2013
Exceptional
Service
Drives Success
A n n uAl R eP O R t
Exceptional Service Drives Success
We define service as striving to exceed customer expectations.
For our customers, that means delivering product quality, innovation and peak performance,
and backing it up with responsiveness, agility and collaboration. Customers can count on us to
deliver on our promises—and they’re loyal to Raven primarily because of our day-in and day-out
unmatched service capability.
For our team members, it’s giving them the opportunity, support and tools to grow in their careers.
Above all, we aim to be fair and honest with team members and provide them with meaningful,
challenging work.
For our communities, service means striving to be a good corporate citizen, whether supporting
local causes or reaching out to places in need. We strive to do the right things in terms of health
and safety, and contribute time, money and leadership to our communities.
For our shareholders, we are a company that lives up to its commitments and outperforms the
competition. Our shareholders expect us to make sound, sustainable financial decisions and to never
forget to treat their money as if it were our own.
At Raven, service is ingrained in our culture—it’s our way of life. We know that exceptional service,
on all fronts, drives our success.
Inside this Report
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Raven At-A-Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Operations Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Board of Directors and Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10-K Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10K-2
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . 10K-17
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10K-29
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside back cover
Financial Highlights
(Dollars in thousands, except per-share data)
Operations
Net sales
Operating income
Net income attributable to Raven Industries, Inc.
Cash flows from operating activities
Depreciation and amortization
Per Share (a)
Net income—diluted
Cash dividends
Book value
Performance
Operating income margin
Return on net sales
Return on average assets
Return on beginning shareholders’ equity
Other Information
Shares and stock units outstanding (in thousands) (a)
Average number of team members
(a) Reflects the two-for-one stock split effective July 25, 2012.
For the years
ended January 31,
2013
2012
Change
$406,175
77,692
52,545
76,456
13,098
$381,511
75,641
50,569
43,831
9,268
$1.44
0.42
6.09
19.1%
12.9%
20.3%
29.1%
$1.39
0.36
4.97
19.8%
13.3%
23.3%
35.8%
36,326
1,350
36,284
1,252
6.5%
2.7%
3.9%
74.4%
41.3%
3.6%
16.7%
22.5%
-3.5%
-2.4%
-13.2%
-18.7%
0.1%
7.8%
Net Sales
(Dollars in millions)
Earnings Per Share
(Diluted, in dollars)
406.2
381.5
314.7
279.9
234.0
237.8
1.44
1.39
1.12
0.85
0.79
0.77
Regular Dividends Per Share
(Dollars)
0.42
0.36
0.325
0.28
0.265
0.22
’08
’09
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’12
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’08
’09
’10
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Sales in fiscal 2013 reached a
record $406.2 million, an increase
of 6.5 percent over the prior year.
Raven saw growth in precision
agriculture and engineered films.
Raven delivered a record $1.44
per share, and continued its
investment in infrastructure, personnel
and product development.
Raven is one of 105 U.S.
companies that have raised their
dividends for over 25 years.
201 3 AN N UAL R EPORT 1
314.699699
269.742599
224.785500
179.828400
134.871300
89.914200
44.957100
0.000000
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
TO OUR SHAREHOLDERS,
CUSTOMERS AND TEAM MEMBERS:
Daniel A. Rykhus
President and Chief Executive Officer
At Raven, there’s a singular purpose behind everything
we do. It is: to solve great challenges. That’s not a simple
or easy task. Great challenges require great solutions.
Solutions that are driven by quality, service, innovation
and peak performance—this is what sets us apart from
other companies because it is our culture and woven
into how we do business.
Service, in particular, is essential to Raven’s
• Consistently manage a pipeline of
success. Many of our large customers,
growth initiatives within our market
some of whom we’ve done business with
segments;
for decades, are loyal to the company in
large part because of our day-in and day-out
unmatched service.
And it’s with this service-oriented mindset
that we tackle the monumental challenges
of developing technology that helps the
• Aggressively compete on quality,
service, innovation and peak
performance;
• Hold ourselves accountable for
continuous improvement;
world grow more food, produce more
• Value our balance sheet as a source
energy, protect the environment and
of strength and stability; and
live safely. We take immense pride in the
products we design and build—and in
being a true global citizen who’s making
• Make corporate responsibility a top
priority.
a real difference.
FISCAL 2013 FINANCIAL HIGHLIGHTS
A PROVEN BUSINESS MODEL,
POSITIONED FOR GROWTH
As a company, Raven is financially strong
with no debt, and we have fantastic
long-term prospects. Our past and future
successes are the direct result of our proven
business model. Specifically, we:
• Serve a set of diversified market
segments with attractive near- and
long-term growth prospects;
Once again, Raven was able to generate
record revenue and earnings for our
2013 fiscal year, despite Aerostar facing
continued uncertainty and softening
demand from the U.S. federal agency
customers we serve. The strong
agriculture and energy markets, as well as
the recovering industrial markets, provided
opportunities for us to realize returns on
the recent and aggressive investments
made in our Applied Technology and
2 RAVE N I N DUSTR I ES, I NC .
2 01 3 AN N UAL R E PORT 3
TO OUR SHAREHOLDERS,
CUSTOMERS AND TEAM MEMBERS:
Engineered Films Divisions. These
strong, particularly in Brazil, Canada and
intend to rebalance our market segment
investments in new product development,
South Africa. Domestically, OEM demand
concentrations over the next two years.
capacity expansion and new market
rose as we continued to enhance our
penetration were essential to our growth
product capabilities.
in those respective businesses and overall
as a corporation.
Despite lower aerostat sales, and resulting
the sustained investment in our business
declines in overall sales and operating
LOOKING AHEAD
One of the hallmarks of Raven’s model is
development pipeline. Looking ahead to
2014, the quality of our pipeline is very
robust and encouraging, even though we
face other uncertainties in the marketplace.
It is this strength that ensures our
competitiveness and gives us confidence
In fiscal 2014, we will build and nurture our
business development pipeline. We expect
to see earnings growth from new product
developments for existing markets and key
adjacent market expansions. Acquisitions
will support our overall product and growth
strategy, and capital expansions will address
capacity and capabilities requirements.
Finally, we expect growth from further
international market penetration with
product lines from all three divisions.
During fiscal year 2014, we expect to return
to historic earnings growth levels by
leveraging the investments we’ve made over
the last few years and through disciplined
execution of the Raven business model.
We wish to thank our team members,
customers, communities and shareholders
for their continuing support.
that. Vista’s smart sensing radar systems
in our outlook.
Raven team members’ dedication to the
profits, Aerostar benefited from Vista
disciplined execution of our strategy drove
Research revenues of $14 million. Through
fiscal 2013 results:
• Sales increased six percent to $406.2
million.
our acquisition strategy, we seek to add
technology and products adjacent to our
core business—and Vista Research does
• Net income increased four percent to
are employed in a host of advanced
$52.5 million, with operating margins
detection and tracking applications. We
of 19.1 percent.
• Return on sales was 12.9 percent.
expect the Vista Research business to be
a strong contributor to growth for many
years to come, knowing the core technology
• Return on equity totaled 29.1 percent.
is healthy and the market opportunities
• We invested over $51 million in
our future growth through R&D,
acquisitions, and other capital
expenditures to support our
business model.
• We returned a total of $15.2 million
to shareholders as we increased the
dividend for the 26th straight year.
DIVISIONAL OVERVIEW
There were encouraging developments
within all of our divisions in fiscal
2013. In our largest segment, Applied
Technology, operating profits grew 20
percent. Throughout the year, we built
demand for our precision agricultural
solutions—particularly Raven’s advanced
guided steering systems that increase
crop yields and reduce operating costs
and fatigue. International sales also were
are numerous. On an ongoing basis, we are
developing opportunities to add stability
and mitigate volatility in Aerostar, and
ultimately drive longer-term growth with
breakout potential.
Our Engineered Films division also delivered
a solid performance for the year, with sales
increasing six percent and operating profits
rising 17 percent. Continued strength in the
energy market, as well as strong growth
in geomembranes and ag applications,
drove performance. We continue to
believe that geomembrane films will be
an increasing part of our market mix, due
to the critical need to protect water and
other environmental resources. In fiscal
2014, we plan to expand through R&D
investments in new growth opportunities,
as well as enhancements to existing
product lines. By more aggressively growing
Daniel A. Rykhus
our ag and geomembrane applications, we
President and Chief Executive Officer
2 RAVEN I N DUSTR I ES, I NC.
201 3 AN N UAL R EPORT 3
60
50
40
30
20
10
0
20
15
10
5
0
16.285739
13.571450
10.857160
8.142870
5.428580
2.714290
0.000000
9.999989
8.571419
7.142850
5.714280
4.285710
2.857140
1.428570
0.000000
APPLIED TECHNOLOGY DIVISION (ATD)
ENGINEERED FILMS DIVISION (EFD)
100
OP ER ATI N G U N IT
171.8
Precision agriculture products and
information management tools that
reduce costs, save time and improve
crop yields to feed a growing
world population.
• Sprayer and spreader controls
• Planter and seeder controls
• Harvest controls
100
• GPS guidance and steering
80
60
80
60
40
High-performance, engineered film
and sheeting for applications in
energy, construction, agriculture, geo-
membrane and industrial markets
to promote environmental safety.
20
0
NET SALES*
OPERATING INCOME*
59.6
49.8
145.3
AEROSTAR DIVISION
107.9
33.2
Global provider of lifesaving
technologies that utilize specialized
materials, sensors, and electronics
to enhance communications
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and situational awareness.
*Dollars in millions
’12
’12
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PRO DU CTS/S ERVIC E S
• One-piece oil field liners
NET SALES*
OPERATING INCOME*
• Tethered aerostats
• Vapor and gas barriers
171.8
145.3
• Reinforced pond liners
107.9
• Agricultural covers
33.2
59.6
49.8
• Military parachutes
NET SALES*
60
• Military inflatable decoys
133.5 142.0
• Protective wear
30
40
105.8
19.2
OPERATING INCOME*
50
25.1
21.5
• Field computers
40
20
• High-speed internet connectivity
0
• Integrated information management
• Scrim-reinforced sheets
84.800003
• High-altitude research balloons
20
63.600002
42.400002
• Geomembrane films
’12
’13
’11
• Seven-layer specialty films
*Dollars in millions
21.200001
’11
’12
’13
• Marine navigation systems
10
• Radar detection and tracking
0
0.000000
FY 2 0 13 R ES U LTS
• Electronic manufacturing services
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*Dollars in millions
NET SALES*
OPERATING INCOME*
NET SALES*
OPERATING INCOME*
NET SALES*
OPERATING INCOME*
171.8
145.3
59.6
49.8
33.2
107.9
84.800003
63.600002
42.400002
21.200001
0.000000
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’12
133.5 142.0
120
105.8
100
80
60
40
20
25.1
21.5
19.2
60
50
40
30
20
10
107.8
104.4
102.1
18.3
17.2
10.3
16.285739
13.571450
10.857160
8.142870
5.428580
2.714290
’13
’11
*Dollars in millions
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0
’12
0
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*Dollars in millions
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0.000000
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*Dollars in millions
’12
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K EY PER FOR M AN C E GOALS
Net Sales*
Operating Income*
• Strengthen turnkey aerostat solutions
63.5
65.9
71.7
• Develop infrastructure and pursue
20
9.9
9.0
11.3
international sales
15
• Continue to invest in high-altitude
10
balloon capabilities
5
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*Dollars in millions
• Continue to integrate Vista Research
technology with new and existing
products
’11
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*Dollars in millions
0
• Grow surveillance revenues
9.999989
8.571419
7.142850
5.714280
4.285710
2.857140
1.428570
0.000000
2 01 3 AN N UAL R E PORT 5
• Continue to expand internationally
• Expand reach and market share in
OPERATING INCOME*
NET SALES*
• Strengthen relationships with key
120
NET SALES*
OPERATING INCOME*
OEMs
100
105.8
60
25.1
• Launch new products and services
133.5 142.0
21.5
80
19.2
40
• Enhance core application control
products to control inputs and
maximize yields
20
0
’11
’12
’13
’11
*Dollars in millions
’12
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agricultural and geomembrane films
107.8
18.3
17.2
65.999999
104.4
52.799999
• Capture and recycle material with our
102.1
39.599999
reclaim production line
26.400000
10.3
• Streamline R&D efforts with process
13.200000
13.571450
16.285739
0.000000
improvements
10.857160
8.142870
’12
’11
5.428580
’13
• Introduce new, high-performance,
engineered solutions that meet
unique customer needs
’11
’13
*Dollars in millions
2.714290
0.000000
’12
65.999999
NET SALES*
52.799999
107.8
39.599999
104.4
102.1
26.400000
4 RAVE N I N DUSTR I ES, I NC .
13.200000
0.000000
OPERATING INCOME*
18.3
17.2
10.3
Net Sales*
Operating Income*
63.5
65.9
71.7
11.3
9.9
9.0
20
15
10
’11
’10
*Dollars in millions
’12
’10
’11
’12
*Dollars in millions
5
0
’11
’12
’13
’11
’12
’13
*Dollars in millions
Net Sales*
Operating Income*
63.5
65.9
71.7
11.3
9.9
9.0
’10
’11
’12
’10
’11
’12
*Dollars in millions
*Dollars in millions
9.999989
8.571419
7.142850
5.714280
4.285710
2.857140
1.428570
0.000000
100
80
60
40
20
0
120
100
80
60
40
20
0
84.800003
63.600002
42.400002
21.200001
0.000000
65.999999
52.799999
39.599999
26.400000
13.200000
0.000000
APPLIED TECHNOLOGY DIVISION
We help feed the world by developing precision ag control systems and information management tools that
reduce operating costs, precisely control inputs and improve yields for the global agriculture market. From
field computers, planter and application controls, to GPS-guided steering systems, wireless technology and
information management platforms, we enable precision ag technology that delivers in the field.
FISCAL 2014 OUTLOOK
FISCAL 2013 IN REVIEW
SERVICE DRIVING SUCCESS
Looking ahead, we continue to see
strength in the agricultural markets,
as well as positive trends in ATD, and
expect to achieve solid growth in sales
and profits.
We anticipate that sales growth
internationally will outpace growth
in the United States. While we expect
demand across all major agricultural
markets throughout the world, we see
particular strength in Brazil, Russia
and Ukraine—agricultural markets
that are actively adopting precision ag
technology at an aggressive pace.
Also, we will continue to build and
nurture our business development
pipeline. This will take the form of:
• New product developments for
our existing markets and key
adjacent market expansions;
• Acquisitions that support our
overall product and growth
strategy;
• Capital expansions to address
capacity and capabilities; and,
• Collaboration efforts with key
partners throughout our global
markets.
For the year, Applied Technology posted
Raven has a renowned reputation for
record sales and operating income. Sales
service, a vital competitive advantage. We
increased 18 percent to $172 million, and
support our dealers, OEM networks and
operating income rose to $60 million, a
end users through highly trained field and
20-percent gain. We continue to see rising
phone specialists complemented with
demand for our precision agriculture
powerful online and interactive support
solutions with particular interest in our
and training tools.
guided steering systems.
OEMs and dealers frequently tell us that
International sales remained strong in
it’s the high-quality service they receive
Canada, Brazil, South Africa and Ukraine.
that makes them choose Raven over a
Emerging agricultural markets abroad
competitor. Our skilled team of Precision
operate at different life cycle stages and,
Agriculture Specialists offer support in-field
therefore, have different needs. Raven
or at dealer locations, truly setting us apart in
has the breadth of precision agriculture
the industry. In addition, we have our inside
products to meet those needs.
sales team, technical service via our support
In the United States, we also saw
strong OEM demand as we enhanced
our product capabilities. As a company,
we continue to develop and deepen
relationships with key OEM partners—
which expands market share and extends
line, remote support via Slingshot®, OEM
engineering support and RavenHelp.com,
now with live chat. We cultivate partners
that are 100 percent vested in our mutual
success and have a shared commitment to
outstanding service.
our innovative technology to a broader
The newly renovated and expanded
range of customers.
Raven Innovation Campus, near Baltic,
S.D., is dedicated to the research, training
and development of precision agriculture
products. At this facility, we provide
state-of-the-art training to our dealers,
distributors and OEM partners from
around the world.
The new Envizio Pro XL™ multi-function
field computer features a simple-to-use
interface designed to help farmers increase
efficiency and cost savings, as well as reduce
operator fatigue during every season of
their operation, from planting and spraying
to harvesting and tillage.
4 RAVEN I N DUSTR I ES, I NC.
201 3 AN N UAL R EPORT 5
ENGINEERED FILMS DIVISION
We manufacture high-performance plastic film and sheeting for major markets throughout the
United States and abroad. An important part of our business is highly technical, engineered films that
protect critical environmental resources through containment linings and coverings for the agriculture,
construction, energy, geomembrane and industrial markets.
