs and deliveries were made at the end of fiscal 2010 on the MC-6 parachute contract.
Fiscal 2010 was the most profitable year for the program, primarily due to the higher efficiency level attained.
19
•
Operating expenses. Operating expenses 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 the fiscal years ended January 31,
dollars in thousands
2011
% change
2010
% change
2009
Net sales
Gross profit
Gross margins
Operating income
Operating margins
$
65,852
11,234
17.1%
4%
10%
$
63,525
10,258
16.1%
2%
42%
$
61,983
7,218
11.6%
$
9,917
10%
$
8,979
52%
$
5,926
15.1%
14.1%
9.6%
Fiscal 2011 net sales of $65.9 million increased $2.3 million (4%) and operating income of $9.9 million grew $0.9 million (10%)
from fiscal 2010.
Fiscal 2011 fourth quarter net sales of $13.7 million were flat and operating income of $1.7 million decreased $0.3 million (14%)
from fourth quarter fiscal 2010.
The following factors affected fiscal 2011 full-year results:
•
•
•
Sales volume. Fiscal 2011 revenue was positively impacted by avionics growth and increased sourcing of assemblies to
Applied Technology partially offset by weaker deliveries of circuit boards for secure communication devices.
Profit margins. Product mix had a favorable impact on full-year operating margins. Fourth quarter operating margins
of 12.2% were down from 14.2% in the fourth quarter of fiscal 2010 due to a less favorable mix and increased overhead
costs to compensate for supply chain weakness on flat sales volume.
Operating expenses. Fiscal 2011 operating expenses were relatively unchanged from fiscal 2010 levels.
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:
•
Growth from existing customers. The rise in sales was attributable to higher deliveries of avionics and secure
communication electronics to meet increased demand from government agencies and the aerospace market, partially
offset by a smaller customer base.
• 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 reduction and facility consolidation.
Operating expenses. Operating expenses were relatively flat year over year.
•
Corporate Expenses (administrative expenses, income taxes and interest income and other, net)
dollars in thousands
Administrative expenses
Administrative expenses as a % of sales
Interest income and other, net
Effective tax rate
For the years ended January 31
$
$
2011
9,784
3.1%
79
32.8%
$
$
2010
7,407
3.1%
102
34.0%
$
$
2009
8,502
3.0%
507
34.4%
Administrative expenses increased 32% in fiscal 2011 compared with fiscal 2010, as a result of higher compensation expense due
to increased headcount and higher incentive compensation. Administrative expenses declined 13% in fiscal 2010 compared with
fiscal 2009, driven by headcount reductions and lower incentive compensation and legal expenses.
“Interest income and other, net" consists mainly of interest income, bank fees and foreign currency transaction gain or loss. The
20
year-over-year variability is attributable primarily to a decrease in interest income due to lower interest rates and fluctuations in
exchange rates.
The fiscal 2011 effective tax rate was favorably affected by the U.S. federal tax deduction from income attributable to manufacturing
activities. Fourth quarter fiscal 2011 tax expense was favorably impacted by renewal of the U.S. research and development tax
credit in December 2010. The rate is expected to increase slightly in fiscal 2012.
OUTLOOK
Management believes double digit sales and profit growth for fiscal 2012 is achievable, building on strong fiscal 2011 results.
Fiscal 2010 cash preservation and cost containment strategies enabled management to reinvest across the company and return $34
million to shareholders in fiscal 2011 while maintaining substantial liquidity and a strong capital base. In fiscal 2012, management
plans to accelerate the rate of organic investment through increased research and development, and capital investments.
Management also continues to look for complementary acquisitions to augment existing products and markets, while supporting
growth in quarterly dividends. In the near-term, profit margins could be pressured but these investments are intended to position
the company for long-term growth.
Applied Technology
Management will continue to make significant investments in product development and global expansion and is committed to
building on prior year investments in SST and Ranchview. The development of an industry-leading decision-support system helps
position Applied Technology as a premier total precision solutions provider (GPS steering devices, planting and spraying controls,
data collection, transmission, storage and analysis). Applied Technology's strategy of integrate, inform and innovate along with
strong brand recognition, ease of use, product localization and industry leading service creates strong growth opportunities.
Worldwide agriculture conditions are expected to remain healthy for this segment, with rising global demand for food, heightened
environmental concerns and broadening recognition of Raven's suite of productivity tools as a cost-effective investment supporting
management's outlook for profit growth that could approach the 20% range.
Engineered Films
The addition of new extrusion equipment in the second half of fiscal 2012 is expected to increase annual capacity by approximately
25%. This equipment will improve sales opportunities by adding both new capacity and capabilities to this segment. Additional
depreciation and new product introduction costs will partially offset the positive impact of the higher pounds produced until new
extrusion capacity is fully utilized. This ramp-up period has typically taken 2-3 years, depending on market conditions.
In addition, profit margins are highly dependent on the ratio of selling prices to input costs. The selling price of blown films is
largely driven by competitive pricing pressure, capacity utilization and market dynamics—supply and demand. Plastic resin—a
derivative of natural gas and oil—is the primary component of extruded films. Management anticipates continuing demand for
pit liners for oil exploration, geomembrane products for lining and capping landfills, water canals and reservoirs and to build on
its success with highly engineered films such as FeedFresh™ silage covers and VaporBlock Plus™ radon barriers. Double digit
growth is possible, if management is able to bring the new equipment on line and exploit its new capabilities in the second half
of the year.
Aerostar
Management projects strong sales growth for the first half of the coming year. Tethered aerostat systems deployed in Afghanistan
have promoted the safety of U.S. troops by successfully providing continuous wide-area surveillance of insurgents. Management
is optimistic about new opportunities in tethered aerostats and anticipates follow-on opportunities to provide cost-effective
persistent surveillance for the military. As in this past year, deliveries could vary significantly by quarter as follow-on orders are
dependent on the government funding process. Management also sees opportunities for growth under existing government
contracts for military parachutes and new contracts for protective wear. The engineering knowledge and manufacturing technology
gained from these relationships along with expertise in sewing and sealing specialty fabrics will help solidify Aerostar's competitive
advantage. Additional investment in product and market development is expected to partially offset the impact of sales growth,
but profit growth in the 15-20% range is possible.
