2014
We Solve
Great
Challenges
A n n uAl R e p oR t
We Solve
Great
Challenges
We live in a time when… The world’s population is growing toward
nine billion people and the demand for food is taxing an already
strained agricultural system. Our base of natural resources is
declining and it’s becoming ever more critical that we protect
what we have. Global instability continues to pose threats to
personal safety throughout the world. And, while those living
in developed nations enjoy the numerous benefits of internet
access, billions of people on the planet remain unconnected.
At Raven, we help solve these great challenges—that is our purpose.
We have three distinct divisions, each with unique products and
expertise, that work together as one. We share resources, ideas and
a passion to create technology that helps us all grow more food,
produce more energy, protect the environment and live safely.
Our purpose inspires us. And the issues we address are
vital to the world, our country and the customers we serve.
That’s what drives us every day—and positions Raven to
innovate and solve the world’s next great challenge.
Inside this Report
Financial Highlights.......................................................................................................................................................................................... 1
Letter to Shareholders ................................................................................................................................................................................... 2
Board of Directors and Executive Team ..................................................................................................................................... 3
Raven At-A-Glance.............................................................................................................................................................................................. 4
Operations Review ............................................................................................................................................................................................. 6
10-K Table of Contents ..................................................................................................................................................................... 10K-2
Management’s Discussion and Analysis .................................................................................................................10K-15
Financial Statements ......................................................................................................................................................................10K-27
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
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)
Average number of team members
For the years
ended January 31,
2014
2013
Change
$394,677
63,994
42,903
52,836
14,195
$1.17
0.48
6.89
16.2%
10.9%
14.9%
19.4%
$406,175
77,692
52,545
76,456
13,098
$1.44
0.42
6.09
19.1%
12.9%
20.3%
29.1%
36,492
1,264
36,326
1,350
-3%
-18%
-18%
-31%
8%
-19%
14%
13%
-15%
-16%
-27%
-33%
0.5%
-6.4%
Net Sales
(Dollars in millions)
Earnings Per Share
(Diluted, in dollars)
Regular Dividends Per Share
(Dollars)
406.2
394.7
381.5
1.44
1.39
1.12
1.17
0.85
0.79
314.7
279.9
237.8
0.48
0.42
0.36
0.325
0.28
0.265
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Despite a move away from sales
of non-proprietary products, the
compound annual growth rate over
the past five years was 7.1 percent.
Over the past five years, our compound
annual growth rate for EPS was
6.6 percent.
Raven is one of 105 U.S. companies
that have raised their dividends for
25 or more years.
2014 AnnuAl RepoR t 1
To Our Shareholders, Customers and Team Members:
Raven’s enduring success is built on our ability to balance the
company’s longstanding purpose and core values with necessary
shifts in business strategy demanded by an ever-changing world.
During fiscal 2014, we continued to execute our strategy to
move toward more proprietary product lines while
intentionally reducing our contract manufacturing business.
Our performance over the past two years reflects our ongoing
adjustment to conditions and opportunities. Our purpose,
values and business strategies define the Raven vision, our
roadmap guiding where the company is headed and how we
achieve success along the way.
To that end, Raven’s vision is to be a leader in providing the
world with more food and energy, protecting the environment
and allowing people to live more safely by delivering diverse
technology solutions. In short, we solve some of the world’s
greatest challenges. This clear vision brings meaning to the
work of the organization and ensures our focus on profitable
opportunities with strong fundamentals.
Fiscal 2014 Overview
Fiscal 2014 was a year of progress for Raven Industries despite
declines in year-over-year sales and earnings. We advanced our
strategy and better positioned areas of the business where we
intend to grow long term.
We continued to deliver strong returns on sales, assets and
equity for fiscal 2014—demonstrating the strength of Raven,
even during challenging years. In fiscal 2015, we will leverage
this strength to drive growth from the core businesses in all
three of our operating divisions, and aggressively pursue closely
adjacent opportunities.
Key Accomplishments
Our unyielding commitment to execute and stay true to our
proven business model drove many highlights in fiscal 2014.
In Applied Technology, we:
• Introduced new harvesting and planting products that
will fuel growth in fiscal 2015 and beyond;
• Made significant inroads in Brazil that pave the way for
future successes; and
• Generated substantial growth in our OEM business
and strengthened long-term relationships with key
industry leaders.
In Engineered Films, we:
• Measurably grew our presence in the high-value agricultural
films market;
• Introduced new environmental films used in water
protection applications; and
2 Rav e n Indu s tR Ie s, Inc .
• Successfully launched our reclaim operation which reduces
the amount of unused film that would otherwise enter a
landfill by over 60 percent.
In Aerostar, we:
• Delivered robust growth from our line of Vista
radar products;
• Collaborated with Google on Project Loon by designing and
manufacturing high altitude balloons–further advancing the
initiative to bring internet access to the world; and
• Positioned the division for success as a prime contractor in
new international markets.
Looking Ahead
The markets we have chosen in agriculture, situational
awareness and natural resource protection will continue to
provide profitable growth opportunities as we use technology
to solve great challenges. We will also apply our core
technology to adjacent opportunities that fit our purpose,
as we have with the use of high altitude balloons for
internet connectivity.
Looking to fiscal 2015, we will focus on:
• Measurably growing revenues from our situational
awareness and lighter-than-air product lines;
• Driving Applied Technology growth through international
market expansion, new products and broadening OEM
relationships; and
• Bringing high-value plastic film applications to each of our
Engineered Films markets.
On May 23, 2013, Anthony W. Bour stepped down from the
board of directors. We are deeply grateful for his leadership
and exemplary 18 years of service.
On behalf of our board of directors and executive team, I want
to thank you for your continued support and look forward to a
successful year to come.
Daniel A. Rykhus
President and Chief Executive Officer
bOaRd OF dIReCTORS
Left to right: Mark E. Griffin (b)(c), President & Chief Executive Officer, Lewis Drugs, Inc., Marc E. LeBaron (b)(c), Chairman & Chief Executive Officer, Lincoln Industries, 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, Daniel A. Rykhus, President & Chief Executive Officer, Raven Industries, Inc., Jason M. Andringa (a)(c), President, Forage and Environmental Solutions,
Vermeer Corporation, Thomas S. Everist (b)(c), Chairman of the Board, Raven Industries, Inc., President, The Everist Company
a = Audit Committee b = Personnel and Compensation Committee c = Governance Committee
exeCuTIve TeaM
2 Raven IndustRIes, Inc.
2014 AnnuAl RepoR t 3
Left to right: Anthony D. Schmidt, Division Vice President & General Manager, Engineered Films Division, Mark L. West, Chief Technology Officer, Stephanie Herseth
Sandlin, General Counsel & Vice President of Corporate Development, Matthew T. Burkhart, Division Vice President & General Manager, Applied Technology Division,
Daniel A. Rykhus, President & Chief Executive Officer, Thomas Iacarella, Vice President & Chief Financial Officer, Jan L. Matthiesen, Vice President of Human Resources,
Lon E. Stroschein, Division Vice President & General Manager, Aerostar Division, Brian E. Meyer, Chief Information Officer
at-a-Glance
Operating unit
Products/Services
FY 2014 Results
Key Performance Goals
applied Technology division (aTd)
• Application controls
Precision agriculture products and
information management tools to reduce
costs, save time and improve crop yields
to feed a growing world population.
• Planter and seeder controls
• Harvest controls
• GPS guidance and steering
• Field computers
• High-speed, in-field internet connectivity
• Cloud-based data management
engineered Films division (eFd)
• Environmental liners and covers
High-performance, engineered plastic films
for applications in energy, construction,
agriculture, environmental and industrial
markets to protect natural resources.