FISCAL 2013 IN REVIEW
customized high-value solutions to fit
FISCAL 2014 OUTLOOK
For fiscal 2014, we anticipate a
challenging environment, resulting from
general economic conditions and tough
year-over-year comparisons. We continue
to believe that geomembrane film sales
will be a rising part of our market mix due
to the critical need to protect water and
other environmental resources. We also
anticipate growth in agricultural films.
Moreover, we expect to achieve
efficiencies with the installation of our
new reclaim production line, designed
to capture and recycle excess polymer
material from internal manufacturing
processes. This technically advanced
system is capable of producing up to
15 million pounds of reprocessed resin
pellets annually; it achieves a closed-loop
recycling stream for our manufacturing
facility by reclaiming excess production
material through a fully controlled
process from start to finish.
Pounds of film sold rose about three
percent in fiscal 2013, and we have
extrusion capacity to further grow
this business—which we intend to do
through R&D investments in new growth
opportunities as well as enhancements
to our existing product line. We also plan
to streamline our overall R&D efforts
through process improvements and
implement a new software system to
help us better utilize existing capacity.
For fiscal 2013, sales in our Engineered
Films division rose six percent to
their unique situation. All Raven products
are developed and produced in a quality-
$142 million. Operating income increased
controlled environment under our stringent
17 percent to $25 million. Continued
strength in the energy market, as well
as strong growth in geomembranes and
ag applications, drove performance.
ISO 9001 certified management system
to ensure we achieve complete customer
satisfaction and continuous improvement
in all phases of our business.
Our modern 300,000-square-foot facility,
which we expanded twice during the
year, contains state-of-the-art equipment
including blown film and sheeting,
lamination/coating and conversion
capabilities. In addition, our Technology
Solutions Center offers the very latest
in processing and testing capabilities
and allows us to work side by side with
customers to develop new products.
We back all of this with training
opportunities, superior tech support
that sees a project through from
concept to site implementation, and
a commitment to creating high-value,
differentiated products.
During the year, we completed a significant
$11 million geomembrane reservoir project
in Ohio, and we launched several new
projects utilizing our geomembrane films.
We also continued work on a research and
development collaboration with Arizona
State University related to biofuels. This
project has led to several commercial
opportunities that we are actively engaged
in to help grow biofuels on large scales.
On the product development front, we
worked with our construction customers
to introduce VaporBlock G, an innovative,
under-concrete-slab vapor barrier produced
with a layer of post-consumer recycled
content. VaporBlock G is the first vapor
barrier on the market to exceed ASTM
Class A and qualify for LEED standards.
SERVICE DRIVING SUCCESS
At EFD, service means thoroughly listening
to our customers so we can develop
This is the world’s largest seven-
layer barrier extrusion line, capable
of producing films up to 32 feet in
circumference and sheeting up to
80 mils thick with the addition of
optional surface texturing.
6 RAVE N I N DUSTR I ES, I NC .
2 01 3 AN N UAL R E PORT 7
AEROSTAR DIVISION
We are a global provider of lifesaving technologies that utilize specialized materials, sensors, and electronics
to enhance communications and situational awareness—including tethered aerostats, high-altitude
scientific balloons and airships, protective wear, parachutes, smart radar and sensing processors, and
marine navigation equipment.
FISCAL 2014 OUTLOOK
FISCAL 2013 IN REVIEW
ESD was completed as planned and has
Throughout Aerostar, we are building a
strong pipeline of high-quality business
development pursuits for fiscal 2014.
This includes new initiatives for the
secure communications market and
multiple opportunities for aerostat
systems in defense, government
agencies and commercial applications—
both domestically and overseas. We
are also actively working on many new
opportunities for the high-altitude
balloons we design and manufacture as
well as unique products for our military.
We continue to focus on a number
of initiatives that will broaden our
customer base. We see significant
future potential with Vista Research
both here and internationally as we
work to sell into new markets.
While this pipeline is solid and will
deliver important new business, we’re
also facing declines in our electronics
work for the avionics industry as well
as some uncertainty with our existing
parachute manufacturing business.
During the year, we will develop new
customers and product lines that will
add stability and mitigate volatility in
Aerostar’s business, ultimately driving
longer-term growth with breakout
potential. That said, we continue to
manage the business responsibly.
During fiscal 2013, Aerostar faced
continued uncertainty and softening
demand from the U.S. federal agency
customers we serve. As expected, this
led to a decline in sales of five percent to
$102 million and an operating income
decline of 44 percent to $10 million.
Despite this challenge, Aerostar benefited
from $14 million of Vista Research revenue,
an acquisition we successfully integrated
during the year.
Vista’s Smart Sensing Radar Systems
(SSRS) use sophisticated signal processing
algorithms and are employed in a host
of detection and tracking applications,
including wide-area surveillance for border
patrol and the military.
benefited both operations.
The roots of Raven Industries can be
seen in Aerostar’s high-altitude product
line today. While these products and
technology have been the common thread
through the history of Raven, they also
hold great promise for growth for Aerostar.
In 2012, high-altitude research balloons
manufactured by Aerostar were used by
Austrian Felix Baumgartner in his record-
setting Red Bull Stratos mission.
SERVICE DRIVING SUCCESS
Aerostar’s vision is to be the premier
designer and manufacturer of specialty-
sewn and sealed products and the industry
leader for communications and surveillance
technology for enhanced situational
During the year, Raven also realigned
awareness. We strive to design, build and
its Electronic Systems Division (ESD).
deliver solutions that save lives.
Approximately 75 percent of Electronic
Systems’ sales were absorbed by Aerostar,
with proprietary products folded into
Applied Technology. The integration of
In a market that’s dominated by
government contracts—both here and
abroad—service is paramount to securing
and keeping business. We invest in people,
products and infrastructure with a service-
oriented mindset as well as a long-term
strategy for growth. Our ability to compete
and save lives depends on the service,
innovation, quality and peak performance
of our team members.
Tethered Aerostats and
Smart Sensing Radar Systems
provide reliable, cost-effective
persistent solutions for a
variety of missions.
6 RAVEN I N DUSTR I ES, I NC.
201 3 AN N UAL R EPORT 7
BOARD OF DIRECTORS
Seated, left to right: Thomas S. Everist (b)(c), Chairman of the Board, Raven Industries, Inc., President, The Everist Company, Daniel A. Rykhus, President &
Chief Executive Officer, Raven Industries, Inc.
Standing, left to right: Anthony W. Bour (a)(c), President & Chief Executive Officer, Showplace Wood Products, Inc., Mark E. Griffin (b)(c), President & Chief
Executive Officer, Lewis Drugs, Inc., Cynthia H. Milligan (a)(c), Dean Emeritus, College of Business Administration, University of Nebraska, Lincoln,
Kevin T. Kirby (a)(c), Chief Executive Officer & Director, Face It TOGETHER, Marc E. LeBaron (b)(c), Chairman & Chief Executive Officer, Lincoln Industries, Inc.
a = Audit Committee b = Personnel and Compensation Committee c = Governance Committee
EXECUTIVE TEAM
Matthew T. Burkhart – Division Vice President & General Manager – Applied Technology Division, Age: 37, Service 5 years
Stephanie Herseth Sandlin – General Counsel & Vice President – Corporate Development, Age: 42, Service 6 months
Thomas Iacarella – Vice President & Chief Financial Officer, Age: 59, Service 21 years
Jan L. Matthiesen – Vice President – Human Resources, Age: 55, Service 2 years
Brian E. Meyer – Chief Information Officer, Age: 50, Service 2 years
Daniel A. Rykhus – President & Chief Executive Officer, Age: 48, Service 23 years
Anthony D. Schmidt – Division Vice President & General Manager – Engineered Films Division, Age: 41, Service 17 years
Jennifer M. Schmidtbauer – Director – Organizational Development, Age: 40, Service 1 year
Lon E. Stroschein – Division Vice President & General Manager – Aerostar Division, Age: 38, Service 5 years
Mark L. West – Chief Technology Officer, Age: 59, Service 31 years
8 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, 2013
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 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 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 (§232.405 of this chapter)
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 (§229.405 of this chapter)
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.
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 Act.)
Yes
No
The aggregate market value of the registrant's common stock held by non-affiliates at July 31, 2012 was approximately $1,172,470,556. The aggregate
market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $32.73, on July 31, 2012, 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 22, 2013 was
36,332,923.
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 23, 2013, is incorporated by reference into
Part III to the extent described therein.
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Item 1.
BUSINESS
Item 1A. RISK FACTORS
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
PROPERTIES
LEGAL PROCEEDINGS
Item 4. MINE SAFETY DISCLOSURES
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Quarterly Information
Stock Performance
Item 6.
SELECTED FINANCIAL DATA
Eleven-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
Accounting Pronouncements
Forward-Looking Statements
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 and Comprehensive Income
Consolidated Statements of Shareholders' Equity
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. EXECUTIVE COMPENSATION
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Item 13. 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
SCHEDULE II
3
6
10
10
10
10
11
11
12
14
14
16
17
17
19
23
23
25
26
27
27
28
29
30
31
32
33
34
35
36
54
54
54
55
55
55
55
55
56
57
59
60
PART I
ITEM 1.
BUSINESS
Raven Industries, Inc. (the Company or Raven) was incorporated in February 1956 under the laws of the State of South Dakota
and began operations later that same year. Raven is a diversified technology company providing a variety of products to customers
within the industrial, agricultural, energy, construction and military/aerospace markets. 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, energy, construction and military/aerospace markets.
The Company employs approximately 1,400 people 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 or through the SEC's website at http://
www.sec.gov or by contacting the SEC's Office of FOIA/PA Operations at 100 F Street N.E., Washington, DC 20549-2736, or
calling the SEC at 1-800-SEC-0330.
BUSINESS SEGMENTS
The Company has three unique operating units, or divisions, that are also its reportable segments: Applied Technology Division
(Applied Technology), Engineered Films Division (Engineered Films) and Aerostar Division (Aerostar). 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 inventories; however, more
than one business segment may serve each of the product markets identified above. The Company measures the performance of
its segments based on their operating income excluding administrative and general expenses. Other 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.
During fiscal 2013, the Company realigned the assets and team members of its Electronic Systems Division and deployed them
into the Company's Aerostar and Applied Technology Divisions. The Company adjusted its segment information, retrospectively,
for all periods presented in this Annual Report on Form 10-K to reflect this change in segment reporting.
Business segment financial information is found on the following pages:
16
19
50
Business Segments
Results of Operations – Segment Analysis
Note 13. Business Segments and Major Customer Information
Applied Technology
Applied Technology designs, manufactures, sells and services innovative precision agriculture products and information
management tools that help growers reduce costs and improve farm yields around the world. The Applied Technology product
families include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls,
yield monitoring planter controls and an integrated real-time kinematic (RTK) navigation and information platform called
SlingshotTM. As a result of the realignment of the Company's Electronic Systems Division, these product families also include
motor controls. The Company's investments in Site-Specific Technology Development Group, Inc. (SST), a software company,
and the continued build-out of the Slingshot API platform have positioned Applied Technology to provide an information platform
of choice that improves grower decision-making and business efficiencies for our agriculture retail partners.
Applied Technology sells its precision agriculture control products to both original equipment manufacturers (OEMs) and through
aftermarket distribution in the United States and in most major agriculture areas around the world. Applied Technology has
personnel and third-party distribution representatives located in the U.S. and key geographic areas throughout the world, including
Canada, Europe, the former Soviet Republics, South Africa, South America, Australia and China. The Company's competitive
advantage in this segment is designing and selling easy to use, reliable and value-added products that are supported by an industry
leading service and support team.
Engineered Films
Engineered Films produces high-performance plastic films and sheeting for industrial, energy, construction, geomembrane and
agricultural applications.
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 $11.5 million in fiscal
2013, $10.9 million in fiscal 2012 and $8.5 million in fiscal 2011.
Aerostar
Aerostar designs and manufactures high-altitude research balloons, tethered aerostats and radar processing systems. These products
can be integrated with additional third-party sensors to provide research, communications and situational awareness to government
and commercial customers. Aerostar's sales to the U.S. government or U.S. government agencies as a prime or sub-contractor
include military parachutes, uniforms and protective wear. It also manufactures other sewn and sealed products on a contract basis
as well as being a total solutions provider of electronics manufacturing services since the realignment of the Electronic Systems
Division. 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.
Through the recent acquisition of Vista Research, Inc. (Vista) and a separate business venture that is majority-owned by the
Company, Aerostar pursues potential product and support services contracts for agencies and instrumentalities of the U.S.
government. The acquisition of Vista in January 2012 positioned the Company to meet growing global demand for lower-cost
detection and tracking systems used by government and law enforcement agencies. As a leading provider of surveillance systems
that enhance the effectiveness of radar using sophisticated algorithms, Vista will also allow Aerostar to enhance its tethered aerostat
security solutions.
MAJOR CUSTOMER INFORMATION
One customer accounted for 10% or more of consolidated sales in fiscal 2013. Sales to West Texas Plastics Limited, a customer
in the Engineered Films Division, accounted for 11% of consolidated sales in both fiscal 2013 and 2012. In addition to this
customer, sales to Goodrich Corporation, a customer of Aerostar, accounted for 10% of consolidated sales in fiscal 2012. As
expected, revenue from this customer has continued to decline from 10% and 13%, respectively, of consolidated sales in fiscal
2012 and 2011. No other customers accounted for 10% of consolidated sales in fiscal 2012 or 2011.
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, accounts
receivable, accounts payable and acquisition-related contingent payments. 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 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.
4
RAW MATERIALS
The Company obtains a wide variety of materials from several vendors. Principal materials include numerous electronic
components for Aerostar and Applied Technology, various plastic resins for Engineered Films and fabrics for Aerostar. Engineered
Films 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. Aerostar experiences 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.
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, Engineered Films and Aerostar Divisions. Total
Company research and development costs are presented on the Consolidated Statements of Income and Comprehensive 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 incurred in the past relating to compliance for operating facilities
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, the Company believes that
any activities that might be required as a result of the findings of the assessments will not have a material effect on the Company's
results of operations, financial position or cash flows. The company had $53 thousand accrued at January 31, 2013, representing
its best estimate of probable costs to be incurred related to these matters.
BACKLOG
As of February 1, 2013, the Company's order backlog totaled $51.1 million. Backlog amounts as of February 1, 2012 and 2011
were $66.6 million and $76.0 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, 2013, the Company had 1,379 employees, 1,327 in an active status. Following is a summary of active employees
by segment: Applied Technology - 539; Engineered Films - 236; Aerostar - 458; Corporate Services - 94. Management believes
its employee relations are satisfactory.
5
EXECUTIVE OFFICERS
Name, Age and Position
Daniel A. Rykhus, 48
President and Chief Executive Officer
Thomas Iacarella, 59
Vice President and Chief Financial Officer
Stephanie Herseth Sandlin, 42
General Counsel and Vice President of
Corporate Development
Janet L. Matthiesen, 55
Vice President - Human Resources
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.
Mr. Iacarella joined Raven in 1991 as Corporate Controller and has been
the Company's Chief Financial Officer and Treasurer since 1998. Prior to
joining the Company, he held positions with Tonka Corporation and the
accounting firm now known as Ernst & Young.
Ms. Herseth Sandlin joined Raven in August 2012 as General Counsel and
Vice President of Corporate Development and also became the Company's
Secretary in March 2013. Prior to joining Raven, Ms. Herseth Sandlin was
a partner at OFW Law in Washington, D.C. from 2011 to 2012 and served
as South Dakota's lone member of the United States House of
Representatives from 2004 through 2011.
Ms. Matthiesen joined Raven in 2010 as Director of Administration and has
been the Company's Vice President of Human Resources since April 2012.
Prior to joining Raven, Ms. Matthiesen was a Human Resource Manager at
Science Applications International Corporation from 2002 to 2010.
Matthew T. Burkhart, 37
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.
Anthony D. Schmidt, 41
Division Vice President and General Manager -
Engineered Films Division
Mr. Schmidt was named Division Vice President and General Manager of
the Engineered Films Division on February 1, 2012. He joined Raven in
1995 in the Applied Technology Division performing various leadership
roles within manufacturing and engineering. He transitioned to Engineered
Films Division in September 2011 as Manufacturing Manager.
Lon E. Stroschein, 38
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,
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.
6
RISKS RELATING TO THE COMPANY
Raven 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 consumes significant amounts of plastic resin, the costs of which reflect market prices
for natural gas, oil and other market forces. These prices are subject to worldwide supply and demand as well as other factors
beyond the control of the Company. Although the Engineered Films Division 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 Aerostar 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 can be subject
to change in price as the cost of natural gas or oil 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, 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 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.