Electronic Systems
Management looks at Electronic Systems as a complementary business to its growth divisions: Engineered Films, Aerostar and
especially Applied Technology. This business carries technical expertise that support the efforts of its sister divisions and provides
electronic manufacturing services to low-volume high-mix customers that require high levels of service and engineering support.
Management anticipates adding an additional customer in fiscal 2012, but believes this growth will be more than offset by lower
avionics sales. The mid- to long-term growth strategy is predicated on the development of proprietary products, expansion of the
customer base and continued in-sourcing of assemblies for Raven's other divisions. Electronic Systems Division results for fiscal
21
2012 are expected to be roughly flat or somewhat lower than in fiscal 2011.
LIQUIDITY AND CAPITAL RESOURCES
The company's balance sheet continues to reflect significant liquidity and a strong capital base. 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 sufficient 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 $38.6 million at January 31, 2011, a $5.1 million decrease from $43.7
million on the same date in 2010. In September 2010, the company paid a special cash dividend of $22.5 million.
Raven has an uncollateralized credit agreement that provides an $8.0 million line of credit, with a balance of zero at January 31,
2011. The line of credit is reduced by outstanding letters of credit totaling $1.3 million as of January 31, 2011. The credit line,
which matures on July 1, 2011, is expected to be renewed during fiscal 2012.
Operating Activities
Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services,
employee compensation and income taxes. Management evaluates working capital levels through the computation of average days
sales outstanding and inventory turnover. Average days 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 $42.1 million in fiscal 2011 compared with $47.6 million in fiscal 2010. The decrease
in operating cash flows is the result of increased working capital to support growth, partially offset by higher company earnings.
Inventory consumed $9.2 million of cash in fiscal 2011 versus cash generated of $1.6 million in fiscal 2010 reflecting higher raw
material costs, higher forecasted demand, delayed deliveries at Electronic Systems and purchases of plastic resins at Engineered
Films in anticipation of price increases. Similarly, accounts receivable consumed cash of $5.5 million in fiscal 2011 versus cash
generated of $6.3 million in fiscal 2010, reflecting higher receivables associated with sales growth—particularly sales of engineered
films and tethered aerostats. The company continues to focus on disciplined inventory management (inventory turnover of 5.6X
in fiscal 2011 versus 5.3X in fiscal 2010) and improved cash collections (average days sales outstanding of 48 days in fiscal 2011
versus 52 days in fiscal 2010). Year-over-year variability in accounts payable and accrued liabilities generated $7.1 million in
cash, as compared with cash inflows of $2.4 million in fiscal 2010. This reflected an increase in accounts payable commensurate
with the rise in inventory and higher incentive compensation accruals associated with strong profits. Bad debt expense was not
material for both fiscal 2011 and 2010.
In fiscal 2010, reductions in inventory and accounts receivable generated $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 days 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 $1.0 million 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 $0.2
million compared favorably to prior-year expense of $0.6 million, reflecting lower sales and more stable economic conditions—
particularly related to the company's international exposure.
Investing Activities
Cash used in investing activities totaled $11.4 million in fiscal 2011, $13.4 million in fiscal 2010 and $7.0 million in fiscal 2009.
The fiscal 2011 decrease from the prior year reflects a $10.7 million increase in capital expenditures offset by a $5.0 million
decrease in net purchases of short-term investments, proceeds of $0.9 million on the disposition of an Engineered Films warehouse
and $6.5 million of cash outlays in fiscal 2010 for the SST and Ranchview investments.
The increase in cash invested between fiscal 2010 and 2009 was the result of 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
reduction in capital expenditures.
22
Management anticipates record capital spending in fiscal 2012—in the $30 million range —as management sees opportunities to
earn attractive returns on invested capital through organic investments. In addition, management will evaluate strategic acquisitions
that result in expanded capabilities and solidify competitive advantages.
Financing Activities
Cash used in financing activities is primarily for dividend payments and repurchases of common stock.
Financing activities consumed cash of $33.8 million in fiscal 2011 compared with $9.9 million in fiscal 2010 and $37.0 million
in fiscal 2009.
In fiscal 2011, the company paid quarterly dividends totaling $11.5 million, or 64 cents per share, and paid a special dividend of
$22.5 million, or $1.25 per share.
In fiscal 2010, the company paid quarterly dividends totaling $9.9 million, or 55 cents per share.
In fiscal 2009, the company paid quarterly dividends totaling $9.4 million, or 52 cents per share; paid a special dividend of $22.5
million, or $1.25 per share and repurchased $5.2 million of stock.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of January 31, 2011, 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, 2011 and for the next five years is shown below.
dollars in thousands
Contractual Obligations:
Line of credit(a)
Operating leases
Postretirement benefits
Unconditional purchase obligations
Uncertain tax positions(b)
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
$
—
$
—
$
—
$
—
$
355
5,969
56,812
—
237
212
56,812
—
$ 63,136
$ 57,261
$
118
460
—
—
578
—
504
—
—
504
$
—
—
4,793
—
—
$
4,793
(a)
(b)
$8.0 million line bears interest at 4.0% as of January 31, 2011 and expires July 2011. The line of credit is reduced by outstanding letters
of credit totaling $1.3 million.
The total liability for uncertain tax positions at January 31, 2011, was $4.2 million. The company is not able to reasonably estimate the
timing of future payments relating to non-current tax benefits.
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 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.
23
Inventories
The company estimates inventory valuation each quarter. Typically, when a product reaches the end of its lifecycle, inventory
value declines slowly or the product has alternative uses. Management uses its manufacturing resources planning data to help
determine if inventory is slow-moving or has become obsolete due to an engineering change. The company closely reviews items
that have balances in excess of the prior year's requirements, or that have been dropped from production requirements. Despite
these reviews, technological or strategic decisions made by management or 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.
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.
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
Estimated returns or sales allowances 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 and Long-lived Assets
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 which are the company's reportable segments.
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.
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
24
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 December 2010, the Financial Accounting Standards Board issued guidance on goodwill impairment testing. This guidance
modifies the first step of the goodwill impairment test to include reporting units with zero or negative carrying amounts. For these
reporting units, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if
any, when it is more likely than not that a goodwill impairment exists. The guidance is effective for fiscal years and interim periods
beginning after December 15, 2010. The adoption of this guidance on February 1, 2011, is not expected to have a material impact
on the company's consolidated results of operation, financial condition or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents and short-term investments.