• Oil and gas drilling containment liners
• Agricultural covers and soil sterilization
films
• Industrial packaging and specialty films
• Construction vapor/gas barriers and
job-site enclosures
aerostar division
• Tethered aerostat integrated solutions
Life-saving solutions that utilize
highly technical sensors, platforms,
electronics and specialty sewn
products to enhance situational
awareness and safety.
• High altitude balloons
• Radar systems and processors
• Marine navigation equipment
• Inflatable military decoys
• Protective wear
• Military and recovery parachutes
• Electronics
4 Rav en I nd ustR Ie s , I nc.
Raven is comprised of three unique operating divisions.
We follow a consistent approach in delivering quality
financial results.
Operating unit
Products/Services
FY 2014 Results
Key Performance Goals
Net Sales
(Dollars in millions)
Net Sales
Net Sales
(Dollars in millions)
171.8
(Dollars in millions)
145.3
170.5
171.8
171.8
170.5
170.5
145.3
145.3
Operating Income
(Dollars in millions)
Operating Income
(Dollars in millions)
Operating Income
(Dollars in millions)
59.6
57.0
49.8
49.8
49.8
59.6
59.6
57.0
57.0
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Net Sales
(Dollars in millions)
Net Sales
Net Sales
(Dollars in millions)
(Dollars in millions)
142.0
133.5
147.6
142.0
142.0
147.6
147.6
133.5
133.5
Operating Income
(Dollars in millions)
Operating Income
(Dollars in millions)
21.5
Operating Income
(Dollars in millions)
25.1
25.1
25.1
21.5
21.5
18.2
18.2
18.2
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Net Sales
(Dollars in millions)
Net Sales
Net Sales
(Dollars in millions)
107.8
(Dollars in millions)
102.1
107.8
107.8
102.1
102.1
90.6
90.6
90.6
Operating Income
(Dollars in millions)
Operating Income
Operating Income
(Dollars in millions)
18.3
(Dollars in millions)
18.3
18.3
10.3
10.3
10.3
7.8
7.8
7.8
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• Optimize international growth opportunities
• Strengthen OEM relationships, delivering value
through technology
• Capture market share with new product innovations
• Enhance core application control products to control
inputs and maximize yields
• Expand market share in agricultural and
environmental products
• Drive margin expansion through volume and mix
• Introduce new, engineered solutions that meet
unique customer needs
• Maintain a strong focus on operational excellence
and efficiency
• Pursue international sales opportunities across all
product lines
• Integrate proprietary product lines and offer turn-key
solutions as prime contractor
20
• Continue to advance high altitude balloon capabilities
20
20
15
• Expand the market penetration of Vista radar
15
15
10
technology
10
10
5
5
0
5
0
0
2014 AnnuAl RepoR t 5
We help feed the world by developing precision ag technology that reduces
operating costs and improves yields for the global agriculture market.
applied
Technology
division
Viper® 4 integrates Raven’s
full line of products into
one networked platform
that offers a responsive
touchscreen and an intuitive,
tablet-style interface
with swiping features
and horizontal or vertical
orientation—providing
faster information access
and improved ease of use.
technology to a broader range
of customers.
Internationally, we saw
sustained demand in Brazil
both from an OEM and
aftermarket perspective.
Emerging agricultural markets
abroad operate at different
life cycle stages and, therefore,
have different needs. Raven
has the breadth of precision
agriculture products to meet
those needs. We continue
to see strong opportunity
abroad in markets that are less
mature such as Eastern Europe
and China.
Solving Great Challenges
At Raven, we know innovation
and new product development
are key to helping feed a
growing world population
that’s constrained by resources.
During fiscal 2014, we unveiled
the Viper® 4 field computer,
SmarTraxTM MD steering
system and OmniRow® multi-
hybrid planter control, the first
commercially available planter
control system that allows
growers to switch between
hybrids on the fly. These
products fulfill the promise
of technology by providing
growers with information,
control and the opportunity
to increase production while
reducing inputs.
Additionally, Raven and
Unverferth Manufacturing Co.,
Inc., introduced UHarvestTM—
a first-of-its-kind grain cart
system that provides more
accurate yield data and
streamlines how data is shared
between machines in the field.
UHarvest is the first grain cart
system to integrate a moisture
sensor on the cart itself,
which delivers more accurate
yield data as it is loaded from
the combine and gives farm
managers access to real-time
data during harvest.
All four of these products were
recognized by the American
Society of Agriculture and
Biological Engineers as part
of their top-50 agricultural
innovations in 2013.
In fiscal 2015, we look to drive
growth through the sales of
these new products and through
international market expansion.
Fiscal 2014 in Review
For the year, Applied
Technology sales decreased
slightly to $171 million.
Accelerated demand from
OEM customers, rising
performance in Brazil and
solid contributions from new
products were offset by lower
aftermarket demand in the
United States.
On the OEM front, demand
continued to rise for Raven’s
advanced guided steering
systems, field computers,
planter and seeder controls,
boom controls and application
controls. As a company, we
continue to develop and
deepen relationships with our
more than 30 OEM partners—
which expands market share
and extends our innovative
6 Rav e n Indu s tR Ie s, Inc .
20 14 AnnuAl RepoR t 7
engineered
Films
division
We design and manufacture high-performance plastic films to protect
critical environmental resources. Our high-performing containment linings
and coverings serve the energy, environmental, agriculture, industrial and
construction markets.
Raven Absolute Barriers®,
such as the landfill barrier
rainshed cover pictured,
successfully contain landfill
methane and odors while
inhibiting harmful leachate
runoff from occurring by
preventing rainwater from
reaching the landfill debris.
Fiscal 2014 in Review
In fiscal 2014, sales in
Engineered Films increased
four percent to $148 million.
Barrier films for agriculture
led the top-line growth,
specifically soil sterilization
and silage films. Our new
extrusion capacity added
earlier in the fiscal year was
a key factor in our ability
to meet demand for these
high-tech films. We also saw
year-over-year gains within
the energy, industrial and
construction markets.
During the fiscal year, we
faced substantially higher
resin costs compared to
a year earlier combined
with competitive market
conditions, which contributed
to an operating income
decrease. These conditions
increased our focus on
developing and growing
sales of higher margin barrier
films. Furthermore, our new
reclaim production line, which
launched at the end of fiscal
2013, is now fully operational.
The system captures and
recycles excess polymer
material from internal
manufacturing processes
which reduces waste, and
provides the company with
significant cost savings.
Solving Great
Challenges
Environmental stewardship
is essential for Raven and
the products we bring to
market. In fiscal 2014, we
fully integrated and qualified
our newest blown-film
line: a seven-layer oriented
barrier film system. The
new extrusion line is next-
generation technology for
manufacturing precise
lightweight barrier films
ranging from 0.80 mil up to
10 mil in thickness—products
critical to protecting the world
around us.
The addition of this new
blown-film line expands the
range of product capabilities
beyond our existing barrier
lines. We’re now able to
produce thinner film profiles,
with several distinct features
including in-line annealing to
control film tension and web
flattening characteristics,
an innovative consumer roll
winding system and the
recycling of roll edge-trim
directly from the line through
an internal reclaim process.
Looking at fiscal 2015, we are
focused on the opportunities
in our existing markets
including barrier films for
agriculture and industrial bulk
packaging, energy market
expansion and multi-layer
environmental solutions.
We’ll also work to continue
to develop new, innovative,
high-value solutions and
explore future opportunities
in alternative energy, while
bringing unique capability and
capacity online.
2014 AnnuAl RepoR t 7
6 Raven IndustRIes, Inc.
Aerostar
Division
We provide life-saving solutions that utilize highly technical sensors,
platforms and electronics to enhance situational awareness and safety.