7
The Company's electronic manufacturing services business is dependent on a small number of customers and faces competitive
risks.
The Company's electronic manufacturing services (EMS) business in the Aerostar Division is dependent on a small number of
customers. Accordingly, the EMS revenue is dependent on the continued growth, viability and financial stability of its customers,
which consist of original equipment manufacturers of avionics 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 EMS revenue.
Further, the Aerostar Division competes against many providers of electronics manufacturing services. Certain competitors have
substantially greater resources and more geographically diversified international operations than Aerostar. 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 EMS providers. Accordingly, to compete effectively, Aerostar 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 canceled.
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, reduced program funding due to U.S government debt limitations, automatic budget cuts ("sequestration") 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 business risks, including
risk of changes in government policies and laws or worldwide economic conditions.
The Company's sales outside the U.S. were $49.3 million in fiscal 2013, representing 12% of consolidated net sales. 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 also include changing social and economic conditions, terrorism, political hostilities and war,
difficulty in enforcing agreements or collecting receivables and increased transportation or other shipping costs. Any of such risks
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
The Company may pursue or complete acquisitions which represent additional risk and could impact future financial results.
The Company's business strategy includes the potential for future acquisitions. Acquisitions involve a number of risks including
integration of the acquired company with the Company's operations and unanticipated liabilities or contingencies related to the
acquired company. The Company cannot ensure that the expected benefits of any future acquisitions will be realized. Costs could
be incurred on pursuits or proposed acquisitions that have not yet or may not close which could significantly impact the operating
results, financial condition or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect
the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Other acquisition risks
include delays in realizing benefits from the acquired companies or products; difficulties due to lack of or limited prior experience
in any new markets we enter; unforeseen adjustments, charges or write-offs; unforeseen losses of customers or, or suppliers to,
acquired businesses; difficulties in retaining key employees of the acquired businesses; or challenges arising from increased
geographic diversity and complexity of our operations.
Total goodwill and intangible assets account for approximately $31.0 million, or 11%, of Raven's total assets as of January 31,
2013. The Company evaluates goodwill and intangible assets for impairment annually, or when evidence of potential impairment
exists. The annual impairment test is based on several factors requiring judgment. Principally, a significant decrease in expected
cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or intangible assets. An
impairment would adversely impact the Company's results of operations and financial condition.
The Company may fail to continue to attract, develop and retain key management and other key employees, which could
negatively impact our operating results.
We depend on the performance of our senior management team and other key employees, including experienced and skilled
technical personnel. The loss of certain members of our senior management, including our Chief Executive Officer, could
negatively impact our operating results and ability to execute our business strategy. Our future success will also depend in part
upon our ability to attract, train, motivate and retain qualified personnel.
The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others.
The Company has developed significant proprietary technology and other rights that are used in its businesses. The Company
relies on trade secret, copyright, trademark and patent laws and contractual provisions to protect the Company's intellectual property.
While the Company takes enforcement of these rights seriously, other companies such as competitors, or analogous persons in
markets the Company does not participate, may attempt to copy or use the Company's intellectual property for their own benefit.
In addition, intellectual property of others also has an impact on the Company's ability to offer some of its products and services
for specific uses or at competitive prices. Competitors' patents or other intellectual property may limit the Company's ability to
offer products and services to its customers. Any infringement or claimed infringement of the intellectual property rights of others
could result in litigation and adversely affect the Company's ability to continue to provide, or could increase the cost of providing,
products and services.
Intellectual property litigation is very costly and could result in substantial expense and diversions of the Company's resources,
both of which could adversely affect its businesses and financial condition and results. In addition, there may be no effective legal
recourse against infringement of the Company's intellectual property by third parties, whether due to limitations on enforcement
of rights in foreign jurisdictions or as a result of other factors.
Technology failures or cyber-attacks on the Company's systems could disrupt the Company's operations or the functionality
of its products and negatively impact the Company's business.
The Company increasingly relies on information technology systems to process, transmit and store electronic information. In
addition, a significant portion of internal communications, as well as communication with customers and suppliers depends on
information technology. Further, the products in our Applied Technology segment depend upon GPS and other systems through
which our products interact with government computer systems and other centralized information sources. We are exposed to the
risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual
property or other sensitive information or may be the result of unintentional events. Like most companies, the Company's
information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control,
including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other
security issues. Further, attacks on centralized information sources could affect the operation of our products or cause them to
malfunction. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company's
risk to these vulnerabilities, but these measures may not be adequate or implemented properly to ensure that the Company's
operations are not disrupted. Potential consequences of a material cyber incident include damage to our reputation, litigation and
increased cyber security protection and remediation costs. Such consequences could adversely affect our results of operations.
9
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Raven's corporate office is at an owned premises located in Sioux Falls, South Dakota. The Company also owns separate
manufacturing facilities for each of our business segments as well as various warehouses, training and product development
facilities. In addition to these facilities, Applied Technology has a product development facility in Austin, Texas and a manufacturing
facility located in St. Louis, Missouri; and Aerostar has additional owned manufacturing, sewing and research facilities located
in Huron and Madison, South Dakota, and Sulphur Springs, Texas. Aerostar also leases facilities in Arlington, Virgina; and
Monterey and Chatsworth, California. 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 also owns approximately 6.2 acres of undeveloped land adjacent to the other owned property, which is available
for expansion.
The following is the approximate square footage of the Company's owned or leased facilities by segment: Applied Technology -
170,000; Engineered Films - 310,000; Aerostar - 275,000; and Corporate - 150,000.
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 of this Annual Report on Form 10-K). 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.
MINE SAFETY DISCLOSURES
Not applicable.
10
PART II
ITEM 5.
MARKET FOR 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 unaudited financial results, quarterly high and low sales prices per share of Raven's common stock as reported by
NASDAQ and dividends declared for the periods indicated:
QUARTERLY INFORMATION (UNAUDITED)
(Dollars in thousands, except per-share amounts)
Net
Sales
Gross
Profit
Operating
Income
Pre-tax
Income
Net Income
Attributable
to Raven
Net Income
Per Share (a) (b)
Basic Diluted High
Common Stock
Market Price (b)
Low
Cash
Dividends
Per Share
(b)
FISCAL 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
FISCAL 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
FISCAL 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
$117,915 $ 41,135 $ 28,432 $ 28,380 $
101,674
97,011
89,575
30,064
29,575
26,899
17,407
16,372
15,481
17,311
16,316
15,639
$406,175 $ 127,673 $ 77,692 $ 77,646 $
$101,541 $ 32,936 $ 23,533 $ 23,520 $
90,344
93,300
96,326
28,130
27,254
27,872
18,674
16,875
16,559
18,598
16,871
16,709
$381,511 $ 116,192 $ 75,641 $ 75,698 $
$ 85,030 $ 27,171 $ 19,505 $ 19,557 $
73,174
85,823
70,681
20,389
24,887
18,982
12,623
17,866
10,209
12,529
17,883
10,313
$314,708 $ 91,429 $ 60,203 $ 60,282 $
19,043 $ 0.53 $ 0.52 $35.56 $ 28.16 $
0.32
11,546
0.30
10,859
11,097
0.30
52,545 $ 1.45 $ 1.44 $37.73 $ 23.01 $
28.59
26.78
23.01
37.73
34.61
28.19
0.32
0.30
0.31
15,716 $ 0.44 $ 0.43 $30.96 $ 23.60 $
0.34
12,461
0.32
11,390
11,002
0.30
50,569 $ 1.40 $ 1.39 $34.65 $ 21.62 $
29.80
32.44
34.65
24.68
21.62
25.09
0.34
0.32
0.31
12,945 $ 0.36 $ 0.36 $15.90 $ 13.27 $
0.23
8,353
0.32
11,833
0.21
7,406
40,537 $ 1.12 $ 1.12 $24.80 $ 13.27 $
14.33
15.00
20.01
19.09
21.06
24.80
0.23
0.32
0.21
0.105
0.105
0.105
0.105
0.42
0.09
0.09
0.09
0.09
0.36
0.08
0.08
0.71 (c)
0.08
0.95
(a)
(b)
(c)
Net income per share is computed discretely by quarter and may not add to the full year.
All per-share and market data reflect the July 2012 two-for-one stock split.
A special dividend of $0.63 per share was paid during the third quarter of fiscal 2011.
As of January 31, 2013, the Company had approximately 10,400 beneficial holders, which includes a substantial number of the
Company's common stock held by record by banks, brokers and other financial institutions.
11
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES,
S&P 1500 INDUSTRIAL MACHINERY INDEX AND RUSSELL 2000 INDEX
Raven outperformed its industrial peers and the overall market in shareholder return. Investors who bought $100 of the Company's
stock on January 31, 2008, held this for five years and reinvested the dividends, have seen its value increase to $201.51.
Company / Index
2008
2009
2010
2011
2012
2013
Raven Industries, Inc.
$ 100.00
$ 77.08
$ 103.15
$ 179.62
$ 250.00
$ 201.51
S&P 1500 Industrial Machinery Index
Russell 2000 Index
100.00
100.00
62.52
63.15
87.71
87.04
127.43
114.34
126.95
117.61
152.92
135.81
Years Ended January 31,
5-Year
CAGR(a)
16.1%
8.9%
6.3%
(a) compound annual growth rate (CAGR)
12
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13
ITEM 6.
SELECTED FINANCIAL DATA
ELEVEN-YEAR FINANCIAL SUMMARY
(Dollars and shares in thousands, except employee counts and per-share amounts)
OPERATIONS
Net sales
Gross profit
Operating income
Income before income taxes
Net income attributable to Raven Industries, Inc.
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
Long-term debt, less current portion
Raven Industries, Inc. shareholders' equity
Long-term debt / total capitalization
Inventory turnover (cost of sales / 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,
2012
2011
2013
$ 406,175
127,673
77,692
77,646
$ 52,545
$ 381,511
116,192
75,641
75,698
$ 50,569
$ 314,708
91,429
60,203
60,282
$ 40,537
12.9%
29.1%
13.3%
35.8%
12.9%
30.4%
$ 15,244
$ 13,025
$ 34,095
$ 156,748
33,061
$ 123,687
4.74
$ 81,238
273,210
—
$ 221,346
$ 147,559
40,646
$ 106,913
3.63
$ 61,894
245,703
—
$ 180,499
$ 128,181
34,335
$ 93,846
3.73
$ 41,522
187,760
—
$ 141,214
—%
5.4
—%
5.4
—%
5.6
$ 76,456
(29,930)
(23,007)
23,511
$ 43,831
(40,313)
(15,234)
(11,721)
$ 42,085
(11,418)
(33,834)
(3,121)
$
$
$
1.45
1.44
0.42
6.09
37.73
23.01
26.93
36,326
10,439
18.7
1,350
$
301
$ 51,121
$
$
$
1.40
1.39
0.36
4.97
34.65
21.62
32.45
36,284
10,618
23.4
1,252
$
305
$ 66,641
$
$
$
1.12
1.12
0.95
3.91
24.80
13.27
23.62
36,178
7,456
21.1
1,036
$
304
$ 75,972
All per-share, shares outstanding and market price data reflect the July 2012 two-for-one stock split, the October 2004 two-for-one stock split and the January 2003 two-for-one
stock split.
(a) Includes special dividends of $0.625 per share in fiscal 2011 and 2009; and $0.3125 per share in fiscal 2005
(b) Raven Industries, Inc. shareholders' equity, excluding equity attributable to noncontrolling interests, divided by common shares and stock units outstanding.
(c) Closing stock price divided by EPS — diluted.
14
2010
2009
2008
2007
2006
2005
2004
2003
$ 237,782
67,852
43,220
43,322
$ 28,574
12.0%
25.2%
9,911
$
$ 117,747
25,960
$ 91,787
4.54
$ 33,029
170,309
—
$ 133,251
$ 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
$ 168,086
45,212
27,862
27,955
$ 17,891
$ 142,727
35,488
21,626
21,716
$ 13,836
$ 120,903
28,828
17,065
17,254
$ 11,185
11.0%
26.0%
$ 31,884
$
11.9%
28.3%
7,966
$
11.7%
30.1%
6,507
$
11.9%
36.7%
5,056
10.6%
26.9%
$ 15,298
$
9.7%
23.8%
3,075
$
9.3%
21.5%
2,563
$ 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
9
$ 84,389
$ 61,592
20,950
$ 40,642
2.94
$ 19,964
88,509
—
$ 66,082
$ 55,710
11,895
$ 43,815
4.68
$ 15,950
79,508
57
$ 66,471
$ 49,351
13,167
$ 36,184
3.75
$ 16,455
72,816
151
$ 58,236
—%
5.3
—%
5.2
—%
5.3
—%
5.4
—%
5.9
—%
5.8
0.1%
6.1
0.3%
4.8
$ 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
$ 18,871
(7,631)
(19,063)
(7,823)
$ 19,732
(4,352)
(6,155)
9,225
$ 12,735
(9,166)
(5,830)
(2,261)
0.79
0.79
0.28
3.69
16.59
7.69
14.29
36,102
7,767
$
$
$
0.86
0.85
0.89
3.15
23.91
10.30
10.91
36,054
8,268
$
$
$
0.77
0.77
0.22
3.26
22.93
13.10
15.01
36,260
8,700
$
$
$
0.71
0.70
0.18
2.73
21.35
12.73
14.22
36,088
8,992
$
$
$
0.67
0.66
0.14
2.34
16.58
8.27
15.80
36,144
9,263
$
$
$
0.50
0.49
0.43
1.84
13.47
6.54
9.19
35,998
6,269
$
$
$
0.39
0.38
0.09
1.84
7.62
3.78
7.06
36,082
3,560
$
$
$
0.31
0.30
0.07
1.61
4.60
2.19
3.96
36,266
2,781
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
18.9
835
201
$
$ 43,646
18.8
787
181
$
$ 47,120
13.2
784
154
$
$ 42,826
15
BUSINESS SEGMENTS
(Dollars in thousands)
APPLIED TECHNOLOGY DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
ENGINEERED FILMS DIVISION
Sales
Operating income(b)
Assets
Capital expenditures
Depreciation and amortization
AEROSTAR DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
INTERSEGMENT ELIMINATIONS
Sales
Applied Technology Division
Engineered Films Division
Aerostar Division
Operating income
Assets
CORPORATE & OTHER(a)
Operating (loss) from administrative expenses
Assets
Capital expenditures
Depreciation and amortization
2013
2012
2011
2010
2009
2008
For the years ended January 31,
$ 171,778
59,590
84,224
10,780
3,874
$ 145,261
49,750
73,872
11,971
2,571
$ 107,910
33,197
55,740
1,947
2,483
$ 94,005
27,538
54,007
1,092
1,863
$ 111,512
35,034
51,608
2,857
1,646
$ 80,049
22,701
40,058
1,054
1,503
$ 141,976
25,115
65,801
11,539
5,814
$ 133,481
21,501
65,100
10,937
4,313
$ 105,838
19,622
46,519
8,450
3,452
$ 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
$ 102,051
10,341
60,689
2,081
2,272
$ 107,811
18,308
72,089
4,105
1,684
$ 104,384
17,209
38,366
2,621
1,335
$ 81,617
12,849
28,665
471
1,151
$ 78,783
8,924
32,777
1,599
1,340
$ 69,248
8,256
32,670
1,187
1,358
$
(974) $
(124)
(8,532)
(61)
(347)
(460) $
(193)
(4,389)
(188)
(286)
(226) $
(307)
(2,891)
(41)
(98)
(31) $
(210)
(1,382)
8
(57)
(5) $
(210)
(25)
19
(65)
(107)
(533)
(16)
(84)
(84)
$ (17,293) $ (13,730) $ (9,784) $ (7,407) $ (8,502) $ (7,467)
31,529
382
437
51,695
279
387
24,233
425
469
47,233
954
361
34,928
2,002
700
62,843
5,275
1,138
TOTAL COMPANY
$ 381,511
Sales
Operating income (b)
75,641
245,703
Assets
29,015
Capital expenditures
Depreciation and amortization
9,268
(a) Assets are principally cash, investments, deferred taxes and other receivables.
(b) The year ended January 31, 2011 includes a $451 pre-tax gain on disposition of assets.
$ 406,175
77,692
273,210
29,675
13,098
$ 314,708
60,203
187,760
13,972
7,631
$ 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
16
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance
overall financial disclosure with commentary on the operating results, liquidity, capital resources and financial condition of Raven
Industries, Inc. (the Company or Raven). This commentary 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. The most significant risks and uncertainties impacting the operating performance and financial condition of
the Company are discussed in Item 1A., Risk Factors, of this Annual Report on Form 10-K.
This discussion should be read in conjunction with Raven's Consolidated Financial Statements and notes thereto in Item 8 of this
Form 10-K.