The company has no debt. The company does not expect operating results or cash flows to be significantly affected by changes
in interest rates. Additionally, the company does not enter into derivatives or other financial instruments for trading or speculative
purposes. However, the company does utilize derivative financial instruments to manage the economic impact of fluctuation in
foreign currency exchange rates on those 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.
The company's subsidiaries that operate outside the United States use their local currency as the functional currency. The functional
currency is translated into U.S. dollars for balance sheet accounts using the period-end exchange rates, and average exchange rates
for the statement of income. Adjustments resulting from financial statement translations are included as cumulative translation
adjustments in accumulated other comprehensive income (loss) within shareholders' equity. Foreign currency transaction gains
or losses are recognized in the period incurred and are included in "interest income and other, net" in the Consolidated Statements
of Income. Foreign currency fluctuations had no material effect on the company's financial condition, results of operations or
cash flows.
25
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Information (Unaudited) - included in Item 5 on page 10
Page(s)
27
28
29
30
31
32
33
10
26
MANAGEMENT'S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those
policies and 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, 2011, our internal control over financial reporting was effective.
The effectiveness of our
reporting as of January 31, 2011, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on the
next page.
internal control over
financial
Daniel
A. Rykhus
/s/
Daniel A. Rykhus
President & Chief Executive Officer
March 31, 2011
Thomas Iacarella
/s/
Thomas Iacarella
Vice President & Chief Financial Officer
27
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, of shareholders'
equity and comprehensive income and of cash flows present fairly, in all material respects, the financial position of Raven Industries,
Inc. and its subsidiaries (the "Company") at January 31, 2011, 2010 and 2009 and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 2011 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, 2011 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, included in Management's Report on Internal Control over Financial
Reporting on the preceding page. 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.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
/s/
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 31, 2011
28
RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other assets, net
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued liabilities
Customer advances
Total current liabilities
Other liabilities
Commitments and contingencies
2011
As of January 31
2010
2009
$
$
$
37,563
1,000
39,967
43,679
2,733
3,239
$
40,684
3,000
34,327
34,475
2,471
2,790
128,181
117,747
41,522
10,777
7,280
187,760
16,715
16,096
1,524
34,335
12,211
$
$
33,029
10,699
8,834
170,309
12,398
12,256
1,306
25,960
11,098
$
$
$
16,267
—
40,278
35,977
2,542
3,009
98,073
35,880
7,450
3,012
144,415
9,433
13,281
608
23,322
7,537
Shareholders' equity
141,214
133,251
113,556
Common shares, par value $1.00 per share
Authorized – 100,000
Outstanding – 2011: 18,062; 2010: 18,030; 2009: 18,012
Total liabilities and shareholders' equity
$
187,760
$
170,309
$
144,415
The accompanying notes are an integral part of the consolidated financial statements.
29
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Gain on disposition of assets
Operating income
Interest income and other, net
Income before income taxes
Income taxes
Net income
Net income per common share:
- Basic
- Diluted
The accompanying notes are an integral part of the consolidated financial statements.
For the years ended January 31
2011
2010
2009
$
314,708
$
237,782
$
279,913
223,279
169,930
206,465
91,429
7,604
24,073
(451)
67,852
5,843
18,789
—
73,448
5,848
21,206
—
60,203
43,220
46,394
(79)
(102)
(507)
60,282
19,745
40,537
2.24
2.24
$
$
$
43,322
14,748
28,574
1.58
1.58
$
$
$
46,901
16,131
30,770
1.71
1.70
$
$
$
30
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
$1 Par
common
stock
Paid-in
capital
Treasury stock
Cost
Shares
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
Balance January 31, 2008
$
32,408
$
3,436
(14,288)
$
(48,182)
$
132,219
$ (1,606)
$
118,275
Net income
Postretirement benefits, net of $375 income tax
Foreign currency translation
Total comprehensive income
Dividends ($.52 per share)
Dividends (special—$1.25 per share)
Purchase of stock
—
—
—
—
—
—
—
—
—
7
18
—
Stock surrendered upon exercise of stock options
(34)
(1,258)
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
83
4
—
1,176
1,024
128
—
—
—
—
—
—
—
—
—
—
(161)
(5,180)
—
—
—
—
—
—
—
—
30,770
—
—
(9,381)
(22,528)
—
—
—
—
—
—
698
(246)
—
—
—
—
—
—
—
30,770
698
(246)
31,222
(9,374)
(22,510)
(5,180)
(1,292)
1,259
1,028
128
Balance January 31, 2009
32,461
4,531
(14,449)
(53,362)
131,080
(1,154)
113,556
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 of stock options
—
—
—
—
(51)
65
3
—
—
—
—
11
(1,319)
1,374
1,031
(24)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28,574
—
—
(9,922)
—
—
—
—
—
(226)
179
—
—
—
—
—
28,574
(226)
179
28,527
(9,911)
(1,370)
1,439
1,034
(24)
Balance January 31, 2010
32,478
5,604
(14,449)
(53,362)
149,732
(1,201)
133,251
Net income
Postretirement benefits, net of ($25) income tax
Foreign currency translation
Total comprehensive income
Dividends ($.64 per share)
Dividends (special—$1.25 per share)
Stock surrendered upon exercise of stock options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
—
—
—
—
—
(79)
112
—
—
—
—
—
17
32
(3,038)
3,257
1,179
9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
40,537
—
—
(11,563)
(22,581)
—
—
—
—
—
(46)
127
—
—
—
—
—
—
40,537
(46)
127
40,618
(11,546)
(22,549)
(3,117)
3,369
1,179
9
Balance January 31, 2011
$
32,511
$
7,060
(14,449)
$
(53,362)
$
156,125
$ (1,120)
$
141,214
The accompanying notes are an integral part of the consolidated financial statements.
31
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the years ended January 31
2011
2010
2009
$
40,537
$
28,574
$
30,770
6,512
1,119
(451)
274
(195)
—
423
1,179
(7,273)
(40)
42,085
(13,972)
(1,700)
3,700
—
(399)
888
65
(11,418)
(34,095)
—
9
252
(33,834)
46
(3,121)
40,684
37,563
6,611
497
—
94
(10)
(183)
95
1,034
10,935
(4)
47,643
(3,302)
(3,500)
500
(5,000)
(2,000)
—
(94)
(13,396)
(9,911)
—
—
44
(9,867)
37
24,417
16,267
40,684
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)
(73)
(5,005)
21,272
16,267
$
$
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Amortization of intangible assets
Gain on disposition of assets
Change in fair value of acquisition-related contingent consideration
Earnings of equity investee
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
Proceeds from disposition of assets
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
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
The accompanying notes are an integral part of the consolidated financial statements.