In 2013, Raven Aerostar
announced our collaboration
with Google in a pilot project
called Project Loon. Designed
to provide internet access
to the world, Project Loon
utilizes Aerostar-designed
high altitude balloons.
Fiscal 2014 in Review
Aerostar sales of $91 million
were down 11 percent in
fiscal 2014. Strength in radar
systems and lighter-than-
air products was offset
by reduced demand from
certain U.S. government
agency customers—
including completion of
the company’s U.S. Army
contract to manufacture
T-11 parachutes—and
Aerostar’s planned growth
strategy, which emphasizes
proprietary products over
contract manufacturing.
During the year, Vista
Research continued to
produce strong sales, rising
approximately 40 percent
over fiscal 2013. The gain was
driven by deliveries under
new and existing contracts
for radar systems. In fiscal
2014, Vista Research was
selected by Raytheon as
a preferred radar solution
for future U.S. and
export opportunities.
Aerostar made significant
headway in fiscal 2014 to
establish the infrastructure
and regulatory processes
to sell its aerospace and
situational awareness
products overseas in fiscal
2015. In fiscal 2015, Aerostar
is focusing on expanding our
proprietary technology
opportunities, including
advanced radar systems,
high altitude balloons and
aerostats to international
markets. These three growth
drivers have breakout
potential—and that has us
excited for the future.
Solving Great
Challenges
In June 2013, we unveiled
our participation in Google’s
Project Loon (see photo and
caption above). Throughout
the year, we continued to
collaborate and support the
initiative. Raven brings decades
of experience in high altitude
balloon engineering and
manufacturing technologies,
including the latest
breakthroughs in super
pressure applications.
Though Project Loon is still
in its early stages, we are
working with Google to
establish and refine the initial
platform and infrastructure—
which is looking to solve one
of the greatest technology
challenges in the world today.
This collaboration has the
potential to change millions
of lives through improved
medical care, access to
knowledge and enriched
agriculture—all benefits of
connecting people through
the internet.
8 Rav e n Indu s tR Ie s, Inc .
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, 2014
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
South Dakota
(State or other jurisdiction of incorporation or organization)
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 checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by checkmark 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 checkmark 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 checkmark 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 checkmark 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, 2013 was approximately $1,101,789,819. The aggregate
market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $30.66, on July 31, 2013, which was
as of the last business day of the registrant's most recently completed second fiscal quarter. The number of shares outstanding on March 25, 2014 was
36,427,627.
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 22, 2014, 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
9
9
10
10
10
10
11
12
12
14
15
15
17
21
22
23
24
25
25
26
27
28
29
30
31
32
33
34
52
52
52
53
53
53
53
53
54
55
57
58
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 1,300 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.
Business segment financial information is found on the following pages:
14
17
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, seeder and harvest 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 in 2013,
these product families also include motor controls. Applied Technology's services include high-speed in-field Internet connectivity
and cloud-based data management. 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. 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.
3
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 $6.7 million in fiscal
2014, $11.5 million in fiscal 2013 and $10.9 million in fiscal 2012.
Aerostar
Aerostar’s growth strategy emphasizes the design and manufacture of proprietary products. These include high-altitude 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 also produces products
as a contract manufacturing services provider. These include military parachutes, uniforms and protective wear as well as being
a total solutions provider of electronics manufacturing services. Sales are made in response to competitive bid requests.
Aerostar sells to government agencies or commercial users as a prime or sub-contractor. The projects Aerostar bids on can be
large-scale, with opportunities in the $10-$100 million range. These opportunities can result in volatility in Aerostar’s results. For
example, completion of Aerostar’s U.S. Army contract to manufacture T-11 parachutes reduced sales in the second half of fiscal
2014.
Through 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 2014. Sales to Brawler Industrial Fabrics, a customer in
the Engineered Films Division, accounted for 13% of consolidated sales in fiscal year 2014 and 11% of consolidated sales in both
fiscal 2013 and 2012 . In addition to this customer, sales to Goodrich Corporation accounted for 10% of consolidated sales in
fiscal year 2012. As expected, revenue from this customer has declined as Aerostar continues to change its focus to proprietary
products and away from contract manufacturing.
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 accordance 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. While Raven does not believe that its business, as a whole is materially dependent on
any one patent or related group of patents, as Raven continues to develop as a strong technology-based company protection of the
Company’s intellectual property has become an increasingly important strategic objective. Along with a more aggressive posture
toward patenting new technology and protecting trade secrets, the Company is tightening restrictions on the disclosure of our
technology to industry and business partners to ensure that our technological edge is maintained and our markets for new products
are protected.
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 in 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
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 $38 thousand accrued at January 31, 2014, representing
its best estimate of probable costs to be incurred related to these matters.
BACKLOG
As of February 1, 2014, the Company's order backlog totaled $51.8 million. Backlog amounts as of February 1, 2013 and 2012
were $51.1 million and $66.6 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, 2014, the Company had 1,286 employees, 1,265 in an active status. Following is a summary of active employees
by segment: Applied Technology - 497; Engineered Films - 309; Aerostar - 366; Corporate Services - 93. Management believes
its employee relations are satisfactory.
5
EXECUTIVE OFFICERS
Name, Age and Position
Daniel A. Rykhus, 49
President and Chief Executive Officer
Thomas Iacarella, 60
Vice President and Chief Financial Officer
Stephanie Herseth Sandlin, 43
General Counsel and Vice President of
Corporate Development
Janet L. Matthiesen, 56
Vice President of 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 EY.
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 2012. Prior
to joining Raven, Ms. Matthiesen was a Human Resource Manager at
Science Applications International Corporation from 2002 to 2010.
Matthew T. Burkhart, 38
Division Vice President and General Manager -
Applied Technology Division
Mr. Burkhart was named Division Vice President and General Manager of
the Applied Technology Division in 2010. He joined Raven in 2008 as
Director of Sales and became General Manager - Applied Technology
Division in 2009. Prior to joining the Company, he was a Branch Manager
for Johnson Controls.
Anthony D. Schmidt, 42
Division Vice President and General Manager -
Engineered Films Division
Mr. Schmidt was named Division Vice President and General Manager of
the Engineered Films Division in 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 2011 as Manufacturing Manager.
Lon E. Stroschein, 39
Division Vice President and General Manager -
Aerostar Division
Mr. Stroschein was named Vice President and General Manager of the
Aerostar Division in 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
RISKS RELATING TO THE COMPANY
The Company's business is subject to many risks. Set forth below are the most important risks that we face. In evaluating our
business and your investment in us, you should also consider the other information presented in or incorporated by reference into
this Annual Report on Form 10-K
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 or agricultural activity, sales of the segment's plastic sheeting will likely decrease.
6
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 Applied Technology, Engineered Films and Aerostar depend upon 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. Technical advancements in products may also increase the risk of product failure, increasing product returns or warranty
claims and settlements. In addition, sales of the Company's new products could replace sales of some of its current products,
offsetting the benefit of even a successful product introduction.
The Company's sales of proprietary products are subject to uncertainties, start-up costs and inefficiencies and faces competitive
risks.
The growth strategy for the Company’s Aerostar segment emphasizes the design and manufacture of proprietary products while
transitioning its contract manufacturing services capabilities principally to support proprietary market opportunities. This transition
from contract manufacturing services could take too long or be unsuccessful and have an adverse effect on the Company’s financial
results.
The Company's contract electronic manufacturing services (EMS) business and sewing businesses in the Aerostar Division have
been dependent on the continued growth, viability and financial stability of a small group of customers. Aerostar is moving to
transform itself into a proprietary manufacturer and service provider. Reductions in the Company's existing contract revenues,
unless offset by other programs and opportunities, will adversely affect its ability to sustain and grow its future sales and earnings.