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
Accounting Pronouncements
EXECUTIVE SUMMARY
Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy,
construction and military/aerospace markets. The Company is comprised of unique operating units, or divisions, that are also its
reportable segments: Applied Technology Division, Engineered Films Division and Aerostar Division. While each segment has
distinct characteristics, the products and technologies are largely extensions of durable competitive advantages rooted in the
original research balloon business.
Effective June 1, 2012, the Company realigned the assets and team members of its Electronic Systems Division and deployed
them into the Company's Aerostar and Applied Technology Divisions. The realigned divisions will better align the Company's
corporate structure with its mission and long-term growth strategies. Electronic Systems net sales of electronic manufacturing
assemblies were realigned to Aerostar and the remaining proprietary products, after adjustments to intersegment eliminations, to
Applied Technology. The Company retrospectively adjusted its segment information for all periods presented to reflect this change
in segment reporting. These adjustments are reflected in the following discussion of segment results for comparison to prior year
results.
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
Vision and Strategy
At Raven, there is a singular purpose behind everything we do. It is: to solve great challenges. Great challenges require great
solutions. Solutions driven by quality, service, innovation and peak performance set Raven apart in the development of technology
that helps the world grow more food, produce more energy, protect the environment and live safely.
17
The Raven business model is our platform for success. Our business model is defensible, sustainable and gives us a consistent
approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three
unique business segments is summarized as follows:
Serve a set of diversified market segments with attractive near- and long-term growth prospects;
Consistently manage a pipeline of growth initiatives within our market segments;
Aggressively compete on quality, service, innovation and peak performance;
Hold ourselves accountable for continuous improvement;
Value our balance sheet as a source of strength and stability; and
•
•
•
•
•
• Make corporate responsibility a top priority.
This diversified business model enables us to weather near-term challenges, while continuing to grow and build for our future. It
is our culture and it is woven into how we do business.
The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in
the Results of Operations - Segment Analysis section.
dollars in thousands, except per-share data
Results of Operations
Net sales
Gross margins (a)
Operating income
Operating margins (a)
Net income attributable to Raven Industries, Inc.
Diluted income per share (b)
Cash Flow and Payments to Shareholders
Cash flow from operating activities
Cash outflow for capital expenditures
Cash dividends
Performance Measures
Return on net sales (c)
Return on average assets (d)
Return on beginning equity (e)
For the years ended January 31,
%
%
change
change
2012
2011
2013
$ 406,175
6% $ 381,511
21% $ 314,708
$
$
$
$
$
$
31.4%
77,692
19.1%
52,545
1.44
76,456
29,675
15,244
12.9%
20.3%
29.1%
30.5%
29.1%
3% $
75,641
26% $
60,203
19.8%
19.1%
4% $
4% $
50,569
1.39
25% $
24% $
40,537
1.12
$
$
$
43,831
29,015
13,025
$
$
$
42,085
13,972
34,095
13.3%
23.3%
35.8%
12.9%
22.6%
30.4%
(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) Diluted income per share reflects a two-for-one stock split effective July 25, 2012.
(c) Net income divided by sales.
(d) Net income divided by average assets.
(e) Net income divided by beginning equity.
Results of Operations - Fiscal 2013 compared to Fiscal 2012
The Company again posted record sales, operating income, net income and diluted earnings per share for fiscal 2013. These record
levels resulted in large part from continued higher demand for Applied Technology's products as well as increased demand in
Engineered Films' geomembrane and agriculture markets. With additional support from the demand for pit liners in the energy
market through the first half of fiscal 2013, Engineered Films' net sales increased 6% as compared to fiscal 2012. Strong original
equipment manufacturer (OEM) demand, international growth and new product sales fueled an 18% increase in net sales for
Applied Technology in fiscal 2013 as compared to fiscal 2012. Aerostar's net sales decreased 5% resulting from a lack of tethered
aerostat deliveries; however, in spite of this decrease, the Company's net sales increased 6% compared to the prior fiscal year.
Fiscal 2013 operating income increased 3% from fiscal 2012 primarily due to sales growth partially offset by higher investment
in research and development (R&D), selling and administrative expenses. Applied Technology increased its operating income
18
by 20% due to higher sales and associated operating leverage. Engineered Films' operating income growth of 17% reflects higher
sales and increased operating efficiencies and favorable price versus material cost spread seen in the first half of this fiscal year.
Aerostar posted a decline of 44% from the prior year operating income due primarily to lower sales.
Results of Operations - Fiscal 2012 compared to Fiscal 2011
Fiscal 2012 net sales rose 21% to $381.5 million and diluted earnings per share increased 24% to $1.39 per share as a result of
sales growth in all operating segments: Applied Technology (35%), Engineered Films (26%) and Aerostar (3%). These levels
resulted in large part from higher demand for Applied Technology's products due to a strong agriculture market and international
expansion. In addition, high crude oil prices resulted in increased drilling, which drove growth of pit liner sales in the energy
market for Engineered Films. Aerostar also posted sales increases primarily due to higher T-11 parachute and spare parts deliveries.
Fiscal 2012 operating income increased 26% from fiscal 2011 primarily due to these increases in net sales and improved margins
in Applied Technology.
Cash Flow and Payments to Shareholders
The Company continues to generate strong operating cash flows and maintain a strong capital base as reflected in the $49.4 million
cash balance as of January 31, 2013. Capital expenditures totaled $29.7 million in fiscal 2013 compared to $29.0 million in fiscal
2012. Capital spending consisted primarily of expenditures related to increased manufacturing capacity and a reclaim facility in
Engineered Films, Applied Technology and Aerostar's investments in future growth, including product development, facilities and
equipment along with renovation of the Company's downtown Sioux Falls corporate headquarters.
During fiscal 2013, $15.2 million was returned to shareholders though quarterly dividends. In the first quarter of fiscal 2013, the
quarterly dividend was raised from 9 cents per share to 10.5 cents per share, representing the 26th consecutive annual increase in
the dividend (excluding special dividends). During fiscal 2012, $13.0 million was returned to shareholders through quarterly
dividends.
Performance Measures
The Company continues to generate strong returns on net sales, average assets and beginning equity, which are important gauges
of Raven's ability to efficiently produce profits. Raven generated a 12.9% return on sales in fiscal 2013 as the Company continues
to capitalize on competitive advantages in niche markets.
RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology designs, manufactures, sells and services innovative precision agriculture products and information
management tools that help growers reduce costs, precisely control inputs and improve farm yields around the world.
Financial highlights for the fiscal years ended January 31,
dollars in thousands
2013
% change
2012
% change
2011
Net sales
Gross profit
Gross margins
Operating expense
Operating expense as % of sales
Operating income
Operating margins
$ 171,778
80,853
$
$
47.1%
21,263
12.4%
59,590
34.7%
18% $
21%
145,261
66,913
35% $
41%
107,910
47,455
46.1%
44.0%
24% $
17,163
20% $
14,258
11.8%
13.2%
20% $
49,750
50% $
33,197
34.2%
30.8%
Net sales increased $26.5 million, or 18%, to $171.8 million and operating income of $59.6 million was up $9.8 million, or 20%,
for fiscal 2013 compared to fiscal 2012.
Fiscal 2013 fourth quarter net sales grew $5.9 million, or 18%, to $38.4 million and operating income of $12.3 million rose $3.5
million, or 40%, compared to fourth quarter fiscal 2012.
A number of factors contributed to the strong full-year and fourth quarter comparative results:
• Market conditions. Global market fundamentals were healthy as population and income growth in emerging economies
have increased demand for food. The drought domestically has created some uncertainty in the marketplace, but overall,
this has been substantially offset by higher commodity prices. The Company continues to cultivate and deepen
19
•
relationships with key OEM partners, which expands market share and extends Raven's technology to a broader range
of customers.
Sales volume and new products. The favorable net sales comparisons for the fourth quarter and fiscal 2013 results reflect
strong sales growth across the majority of the division's product offerings, including application controls, guidance and
steering products, boom controls and injection products. Introduction of new products to the market, a staple in Applied
Technology's continued growth, generated sales of about $21 million in fiscal 2013.
International sales. Net sales outside the U.S. accounted for 25% of segment sales in fiscal 2013 compared to 23% for
fiscal 2012. International sales increased $9.0 million, or 27%, to $42.4 million in fiscal 2013 compared to fiscal 2012.
Products delivered to Canada, South America, Eastern Europe and South Africa generated the majority of this growth.
For the fourth quarter, international sales totaled $7.5 million, an increase of 55% from the prior year three-month period.
• Gross margins. Gross margins improved from 46.1% in fiscal 2012 to 47.1% in fiscal 2013 due to higher sales volume
•
and operating leverage.
• Operating expenses. Fiscal 2013 operating expenses were 12.4% of net sales compared to 11.8% for the prior year.
The increase is attributable to Applied Technology's commitment to spending on product development to drive OEM
demand and continued expansion into domestic and international markets.
For fiscal 2012, net sales increased $37.4 million, or 35%, to $145.3 million and operating income was up $16.6 million, or 50%,
to $49.8 million compared to fiscal 2011.
Several factors contributed to the strong comparative results for fiscal 2012 as compared to fiscal 2011:
•
• Market conditions. Global market fundamentals were healthy as population and income growth in emerging economies
increased demand for food, while natural disasters and adverse weather conditions restricted supplies. These factors
resulted in higher crop prices and wider acceptance of precision agriculture as a sound investment for maximizing yields
and controlling input costs.
Sales volume and selling prices. The increase in net sales was driven by higher sales volume, as selling prices reflected
only a modest increase year-over-year. The favorable year-over-year comparisons reflected strong sales growth across
the majority of the division's product offerings, including application controls (i.e. control systems, flow meters, valves),
field computers, guidance and steering products and boom controls.
International sales. Net sales outside the U.S. accounted for 23% of segment sales in fiscal 2012 compared to 20% for
fiscal 2011. International sales of $33.4 million in fiscal 2012 increased $11.8 million, or 55%, year-over-year as improved
farm fundamentals drove strong overall demand in Brazil, and to a lesser extent, Eastern Europe, Canada, South Africa
and Australia. New customers also contributed to the international sales growth, reflecting the segment's investment to
expand its geographical presence.
•
• Gross margins. Gross margins improved to 46.1% in fiscal 2012 from 44.0% in fiscal 2011 due to higher sales volume
and operating leverage.
• Operating expenses. Operating expenses were 11.8% of net sales in fiscal 2012 compared to 13.2% for the prior year.
Although spending for R&D and business development efforts increased expenses $2.9 million compared to the prior
year, such spending declined as a percentage of net sales, due to the significant growth in net sales.
Engineered Films
Engineered Films manufactures high performance plastic films and sheeting for industrial, energy, construction, geomembrane
and agricultural applications.
Financial highlights for the fiscal years ended January 31,
2013
$ 141,976
30,726
dollars in thousands
Net sales
Gross profit
Gross margins
Operating expenses
Operating expenses as % of sales
Operating income
17.7%
Operating margins
(a) Includes a $451 pre-tax gain on the disposition of assets.
21.6%
5,611
25,115
4.0%
$
$
% change
2012
% change
6% $ 133,481
26,090
18%
22% $
19.5%
4,589
3.4%
17% $
21,501
16.1%
26%
15%
30%
10%
2011
$ 105,838
22,708
$
$
21.5%
3,537
3.3%
19,622
(a)
18.5%
Net sales increased $8.5 million, or 6%, to $142.0 million while operating income was up $3.6 million, or 17%, to $25.1 million
for fiscal 2013 compared to fiscal 2012.
20
These year-over-year changes were driven primarily by the following factors:
•
• Market conditions. Economic growth in emerging markets continues to support high oil prices, though declining oil
prices beginning in the second half of fiscal 2013 have decreased demand for pit liners in our energy market.
Environmental and water conservation projects have increased demand for the division's containment liners in the
geomembrane market.
Sales volume and selling prices. Sales growth for fiscal 2013 was predominately driven by the increased sales into the
geomembrane and agriculture markets. Geomembrane market sales have increased $6.3 million, or 43% year-over-year,
and included the completion of a significant geomembrane reservoir project in Ohio in the first half of fiscal 2013. Sales
of VaporSafe® fumigation film and FeedFresh™ silage covers accounted for the most of the $4.8 million year-over-year
increase in the agriculture market. Energy market demand has softened but sales in this market held at solid levels for
fiscal 2013. Overall, selling prices increased 3-5% during fiscal 2013 and sales volume, as measured by pounds shipped,
was up 3% year-over-year.
Gross margins. Fiscal 2013 gross margins increased two percentage points, as compared to the prior year, due to improved
operating efficiencies, positive operating leverage and favorable price versus material spread seen in the first half of the
year. Material cost as a percentage of sales was 62% for the year ended January 31, 2013 compared with 65% for the
prior year.
Operating expenses. Fiscal 2013 operating expenses as a percentage of net sales increased to 4.0%, compared to 3.4%
in the prior year. The increase was attributable to higher R&D spending as the division continues to expand its product
development efforts, such as its recently announced Vapor Block® Spec 3 Showcase, a select-under-concrete-slab barrier
film series.
•
•
Fiscal 2013 fourth quarter net sales declined $5.2 million, or 14%, to $30.8 million and operating income of $4.4 million was
$2.1 million, or 33%, lower than the prior year fourth quarter.
Several factors contributed to the weaker fourth quarter comparative results:
•
•
Sales volume and selling price. Fourth quarter fiscal 2013 sales declined from the prior year fourth quarter due to lower
volume. Sales volume, as measured by pounds shipped, was down 15%, with the largest decline in the energy market.
Gross margin. Gross margins decreased in the fourth quarter of fiscal 2013 to 18.2% compared to 22.1% in the prior
year fourth quarter. The decrease in the margin was due to lower sales and unfavorable material cost spread.
For fiscal 2012, net sales increased $27.6 million, or 26%, to $133.5 million while operating income was up $1.9 million, or 10%,
to $21.5 million compared to fiscal 2011.
Fiscal 2012 results were primarily driven by the following factors:
• Market conditions. Economic growth in emerging markets continued to support higher oil prices, and in turn, increased
•
•
•
drilling activity and demand for pit liners in the energy market.
Sales volume and selling prices. Sales growth for fiscal 2012 was predominately driven by the increased demand for pit
liners utilized in oil and gas exploration activity. Environmental and water conservation projects increased the demand
for geomembrane containment liners and covers during fiscal 2012. New product sales of FeedFresh™ and fumigation
films contributed to the year-over-year sales increase in the agriculture market. Selling prices increased approximately
10% during fiscal 2012, reflecting higher material costs as compared with fiscal 2011. Sales volume, as measured by
pounds shipped, was up 12% year-over-year.
Gross margins. Full-year gross margins declined two percentage points, despite the 26% sales growth. The lower gross
margin was attributable to higher resin costs that were not fully offset by increased selling prices in the first nine months
of the fiscal 2012.
Operating expenses. Fiscal 2012 operating expenses as a percentage of net sales increased slightly to 3.4%, compared
to 3.3% in the prior year, excluding a $0.5 million gain on disposition of assets. The increase in selling expense of $0.4
million (13%) lagged the 26% increase in sales; however, a year-over-year increase in R&D spending of $0.7 million
contributed to the slight increase in operating expenses as a percentage of sales. Higher R&D spending resulted from
expanding product development efforts.
Aerostar
Aerostar designs and manufactures surveillance technology, electronic and specialty-sewn and sealed products including tethered
aerostats, high-altitude scientific balloons and airships, protective wear, parachutes, military decoys and marine navigation
equipment. Aerostar also provides electronics manufacturing services (EMS) for commercial customers with a focus on high-
21
mix, low-volume production. Assemblies manufactured by the Aerostar segment include avionics, communication, environmental
controls and other products where high quality is critical.
Aerostar acquired Vista Research, Inc. (Vista) at the end of fiscal 2012. Vista's smart-sensing radar systems (SSRS) use sophisticated
signal processing algorithms and are employed in a host of detection and tracking applications, including wide-area surveillance
for border patrol and the military.
Financial highlights for the fiscal years ended January 31,
dollars in thousands
Net sales
Gross profit
Gross margins
Operating expenses
Operating expenses as % of sales
Operating income
Operating margins
2013
$ 102,051
16,155
$
$
15.8%
5,814
5.7%
10,341
10.1%
% change
(5)% $
(31)%
15%
$
2012
107,811
23,378
21.7%
5,070
4.7%
% change
3% $
10%
24% $
2011
104,384
21,307
20.4%
4,098
3.9%
(44)% $
18,308
6% $
17,209
17.0%
16.5%
Net sales were unable to reach last year's results of $107.8 million, declining 5% to $102.1 million. Operating income of $10.3
million was down $8.0 million, or 44%, compared to fiscal 2012.