32
RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
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,
Engineered Films and Electronic Systems) in addition to four wholly owned subsidiaries: Aerostar International, Inc. (Aerostar);
Raven Industries Canada, Inc. (Raven Canada); Raven Industries GmbH (Raven GmbH); and Raven Industries Australia Pty Ltd
(Raven Australia). Intercompany balances and transactions have been eliminated in consolidation.
Investments 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,” while the company's share of the investee's results of operations is included in “interest income and other, 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 instruments with original maturities of three or fewer months to be cash equivalents.
Cash and cash equivalent balances are principally concentrated in checking, money market and 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 encompasses
consideration of all business factors including price, contract terms and usefulness.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated over the estimated useful lives of the assets using accelerated
methods. The estimated useful lives used for computing depreciation are as follows:
33
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Building and improvements
Manufacturing equipment by segment
Applied Technology
Engineered Films
Aerostar
Electronic Systems
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 $1,280 in fiscal 2011, $914 in fiscal 2010 and $297
in fiscal 2009. The costs are included in “Property, Plant and Equipment, net” on the Consolidated Balance Sheets. Software costs
that do not meet capitalization criteria are expensed as incurred. Amortization expense related to capitalized software is included
in depreciation. Included in accounts payable at January 31, 2011 was $2,181 related to capital expenditures. Comparable amounts
for 2010 and 2009 were not significant.
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 business 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 combinations 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 a triggering event indicates there is an impairment.
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 are expected to be reimbursed by
insurance, the expected insurance policy benefit is included as a component of “other current assets.”
Contingencies
The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. An estimate of
the loss on these matters is charged to operations when it is probable that an asset has been impaired or a liability has been incurred,
and the amount of the loss can be reasonably estimated. 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
34
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
who incur the expense and commitment for any post-sale obligations beyond stated warranty terms. Estimated returns, sales
allowances or warranty charges are recognized upon shipment of a product. Shipping and handling costs are classified as a
component of “cost of sales.”
Operating Expenses
The primary types of operating expenses are classified in the income statement as follows:
Cost of sales
Direct material costs
Material acquisition and handling costs
Direct labor
Factory overhead including depreciation
Inventory obsolescence
Product warranties
Research and development
expenses
Personnel costs
Professional service fees
Material and supplies
Facility allocation
Selling, general and administrative expenses
Personnel costs
Professional service fees
Advertising
Promotions
Information technology equipment depreciation
Office supplies
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 December 2010, the Financial Accounting Standards Board issued guidance on goodwill impairment testing. This guidance
modifies the first step of the goodwill impairment test to include reporting units with zero or negative carrying amounts. For these
reporting units, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if
any, when it is more likely than not that a goodwill impairment exists. The guidance is effective for fiscal years and interim periods
beginning after December 15, 2010. The adoption of this guidance on February 1, 2011, is not expected to have a material impact
on the company's consolidated results of operation, financial condition or cash flows.
35
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
NOTE 2
SELECTED BALANCE SHEET INFORMATION
Following are the components of selected balance sheet items:
As of January 31
2011
2010
2009
$
$
$
$
$
$
$
$
$
$
$
$
$
$
40,267
(300)
39,967
7,994
5,424
30,261
43,679
1,909
1,330
3,239
1,798
24,972
75,310
(60,558)
41,522
3,200
1,660
(3,275)
1,585
4,728
924
43
7,280
3,264
3,186
253
3,356
1,627
1,437
1,453
1,520
16,096
5,757
2,230
4,224
12,211
$
$
$
$
$
$
$
$
$
$
$
$
$
$
34,624
(297)
34,327
6,283
4,172
24,020
34,475
2,300
490
2,790
1,227
22,973
64,119
(55,290)
33,029
3,200
1,633
(2,648)
2,185
5,010
1,580
59
8,834
1,148
2,693
180
3,959
217
1,259
1,574
1,226
12,256
5,283
2,301
3,514
11,098
$
$
$
$
$
$
$
$
$
$
$
$
$
$
40,891
(613)
40,278
6,062
3,258
26,657
35,977
2,119
890
3,009
1,227
22,593
62,504
(50,444)
35,880
2,300
1,314
(2,143)
1,471
—
1,482
59
3,012
1,891
2,581
1,333
3,615
436
1,004
1,266
1,155
13,281
4,637
—
2,900
7,537
Accounts receivable, net:
Trade accounts
Allowance for doubtful accounts
Inventories:
Finished goods
In process
Materials
Other current assets:
Insurance policy benefit
Prepaid expenses and other
Property, plant and equipment, net:
Land
Buildings and improvements
Machinery and equipment
Accumulated depreciation
Other assets, net:
Amortizable assets:
Purchased technology
Other intangibles
Accumulated amortization
Investment in affiliate
Deferred income taxes
Other, net
Accrued liabilities:
Salaries and benefits
Vacation
401(k) contributions
Insurance obligations
Profit sharing
Warranties
Taxes - accrued and withheld
Other
Other liabilities:
Postretirement benefits
Acquisition-related contingent consideration
Uncertain tax positions
36
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
NOTE 3
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income refers to revenue, expenses, gains and losses that under U.S. generally accepted accounting principles
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:
Foreign currency translation
Postretirement benefits, net of tax
Total accumulated other comprehensive loss
2011
As of January 31
2010
$
$
183
(1,303)
(1,120)
$
$
56
(1,257)
(1,201)
$
$
2009
(123)
(1,031)
(1,154)
NOTE 4
SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued and other liabilities
Customer advances
Cash paid during the year for income taxes
For the years ended January 31
2011
2010
2009
$
$
$
(5,536)
(9,189)
96
2,713
4,428
215
(7,273)
19,700
$
$
$
6,325
1,552
(49)
2,934
(520)
693
10,935
13,816
$
$
$
(4,603)
447
(35)
963
2,194
(312)
(1,346)
15,072
NOTE 5
ACQUISITIONS 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 $5,000.