Future sales will be dependent on the success of Aerostar's growth drivers, including advanced radar systems, high-altitude balloons
and aerostats to international markets. To compete effectively, Aerostar must continue to provide technologically advanced
products and services, maintain strict quality standards, respond flexibly and rapidly to customer needs and deliver products
globally on a reliable basis at competitive prices. Start-up costs and inefficiencies can adversely affect operating results and such
costs may not be recoverable in a proprietary product environment, because the Company may not receive reimbursement from
its customers for such costs.
7
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 $45.9 million in fiscal 2014, 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.
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 acquisition 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 product or geographic 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 and our information technology systems.
Total goodwill and intangible assets account for approximately $30.0 million, or 10%, of Raven's total assets as of January 31,
2014. 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
8
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.
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 owns a product development facility in Austin, Texas and a
manufacturing facility located in St. Louis, Missouri as well as leasing smaller research and office facilities in South Dakota.
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, Virginia; Duncansville, Pennsylvania and Monterey, Chatsworth
and Sunnyvale, 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 24.6 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 -
175,000; Engineered Films - 310,000; Aerostar - 370,000; and Corporate - 150,000.
9
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.
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 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
FISCAL 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
FISCAL 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
$103,680 $ 34,916 $ 20,934 $ 20,736 $
93,421
104,938
92,638
26,735
31,940
25,763
12,568
18,132
12,360
12,349
18,089
12,449
$394,677 $ 119,354 $ 63,994 $ 63,623 $
$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 $
14,003 $ 0.38 $ 0.38 $34.04 $ 25.46 $
0.23
8,333
0.34
12,289
8,278
0.23
42,903 $ 1.18 $ 1.17 $42.99 $ 25.46 $
28.82
28.38
32.64
35.68
34.83
42.99
0.23
0.34
0.23
19,043 $ 0.53 $ 0.52 $35.56 $ 28.16 $
0.32
11,546
0.30
10,859
0.30
11,097
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 $
24.68
21.62
25.09
29.80
32.44
34.65
0.34
0.32
0.31
0.12
0.12
0.12
0.12
0.48
0.105
0.105
0.105
0.105
0.42
0.09
0.09
0.09
0.09
0.36
(a)
(b)
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.
As of January 31, 2014, the Company had approximately 11,800 beneficial holders, which includes a substantial amount of the
Company's common stock held of record by banks, brokers and other financial institutions.
10
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES, INC.,
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, 2009, held this for five years and reinvested the dividends, have seen its value increase to $385.40.
Company / Index
2009
2010
2011
2012
2013
2014
Raven Industries, Inc.
$ 100.00
$ 133.82
$ 233.03
$ 324.33
$ 273.10
$ 385.40
S&P 1500 Industrial Machinery Index
Russell 2000 Index
100.00
100.00
140.29
137.73
203.82
180.87
203.06
186.04
244.59
214.90
308.15
272.99
Years Ended January 31,
5-Year
CAGR(a)
31.0%
25.2%
22.2%
(a) compound annual growth rate (CAGR)
11
ITEM 6.
SELECTED FINANCIAL DATA
ELEVEN-YEAR FINANCIAL SUMMARY
(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,
2013
2012
2014
$ 394,677
119,354
63,994
63,623
$ 42,903
$ 406,175
127,673
77,692
77,646
52,545
$
$ 381,511
116,192
75,641
75,698
50,569
$
10.9%
19.4%
12.9%
29.1%
13.3%
35.8%
$ 17,465
$
15,244
$
13,025
$ 169,405
29,819
$ 139,586
5.68
$ 98,076
301,819
—
$ 251,362
$ 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
$
—%
5.2
—%
5.4
—%
5.4
$ 52,836
(31,615)
(17,354)
3,634
$
$
$
1.18
1.17
0.48
6.89
42.99
25.46
37.45
36,492
11,764
32.0
1,264
312
$
$ 51,793
$
$
$
$
$
$
76,456
(29,930)
(23,007)
23,511
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
$
$
$
$
$
$
43,831
(40,313)
(15,234)
(11,721)
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
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.
12
2011
2010
2009
2008
2007
2006
2005
2004
$314,708
91,429
60,203
60,282
$ 40,537
$237,782
67,852
43,220
43,322
$ 28,574
$279,913
73,448
46,394
46,901
$ 30,770
$233,957
63,676
41,145
42,224
$ 27,802
$217,529
57,540
38,302
38,835
$ 25,441
$204,528
55,714
37,284
37,494
$ 24,262
$168,086
45,212
27,862
27,955
$ 17,891
$142,727
35,488
21,626
21,716
$ 13,836
12.9%
30.4%
12.0%
25.2%
11.0%
26.0%
$ 34,095
$ 9,911
$ 31,884
$
11.9%
28.3%
7,966
11.7%
30.1%
11.9%
36.7%
10.6%
26.9%
$ 6,507
$ 5,056
$ 15,298
$
9.7%
23.8%
3,075
$128,181
34,335
$ 93,846
3.73
$ 41,522
187,760
—
$141,214
$117,747
25,960
$ 91,787
4.54
$ 33,029
170,309
—
$133,251
$ 98,073
23,322
$ 74,751
4.21
$ 35,880
144,415
—
$113,556
$100,869
22,108
$ 78,761
4.56
$ 35,743
147,861
—
$118,275
$ 73,219
16,464
$ 56,755
4.45
$ 36,264
119,764
—
$ 98,268
$ 71,345
20,050
$ 51,295
3.56
$ 25,602
106,157
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
—%
5.6
—%
5.3
—%
5.2
—%
5.3
—%
5.4
—%
5.9
—%
5.8
0.1%
6.1
$ 42,085
(11,418)
(33,834)
(3,121)
$ 47,643
(13,396)
(9,867)
24,417
$ 39,037
(7,000)
(36,969)
(5,005)
$ 27,151
(4,433)
(8,270)
14,489
$ 26,313
(18,664)
(10,277)
(2,626)
$ 21,189
(11,435)
(6,946)
2,790
$ 18,871
(7,631)
(19,063)
(7,823)
$ 19,732
(4,352)
(6,155)
9,225
$
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
$
0.79
0.79
0.28
3.69
$ 16.59
7.69
$ 14.29
36,102
7,767
18.1
930
256
$
$ 74,718
$
0.86
0.85
0.89
3.15
$ 23.91
10.30
$ 10.91
36,054
8,268
12.8
1,070
262
$
$ 80,361
$
$
$
0.77
0.77
0.22
3.26
22.93
13.10
15.01
36,260
8,700
19.6
930
252
$
$ 66,628
$
0.71
0.70
0.18
2.73
$ 21.35
12.73
$ 14.22
36,088
8,992
20.5
884
246
$
$ 44,237
$
0.67
0.66
0.14
2.34
$ 16.58
8.27
$ 15.80
36,144
9,263
23.9
845
242
$
$ 43,619
$
$
$
0.50
0.49
0.43
1.84
13.47
6.54
9.19
35,998
6,269
18.9
835
201
$
$ 43,646
$
$
$
0.39
0.38
0.09
1.84
7.62
3.78
7.06
36,082
3,560
18.8
787
181
$
$ 47,120
13
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
For the years ended January 31,
2014
2013
2012
2011
2010
2009
$ 170,461
57,000
93,395
9,324
4,332
$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
$ 147,620
18,154
71,602
6,681
5,808
$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
$ 90,605
7,816
63,017
7,507
2,616
$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
$
(386) $
(505)
(13,118)
(111)
(311)
(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)
$ (18,865) $(17,293) $ (13,730) $ (9,784) $ (7,407) $ (8,502)
24,233
425
469
34,928
2,002
700
51,695
279
387
47,233
954
361
74,116
7,189
1,439
62,843
5,275
1,138
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.