For the fourth quarter, net sales fell $6.5 million to $23.2 million from $29.7 million in the comparative period of 2012. Operating
income declined $2.6 million to $2.8 million compared to fiscal 2012 fourth quarter.
Fiscal 2013 and fourth quarter comparative results were primarily attributable to the following:
•
• Market conditions. Throughout fiscal 2013, Aerostar faced continued uncertainty and sluggish demand. Certain of this
segment's markets are subject to significant variability due to federal spending. Changes in EMS revenues, however,
were primarily due to expected decreases in avionics sales.
Sales volumes. Net sales for fiscal 2013 reflect a full year of Vista sales, $14.4 million compared to $0.6 million in fiscal
2012, and increased intercompany sourcing to Applied Technology, which added $4.1 million. These positives were not
enough to offset a decrease in tethered aerostat deliveries and electronics manufacturing sales for the year. Vista's fourth
quarter net sales of $4.8 million helped moderate a $4.8 million decline in relatively high-margin aerostat sales, as well
as lower electronics manufacturing revenues, for the three-month period.
Gross margins. Gross margins declined from 21.7% in fiscal 2012 to 15.8% for fiscal 2013. The change in product mix
negatively impacted gross margins for both the fiscal year and quarter ended January 31, 2013 as last year's margins were
favorably impacted by higher-margin aerostat sales. Aerostat sales accounted for roughly 17% of net sales in fiscal 2012
compared to approximately 2% in fiscal 2013.
Operating expenses. Operating expenses of $5.8 million or 5.7% of sales increased $0.7 million from $5.1 million or
4.7% of sales. Higher operating expenses primarily reflect increased investment in R&D to support next generation
aerostat and Vista radar technology.
•
•
For fiscal 2012, net sales increased $3.4 million, or 3%, to $107.8 million and operating income grew $1.1 million, or 6%, to
$18.3 million as compared to fiscal 2011.
Fiscal 2012 results were driven by the following:
•
•
•
Sales volumes. Fiscal 2012 net sales increased $3.4 million from the prior year, primarily due to higher T-11 parachute
and spare parts deliveries, additional protective wear sales and additional intercompany sourcing assembly to the Applied
Technology Division, partially offset by a decrease in tethered aerostat deliveries.
Volatility in aerostat deliveries. The Company continued to see volatility in the delivery of aerostats which impact
comparative results. Aerostat sales in fiscal 2012 were $7.3 million in the first quarter; $3.7 million in the second quarter;
$1.6 million in the third quarter and $5.1 million in the fourth quarter.
Gross margin improvement. Gross margins improved to 21.7% compared to 20.4% in the prior year. Gross margin
expansion on T-11 parachutes resulted from manufacturing efficiencies and higher sales volume but was partially offset
by a change in product mix. Aerostat sales, which carry a relatively higher margin, accounted for approximately 16%
of net sales in fiscal 2012 compared to 21% in fiscal 2011.
22
•
Operating expenses. Operating expenses of $5.1 million, or 4.7% of sales, increased $1.0 million from $4.1 million, or
3.9% of sales, primarily as a result of higher investment in research and development to support next generation aerostat
technology and the development of lighter but stronger materials, along with higher selling and business development
expense to expand the tethered aerostat business.
Corporate Expenses (administrative expenses; other (expense), net; and income taxes)
dollars in thousands
Administrative expenses
Administrative expenses as a % of sales
Other income (expense), net
Effective tax rate
For the years ended January 31,
$
$
2013
17,293
4.3%
(46)
32.3%
$
$
2012
13,730
3.6%
57
33.1%
$
$
2011
9,784
3.1%
79
32.8%
Administrative expenses increased 26% in fiscal 2013 compared with fiscal 2012. Investments in additional legal, finance, human
resources and information technology personnel to support current and future growth strategies through a strengthened corporate
infrastructure accounted for the majority of the increased spending.
Other income (expense), net consists mainly of activity related to the Company's equity investment, interest income and foreign
currency transaction gains or losses.
The fiscal 2013 effective tax rate of 32.3% was lower than the fiscal 2012 effective tax rate of 33.1% due to additional R&D
credits available and a higher deduction for manufacturing income in the U.S.
OUTLOOK
At Raven, we solve great challenges. It's this purpose that keeps us grounded in markets and opportunities that have meaning,
align with our values and provide profitable growth. For the first quarter, we continue to see positive trends in Applied Technology,
though we face a challenging year-over-year comparison. Aerostar will again be impacted by a lack of aerostat orders. And within
Engineered Films, we anticipate a challenging environment and another tough year-over-year comparison. Therefore, we do not
expect to grow earnings in the first quarter of fiscal 2014.
One of the hallmarks of Raven's business model is the ongoing investment in its business development pipeline. Looking ahead
to fiscal 2014, the quality of this pipeline is very robust and encouraging. This strength ensures the Company's competitiveness
and gives us confidence in our outlook for earnings growth for the year.
Despite expected lower earnings in the first quarter of fiscal 2014, management expects to return to historic earnings growth levels
in fiscal 2014 by leveraging the investments made over the last few years and through disciplined execution of the Raven business
model. By building and nurturing its business development pipeline in fiscal 2014, management expects to see:
•
•
•
•
Earnings growth from new product developments for existing markets and key adjacent market expansions;
Potential acquisitions that support the Company's overall product and growth strategy;
Capital expansions to address capacity and capabilities; and
Earnings growth from further international market penetration with product lines from all three divisions.
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 normal operating, investing and financing activities. Sufficient borrowing capacity
also exists if necessary for a large acquisition or major business expansion.
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.
23
Cash and cash equivalents totaled $49.4 million at January 31, 2013 compared to $25.8 million on the same date in 2012 driven
by higher cash flows from operating activities. This cash flow was partially offset by cash outflow for capital expenditures,
dividends paid to shareholders and payments on acquisition-related contingent liabilities.
Raven has an uncollateralized credit agreement that provides a $10.5 million line of credit and expires November 30, 2013. There
is no outstanding balance under the line of credit at January 31, 2013. The line of credit is reduced by outstanding letters of credit
totaling $1.0 million as of January 31, 2013. The credit line is expected to be renewed during fiscal 2014.
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 $76.5 million in fiscal 2013 compared with $43.8 million in fiscal 2012. The increase
in operating cash flows is the result of higher Company earnings and cash generated from accounts receivable and inventory
account balances.
In fiscal 2013, inventory and accounts receivable generated $12.9 million of cash versus consuming $27.1 million in fiscal 2012.
The Company's inventory turnover rate was consistent from the prior year despite the decrease in inventory levels (trailing 12-
month inventory turn of 5.4X in fiscal 2013 and fiscal 2012). Cash collections continue to be efficient despite the increase in
trailing 12 months days sales outstanding of 50 days in fiscal 2013 compared to 47 days in fiscal 2012. Year-over-year variability
in accounts payable and accrued liabilities consumed $4.6 million of cash in fiscal 2013 compared to cash generated of $1.7 million
in fiscal 2012 due to timing of payments. In fiscal 2013, deferred income taxes consumed $1.8 million of cash compared to $5.4
million of additional cash flow in fiscal 2012, which related primarily to bonus depreciation taken on qualified capital expenditures.
In fiscal 2012, inventory and accounts receivable consumed $27.1 million of cash compared to $14.7 million in fiscal 2011. The
Company's inventory turnover rate declined slightly from the prior year due to higher raw material inventory levels to support
increased sales (trailing 12-month inventory turn of 5.4X in fiscal 2012 versus 5.6X in fiscal 2011). Cash collections continued
to be efficient, with the trailing 12 month days sales outstanding of 47 days in fiscal 2012 compared to 48 days in fiscal 2011.
Year-over-year variability in accounts payable consumed $0.2 million of cash in fiscal 2012 compared to cash generated of $2.7
million in fiscal 2011 due to timing of payments. In fiscal 2012, the change in deferred income taxes contributed $5.4 million of
additional operating cash flow due primarily to the deferral of tax liabilities resulting from bonus depreciation taken on qualified
capital expenditures.
Investing Activities
Cash used in investing activities totaled $29.9 million in fiscal 2013, $40.3 million in fiscal 2012 and $11.4 million in fiscal
2011. Capital expenditures totaled $29.7 million in fiscal 2013 compared to $29.0 million million in fiscal 2012 and $14.0 million
in fiscal 2011. Capital spending consisted primarily of expenditures related to increased manufacturing capacity and a reclaim
facility in Engineered Films, Applied Technology's research and training facilities along with renovation of the Company's
downtown Sioux Falls corporate headquarters.
There were no businesses acquired in fiscal 2013. Capital outlay for payments related to business acquisitions was $11.8 million
in fiscal 2012, primarily related to the Vista acquisition.
Management anticipates capital spending in the $25 - $30 million range in fiscal 2014. As part of the Company's investment in
corporate infrastructure, over the next two years Raven will continue to invest in the renovation of its downtown Sioux Falls
corporate headquarters, spending approximately $11 - $13 million in that period. Expansion of Engineered Films' capacity and
Applied Technology's manufacturing and research and development facility are expected to continue. In addition, management
will evaluate strategic acquisitions that result in expanded capabilities and solidify competitive advantages.
Financing Activities
Financing activities consumed cash of $23.0 million in fiscal 2013 compared with $15.2 million in fiscal 2012 and $33.8 million
in fiscal 2011.
Quarterly dividends paid in fiscal 2013 were $15.2 million, or $0.42 per share, compared to $13.0 million in fiscal 2012 and $11.6
million in fiscal 2011. In the first quarter of fiscal 2013, the Company increased the quarterly dividend rate (excluding special
24
dividends) for the 26th consecutive year. Raven has now paid a dividend in 40 consecutive years. In fiscal 2011, the Company
paid a special dividend of $22.5 million, or $0.625 per share.
During fiscal 2013, the Company made $8.4 million in payments on acquisition-related contingent liabilities related to the Vista
acquisition and the 2009 acquisition of substantially all of the assets of Ranchview, Inc., a privately held Canadian corporation.
Fiscal 2012 financing cash outflow included a payment to close a line of credit assumed as part of the Vista acquisition totaling
$2.9 million. No borrowings were made under this line of credit.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of January 31, 2013, 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 table below.
A summary of the obligations and commitments at January 31, 2013 is shown below.
dollars in thousands
Operating leases
Unconditional purchase obligations(a)
Postretirement benefits(b)
Acquisition-related contingent payments(c)
Uncertain tax positions(d)
Line of credit(d)
Total
4,120
50,996
21,379
12,284
—
—
Less than
1 year
1,478
50,996
235
732
—
—
1-3
years
3-5
years
More than
5 years
2,319
—
537
2,384
—
—
323
—
642
3,756
—
—
—
—
19,965
5,412
—
—
(a)
(b)
$ 88,779
Includes unconditional obligations of $2,185 related to the ongoing renovations of the Company's corporate headquarters.
Postretirement benefit amounts represent expected payments on the accumulated postretirement benefit obligation before it is discounted.
(c) Amounts reflect the future earn-out payments with respect to prior year business acquisitions. Actual payments on these obligations may
vary from the reported amounts since the total payment amount due depends upon certain future conditions. See below for further detail
on the specific obligations.
53,441
25,377
5,240
4,721
$
$
$
$
(d) See below for further details on specific obligations.
Acquisition-related obligations
The Company has a future obligation for earn-out payments associated with business acquisitions completed in prior years. The
Company agreed to pay additional contingent consideration not to exceed $15.0 million, based upon earn-out percentages on
specific revenue streams until January 31, 2019. The total liability recorded on the Consolidated Balance Sheet as of January 31,
2013 related to these future obligations was $3.1 million, of which $0.7 million was classified as "Accrued liabilities" and $2.4
million as "Other liabilities". These liabilities represent the present value of earn-out payments classified as consideration at the
acquisition date. The Company has not paid any amount on the earn-out obligation as of January 31, 2013. In a transaction
separate from the acquisition, the Company agreed to fund a revenue-based bonus pool, also not to exceed $15.0 million, which
will be accrued when the specific revenue stream is recorded using those same earn-out percentages.
Uncertain tax positions
Raven reported a total liability for uncertain tax positions of $5.8 million at January 31, 2013. The Company is not able to
reasonably estimate the timing of future payments relating to these non-current tax benefits. This obligation is retired when the
applicable tax year is no longer subject to examination by the tax authorities.
Line of credit
Raven has an uncollateralized credit agreement with Wells Fargo Bank, N.A. (Wells Fargo) providing a line of credit of $10.5
million with a maturity date of November 30, 2013, bearing interest at 1.5% above the daily one month London Inter-Bank Market
Rate. Letters of credit totaling $1.0 million have been issued under the line, primarily to support self-insured workers' compensation
bonding requirements. No borrowings were outstanding as of January 31, 2013, 2012 and 2011 and $9.5 million was available
at January 31, 2013. There have been no borrowings under the credit line with Wells Fargo in the last three fiscal years. 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.
25
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.
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. The electronics manufacturing business in Aerostar Division typically has recourse to customers for obsolete or excess
material. When these 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 write-off experience by segment and an estimate of the ability to collect 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. Accounts receivable and any related allowance are written off
after all collection efforts have been exhausted.
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 determined to be: Applied Technology Division, Engineered Films Division, and two separate reporting
units in the Aerostar Division, one which is Vista and the other is all other Aerostar operations.
The Company has the option to perform a qualitative impairment assessment over relevant events and circumstances to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Certain events and
circumstances reviewed are macroeconomics, industry conditions, cost inputs, overall financial performance and other relevant
entity-specific events. If events and circumstances indicate the fair value of a reporting unit is more likely than not greater than
its carrying amount, then no further goodwill impairment testing is needed. If events and circumstances indicate the fair value of
a reporting unit is less than its carrying value, or the Company does not elect to do the qualitative assessment, then the Company
must perform step one of the goodwill impairment analysis.
In step one of the impairment analysis, the fair value of each reporting unit is determined using a discounted cash flow analysis.
Projecting discounted future cash flows requires the Company to make significant estimates and assumptions regarding future
revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Management
26
evaluates the merits of each significant assumption used to determine the fair value of the reporting unit. Actual results may differ
from those used in our valuations.
In developing our discounted cash flow analysis, assumptions about future revenues and expenses, capital expenditures and changes
in working capital are based on our annual operating plan and long-term business plan for each of our reporting units. These plans
take into consideration numerous factors including experience, anticipated future economic conditions, changes in raw material
prices and growth expectations. These assumptions are determined over a five-year strategic planning period. The five year growth
rates for revenues and operating profits vary for each reporting unit being evaluated.
Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows
of the respective 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 definite-lived intangibles, investments in affiliates and property, plant and equipment, management
tests for recoverability whenever events or changes in circumstances indicate that the asset's carrying amount may not be
recoverable. Property, plant and equipment are depreciated over the estimated lives of the assets using accelerated methods, which
reduces the likelihood of an impairment loss. Management periodically discusses any significant changes in the utilization of long-
lived assets, which may result from, but are not limited to, an adverse change in the asset's physical condition or a significant
adverse change in the business climate. For purposes of recognition and measurement of an impairment loss, a long-lived asset
is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated
undiscounted cash flows used in determining its fair value.
Uncertain Tax Positions
Accounting for tax positions requires judgments, including estimating reserves for uncertainties associated with the interpretation
of income tax laws and regulations and the resolution of tax positions with tax authorities after discussions and negotiations. The
ultimate outcome of these matters could result in material favorable or unfavorable adjustments to the consolidated financial
statements.
ACCOUNTING PRONOUNCEMENTS
Accounting Standards Adopted
In July 2012 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2012-02, "Testing
Indefinite-Lived Intangible Assets for Impairment" (ASU No. 2012-02). ASU No. 2012-02 is intended to reduce the cost and
complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows Raven to perform a
"qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar
in approach to the goodwill impairment test. The revised guidance is effective for annual and interim impairment tests performed
for fiscal years beginning after September 15, 2012. The Company has no material indefinite-lived intangible assets. Early
adoption of this guidance in fiscal 2013 had no material impact on the Company's consolidated financial statements.
Pending Accounting Standards
At January 31, 2013 there are no accounting pronouncements pending that are of significance, or potential significance, to the
Company.
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
27
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,
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.
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 outstanding as of January 31, 2013. 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 "Other income (expense), net" in the Consolidated Statements
of Income and Comprehensive Income. Foreign currency fluctuations had no material effect on the Company's financial condition,
results of operations or cash flows.
28
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 and Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Information (Unaudited) - included in Item 5
Page(s)
30
31
32
33
34
35
36
11
29
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 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 effectiveness of the Company's internal control over financial reporting as of January 31, 2013. In
making this assessment, it used the criteria described by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control - Integrated Framework. Based on this assessment using those criteria , we concluded that, as of January 31,
2013, the Company's internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of January 31, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on the
next page.