SST is a privately held agricultural software development and information services provider. Raven and SST are strategically
aligned to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market.
At the acquisition date, the carrying value of the SST investment exceeded the company’s share of the underlying net assets of
SST by $4,976. The company's analysis of this excess determined that it related to $1,054 of technology-related assets to be
amortized over a seven-year period and $3,200 of license-related assets to be amortized over a ten-year period. The remainder of
the excess is attributable to equity method goodwill.
Changes in the net carrying value of the investment in SST (Investment in Affiliate) were as follows:
Balance at January 31, 2010
Raven's share of SST earnings
Amortization of intangible assets
Balance at January 31, 2011
$
$
5,010
195
(477)
4,728
In November 2009, the company purchased substantially all of the assets of Ranchview, Inc., a privately held Canadian corporation
for $1,500 cash and contingent consideration valued at $2,310. Raven agreed to pay additional consideration on a quarterly basis
of 6% on future sales of Ranchview products, up to a maximum payment of $4,000. Ranchview 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.
37
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
The allocation of the purchase price is summarized below:
Goodwill
Existing technology
Other intangibles
Total
$
$
2,734
900
175
3,809
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
Consolidated 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:
Balance at January 31, 2008
Acquisition earn-outs
Balance at January 31, 2009
Acquired goodwill
Acquisition earn-outs
Balance at January 31, 2010
Acquisition earn-outs
Balance at January 31, 2011
Applied
Technology
5,909
$
548
6,457
2,734
515
9,706
78
9,784
$
Engineered
Films
Electronic
Systems
Aerostar
Total
$
$
96
—
96
—
—
96
—
96
$
$
433
—
433
—
—
433
—
433
$
$
464
—
464
—
—
464
—
464
$
$
6,902
548
7,450
2,734
515
10,699
78
10,777
Intangible Assets
Estimated future amortization expense based on the current carrying value of amortizable intangible assets for fiscal periods 2012
through 2016 is $601, $245, $237, $200 and $133, respectively.
NOTE 7
EMPLOYEE RETIREMENT BENEFITS
The company has a 401(k) plan covering substantially all employees. 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.
Raven's contribution expense was $1,254, $1,085 and $1,158 for fiscal 2011, 2010 and 2009, 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:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss and assumption changes
Total recognized in net and other comprehensive income
Retiree benefits paid
For the years ended January 31
2010
2011
2009
$
$
5,512
62
324
237
623
(166)
$
4,840
55
332
476
863
(191)
5,447
67
361
(847)
(419)
(188)
Benefit obligation at end of year
$
5,969
$
5,512
$
4,840
38
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
The liability and expense reflected in the balance sheet and income statement were as follows:
Beginning liability balance
Employer expense
Other comprehensive (income) loss
Total recognized in net and other comprehensive income
Retiree benefits paid
Ending liability balance
Current portion in accrued liabilities
Long-term portion in other liabilities
Assumptions used:
Discount rate
Wage inflation rate
For the years ended January 31
2010
2009
2011
$
$
$
$
5,512
552
71
623
(166)
5,969
212
5,757
$
$
$
$
4,840
515
348
863
(191)
5,512
229
5,283
$
$
$
$
5,447
654
(1,073)
(419)
(188)
4,840
203
4,637
5.75%
4.00%
6.00%
3.00%
7.00%
3.00%
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 2011 was 9.00% compared with 9.51% and 8.97% for fiscal 2010 and 2009.
The impact of a one-percentage-point change in assumed health care rates would not be significant to the company's income
statement and would affect the ending liability balance by approximately $965. The rate to which the fiscal 2011 health care cost
trend rate is assumed to decline is 5.00%, which is the ultimate trend rate. The fiscal year that the rate reaches the ultimate trend
rate is expected to be fiscal 2025.
NOTE 8 WARRANTIES
Changes in the warranty accrual were as follows:
Beginning balance
Accrual for warranties
Settlements made (in cash or in kind)
Ending balance
NOTE 9
INCOME TAXES
As of January 31
2011
2010
2009
$
$
1,259
2,461
(2,283)
1,437
$
$
1,004
2,426
(2,171)
1,259
$
$
684
2,760
(2,440)
1,004
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
2011
35.0%
1.3
(3.0)
(0.7)
0.2
32.8%
35.0%
1.3
(2.1)
(0.7)
0.5
34.0%
35.0%
1.5
(2.0)
(0.7)
0.6
34.4%
39
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Significant components of the company's income tax provision were as follows:
Income taxes:
Currently payable
Deferred
For the years ended January 31
2010
2011
2009
$
$
19,322
423
19,745
$
$
14,653
95
14,748
$
$
15,915
216
16,131
Deferred Tax Assets
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the company's deferred
tax assets and liabilities were as follows:
Current deferred tax assets:
Accounts receivable
Inventories
Accrued vacation
Insurance obligations
Warranty obligations
Other accrued liabilities
Non-current deferred tax assets (liabilities):
Postretirement benefits
Depreciation and amortization
Uncertain tax positions
Other
Net deferred tax asset
2011
As of January 31
2010
2009
$
$
103
463
1,008
485
503
171
2,733
2,014
(3,050)
1,426
534
924
3,657
$
$
103
344
857
553
441
173
2,471
1,849
(1,970)
1,180
521
1,580
4,051
$
$
211
408
840
489
352
242
2,542
1,623
(1,556)
969
446
1,482
4,024
Pre-tax book income for the U.S. companies was $59,454 and was $772 for the Canadian subsidiary. As of January 31, 2011,
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
A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows:
Gross unrecognized tax benefits at beginning of year
Increases in tax positions related to the current year
Decreases as a result of a lapse in applicable statute of limitations
Gross unrecognized tax benefits at end of year
For the years ended January 31
2010
2011
2009
$
$
2,656
601
(145)
3,112
$
$
2,269
463
(76)
2,656
$
$
1,793
539
(63)
2,269
During the fiscal year ended January 31, 2011, 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 $2,023, $1,727 and
$1,475 as of January 31, 2011, January 31, 2010, and January 31, 2009, respectively.
The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January
31, 2011, January 31, 2010 and January 31, 2009, accrued interest and penalties were $1,112, $857 and $630, respectively.