$ 394,677
63,994
301,819
30,701
14,195
$406,175
77,692
273,210
29,675
13,098
$381,511
75,641
245,703
29,015
9,268
$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
14
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 three unique operating units, classified into 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. As strategic actions have changed the Company’s business over the last several years, Raven has
remained committed to providing high-quality, high-value products. The Company’s performance reflects our ongoing adjustment
to conditions and opportunities.
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. Raven’s three unique divisions share resources, ideas and a passion to create technology that helps the world grow more
food, produce more energy, protect the environment and live safely.
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
business segments, is summarized as follows:
Intentionally 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.
15
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
2013
2012
2014
$ 394,677
(3)% $ 406,175
6% $ 381,511
$
$
$
$
$
$
29.2%
31.4%
30.5%
63,994
(18)% $
77,692
3% $
75,641
16.2%
42,903
1.17
52,836
30,701
17,465
10.9%
14.9%
19.4%
19.1%
19.8%
(18)% $
(19)% $
52,545
1.44
4% $
4% $
50,569
1.39
$
$
$
76,456
29,675
15,244
$
$
$
43,831
29,015
13,025
12.9%
20.3%
29.1%
13.3%
23.3%
35.8%
(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 2014 compared to Fiscal 2013
The Company's net sales in fiscal 2014 were $394.7 million, a decrease of $11.5 million, or 3%, from last year's record net sales
of $406.2 million. Changes in net sales levels varied across the divisions. Engineered Films' fiscal 2014 net sales were up 4%
over fiscal 2013 with a strong second half, led by higher agricultural sales and a recovery in demand for pit liners in the energy
markets. The introduction of new products in fiscal 2014 and higher original equipment manufacturer (OEM) demand offset by
weaker demand in the U.S. aftermarket led to Applied Technology's 1% net sales decline in fiscal 2014 compared to fiscal 2013.
In Aerostar, higher radar sales and high-altitude balloon and service related revenues were not enough to offset the expected lower
contract manufacturing, parachutes and protective wear revenues. Overall Aerostar net sales decreased 11% from fiscal 2013 to
fiscal 2014.
Fiscal 2014 operating income decreased 18% from fiscal 2013 due primarily to the overall sales decline, lower gross profit margins
and higher investment in research and development (R&D) expenses across all divisions. Applied Technology's operating income
decreased by 4% due to lower sales volumes and product mix. Substantially higher resin costs combined with market conditions
that did not allow for pass-through costs caused Engineered Films' operating income to decrease 28%. Aerostar posted a decline
of 24% from the prior year operating income due primarily to lower sales and higher operating expense.
Results of Operations - Fiscal 2013 compared to Fiscal 2012
The Company 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 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.
16
Fiscal 2013 operating income increased 3% from fiscal 2012 primarily due to sales growth partially offset by higher investment
in R&D, selling and administrative expenses. Applied Technology increased its operating income by 20% due to higher sales
and associated operating leverage. Engineered Films' operating income growth of 17% reflected higher sales and increased
operating efficiencies and favorable price versus material cost spread seen in the first half of fiscal 2013. Aerostar posted a decline
of 44% from the prior year operating income due primarily to lower sales.
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 $53.2 million
cash and short-term investments balance as of January 31, 2014. Capital expenditures totaled $30.7 million in fiscal 2014 compared
to $29.7 million in fiscal 2013. Capital spending consisted primarily of expenditures to expand Engineered Films' manufacturing
capacity, facility expansion for Aerostar and renovation of the Company's headquarters.
During fiscal 2014, $17.5 million was returned to shareholders though quarterly dividends. In the first quarter of fiscal 2014, the
quarterly dividend was raised from 10.5 cents per share to 12.0 cents per share, representing the 27th consecutive annual increase
in the dividend (excluding special dividends). During fiscal 2013, $15.2 million was returned to shareholders through quarterly
dividends.
Performance Measures
Returns on net sales, average assets and beginning equity are important gauges of Raven's ability to efficiently produce profits.
Although the Company’s fiscal 2014 returns were not at the level of the prior two years’ results, they have remained at strong
levels as the Company has capitalized on competitive advantages in niche markets while investing in future product development.
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 yields for the global agriculture market.
Financial highlights for the fiscal years ended January 31,
dollars in thousands
2014
% change
2013
% change
2012
Net sales
Gross profit
Gross margins
Operating expense
Operating expense as % of sales
Operating income
Operating margins
$ 170,461
79,499
$
$
46.6%
22,499
13.2%
57,000
33.4%
(1)% $
(2)%
171,778
80,853
18% $
21%
145,261
66,913
47.1%
46.1%
6 % $
21,263
24% $
17,163
12.4%
11.8%
(4)% $
59,590
20% $
49,750
34.7%
34.2%
Net sales decreased $1.3 million, or 1%, to $170.5 million and operating income of $57.0 million was down $2.6 million, or 4%,
for fiscal 2014 compared to fiscal 2013.
Fiscal 2014 fourth quarter net sales declined $2.0 million, or 5%, to $36.4 million and operating income decreased $1.5 million,
or 12%, to $10.8 million compared to fourth quarter fiscal 2013.
A number of factors contributed to the full-year and fourth quarter comparative results:
• Market conditions. Global market fundamentals remained healthy. With the world’s population growing toward nine
billion and income growth in emerging economies, demand for food continues to increase. Apprehension given drought
conditions and falling commodity prices put pressure on domestic demand through the second quarter of fiscal 2014.
Aftermarket demand rose in the third quarter but did not persist through the fourth quarter at normal levels. OEM demand
stayed robust for certain products. Emerging agriculture markets abroad are at varying life cycle stages providing
opportunities for Raven's precision agriculture products to meet market needs. Growth in these international markets
has moderated in some areas of the world while there is strength in others. The Company continues to invest in growth
internationally for the long term.
Sales volume and new products. Strong international OEM demand for guidance and steering products and boom controls
contributed sales increases, but these increases were more than offset by the impact of weaker aftermarket demand in
the U.S. and Canada resulting in the slight decrease in net sales for fiscal 2014. Despite solid contributions from new
•
17
•
products, which generated sales of about $18 million for the year, and OEM demand, fiscal 2014 fourth quarter net sales
were down 5% compared to fourth quarter fiscal 2013 due to lower aftermarket demand and timing of OEM orders for
model changeover, especially injection products.
International sales. Net sales outside the U.S. accounted for 24% of segment sales in fiscal 2014 compared to 25% in
fiscal 2013. International sales decreased $0.7 million, or 2%, to $41.7 million in fiscal 2014 compared to fiscal 2013.
Product deliveries to Brazil increased year-over-year; however, lower demand in Canada, South Africa and Eastern
Europe offset this increase. For the fourth quarter, international sales totaled $7.0 million, a decrease of 7% from the
prior year three-month period.
• Gross margins. Gross margins declined from 47.1% in fiscal 2013 to 46.6% in fiscal 2014 due to lower sales and
production levels.
• Operating expenses. Fiscal 2014 operating expenses were 13.2% of net sales compared to 12.4% for the prior year.
The increase is attributable to higher spending in R&D on relatively flat sales volumes. Applied Technology remains
committed to spending on product development to drive growth.
For fiscal 2013, net sales increased $26.5 million, or 18%, to $171.8 million and operating income was up $9.8 million, or 20%,
to $59.6 million compared to fiscal 2012.