/s/ DANIEL A. RYKHUS
Daniel A. Rykhus
/s/ THOMAS IACARELLA
Thomas Iacarella
President & Chief Executive Officer
Vice President & Chief Financial Officer
March 28, 2013
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Raven Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive
income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Raven Industries,
Inc. and its subsidiaries at January 31, 2013, 2012 and 2011, and the results of their operations and their cash flows for each of
the three years in the period ended January 31, 2013 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
January 31, 2013, 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
and financial statement schedule, 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. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, 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.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 28, 2013
31
RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars and shares 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
Amortizable intangible assets, net
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
Shareholders' equity
$
$
$
Common stock, $1 par value, authorized shares 100,000; issued
65,223; 65,132; and 65,022, respectively
Paid in capital
Retained earnings
Accumulated other comprehensive loss
Less treasury stock at cost, 28,897 shares
Total Raven Industries, Inc. shareholders' equity
Noncontrolling interest
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $
The accompanying notes are an integral part of the consolidated financial statements.
32
2013
As of January 31,
2012
2011
49,353
—
56,303
46,189
3,107
1,796
$
25,842
—
60,759
54,756
3,299
2,903
$
37,563
1,000
39,967
43,679
2,733
3,239
156,748
147,559
128,181
81,238
22,274
8,681
4,269
273,210
14,438
17,192
1,431
33,061
18,702
65,223
5,885
205,695
(2,095)
(53,362)
221,346
101
221,447
273,210
61,894
22,274
9,412
4,564
245,703
16,162
22,993
1,491
40,646
24,467
32,566
9,607
193,650
(1,962)
(53,362)
180,499
91
180,590
245,703
$
$
$
41,522
10,777
1,585
5,695
187,760
16,715
16,096
1,524
34,335
12,211
32,511
7,060
156,125
(1,120)
(53,362)
141,214
—
141,214
187,760
$
$
$
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars 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
Other income (expense), net
Income before income taxes
Income taxes
Net income
Net income attributable to the noncontrolling interest
Net income attributable to Raven Industries, Inc.
Net income per common share:
- Basic
- Diluted
Comprehensive income:
Net income
Other comprehensive income, net of tax:
Foreign currency translation
Postretirement benefits, net of income tax of $70, $432 and $25,
respectively
Other comprehensive income (loss), net of tax
For the years ended January 31,
$
2013
406,175
278,502
127,673
$
2012
381,511
265,319
116,192
$
2011
314,708
223,279
91,429
13,367
36,614
—
77,692
(46)
77,646
25,091
52,555
10
52,545
1.45
1.44
52,555
(3)
(130)
(133)
$
$
$
$
9,724
30,827
—
75,641
57
75,698
25,063
50,635
66
50,569
1.40
1.39
50,635
(38)
(804)
(842)
$
$
$
$
7,604
24,073
(451)
60,203
79
60,282
19,745
40,537
—
40,537
1.12
1.12
40,537
127
(46)
81
$
$
$
$
Comprehensive income
52,422
49,793
40,618
Comprehensive income attributable to noncontrolling interest
10
66
—
Comprehensive income attributable to Raven Industries, Inc.
$
52,412
$
49,727
$
40,618
The accompanying notes are an integral part of the consolidated financial statements.
33
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars and shares in thousands, except per-share amounts)
$1 Par
Common
Stock
Paid-in
Capital
Treasury Stock
Shares
Cost
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Raven
Industries, Inc.
Equity
Non
controlling
Interest
Total
Equity
Balance January 31, 2010
$ 32,478 $ 5,604
(14,449) $ (53,362) $ 149,732 $
(1,201) $
133,251 $
— $133,251
Net income
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.32 per share)
Cash dividends (special - $0.625 per share)
Stock surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
—
—
—
—
—
—
17
32
(79)
(3,038)
112
3,257
— 1,179
—
9
—
—
—
—
—
—
—
—
—
—
40,537
—
— (11,563)
— (22,581)
—
—
—
—
—
—
—
—
—
81
—
—
—
—
—
—
40,537
— 40,537
81
—
81
(11,546)
(22,549)
— (11,546)
— (22,549)
(3,117)
— (3,117)
3,369
1,179
9
—
—
—
3,369
1,179
9
Balance January 31, 2011
32,511
7,060
(14,449)
(53,362)
156,125
(1,120)
141,214
— 141,214
—
—
50,569
—
50,569
—
(842)
(842)
66
—
50,635
(842)
Net income
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.36 per share)
Director shares issued
Stock surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
Noncontrolling capital contribution
—
—
—
7
—
—
19
(7)
(37)
(2,089)
84
1
—
—
2,413
1,921
290
—
—
—
—
—
—
—
—
—
—
— (13,044)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance January 31, 2012
32,566
9,607
(14,449)
(53,362)
193,650
(1,962)
180,499
Net income
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.42 per share)
Two-for-one stock split
Stock surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
—
—
—
—
—
63
—
—
—
32,598
(7,405)
(14,448)
—
—
52,545
—
52,545
—
(133)
(133)
— (15,307)
— (25,193)
(36)
(2,215)
95
2,503
— 3,075
—
257
—
—
—
—
—
—
—
—
—
—
—
—
(13,025)
— (13,025)
—
—
—
(2,126)
— (2,126)
2,497
1,922
290
—
—
—
—
25
91
10
—
2,497
1,922
290
25
180,590
52,555
(133)
—
—
—
—
—
—
(15,244)
— (15,244)
—
—
—
(2,251)
— (2,251)
2,598
3,075
257
—
—
—
2,598
3,075
257
Balance January 31, 2013
$ 65,223 $ 5,885
(28,897) $ (53,362) $ 205,695 $
(2,095) $
221,346 $
101 $221,447
The accompanying notes are an integral part of the consolidated financial statements.
34
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended January 31,
2013
2012
2011
$
52,555
$
50,635
$
40,537
11,496
1,602
—
(508)
784
(156)
(1,803)
3,075
9,199
212
76,456
(29,675)
—
—
—
—
(255)
(29,930)
(15,244)
—
(8,367)
604
(23,007)
(8)
23,511
25,842
49,353
8,180
1,088
—
—
(14)
(156)
5,358
1,922
(23,076)
(106)
43,831
(29,015)
(11,787)
1,000
—
—
(511)
(40,313)
(13,025)
(2,869)
—
660
(15,234)
(5)
(11,721)
37,563
$
25,842
$
6,512
1,119
(451)
—
274
(195)
423
1,179
(7,273)
(40)
42,085
(13,972)
(399)
3,700
(1,700)
888
65
(11,418)
(34,095)
—
—
261
(33,834)
46
(3,121)
40,684
37,563
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
Gain on acquistion-related contingent liability settlement
Change in fair value of acquisition-related contingent consideration
Income from equity investment
Deferred income taxes
Share-based compensation expense
Change in operating assets and liabilities
Other operating activities, net
Net cash provided by operating activities
INVESTING ACTIVITIES:
Capital expenditures
Payments related to business acquisitions, net of cash acquired
Sales of short-term investments
Purchases of short-term investments
Proceeds from disposition of assets
Other investing activities, net
Net cash used in investing activities
FINANCING ACTIVITIES:
Dividends paid
Repayment of line of credit
Payment of acquisition-related contingent liabilities
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.
35
RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per-share amounts)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
Raven Industries, Inc. (the Company or Raven) is a diversified technology company providing a variety of products to customers
within the industrial, agricultural, energy, construction and military/aerospace markets. The Company includes six wholly-owned
subsidiaries: Aerostar International, Inc. (Aerostar); Raven Industries Canada, Inc. (Raven Canada); Raven Industries GmbH
(Raven GmbH); Raven Industries Australia Pty Ltd (Raven Australia); Raven Do Brazil Participacoes E Servicos Technicos LTDA
(Raven Brazil); and Vista Research, Inc. (Vista). The Company and these subsidiaries comprise three unique operating units, or
divisions, classified into reportable segments (Applied Technology, Engineered Films and Aerostar).
The consolidated financial statements for the periods included herein have been prepared by Raven pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The accompanying consolidated financial statements include the
accounts of Raven and its wholly-owned or controlled subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
Noncontrolling Interest
Noncontrolling interests represent capital contributions, income and loss attributable to the owners of less than wholly-owned and
consolidated entities. During fiscal year 2012, the Company entered into a business venture agreement to pursue potential product
and support services contracts for agencies and instrumentalities of the United States government. The business venture, Aerostar
Integrated Systems (AIS), is 75% owned by the Company and is included in the Aerostar business segment. No capital contributions
were made by the noncontrolling interest since the initial capitalization. Given the Company's majority ownership interest, the
accounts of the business venture have been consolidated with the accounts of the Company, and a noncontrolling interest has been
recorded for the noncontrolling investor's interests in the net assets and operations of the business venture.
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 “Other income (expense), 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), an impairment loss would be recorded.
Use of Estimates
Preparing the financial statements in conformity with accounting principles generally accepted in the United States of America
(GAAP) 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 period. 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 and comprehensive 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 “Other income (expense),
net” in the Consolidated Statements of Income and Comprehensive 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, N.A.
36
(Dollars in thousands, except per-share amounts)
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount, do not bear interest and are considered past due based on invoice
terms. Unbilled receivables arise when revenues have been earned, but not billed, and are related to differences in timing. The
allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses. This is based on historical
write-off experience by segment and an estimate of the collectability of any known problem accounts.
Inventory Valuation
Inventories are carried 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 carried at cost and are depreciated over the estimated useful lives of the assets using accelerated
methods. The estimated useful lives used for computing depreciation are as follows:
Building and improvements
Manufacturing equipment by segment
Applied Technology
Engineered Films
Aerostar
Furniture, fixtures, office equipment and other
15 - 39 years
3 - 5 years
5 - 12 years
3 - 5 years
3 - 7 years
The cost of maintenance and repairs is charged to expense in the period incurred, and renewals and betterments are capitalized.
The cost and related accumulated depreciation of assets sold or disposed 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 $7 in fiscal 2013, $553 in fiscal 2012 and $1,280
in fiscal 2011. 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 computed
on the straight-line basis over the estimated lives ranging from 3 to 5 years and is included in depreciation.
Fair Value Measurements
Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should
be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses the
established fair value hierarchy, which classifies or prioritizes the inputs used in measuring fair value. These classifications
include:
Level 1 - Observable inputs such as quoted prices in active markets;
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 - Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.
The Company's financial assets required to be measured at fair value on a recurring basis include cash and cash equivalents. The
Company determines fair value of its cash equivalents through quoted market prices.
The Company's goodwill and long-lived assets, including intangible assets subject to amortization, are measured at fair value on
a non-recurring basis. These valuations are derived from valuation techniques in which one or more significant inputs are not
observable. Our accounting policy and methodology for assessing impairment of these assets is further described below and in
the Management's Discussion and Analysis Critical Accounting Estimates.
For all acquisitions, the Company is required to measure the fair value of the net identifiable tangible and intangible assets acquired,
excluding goodwill and deferred income taxes. In addition, the Company determines the estimated fair value of contingent
consideration as of the acquisition date, and subsequently at the end of each reporting period. These valuations are derived from
valuation techniques in which one or more significant inputs are not observable. Fair value measurements associated with
acquisitions, including acquisition-related contingent liabilities, are described in Note 5.
37
(Dollars in thousands, except per-share amounts)
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 either on a straight-line basis or under the undiscounted cash flows method
over the estimated useful lives ranging from 3 to 20 years. The straight-line method of amortization is used when it 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 Consolidated Statements of Income and Comprehensive
Income.
Goodwill is tested for impairment on an annual basis during the fourth quarter and between annual tests whenever a triggering
event indicates there may be an impairment. Impairment tests of goodwill are performed at the reporting unit level. A qualitative
impairment assessment over relevant events and circumstances may be assessed to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If events and circumstances indicate the fair value of a
reporting unit is less than its carrying value, then the 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 the excess of the carrying value of the asset 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 probable 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 it is realized or realizable and has been earned. Revenue is recognized when there is persuasive
evidence of an arrangement, the sales price is determinable, collectability is reasonably assured and shipment or delivery has
occurred (depending on the terms of the sale). The Company sells directly to customers or distributors who incur the expense
and commitment for any post-sale obligations beyond stated warranty terms. Estimated returns, sales allowances or warranty
charges are recognized upon shipment of a product.
For certain long-term, service-related contracts, the Company recognizes revenue under the percentage-of-completion method of
accounting, whereby contract revenues are recognized on a pro-rata basis based upon the ratio of costs incurred compared to total
estimated contract costs. Losses estimated to be incurred upon completion of contracts are charged to operations when they become
known.
Operating Expenses
The primary types of operating expenses are classified in the income statement as follows:
38
(Dollars in thousands, except per-share amounts)
Cost of sales
Direct material costs
Material acquisition and handling costs
Direct labor
Factory overhead including depreciation
Inventory obsolescence
Product warranties
Shipping and handling cost
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. Under
this method, the fair value of share-based compensation is determined as of the grant date and the related expense is recorded over
the period in which the share-based compensation vests.
Income Taxes
Deferred income taxes reflect future tax effects of temporary differences between the tax and financial reporting basis of the
Company's assets and liabilities measured using enacted tax laws and statutory tax rates applicable to the periods when the temporary
differences will affect taxable income. When necessary, deferred tax assets are reduced by a valuation allowance to reflect realizable
value. Accruals are maintained for uncertain tax positions.
Accounting Pronouncements
Accounting Standards Adopted
In July 2012 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2012-02, "Testing
Indefinite-Lived Intangible Assets for Impairment" (ASU No. 2012-02). ASU No. 2012-02 is intended to reduce the cost and
complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows Raven to perform a
"qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar
in approach to the goodwill impairment test. The revised guidance is effective for annual and interim impairment tests performed
for fiscal years beginning after September 15, 2012. The Company has no material indefinite-lived intangible assets. Early
adoption of this guidance in fiscal 2013 had no material impact on the Company's consolidated financial statements.
Pending Accounting Standards
At January 31, 2013 there are no accounting pronouncements pending that are of significance, or potential significance, to the
Company.
39
(Dollars in thousands, except per-share amounts)
NOTE 2
SELECTED BALANCE SHEET INFORMATION
Following are the components of selected balance sheet items:
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:
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
Acquisition-related contingent consideration
Other
Other liabilities:
Postretirement benefits
Acquisition-related contingent consideration
Deferred income taxes
Uncertain tax positions
2013
As of January 31,
2012
2011
$
$
$
$
$
$
$
$
$
$
$
$
$
$
56,508
(205)
56,303
8,571
2,675
34,943
46,189
860
936
1,796
2,077
52,936
101,645
(75,420)
81,238
4,063
—
206
4,269
3,978
4,025
520
2,506
287
1,888
1,392
712
1,884
17,192
8,072
2,359
2,453
5,818
18,702
$
$
$
$
$
$
$
$
$
$
$
$
$
$
60,929
(170)
60,759
7,094
6,105
41,557
54,756
1,873
1,030
2,903
2,077
36,952
89,919
(67,054)
61,894
4,409
—
155
4,564
4,297
4,387
966
2,789
1,244
1,699
2,596
3,266
1,749
22,993
7,348
7,655
4,518
4,946
24,467
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
4,728
924
43
5,695
3,264
3,186
253
3,356
1,627
1,437
1,453
263
1,257
16,096
5,757
2,230
—
4,224
12,211
40
(Dollars 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 GAAP 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
2013
As of January 31,
2012
$
$
142
(2,237)
(2,095)
$
$
145
(2,107)
(1,962)
$
$
2011
183
(1,303)
(1,120)
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
Significant non-cash transactions:
Capital expenditures included in accounts payable
For the years ended January 31,
2013
2012
2011
$
$
$
$
4,362
8,567
976
(2,937)
(1,709)
(60)
9,199
26,697
2,196
$
$
$
$
(15,569)
(11,528)
(291)
(233)
4,578
(33)
(23,076)
16,782
984
$
$
$
$
(5,536)
(9,189)
96
2,713
4,428
215
(7,273)
19,700
2,181
NOTE 5
ACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Vista Research
In January 2012, the Company completed the purchase agreement of all the outstanding stock of Vista Research, Inc. (Vista) for
a purchase price of $23,269, of which $12,000 was cash and $2,869 was an assumed line of credit paid by Raven at closing. The
fair value of contingent consideration and earn-outs comprised the remaining $8,400 of the purchase price. Results of operations
subsequent to the acquisition have been combined into the Aerostar Division.
Vista is a leading provider of surveillance systems that enhance the effectiveness of radars using sophisticated algorithms. Vista's
smart sensing radar systems (SSRS) are employed in a host of advanced detection and tracking applications, including wide-area
surveillance for the border patrol and the military. This acquisition allows Raven to enhance its tethered aerostat security solutions
within its Aerostar Division and positions the Company to meet growing global demand for low-cost detection and tracking systems
used by government and law enforcement agencies.