40
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
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, 2011, federal tax returns filed in the
U.S., Canada and Switzerland for fiscal years ended January 31, 2008 - 2010 remain subject to examination by federal tax
authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2003 - 2010 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 $8,000 with a maturity date of July 1, 2011, bearing
interest at the prime rate with a minimum rate of 4.00%. Letters of credit totaling $1,342 have been issued under the line, primarily
to support self-insured workers' compensation bonding requirements. No borrowings were outstanding as of January 31, 2011,
2010 and 2009, and $6,658 was available at January 31, 2011. 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 $546, $328
and $353 in fiscal 2011, 2010 and 2009, respectively. Future minimum lease payments under non-cancelable operating leases for
fiscal periods 2012 to 2014 are $237, $80 and $38 respectively, with all leases scheduled to expire during fiscal 2014.
NOTE 11 SHARE-BASED COMPENSATION
At January 31, 2011, Raven had two shareholder approved share-based compensation plans, which are described below. The
compensation cost and related income tax benefit for these plans were as follows:
Stock compensation cost
Tax benefit
Compensation cost capitalized as part of inventory is not significant.
For the years ended January 31
2010
2011
2009
$
1,179
272
$
1,034
184
$
1,028
200
Stock Option and Compensation Plans
The 2010 Stock Incentive 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. The 2000 Stock Option and Compensation
Plan terminated in May 2010 and no further awards are available under the plan. The shareholders approved the 2010 Stock
Incentive Plan pursuant to which 500 shares of common stock are reserved for grant of which 339 were remaining at January 31,
2011. There were no stock awards in fiscal 2011. Fiscal 2010 compensation cost included $144 of expense recognized as a result
of a 4.8 share stock award. Fiscal 2009 compensation cost included $135 of expense recognized as a result of a 5.5 share stock
award.
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:
Risk-free interest rate
Expected dividend yield
Expected volatility factor
Expected option term (in years)
For the years ended January 31
2011
2010
2009
1.46%
1.49%
49.33%
4.50
2.03%
1.73%
49.69%
4.50
1.64%
2.12%
46.32%
4.25
Weighted average grant date fair value
$
15.70
$
11.28
$
8.08
41
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Outstanding stock options as of January 31, 2011 and activity for the year then ended are presented below:
Oustanding, January 31, 2010
Granted
Exercised
Forfeited
Outstanding, January 31, 2011
Exercisable, January 31, 2011
Number
of options
Weighted
average
exercise
price
Aggregate
intrinsic
value
Weighted
average
remaining
contractual
term
(years)
397
160
(112)
—
445
160
$
$
$
29.33
42.31
30.03
24.51
33.86
29.41
$
$
5,953
2,850
3.30
2.04
The intrinsic value of a stock award is the amount by which the fair value of the underlying stock exceeds the exercise price of
the award. The total intrinsic value of options exercised was $1,102, $314 and $1,874 during the years ended January 31, 2011,
2010 and 2009, respectively. As of January 31, 2011, the total compensation cost for non-vested awards not yet recognized in the
company's statements of income was $3,016, net of the effect of estimated forfeitures. This amount is expected to be recognized
over a weighted average period of 2.83 years.
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 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 as of January 31, 2011 and changes during the year then ended are presented below:
Oustanding, January 31, 2010
Granted
Deferred retainers
Dividends
Converted into common shares
Outstanding, January 31, 2011
Number
of units
Weighted
average
price
21
4
1
1
—
27
$
$
28.58
34.96
34.96
37.81
—
47.24
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 outstanding options were excluded from the diluted net income per-share
calculations because their effect would have been anti-dilutive. For fiscal 2011, 2010 and 2009, 128, 338 and 168 options,
respectively, were excluded from the diluted net income per-share calculation.
42
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Details of the computation are presented below:
Numerator:
Net income
Denominator:
Weighted average common shares outstanding
Weighted average stock units outstanding
Denominator for basic calculation
Weighted average common shares outstanding
Weighted average stock units outstanding
Dilutive impact of stock options
Denominator for diluted calculation
Net income per share - basic
Net income per share - diluted
For the years ended January 31
2010
2011
2009
$
40,537
$
28,574
$
30,770
18,042
25
18,067
18,042
25
43
18,110
2.24
2.24
$
$
18,021
19
18,040
18,021
19
3
18,043
$
$
1.58
1.58
$
$
18,031
13
18,044
18,031
13
36
18,080
1.71
1.70
NOTE 13 BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION
The company's reportable segments are defined by their common technologies, production processes and inventories. These
segments reflect Raven's organization into three Raven divisions and the Aerostar subsidiary. Raven Canada, Raven GmbH and
Raven Australia 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 reinforced plastic sheeting for industrial, construction and agriculture
applications. 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 manufactures other sewn and
sealed products on a contract basis. Electronic System's capabilities are focused on electronics manufacturing services (EMS) for
commercial customers with a focus on high-mix, low-volume production. Assemblies manufactured by the Electronic Systems
segment include avionics, communication, environmental controls and other products where high quality is critical.
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.
43
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Business segment information is as follows:
APPLIED TECHNOLOGY DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
ENGINEERED FILMS DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
AEROSTAR DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
ELECTRONIC SYSTEMS DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
INTERSEGMENT ELIMINATIONS
Sales
Engineered Films Division
Aerostar
Electronic Systems Division
Operating income
Assets
REPORTABLE SEGMENTS TOTAL
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
CORPORATE & OTHER(a)
Operating (loss) from administrative expenses
Assets
Capital expenditures
Depreciation and amortization
TOTAL COMPANY
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
(a) Assets are principally cash, investments, deferred taxes and other receivables.
(b) Includes a $451 pre-tax gain on disposition of assets.