Several factors contributed to the results for fiscal 2013 as compared to fiscal 2012:
•
• Market conditions. The drought domestically created some uncertainty in the marketplace, but overall, this was
substantially offset by higher commodity prices. The Company continued to cultivate and deepen relationships with key
OEM partners, to expand market share and extend Raven's technology to a broader range of customers.
Sales volume and selling prices. The favorable net sales comparisons for fiscal 2013 reflected 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.
• 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. Operating expenses were 12.4% of net sales in fiscal 2013 compared to 11.8% for the prior year.
The increase was attributable to Applied Technology's spending on product development to drive OEM demand and
expansion into domestic and international markets.
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,
dollars in thousands
Net sales
Gross profit
Gross margins
Operating expenses
Operating expenses as % of sales
Operating income
Operating margins
2014
$ 147,620
23,592
$
$
16.0%
5,438
3.7%
18,154
12.3%
% change
2013
% change
4 % $ 141,976
30,726
(23)%
21.6%
(3)% $
5,611
4.0%
(28)% $
25,115
17.7%
6%
18%
22%
17%
2012
$ 133,481
26,090
$
$
19.5%
4,589
3.4%
21,501
16.1%
Net sales increased $5.6 million, or 4%, to $147.6 million while operating income was down 28% to $18.2 million for fiscal 2014
compared to $25.1 million for fiscal 2013.
Fiscal 2014 fourth quarter net sales increased $4.8 million, or 16%, from $30.8 million in the fiscal 2013 fourth quarter and
operating income of $3.4 million was $1.0 million, or 23%, lower than the prior year fourth quarter.
18
These year-over-year and fourth quarter changes were primarily driven by the following factors:
• Market conditions. Beginning in the second quarter of fiscal 2014, demand has strengthened for agriculture barrier films
used in high value crop production. The addition of new extrusion capacity earlier in fiscal 2014 was a key factor in
meeting demand for these high-tech films. Demand for pit liners in our energy market, declining since the beginning of
the second half of fiscal 2013, has rebounded during the second half of fiscal 2014. Environmental and water conservation
projects increase demand for the division's containment liners in the geomembrane market and provide sales growth
opportunities for these products.
Sales volume and selling prices. Fiscal 2014 net sales were up 4% to $147.6 million compared to fiscal 2013 net sales
of $142.0 million. Sales volume (as measured by pounds shipped), fueled by sales of fumigation and silage films in the
agriculture market, was up about 5% as compared to the prior year. Selling prices were virtually flat. Agriculture market
sales were up, offsetting energy market declines and the completion of a significant geomembrane reservoir project in
Ohio in the prior year.
•
• Gross margins. Fiscal 2014 gross margins decreased almost six percentage points as compared to the prior year. The
current year margins were impacted by substantially higher resin costs combined with market conditions that did not
allow pass-through of these higher costs. Gross margins of 12.9% in the fourth quarter were lower than the fiscal 2014
margins due to continued higher resin prices and operating inefficiencies during the quarter.
• Operating expenses. Fiscal 2014 operating expenses as a percentage of net sales decreased to 3.7%, compared to 4.0%
in the prior year. In addition to the sales increase, the improved percentage was also impacted by lower R&D spending
influenced by project timing.
For fiscal 2013, 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 compared to fiscal 2012.
Fiscal 2013 results were primarily driven by the following factors:
•
• Market conditions. Economic growth in emerging markets continued to support high oil prices, though declining oil
prices beginning in the second half of fiscal 2013 decreased demand for pit liners in our energy market. Environmental
and water conservation projects 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 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 year-over-year increase in the
agriculture market. Energy market demand 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.
• 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 expanded its product development
efforts.
Aerostar
Aerostar designs and manufactures proprietary products including high-altitude 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 also produces products such as military parachutes, uniforms and
protective wear as a contract manufacturing services provider as well as being a total solutions provider of electronics manufacturing
services.
Through 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. Vista positions 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 products and services enhance Aerostar’s security solutions.
19
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
$
$
$
2014
90,605
16,374
18.1%
8,558
9.4%
7,816
8.6%
% change
(11)% $
1 %
47%
$
(24)%
2013
102,051
16,155
15.8%
5,814
5.7%
10,341
10.1%
% change
(5)% $
(31)%
15 % $
(44)%
2012
107,811
23,378
21.7%
5,070
4.7%
18,308
17.0%
Net sales declined 11% to $90.6 million from last year’s results of $102.1 million. Operating income of $7.8 million was down
$2.5 million, or 24%, compared to fiscal 2013.
Fiscal 2014 comparative results were primarily attributable to the following:
• Market conditions. Certain of Aerostar's markets are subject to significant variability due to U.S. federal spending.
Uncertainty and sluggish demand in these markets continued throughout fiscal 2013 and fiscal 2014. As such, Aerostar’s
planned growth strategy emphasizes proprietary products over contract manufacturing. In collaboration with Google on
a pilot program, Project Loon, to provide high-speed wireless Internet accessibility to rural, remote and underserved areas
of the world, Aerostar is pioneering leading-edge applications of its high-altitude balloons. While in its early stages,
this program positions Aerostar for significant growth potential, albeit with a higher risk of uncertainty.
Sales volumes. Fiscal 2014 net sales decreased $11.4 million from the prior year, a year-over-year decrease of 11%. The
drivers of this decline were lower sales of parachutes and protective wear and the planned reduction of contract
manufacturing business. These decreases were partially offset by revenues for Project Loon, higher Vista product and
product services revenue and increased intercompany sourcing to Applied Technology.
•
• Gross margins. Gross margins increased from 15.8% in fiscal 2013 to 18.1% for fiscal 2014. Despite the lower sales
levels, gross profit margins have increased 2.3 percentage points in fiscal 2014 compared to the prior year. This
improvement in gross margins resulted from the increased sales of higher-margin product lines and increased Vista sales.
• Operating expenses. Fiscal 2014 operating expenses of $8.6 million were 9.4% of sales and increased from $5.8 million
or 5.7% of sales in fiscal 2013. Increased R&D spending associated with Project Loon and business development costs
over lower sales volumes drove the percentage higher in the current year.
For the fiscal 2014 fourth quarter, net sales increased $0.7 million to $23.9 million from $23.2 million in the comparative period
of 2013. Fourth quarter gross profit also improved, climbing to $5.0 million compared to $3.7 million in the fourth quarter of
fiscal 2013. Operating income declined $0.4 million to $2.3 million compared to fiscal 2013 fourth quarter.
Several factors contributed to the fourth quarter comparative results:
•
Sales volume and gross margins. Fourth quarter sales were up $0.7 million, or 3%, to $23.9 million compared to the
prior year fourth quarter. Higher Vista radar sales, Project Loon service revenue and an aerostat system delivery helped
increase sales quarter-over-quarter and improve gross margins as these product lines carry a higher margin than contract
manufacturing services.
• Operating expenses. Operating expenses were $2.7 million or 11.3% of sales in the fourth quarter, an increase of $1.7
million from $1.0 million or 4.2% of sales in the prior comparative period. Increased R&D spending associated with
product development drove the percentage higher in the current quarter.
For fiscal 2013, net sales decreased $5.7 million, or 5%, to $102.1 million compared to fiscal 2012. Operating income declined
$8.0 million, or 44%, to $10.3 million as compared to fiscal 2012.
Fiscal 2013 results were driven by the following:
• Market conditions. Throughout fiscal 2013, Aerostar faced uncertainty and sluggish demand. Federal spending caused
significant variability in certain of Aerostar’s markets while planned decreases in avionics sales caused declines in EMS
revenues.
20
•
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 EMS sales for the year.