In connection with the stock purchase agreement, Raven agreed to pay an aggregate $6,500 upon receipt and delivery of a specific
quantity of SSRS orders by certain milestone dates. Both of these milestones were met in fiscal 2013 and Raven paid the accrued
contingent consideration of $6,500 in the fourth quarter.
Under the stock purchase agreement, the Company will also make annual payments based upon earn-out percentages on specific
revenue streams for seven years after the purchase date, not to exceed $15,000. The fair value of these contingent considerations
is $3,071, of which $712 was classified in "Accrued liabilities" and $2,359 as "Other liabilities" in the Consolidated Balance Sheet
for the year ended January 31, 2013. At January 31, 2012, the fair value of the contingent consideration for the Vista acquisition
was $8,400, of which $3,068 was classified as "Accrued liabilities" and $5,332 as "Other liabilities" in the Consolidated Balance
Sheet for the year ended January 31, 2012.
41
(Dollars in thousands, except per-share amounts)
The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair
values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill.
Goodwill recorded as part of the purchase price allocation was $11,497, all of which is tax deductible. Goodwill resulting from
this business combination is largely attributable to the experienced workforce of the acquired business and synergies expected to
arise after integration of Vista products into existing Aerostar products. Identifiable intangible assets acquired as part of the
acquisition were $7,810, including definite-lived intangibles, such as customer relationships, proprietary technology and non-
compete agreements, with a useful life ranging from six to ten years. These intangible assets are being amortized on the basis of
undiscounted cash flows over a weighted average period of 4.1 years.
The total purchase price was allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
Cash
Accounts receivable
Inventory
Other current and long term assets
Property, plant and equipment, net
Goodwill
Existing technology
Customer relationships
Other intangibles
Current liabilities
Other liabilities
Total purchase price
$
320
2,375
264
3,342
834
11,497
4,300
3,260
250
(3,023)
(150)
$
23,269
Vista net sales and net loss recognized in fiscal 2012 from the acquisition date to January 31, 2012 were $631 and $(125),
respectively.
The following pro forma consolidated condensed financial results of operations are presented as if the acquisition described above
had been completed at the beginning of each period presented:
Pro forma net sales
Pro forma net income attributable to Raven Industries, Inc.
Pro forma earnings per common share:
Basic
Diluted
For the years ended January 31,
2012
2011
$
395,974
$
328,361
49,907
39,948
$
$
1.38
1.37
$
$
1.10
1.10
These pro forma consolidated financial results have been prepared for comparative purposes only and include certain adjustments,
such as amortization and acquisition cost. The pro forma information does not purport to be indicative of the results of operations
that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of
the consolidated entities.
Equity Method Investment SST
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.
42
(Dollars in thousands, except per-share amounts)
Changes in the net carrying value of the investment in SST were as follows:
Balance at beginning of year
Income from equity investment
Amortization of intangible assets
Dividend received
Balance at end of year
2013
As of January 31,
2012
2011
$
$
4,409
156
(477)
(25)
4,063
$
$
4,728
156
(475)
—
4,409
$
$
5,010
195
(477)
—
4,728
In October 2012, SST purchased approximately 10% of its outstanding common stock to be held as treasury stock. The impact
of this transaction on Raven's noncontrolling interest in SST and the carrying value of its investment was as follows: Raven's
ownership interest in SST increased from 20% to 22%; Raven's basis in the net assets at acquisition decreased by $525; and the
basis in the technology-related assets and goodwill increased $117 and $408, respectively, with no net impact to the carrying value
of the investment.
Ranchview
Pursuant to the Company's 2009 purchase of substantially all of the assets of Ranchview Inc. (Ranchview), a privately held
Canadian corporation, Raven agreed to pay contingent consideration for future sales of Ranchview products up to a maximum of
$4,000. During fiscal 2013, the Company paid $1,841 in cash to the previous Ranchview owner for an early buyout of the
outstanding acquisition-related contingent liability. This resulted in a gain of $508 which is included in Applied Technology
operating income.
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, 2010
Acquisition earn-outs
Balance at January 31, 2011
Acquired goodwill
Balance at January 31, 2012
Acquired goodwill
Balance at January 31, 2013
Intangible Assets
$
Applied
Technology
9,814
$
78
9,892
—
9,892
—
$
9,892
$
Engineered
Films
Aerostar
Total
96
—
96
—
96
—
96
$
$
789
—
789
11,497
12,286
—
12,286
$
10,699
78
10,777
11,497
22,274
—
22,274
$
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
2013
Accumulated
Amount Amortization
Net
For the years ended January 31,
2012
Accumulated
Amount Amortization
Net
2011
Accumulated
Amount Amortization
Net
Existing technology
$ 7,500 $
(3,375) $ 4,125
$ 7,500 $
(2,637) $ 4,863
$ 3,200 $
(2,159) $ 1,041
Customer relationships
Other intangibles
Total
3,494
2,506
(300)
3,194
(1,144)
1,362
3,494
2,225
(155)
3,339
234
(1,015)
1,210
1,426
(128)
(988)
106
438
$ 13,500 $
(4,819) $ 8,681
$ 13,219 $
(3,807) $ 9,412
$ 4,860 $
(3,275) $ 1,585
43
(Dollars in thousands, except per-share amounts)
The estimated future amortization expense for definite-lived intangible assets during the next five years is as follows:
Estimated amortization expense
$
1,688
$
2,124
$
2,321
$
2,150
$
1,528
2014
2015
2016
2017
2018
NOTE 7
EMPLOYEE POSTRETIREMENT BENEFITS
The Company has two 401(k) plans covering substantially all employees as of January 31, 2013. One plan, which covers the
majority of employees, matches employee contributions up to 4%. The other 401(k) plan was assumed as part of the Vista
acquisition. Contributions under this plan include a 3% annual contribution and may include additional discretionary contributions
to the plan that are determined annually by management. Total 401(k) contribution expense for both plans was $2,021, $1,556
and $1,254 for fiscal 2013, 2012 and 2011, 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 postretirement plans and any obligations are covered through operating cash and investments.
The accumulated benefit obligation for these benefits is as follows:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss and assumption changes
Retiree benefits paid
For the years ended January 31,
2012
2013
2011
$
$
7,560
187
335
433
(208)
$
5,969
121
334
1,363
(227)
5,512
62
324
237
(166)
Benefit obligation at end of year
$
8,307
$
7,560
$
5,969
The following tables set forth the plans pre-tax adjustment to accumulated other comprehensive income/loss (AOCI):
Amounts not yet recognized in net periodic benefit cost:
Net actuarial loss
Transition obligation
Total pre-tax accumulated other comprehensive loss
Pre-tax accumulated other comprehensive loss - beginning of year related to
benefit obligation
Reclassification adjustments recognized in benefit cost:
Recognized net (loss)
Amortization of transition obligation
Amounts recognized in AOCI during the year:
Net actuarial loss
For the years ended January 31,
2013
2012
2011
$
$
$
$
$
$
3,441
—
3,441
3,241
(210)
(23)
$
$
$
3,218
23
3,241
1,957
(104)
(23)
1,912
45
1,957
1,935
(144)
(23)
433
1,411
189
Pre-tax accumulated other comprehensive loss - end of year related to benefit
obligation
$
3,441
$
3,241
$
1,957
The net actuarial loss for fiscal year 2013 was driven by a decrease in the discount rate and demographic changes, offset by better
than expected claims experience. The net actuarial loss in fiscal year 2012 was primarily caused by the decrease in discount rate.
The net actuarial loss in fiscal year 2011 was driven by an increase in the ultimate health care trend rate and a decrease in the
discount rate, offset by lower than expected claims.
44
(Dollars in thousands, except per-share amounts)
The liability and net periodic benefit cost reflected in the Consolidated Balance Sheets and Consolidated Statements of Income
and Comprehensive Income were as follows:
Beginning liability balance
Net periodic benefit cost
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 to calculate benefit obligation:
Discount rate
Wage inflation rate
Health care cost trend rates:
Health care cost trend rate assumed for next year
Ultimate health care cost trend rate
Year that the rate reaches the ultimate trend rate
For the years ended January 31,
2012
2011
2013
$
$
$
$
7,560
755
200
955
(208)
8,307
235
8,072
4.25%
4.00%
8.10%
5.00%
2025
$
$
$
$
5,969
582
1,236
1,818
(227)
7,560
212
7,348
4.50%
4.00%
8.60%
5.00%
2025
$
$
$
$
5,512
552
71
623
(166)
5,969
212
5,757
5.75%
4.00%
9.00%
5.00%
2025
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 total estimated
cost to be recognized from AOCI into net periodic benefit cost over the next fiscal year is $182.
The assumed health care cost trend rate has a significant effect on the amounts reported. The impact of a one-percentage point
change in assumed health care rates would have the following effects:
January 31, 2013
Effect on total of service and interest cost components
Effect on accumulated postretirement benefit obligation
NOTE 8 WARRANTIES
Changes in the warranty accrual were as follows:
$
$
One-percentage-
point increase
One-percentage-
point decrease
$
(53)
75
1,588
$
(1,288)
Beginning balance
Acquired
Accrual for warranties
Settlements made (in cash or in kind)
Ending balance
For the years ended January 31,
2013
2012
2011
$
$
1,699
—
2,968
(2,779)
1,888
$
$
1,437
192
3,010
(2,940)
1,699
$
$
1,259
—
2,461
(2,283)
1,437
45
(Dollars in thousands, except per-share amounts)
NOTE 9
INCOME TAXES
The reconciliation of income tax computed at the federal statutory rate to the Company's effective income tax rate was as follows:
Tax at U.S. federal statutory rate
State and local income taxes, net of U.S. federal tax benefit
Tax benefit on qualified production activities
Tax credit for research activities
Other, net
For the years ended January 31,
2012
2011
2013
35.0%
1.6
(3.2)
(0.9)
(0.2)
32.3%
35.0%
1.0
(2.4)
(0.7)
0.2
33.1%
35.0%
1.3
(3.0)
(0.7)
0.2
32.8%
Significant components of the Company's income tax provision were as follows:
Income taxes:
Currently payable
Deferred (benefit) expense
For the years ended January 31,
2012
2013
2011
$
$
26,894
(1,803)
25,091
$
$
19,705
5,358
25,063
$
$
19,322
423
19,745
Deferred Tax Assets
Deferred income taxes reflect the net tax 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
Share-based compensation
Other
Net deferred tax asset (liability)
2013
As of January 31,
2012
2011
$
$
70
507
1,118
576
661
175
3,107
2,826
(9,114)
1,969
1,613
253
(2,453)
654
$
$
58
452
1,248
559
595
387
3,299
2,571
(9,673)
1,673
981
(70)
(4,518)
(1,219)
$
$
103
463
1,008
485
503
171
2,733
2,014
(3,050)
1,426
601
(67)
924
3,657
Pre-tax book income for the U.S. companies and the Canadian subsidiary was $76,680 and $900, respectively. As of January 31,
2013, 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.
46
(Dollars in thousands, except per-share amounts)
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 lapses in applicable statutes of limitation
Gross unrecognized tax benefits at end of year
For the years ended January 31,
2012
2013
2011
$
$
3,567
993
(347)
4,213
$
$
3,112
699
(244)
3,567
$
$
2,656
601
(145)
3,112
During the fiscal year ended January 31, 2013, the only change to uncertain tax positions related to prior years resulted from the
lapse of applicable statutes of limitation. The total unrecognized tax benefits that, if recognized, would affect the Company's
effective tax rate were $2,738, $2,318 and $2,023 as of January 31, 2013, January 31, 2012 and January 31, 2011, respectively.
The Company does not expect any significant change in the amount of unrecognized tax benefits in the next fiscal year.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31,
2013, January 31, 2012 and January 31, 2011, accrued interest and penalties were $1,605, $1,379 and $1,112, respectively.
The Company files tax returns, including returns for its subsidiaries, with various federal, state and local jurisdictions. Uncertain
tax positions are related to tax years that remain subject to examination. As of January 31, 2013, federal tax returns filed in the
U.S., Canada and Switzerland for fiscal years ended January 31, 2008 through January 31, 2012 remain subject to examination
by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2005 through January 31,
2012 remain subject to examination by state and local tax authorities.
NOTE 10 FINANCING ARRANGEMENTS
Raven has an uncollateralized credit agreement with Wells Fargo Bank, N.A. (Wells Fargo) providing a line of credit of $10,500
with a maturity date of November 30, 2013, bearing interest at 1.5% above the daily one month London Inter-Bank Market Rate
(LIBOR). Letters of credit totaling $992 have been issued under the line, primarily to support self-insured workers' compensation
bonding requirements. No borrowings were outstanding as of January 31, 2013, 2012 and 2011 and $9,508 was available at
January 31, 2013. There have been no borrowings under the credit line with Wells Fargo in the last three fiscal years.
In addition to providing the line of credit Wells Fargo holds the majority of Raven's cash and cash equivalents. One member of
the Company's Board of Directors is also on the Board of Directors of Wells Fargo & Company, the parent company of Wells
Fargo.
Raven assumed a revolving line of credit, in the amount of $2,869 as part of the Vista acquisition. The outstanding balance on
this line of credit was paid and subsequently closed in January 2012. No additional borrowings were made under this line of credit
prior to its being closed.
The Company leases certain vehicles, equipment and facilities under operating leases. Total rent and lease expense was $2,095,
$759 and $546 in fiscal 2013, 2012 and 2011, respectively.
Future minimum lease payments under non-cancelable operating leases are as follows:
Minimum lease payments
$
1,478
$
1,266
$
1,053
$
202
$
121
$
—
2014
2015
2016
2017
2018
Thereafter
NOTE 11 SHARE-BASED COMPENSATION
At January 31, 2013, 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:
Share-based compensation cost
Tax benefit
For the years ended January 31,
2012
2013
2011
$
3,075
1,057
$
1,922
547
$
1,179
272
47
(Dollars in thousands, except per-share amounts)
Share-based compensation cost capitalized as part of inventory is not significant.
Equity Compensation Plans
The Company reserved shares of its common stock for issuance to directors, officers, employees and certain advisors of the
Company through incentive stock options and non-statutory stock options, stock appreciation rights, stock awards, restricted stock,
restricted stock units (RSUs) and performance awards to be granted under the Amended and Restated 2010 Stock Incentive Plan
(the Plan) effective which was approved by shareholders on May 22, 2012. The aggregate number of shares initially available
for which options may be granted under the Plan was 2,000,000. As of January 31, 2013, the number of shares available for
grant under the Plan was 1,154,366. Option exercises under the Plan are settled in newly issued common shares.
The Plan is administered by the Personnel and Compensation Committee of the Board of Directors (the Committee), consisting
of two or more independent directors of the Company. Subject to the provisions set forth in the Plan, all of the members of the
Committee shall be non-employee members of the Board of Directors. The Committee determines the option exercise prices.
The term of each grant is determined by the Committee. The Committee may accelerate the exercisability of awards under the
Plan or extend the term of such awards to the extent allowed by the Plan to a maximum term of ten years. Two types of awards
were granted under the Plan in fiscal 2013.
Stock Option Awards
On April 2, 2012, the Company granted 151,200 non-qualified stock options. On August 27, 2012, the Company granted an
additional 7,600 non-qualified stock options. Options are granted with exercise prices not less than market value of the Company's
common stock 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 exercises,
employee terminations and volatility within this valuation model.
The weighted average assumptions used for the Black-Scholes option pricing model by grant year are as follows:
Risk-free interest rate
Expected dividend yield
Expected volatility factor
Expected option term (in years)
For the years ended January 31,
2013
2012
2011
0.86%
1.33%
49.62%
3.75
0.67%
1.2%
51.44%
4.00
1.46%
1.49%
49.33%
4.50
Weighted average grant date fair value
$
10.92
$
11.05
$
7.85
Outstanding stock options as of January 31, 2013 and activity for the year then ended are presented below:
Outstanding, January 31, 2012
Granted
Exercised
Forfeited
Expired
Outstanding, January 31, 2013
Outstanding exercisable, January 31, 2013
Number
of options
990,882
158,800
(160,449)
(70,354)
(8,250)
910,629
401,780
Weighted
average
exercise
price
Aggregate
intrinsic
value
Weighted
average
remaining
contractual
term
(years)
$
$
$
20.87
31.57
16.20
23.98
16.11
23.36
18.65
$
$
4,716
3,514
2.88
2.12
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 $2,573, $2,362 and $1,102 during the years ended January 31, 2013,
2012 and 2011, respectively. As of January 31, 2013, the total unrecognized compensation cost for non-vested awards was $3,404,
net of the effect of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.58 years.