44
For the years ended January 31
2010
2009
2011
$
$
$
$
$
$
$
$
$
$
(b)
$
$
$
$
(b)
100,090
31,135
52,669
1,769
2,238
105,838
19,622
46,519
8,450
3,452
48,787
9,407
18,140
2,190
757
65,852
9,917
23,385
609
823
(307)
(32)
(5,520)
(94)
(186)
314,708
69,987
140,527
13,018
7,270
86,217
25,722
51,029
941
1,677
63,783
10,232
35,999
1,460
3,707
27,244
5,634
10,462
332
398
63,525
8,979
21,216
290
939
(210)
(1)
(2,776)
60
(92)
237,782
50,627
118,614
3,023
6,721
(9,784)
47,233
954
361
$
(7,407)
51,695
279
387
$
(b)
314,708
60,203
187,760
13,972
7,631
237,782
43,220
170,309
3,302
7,108
$
$
$
$
$
$
$
$
103,098
33,884
48,881
2,674
1,383
89,858
10,919
35,862
3,120
4,303
27,186
4,219
8,744
383
444
61,983
5,926
26,847
1,399
1,159
(210)
(25)
(1,977)
(52)
(152)
279,913
54,896
120,182
7,576
7,289
(8,502)
24,233
425
469
279,913
46,394
144,415
8,001
7,758
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Sales to a customer of the Electronic Systems segment accounted for 13%, 16% and 13% of consolidated sales in fiscal 2011,
2010 and 2009, respectively, and 11%, 13% and 18% of consolidated accounts receivable at the end of fiscal 2011, 2010 and 2009,
respectively.
The table below provides a summary of net sales by principal product categories:
Pit lining and geomembrane films
Other plastic films
Agricultural precision control devices and accessories
Electronics manufacturing services
Tethered aerostats
Parachute-related products
Uniforms and protective wear
Other
Total sales
For the years ended January 31
2011
2010
2009
$
55,048
50,483
98,402
60,333
22,423
12,816
4,559
10,644
$
26,834
36,739
83,236
60,749
3,048
10,298
5,434
11,444
$
40,205
49,443
99,428
60,006
265
8,660
9,976
11,930
$
314,708
$
237,782
$
279,913
Foreign sales are attributed to product delivered to non-U.S. locations. Sales to countries outside the United States, primarily to
Canada, were as follows:
Applied Technology
Engineered Films
Aerostar
Electronic Systems
Total foreign sales
For the years ended January 31
2010
2011
2009
$
$
21,349
2,200
427
693
24,669
$
$
17,140
1,383
1,219
495
20,237
$
$
18,847
2,034
1,004
568
22,453
45
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of January 31, 2011, the end of the period covered by this report, management, including the Chief Executive Officer (“CEO”)
and the Chief Financial Officer (“CFO”), evaluated the effectiveness of the company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of such date. Based on that evaluation, the CEO and CFO have
concluded that the company's disclosure controls and procedures were effective as of January 31, 2011.
Management's Report on Internal Control Over Financial Reporting
Management’s annual report on internal control over financial reporting and the report of the company's independent registered
public accounting firm appear in Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K Report.
Changes in Internal Control Over Financial Reporting
There were no changes in the company's internal control over financial reporting that occurred during the fiscal quarter ended
January 31, 2011, that have materially affected, or are reasonably likely to materially affect, the company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
46
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the sections entitled “Election of Directors,” “Board of Directors and Committees,” “Corporate
Governance,” and “Other Matters” within the company's Proxy Statement relating to its 2011 Annual Meeting of Shareholders.
Information regarding executive officers is set forth in Item 1 of Part 1 of this Report under the caption “Executive Officers” .
ITEM 11.
EXECUTIVE COMPENSATION
Incorporated by reference to the sections entitled “Executive Compensation” and “Non-management Director Compensation”
within the company's Proxy Statement relating to its 2011 Annual Meeting of Shareholders.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Incorporated by reference to the section entitled “Ownership of Common Stock” within the company’s Proxy Statement relating
to its 2011 Annual Meeting of Shareholders.
The remaining information called for by this item relating to “Securities Authorized for Issuance under Equity Compensation
Plans” is incorporated by reference to the section entitled “Equity Compensation Plan Information” contained in the company’s
Proxy Statement relating to its 2011 Annual Meeting of Shareholders.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Incorporated by reference to the sections entitled “Board of Directors and Committees” and “Corporate Governance” contained
in the company’s Proxy Statement relating to its 2011 Annual Meeting of Shareholders.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the section entitled “Independent Registered Public Accounting Firm Fees,” contained in the
company’s Proxy Statement relating to its 2011 Annual Meeting of Shareholders.
47
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
Financial Statements
See PART II, Item 8.
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
Exhibits
See index to Exhibits on the following page.
48
Exhibit
Number
Description
3(a)
Articles of Incorporation of Raven Industries, Inc. and all amendments thereto.*
3(b)
Bylaws of Raven Industries, Inc.*
3(c)
Extract of Shareholders Resolution adopted on April 7, 1962 with respect to the bylaws of Raven Industries, Inc. *
10(a)
Employment Agreement between Raven Industries, Inc. and Daniel Rykhus dated as of February 1, 2009 (incorporated by reference
to Exhibit 10.1 of the company's Form 8-K filed February 1, 2009). †
10(b)
Employment Agreement between Raven Industries, Inc. and David R. Bair dated as of February 1, 2004. † ***
10(c)
Employment Agreement between Raven Industries, Inc. and James D. Groninger dated as of February 1, 2004. † ***
10(d)
Employment Agreement between Raven Industries, Inc. and Lon E. Stroschein dated as of October 1, 2010 (Incorporated by
reference to Exhibit 10.1 to the company's 8-K filed October 1, 2010) †
10(e)
Employment Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of February 1, 2004. † **
10(f)
Employment Agreement between Raven Industries, Inc. and Thomas Iacarella dated as of February 1, 2004. † **
10(g)
Schedule A to Employment Agreements between Raven Industries, Inc. and each of the following Senior Executive Officers:
Ronald M. Moquist, Thomas Iacarella, and Daniel A. Rykhus. †
10(h)
Employment Agreement between Raven Industries, Inc. and Barbara Ohme dated as of February 1, 2004. † **
10(i)
Change in Control Agreement between Raven Industries, Inc. and each of the following officers and key employees: Ronald M.