• 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 the fiscal year ended January 31, 2013 as fiscal 2012 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 reflected increased investment in R&D to support next generation
aerostat and Vista radar technology.
Corporate Expenses (administrative expenses; other income (expense), net; and income taxes)
dollars in thousands
Administrative expenses
Administrative expenses as a % of sales
Other (expense) income, net
Effective tax rate
For the years ended January 31,
$
$
2014
18,865
4.8%
(371)
32.6%
$
$
2013
17,293
4.3%
(46)
32.3%
$
$
2012
13,730
3.6%
57
33.1%
Administrative expenses increased $1.6 million in fiscal 2014 compared with fiscal 2013. This 9% increase is due to the Company's
investments in additional legal, finance, human resources and information technology personnel to support current and future
growth strategies through a strengthened corporate infrastructure. This growth has been tempered in the second half of fiscal 2014
and the number of employees in these roles has remained relatively consistent.
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 2014 effective tax rate of 32.6% was slightly higher than the fiscal 2013 effective tax rate of 32.3% due to a lower
deduction for manufacturing income in the U.S.
OUTLOOK
At Raven our enduring success is built on our ability to balance the Company’s purpose and core values with necessary shifts in
business strategy demanded by an ever-changing world. Raven continues to become a more technology-focused Company -
centered on solving the specific great challenges of hunger, security, energy independence and natural resource preservation and
serving our core markets. Raven is transitioning from being a company with a strong contract manufacturing orientation to being
one that is driven by proprietary products and services. This vision brings meaning to the work of the organization and ensures
our focus on profitable opportunities with strong fundamentals.
In fiscal 2015 Raven will leverage its strengths to drive growth from the core businesses in all three operating divisions and
aggressively pursue closely adjacent opportunities. The Company’s focus will be on:
• Measurably growing revenues from Aerostar's growth drivers, including advanced radar systems, high-altitude balloons
and aerostats to international markets;
• Driving Applied Technology growth through international market expansion, new products and broadening OEM
relationships; and
• Bringing high-value plastic film applications to each of Engineered Films’ markets.
For the fiscal 2015 first quarter, Raven expects to see solid growth in Engineered Films agriculture market revenues and higher
OEM deliveries in Applied Technology. These gains will be substantially offset by a continuation of the challenging environment,
declining contract manufacturing revenues and uncertain agriculture aftermarkets. The Company expects profits to be flat to
slightly down in the first quarter, followed by profit growth as the year progresses. For the fiscal year, management anticipates
profit improvement to be derived from renewed growth in Applied Technology, realization of Aerostar’s growth drivers and
improved operational performance in Engineered Films.
21
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.
Cash and cash equivalents totaled $53.0 million at January 31, 2014 compared to $49.4 million on the same date in 2013, an
increase of $3.6 million. The increase was driven by positive cash flows from operating activities, partially offset by cash outflow
for capital expenditures and dividends paid to shareholders. Short-term investments as of January 31, 2014 were $0.3 million.
The Company did not have any short-term investments at January 31, 2013 or January 31, 2012.
Raven has an uncollateralized credit agreement that provides a $10.5 million line of credit and expires November 30, 2014. There
is no outstanding balance under the line of credit at January 31, 2014. The line of credit is reduced by outstanding letters of credit
totaling $0.9 million as of January 31, 2014. The credit line is expected to be renewed during fiscal 2015.
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 $52.8 million in fiscal 2014 compared with $76.5 million in fiscal 2013. The decrease
in operating cash flows is the result of lower Company earnings and cash consumed by the change in inventory account balances.
In fiscal 2014, inventory consumed $9.2 million of cash versus generating $8.6 million in fiscal 2013. The Company's inventory
turnover rate decreased slightly from the prior year primarily due to the higher inventory levels at Engineered Films (trailing 12-
month inventory turn of 5.2X in fiscal 2014 and 5.4X in fiscal 2013). Cash collections were efficient despite the increase in trailing
12 months days sales outstanding of 51 days in fiscal 2014 compared to 50 days in fiscal 2013. Accounts receivable generated
$1.3 million in cash in fiscal 2014 as compared to generating $4.4 million cash in fiscal 2013. Year-over-year variability in accounts
payable and accrued liabilities consumed $1.9 million of cash in fiscal 2014 compared to cash consumed of $4.6 million in fiscal
2013 due to timing of trade payable payments.
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 were 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.
Investing Activities
Cash used in investing activities totaled $31.6 million in fiscal 2014, $29.9 million in fiscal 2013 and $40.3 million in fiscal
2012. Capital expenditures totaled $30.7 million in fiscal 2014 compared to $29.7 million in fiscal 2013 and $29.0 million in
fiscal 2012. Capital spending consisted primarily of expenditures to expand Engineered Films' manufacturing capacity, facility
expansion for Aerostar and renovation of the Company's headquarters.
There were no businesses acquired in fiscal 2014 or 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 2015. Expansion of Engineered Films' capacity,
Aerostar's build-out for Project Loon production levels and Applied Technology's capital spending to advance product
development and customer support are expected to continue. In addition, management will evaluate strategic acquisitions that
result in expanded capabilities and solidify competitive advantages.
22
Financing Activities
Financing activities consumed cash of $17.4 million in fiscal 2014 compared with $23.0 million in fiscal 2013 and $15.2 million
in fiscal 2012.
Quarterly dividends paid in fiscal 2014 were $17.5 million, or $0.48 per share, compared to $15.2 million in fiscal 2013 and $13.0
million in fiscal 2012. In the first quarter of fiscal 2014, the Company increased the quarterly dividend rate (excluding special
dividends) for the 27th consecutive year. Raven has now paid a dividend in 41 consecutive years.
During fiscal 2014, the Company made $0.4 million in payments on acquisition-related contingent liabilities related to the Vista
acquisition. In fiscal 2013, the Company paid $8.4 million 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, 2014, 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's known off-balance sheet debt and other unrecorded obligations are noted in the table below.
A summary of the obligations and commitments at January 31, 2014 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
Less than
1 year
1-3
years
3-5
years
More than
5 years
$
3,344
$
1,455
$
1,448
$
48,265
21,144
11,482
—
—
48,265
255
970
—
—
—
593
2,966
—
—
281
—
672
4,726
—
—
$
160
—
19,624
2,820
—
—
$ 84,235
$
50,945
$
5,007
$
5,679
$
22,604
(a)
(b)
Includes unconditional obligations of $3.1 million 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.
See below for further details on specific obligations.
(d)
Acquisition-related obligations
The Company has future obligations for earn-out payments primarily associated with the acquisition of Vista completed in fiscal
2012. The total liability recorded on the Consolidated Balance Sheet as of January 31, 2014 related to these future obligations
was $3.4 million, of which $0.9 million was classified as "Accrued liabilities" and $2.5 million as "Other liabilities". These
liabilities represent the present value of earn-out payments classified as consideration at the acquisition date. Specific to the Vista
acquisition, 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. In a transaction separate from the Vista 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 $6.6 million at January 31, 2014. 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.
23
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, 2014, bearing interest at 1.5% above the daily one-month London Inter-Bank Market
Rate. Letters of credit totaling $0.9 million have been issued under the line, primarily to support self-insured workers' compensation
bonding requirements. No borrowings were outstanding as of January 31, 2014, 2013 and 2012 and $9.6 million was available
at January 31, 2014. 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.
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 forecasted 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
24
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
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 primarily 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 February 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02,
"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI)" (ASU No. 2013-02). ASU No.