48
(Dollars in thousands, except per-share amounts)
Restricted Stock Unit Awards
The Company granted 21,120 time-vested RSUs to employees during the year ended January 31, 2013. The fair value of a time-
vested RSU is measured based upon the closing market price of the Company's common stock on the date of grant. Time-vested
RSUs will vest if, at the end of the three-year period, the employee remains employed by the Company. Dividends are cumulatively
earned on the time-vested RSUs over the vesting period.
Activity for time-vested RSUs under the Plan in fiscal 2013 was as follows:
Outstanding, January 31, 2012
Granted
Vested
Forfeited
Outstanding, January 31, 2013
Number
of restricted
stock units
Weighted
average
grant date
fair value
— $
21,120
—
(480)
20,640
$
—
31.66
—
31.66
31.66
The Company also granted performance-based RSUs during the year ended January 31, 2013. The exact number of performance
shares to be issued will vary from 0% to 150% of the target award, depending on the Company's actual performance over the
three-year period in comparison to the target award goal based on return on sales (ROS), which is defined as net income divided
by net sales. The performance-based RSU's will vest if, at the end of the three-year performance period, the Company has achieved
certain performance goals and the employee remains employed by the Company. Dividends are cumulatively earned on
performance-based RSUs over the vesting period.
The fair value of the performance-based restricted stock units is based upon the closing market price of the Company's common
stock on the grant date. The number of restricted stock units granted is based on 100% of the target award. The number of RSUs
that will vest is determined by an estimated ROS target over the three-year performance period. The estimated ROS performance
used to estimate the number of restricted stock units expected to vest is evaluated at least quarterly. The number of restricted stock
units issued at the vesting date will be based on actual results.
Activity for performance-based RSUs under the Plan in fiscal 2013 was as follows:
Outstanding, January 31, 2012
Granted
Vested
Forfeited
Performance-based adjustment
Outstanding, January 31, 2013
Number
of restricted
stock units
expected to
vest
Weighted
average
grant date
fair value
— $
50,940
—
(1,264)
16,557
66,233
$
—
31.66
—
31.66
31.66
31.66
As of January 31, 2013, the total unrecognized compensation cost for nonvested RSU awards was $1,986 net of the effect for
estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.17 years.
Deferred Stock Compensation Plan for Directors
The Company reserves 100,000 shares of its common stock for issuance to certain members of its Board of Directors under the
Deferred Stock Compensation Plan for Directors of Raven Industries, Inc. (the Director Plan). The Director Plan is administered
by the Governance Committee of the Board of Directors. Under the Director Plan, any non-employee director receives a grant
of a number of stock units as deferred compensation to be converted into common stock after retirement from the Board of Directors
and may elect to have a specified percentage of their annual retainer converted to stock units. Under the Director 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
49
(Dollars in thousands, except per-share amounts)
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.
Stock units granted under the Director Plan vest immediately and are expensed at the date of grant. 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, 2013 and changes during the year then ended are presented below:
Outstanding, January 31, 2012
Granted
Deferred retainers
Dividends
Outstanding, January 31, 2013
NOTE 12 NET INCOME PER SHARE
Number
of stock units
49,110
5,459
1,820
797
57,186
$
$
Weighted
average
price
32.45
32.98
32.98
21.43
26.93
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), stock units and restricted stock units outstanding. Performance share awards are included in the diluted
calculation based upon what would be issued if the end of the most recent reporting period was the end of the term of the award.
Certain outstanding options and restricted stock units were excluded from the diluted net income per-share calculations because
their effect would have been anti-dilutive under the treasury stock method. For fiscal 2013, 2012 and 2011, 397,600, 67,900 and
255,146 options, respectively, were excluded from the diluted net income per-share calculation.
Details of the computation are presented below:
Numerator:
Net income attributable to Raven Industries, Inc.
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 and RSUs
Denominator for diluted calculation
Net income per share - basic
Net income per share - diluted
For the years ended January 31,
2012
2013
2011
$
52,545
$
50,569
$
40,537
36,290,329
54,929
36,345,258
36,290,329
54,929
188,166
36,533,424
36,182,042
52,448
36,234,490
36,182,042
52,448
218,730
36,453,220
36,083,342
50,450
36,133,792
36,083,342
50,450
85,796
36,219,588
$
$
1.45
1.44
$
$
1.40
1.39
$
$
1.12
1.12
NOTE 13 BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION
The Company's reportable segments are defined by their product lines which have been grouped in these segments based on
common technologies, production methods and inventories. These segments reflect Raven's organization into two Raven divisions
and the Aerostar subsidiary. Raven's reportable segments are Applied Technology Division, Engineered Films Division and Aerostar
Division. Raven Canada, Raven GmbH, Raven Australia, and Raven Brazil are included in the Applied Technology Division.
Vista and AIS are included in the Aerostar Division. Substantially all of the Company's long-lived assets are located in the United
States.
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information
management tools that help growers reduce costs and improve farm yields around the world. Their product families include field
50
(Dollars in thousands, except per-share amounts)
computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, yield monitoring and
planter controls, motor controls and an integrated RTK and information platform called Slingshot.
Raven's Engineered Films Division manufactures high-performance plastic films and sheeting for major markets throughout the
United States and abroad. An important part of this business is highly technical, engineered geomembrane films that protect
environmental resources through containment linings and coverings for energy, agriculture, construction and industrial markets.
Aerostar designs and manufactures surveillance technology, electronic and specialty-sewn and sealed products including tethered
aerostats, high-altitude scientific balloons and airships, protective wear, parachutes, military decoys and marine navigation
equipment. Aerostar also provides electronics manufacturing services (EMS) for commercial customers with a focus on high-
mix, low-volume production. Assemblies manufactured by the Aerostar segment include avionics, communication, environmental
controls and other products where high quality is critical. Aerostar acquired Vista at the end of fiscal 2012. Vista's smart-sensing
radar systems use sophisticated signal processing algorithms and are employed in a host of detection and tracking applications,
including wide area surveillance for border patrol and the military.
The Company realigned the assets and team members of its Electronic Systems Division and deployed them into the Company's
Aerostar and Applied Technology Divisions effective June 1, 2012. The realigned divisions will better align the Company's
corporate structure with its mission and long-term growth strategies. Electronic Systems net sales of electronic manufacturing
assemblies were realigned to Aerostar and the remaining proprietary products, after adjustments to intersegment eliminations, to
Applied Technology. The Company adjusted its segment information, retrospectively, for all periods presented to reflect this
change in segment reporting.
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.
51
(Dollars 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 (b)
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
Applied Technology Division
Engineered Films Division
Aerostar Division
Electronic Systems Division
$
$
$
$
$
For the years ended January 31,
2013
2012
2011
Previously
Reported
Revised
Previously
Reported
Revised
171,778
59,590
84,224
10,780
3,874
141,976
25,115
65,801
11,539
5,814
102,051
10,341
60,689
2,081
2,272
$ 132,632
45,358
69,977
11,408
2,351
$ 145,261
49,750
73,872
11,971
2,571
$ 133,481
21,501
65,100
10,937
4,313
$ 133,481
21,501
65,100
10,937
4,313
$
— $
—
—
—
—
52,351
11,468
51,822
3,875
1,079
71,744
11,264
24,281
793
825
$ 107,811
18,308
72,089
4,105
1,684
$
— $
—
—
—
—
$
$
$
$
$
$
$
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
107,910
33,197
55,740
1,947
2,483
105,838
19,622
46,519
8,450
3,452
104,384
17,209
38,366
2,621
1,335
—
—
—
—
—
(974) $
(124)
(8,532)
—
(61)
(347)
— $
(193)
(1)
(8,503)
(220)
(405)
(460) $
(193)
(4,389)
—
(188)
(286)
— $
(307)
(32)
(5,520)
(94)
(186)
(226)
(307)
(2,891)
—
(41)
(98)
$
$ 381,511
89,371
210,775
27,013
8,568
406,175
94,985
210,367
24,400
11,960
Operating income
Assets
REPORTABLE SEGMENTS TOTAL
Sales
Operating income (b)
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 (b)
Assets
Capital expenditures
Depreciation and amortization
(a) Assets are principally cash, investments, deferred taxes and other receivables.
(b) The year ended January 31, 2011 includes a $451 pre-tax gain on disposition of assets.
(17,293) $
62,843
5,275
1,138
406,175
77,692
273,210
29,675
13,098
$ 381,511
75,641
245,703
29,015
9,268
$
$
52
$
$ 381,511
89,371
210,775
27,013
8,568
$
314,708
69,987
140,527
13,018
7,270
314,708
69,987
140,527
13,018
7,270
(13,730) $ (13,730) $
34,928
2,002
700
34,928
2,002
700
(9,784) $
47,233
954
361
(9,784)
47,233
954
361
$
$
$ 381,511
75,641
245,703
29,015
9,268
314,708
60,203
187,760
13,972
7,631
314,708
60,203
187,760
13,972
7,631
(Dollars in thousands, except per-share amounts)
Sales to a customer of the Engineered Films segment accounted for 11% of consolidated sales in fiscal 2013 and accounted for
3% of consolidated accounts receivable at January 31, 2013.
For fiscal 2012, one customer of the Aerostar segment and one customer of the Engineered Films segment each accounted for 10%
of consolidated sales. These customers comprised 10% and 1%, respectively, of consolidated accounts receivable at January 31,
2012.
One customer of the Aerostar segment accounted for 11% of consolidated accounts receivable and 13% of consolidated net sales
at and for the period ended January 31, 2011.
Foreign sales are attributed to countries based on location of the customer. Net sales to customers outside the United States were
as follows:
Canada
Other foreign sales
Total foreign sales
United States
For the years ended January 31,
2012
2013
2011
$
$
20,640
28,614
49,254
356,921
406,175
$
$
15,237
23,672
38,909
342,602
381,511
$
$
12,694
11,975
24,669
290,039
314,708
53
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate
to allow timely decisions regarding required disclosure.
As of January 31, 2013, the end of the period covered by this report, management evaluated the effectiveness of the Company's
disclosure controls and procedures as of such date. Based on their evaluation, the CEO and CFO have concluded that the Company's
disclosure controls and procedures are effective as of January 31, 2013.
Management's Report on Internal Control Over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included management’s assessment of the design and
effectiveness of its internal controls over financial reporting as part of this Annual Report on Form 10-K for the fiscal year ended
January 31, 2013. Management's report and the report of the Company's independent registered public accounting firm are included
in Part II, Item 8. captioned “Management's Report on Internal Control Over Financial Reporting" and "Report of Independent
Registered Public Accounting Firm” and are incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the quarter ended January 31, 2013, 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.
54
PART III
ITEMS 10,
11, 12, 13
and 14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS; CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE; AND PRINCIPAL
ACCOUNTING FEES AND SERVICES
The Company will file a definitive proxy statement with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the “Proxy Statement”) relating to the Company's 2013 Annual Meeting of
Shareholders. Information required by Items 10 through 14 will appear in the Proxy Statement and is incorporated herein by
reference.
55
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.
56
Exhibit
Number
Description
2(a)
Stock Purchase Agreement, dated as of December 30, 2011, by and between Aerostar International, Inc. and Vista Applied
Technologies Group, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed January 6, 2012).
3(a) Articles of Incorporation of Raven Industries, Inc. and all amendments thereto.*
3(b) Amended and Restated Bylaws of Raven Industries (incorporated herein by reference to Exhibit B to the Company's definitive
Proxy Statement filed April 12, 2012).
4(a) Raven Industries Inc. Amended and Restated 2010 Stock Incentive Plan filed on June, 11, 2012 as Exhibit 4.1 to Raven
Industries, Inc. Registration Statement on Form S-8, and incorporated herein by reference).
10(a) Employment Agreement between Raven Industries, Inc. and Daniel A. 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 James D. Groninger dated as of February 1, 2004. † ***
10(c) 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(d) Employment Agreement between Raven Industries, Inc. and Anthony D. Schmidt dated as of February 1, 2012
(incorporated by reference to Exhibit 10.1 to the Company's 8-K filed February 1, 2012). †
10(e) Employment Agreement between Raven Industries, Inc. and Thomas Iacarella dated as of February 1, 2004. † **
10(f)
Schedule A to Employment Agreements between Raven Industries, Inc. and each of the following Senior Executive
Officers: Daniel A. Rykhus and Thomas Iacarella. † ****
10(g) Change in Control Agreement between Raven Industries, Inc. and each of the following officers and key employees: Daniel
A. Rykhus and Thomas Iacarella, dated as of January 31, 2008 (incorporated by reference to Exhibit 10.1 of the Company's
8-K filed December 17, 2007). †
10(h) 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).†
10(i) 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). †
10(j) 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). †
10(k) 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). †
10(l) 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). †
10(m) Schedule A to Employment Agreements between Raven Industries, Inc. and each of the following Senior Managers:
Matthew T. Burkhart, Anthony D. Schmidt and Lon E. Stroschein. † ****
10(n) Change in Control Agreement between Raven Industries, Inc. and Anthony D. Schmidt dated February 1, 2012 (incorporated
by reference to Exhibit 10.3 to the Company's 8-K filed February 1, 2012). †
10(o) Employment Agreement between Raven Industries, Inc. and Janet L. Matthiesen (incorporated herein by reference to Exhibit
10.1 to the Company's 8-K filed April 20, 2012). †
10(p) Schedule A to Employment Agreement between Raven Industries, Inc. and Janet L. Matthiesen (incorporated herein by
reference to Exhibit 10.2 to the Company's 8-K filed April 20, 2012). †
10(q) Change in Control Agreement between Raven Industries, Inc. and Janet L. Matthiesen (incorporated herein by reference to
Exhibit 10.3 to the Company's 8-K filed April 20, 2012). †
10(r) Employment Agreement between Raven Industries, Inc. and Stephanie Herseth Sandlin dated August 27, 2012 (filed herewith
as Exhibit 10.1). †
10(s) Schedule A to Employment Agreement between Raven Industries, Inc. and Stephanie Herseth Sandlin dated August 27, 2012
(filed herewith as Exhibit 10.2). †
10(t) Change in Control Agreement between Raven Industries, Inc. and Stephanie Herseth Sandlin dated August 27, 2012 (filed
herewith as Exhibit 10.3). †
21
Subsidiaries of the Registrant.
23 Consent of Independent Registered Public Accounting Firm.
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
57
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extenstion Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
† 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.
Incorporated by reference to corresponding Exhibit Number of the Company's Form 10-K for the year ended January 31, 2011.
58
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 28, 2013
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/ THOMAS IACARELLA
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/ MARK E. GRIFFIN
Mark E. Griffin
Director
/s/ KEVIN T. KIRBY
Kevin T. Kirby
Director
/s/ MARC E. LEBARON
Marc E. LeBaron
Director
/s/ CYNTHIA H. MILLIGAN
Cynthia H. Milligan
Director
Date: March 28, 2013
59
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2013, 2012 and 2011
(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, 2013
Year ended January 31, 2012
Year ended January 31, 2011
Note:
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
From
Reserves (1)
Balance at
End of Year
$
$
$
170 $
300 $
297 $
355 $
(91) $
(1) $
— $
— $
— $
320 $
39 $
(4) $
205
170
300
(1) Represents uncollectable accounts receivable written off during the year, net of recoveries.
60
Investor Information
Annual Meeting
May 23, 2013, 9:00 a.m. CDT
Ramkota Hotel and Conference Center
3200 W. Maple Avenue
Sioux Falls, SD
Stock Transfer Agent & Registrar
Wells Fargo Bank, N.A.
P.O. Box 64854
St. Paul, MN 55164-0854
Phone: 800-468-9716
Website: www.shareowneronline.com
Dividend Reinvestment Plan
Raven Industries, Inc. sponsors a Dividend Reinvestment
Form 10-K
Plan so shareholders can purchase additional Raven
Raven Industries, Inc.’s Form 10-K for the fiscal year
common stock without paying any brokerage commission
ended January 31, 2013.
or fees. For more information on how you can take
advantage of this plan, contact your broker, Raven’s stock
transfer agent or write to our Investor Relations Department.
Dividend Policy
Inquiries
Mail to:
Raven Industries, Inc.
Investor Relations
P.O. Box 5107
Our policy is to return a substantial portion of earnings
Sioux Falls, SD 57117-5107
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
2013 was the 26th 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
Phone:
605-336-2750
Email:
irinfo@ravenind.com
Affirmative Action Plan
Raven Industries, Inc., and its subsidiaries are Equal
Employment Opportunity Employers with approved
affirmative action plans.
CONTAINS 30%
POST CONSUMER WASTE
RAven IndustRIes
PO BOx 5107
sIOux F Alls , sd 571 17-5107
www.RA venIn d.cOm