Moquist, Thomas Iacarella, Daniel A. Rykhus, David R. Bair, James D. Groninger and Barbara K. Ohme dated as of January 31,
2008 (incorporated by reference to Exhibit 10.1 of the company's 8-K filed December 17, 2007). †
10(j)
Trust Agreement between Raven Industries, Inc. and Norwest Bank South Dakota, N.A. dated April 26, 1989. *
10(k)
10(l)
10(m)
10(n)
10(o)
10(p)
10(q)
21
23
Raven Industries, Inc. 2000 Stock Option and Compensation Plan adopted May 24, 2000 (incorporated by reference to Exhibit A
to the company's definitive Proxy Statement filed April 19, 2000).†
Raven Industries, Inc. 2010 Stock Incentive Plan adopted May 25, 2010 (incorporated by reference to Exhibit A of the company's
definitive Proxy Statement filed April 14, 2010).†
Raven Industries, Inc. Deferred Compensation Plan for Directors adopted May 23, 2007 (incorporated by reference to Exhibit 10.1
to the company's 8-K filed May 24, 2007). †
Change in Control Agreement between Raven Industries, Inc. and Matthew T. Burkhart dated February 1, 2010 (incorporated by
reference to Exhibit 10.3 to the company's 8-K filed February 2, 2010). †
Employment Agreement between Raven Industries, Inc. and Matthew T. Burkhart dated February 1, 2010 (incorporated by reference
to Exhibit 10.1 to the company's 8-K filed February 2, 2010). †
Schedule A to Employment Agreements between Raven Industries, Inc. and each of the following Senior Managers: David R. Bair,
Matthew T. Burkhart, James D. Groninger, Lon E. Stroschein and Barbara K. Ohme. †
Change in Control Agreement between Raven Industries, Inc. and Lon E. Stroschein dated October 1, 2010 (incorporated by
reference to Exhibit 10.3 to the company's 8-K filed October 1, 2010).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act.
31.2
Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act.
32.1
Certification pursuant to Section 906 of Sarbanes-Oxley Act.
32.2
Certification pursuant to Section 906 of Sarbanes-Oxley Act.
†
*
**
***
Management contract or compensatory plan or arrangement.
Incorporated by reference to corresponding Exhibit Number of the company's Form 10-K for the year ended January 31, 1989.
Incorporated by reference to corresponding Exhibit Number of the company's Form 10-K for the year ended January 31, 2004.
Incorporated by reference to corresponding Exhibit Number of the company's Form 10-K for the year ended January 31, 2007.
49
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
RAVEN INDUSTRIES, INC.
(Registrant)
By: /s/ DANIEL A RYKHUS
Daniel A. Rykhus
President and Chief Executive Officer
Date: March 31, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
/s/ DANIEL A RYKHUS
Daniel A. Rykhus
President and Chief Executive Officer
(principal executive officer) and Director
/s/ MARK E. GRIFFIN
Mark E. Griffin
Director
/s/ THOMAS IACARELLA
/s/ CONRAD J. HOIGAARD
Thomas Iacarella
Vice President and Chief Financial Officer
(principal financial and accounting officer)
/s/ THOMAS S. EVERIST
Thomas S. Everist
Chairman of the Board
/s/ ANTHONY W. BOUR
Anthony W. Bour
Director
/s/ DAVID A. CHRISTENSEN
David A. Christensen
Director
Conrad J. Hoigaard
Director
/s/ KEVIN T. KIRBY
Kevin T. Kirby
Director
/s/ CYNTHIA H. MILLIGAN
Cynthia H. Milligan
Director
Date: March 31, 2011
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of Raven Industries, Inc.:
Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to
in our report dated March 31, 2011 appearing elsewhere in this Annual Report on Form 10-K of Raven Industries, Inc. also included
an audit of the financial statement schedule listed in Item 15 of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 31, 2011
51
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2011, 2010 and 2009
(in thousands)
Column A
Column B
Column C
Additions
Column D
Column E
Description
Deducted in the balance sheet from the asset to which it
applies:
Allowance for doubtful accounts:
Year ended January 31, 2011
Year ended January 31, 2010
Year ended January 31, 2009
Note:
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
From
Reserves (1)
Balance at
End of Year
$
$
$
297
613
293
$
$
$
(1)
(183)
629
None
None
None
$
$
$
(4)
133
309
$
$
$
300
297
613
(1) Represents uncollectible accounts receivable written off during the year, net of recoveries.
52
InnovatIon
In serving our key markets of precision agriculture, surveillance
and barrier films, we are helping to solve some of our world’s most
important challenges in the areas of hunger, safety, peace and stability.
at the core of our continued success is innovation backed by a strong
competitive drive.
In fiscal 2011, we enjoyed broad-based revenue gains and our
profitability improved despite significantly higher spending for new
capabilities and product development that will support long-term
growth. with an aggressive growth agenda and a strong capital base,
we are on course to realize even greater potential.
the following pages of this report show how raven will build on
its successes in fiscal 2011 by following a path of investing in new
products, new applications, acquisitions and capacity expansion.
InveStor
InFormatIon
Annual Meeting
may 24, 2011, 9:00 a.m. CDt
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 2011 was the 24th-
consecutive year we raised our annual dividend.
Raven Website
www.ravenind.com
Independent Registered Public Accounting Firm
pricewaterhouseCoopers llp
minneapolis, mn
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: 800-468-9716
website: www.shareowneronline.com
Form 10-K
raven Industries, Inc.’s Form 10-K for the fiscal
year ended January 31, 2011, 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.
Inquiries
mail to:
Contact:
raven Industries, Inc.
Investor relations
p.o. Box 5107
Sioux Falls, SD 57117-5107
phone:
605-336-2750
e-mail:
irinfo@ravenind.com
Affirmative Action Plan
raven Industries, Inc. and aerostar International,
Inc. are equal employment opportunity employers
with approved affirmative action plans.
InSIDe thIS report
letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
raven at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
operations review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
executive team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
10-K table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10K-2
management’s Discussion and analysis . . . . . . . . . . . . . . . . 10K-14
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10K-26
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside back cover
.
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Forward-Looking Statements
this annual report contains “forward-looking statements” within the meaning of Section 27a of the Securities act of 1933, as amended, and Section 21e of the
Securities exchange act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. without limiting
the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” and similar expressions are intended to identify forward-looking statements. the
company intends that all forward-looking statements be subject to the safe harbor provisions of the private Securities litigation reform act. although management
believes that the expectations reflected in forward-looking statements are based on reasonable assumptions, there is no assurance these assumptions are correct
or that these expectations will be achieved. assumptions involve important risks and uncertainties that could significantly affect results in the future. these risks
and uncertainties include, but are not limited to, those relating to weather conditions 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.
InnovatIon
& Strong
CompetItIve
DrIve
an n ual r eport 2011
rave n I n DuStr I e S
po B ox 51 07
SIoux Fa llS, SD 57 1 17 -5 1 07
ww w.rave n I n D.Com