2013-02 requires that an entity present, either on the face of the statement where net income is reported or in the notes, the effect
of significant reclassifications out of AOCI to net income when generally accepted accounting principles requires that the amount
be reclassified in its entirety to net income. For amounts not required to be entirely reclassified to net income, ASU No. 2013-02
requires the cross-referencing of these amounts to other disclosures that provide detail about these amounts. This guidance,
required to be applied prospectively, was effective for the Company on February 1, 2013. The adoption of this guidance had no
effect on the Company's consolidated financial position, results of operations or cash flows as it is disclosure-only in nature.
25
Pending Accounting Standards
In January 2014 the FASB issued ASU No. 2014-05, "Service Concession Arrangements" (ASU No. 2014-05). ASU No. 2014-05
specifies that an operating entity entering into a service concession arrangement with a public-sector entity grantor within the
scope of this guidance should not account for such arrangement as a lease in accordance with FASB Accounting Standards
Codification Topic 840, "Leases." This guidance is effective for annual periods beginning after December 15, 2014. Early
adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its consolidated
financial position, results of operations or cash flows.
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.
Assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and
uncertainties include, but are not limited to, those relating to weather conditions and commodity prices, which could affect sales
and profitability in some of the Company's primary markets, such as agriculture and construction and oil and gas drilling; or
changes in competition, raw material availability, technology or relationships with the Company's largest customers, risks and
uncertainties relating to development of new technologies to satisfy customer requirements, possible development of competitive
technologies, ability to scale production of new products without negatively impacting quality and cost, and ability to finance
investment and working capital needs for new development projects, any of which could adversely impact any of the Company's
product lines, as well as other risks described in Item 1A., Risk Factors, of this Annual Report on Form 10-K. 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. 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.
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, 2014. 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.
26
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
28
29
30
31
32
33
34
10
27
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, 2014. In
making this assessment, it used the criteria described by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control - Integrated Framework (1992). Based on this assessment using those criteria , we concluded that, as of January
31, 2014, the Company's internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of January 31, 2014 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 and Chief Executive Officer
Vice President and Chief Financial Officer
March 31, 2014
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Raven Industries, Inc.:
In our opinion, the 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, 2014, 2013, and 2012, and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 2014 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 index appearing under Item 15 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, 2014, based on criteria established in Internal Control - Integrated Framework (1992) 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 31, 2014
29
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
65,318; 65,223; and 65,132, 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.
30
2014
As of January 31,
2013
2012
52,987
250
54,643
54,865
3,372
3,288
$
49,353
—
56,303
46,189
3,107
1,796
$
25,842
—
60,759
54,756
3,299
2,903
169,405
156,748
147,559
98,076
22,274
8,156
3,908
301,819
12,324
16,248
1,247
29,819
20,538
65,318
10,556
231,029
(2,179)
(53,362)
251,362
100
251,462
301,819
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
$
$
$
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
Operating income
Other (expense) income, net
Income before income taxes
Income taxes
Net income
Net (loss) 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 (loss), net of tax:
Foreign currency translation
Postretirement benefits, net of income tax (expense) benefit of ($183),
$70 and $432, respectively
Other comprehensive income (loss), net of tax
For the years ended January 31,
$
2014
394,677
275,323
119,354
$
2013
406,175
278,502
127,673
$
2012
381,511
265,319
116,192
16,576
38,784
63,994
(371)
63,623
20,721
42,902
(1)
42,903
1.18
1.17
42,902
(424)
340
(84)
$
$
$
$
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)
$
$
$
$
Comprehensive income
42,818
52,422
49,793
Comprehensive income (loss) attributable to noncontrolling interest
(1)
10
66
Comprehensive income attributable to Raven Industries, Inc.
$
42,819
$
52,412
$
49,727
The accompanying notes are an integral part of the consolidated financial statements.
31
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars and shares in thousands, except per-share amounts)
Balance January 31, 2011
$ 32,511 $ 7,060
(14,449) $ (53,362) $ 156,125 $
(1,120) $
141,214 $
— $141,214
$1 Par
Common
Stock
Paid-in
Capital
Treasury Stock
Shares
Cost
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Raven
Industries, Inc.
Equity
Non-
controlling
Interest
Total
Equity
—
—
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)
—
—
—
—
—
63
—
—
—
—
—
52,545
—
52,545
—
(133)
(133)
— (15,307)
Two-for-one stock split
32,598
(7,405)
(14,448)
— (25,193)
(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
(36)
(2,215)
95
2,503
— 3,075
—
257
—
—
—
—
—
—
—
—
—
—
—
—
65,223
5,885
(28,897)
(53,362)
205,695
(2,095)
221,346
101
221,447
—
—
—
—
—
104
(64)
(2,041)
159
2,111
— 4,198
—
299
—
—
—
—
—
—
—
—
—
42,903
—
42,903
(1)
42,902
—
(84)
(84)
—
(84)
— (17,569)
—
—
—
—
—
—
—
—
—
—
—
—
—
(17,465)
— (17,465)
(2,105)
— (2,105)
2,270
4,198
299
—
—
—
2,270
4,198
299
Stock surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
Balance January 31, 2013
Net income (loss)
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.48 per share)
Stock surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
Balance January 31, 2014
$ 65,318 $10,556
(28,897) $ (53,362) $ 231,029 $
(2,179) $
251,362 $
100 $251,462
The accompanying notes are an integral part of the consolidated financial statements.
32
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended January 31,
2014
2013
2012
$
42,902
$
52,555
$
50,635
12,449
1,746
—
540
(116)
623
4,198
(10,449)
943
52,836
(30,701)
—
—
(250)
(664)
(31,615)
(17,465)
—
(353)
464
(17,354)
(233)
3,634
49,353
52,987
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
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Amortization of intangible 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
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.
$
33
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.
34
(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 primarily 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 $203 in fiscal 2014, $7 in fiscal 2013 and $553
in fiscal 2012. 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 and
short-term investments. The Company determines fair value of its cash equivalents and short-term investments 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.
35
(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. 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 of the goodwill 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 utilizes 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, 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 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. Contract costs include labor, material, subcontracting costs, as well as allocation of indirect costs. Revenues
including estimated profits are recorded as costs are incurred. Losses estimated to be incurred upon completion of contracts are
charged to operations when they become known.
Certain contracts contain provisions for incentive payments that the Company may receive based on performance criteria related
to product design, development and production standards. Revenue related to the incentive payments is recognized when ultimate
realization by the Company is assured, which generally occurs when the provisions and performance criteria required by the
contract are met.
36
(Dollars in thousands, except per-share amounts)
Operating Expenses
The primary types of operating expenses are classified in the income statement as follows:
Cost of sales
Direct material costs
Material acquisition and handling costs
Direct labor
Factory overhead including depreciation
Inventory obsolescence
Product warranties
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 February 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02,
"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI)" (ASU No. 2013-02). ASU No.
2013-02 requires that an entity present, either on the face of the statement where net income is reported or in the notes, the effect
of significant reclassifications out of AOCI to net income when GAAP requires that the amount be reclassified in its entirety to
net income. For amounts not required to be entirely reclassified to net income, ASU No. 2013-02 requires the cross-referencing
of these amounts to other disclosures that provide detail about these amounts. This guidance, required to be applied prospectively,
was effective for the Company on February 1, 2013. The adoption of this guidance had no effect on the Company's consolidated
financial position, results of operations or cash flows as it is disclosure-only in nature.
Pending Accounting Standards
In January 2014 the FASB issued ASU No. 2014-05, "Service Concession Arrangements" (ASU No. 2014-05). ASU No. 2014-05
specifies that an operating entity entering into a service concession arrangement with a public-sector entity grantor within the
scope of this guidance should not account for such arrangement as a lease in accordance with FASB Accounting Standards
Codification Topic 840, "Leases." This guidance is effective for annual periods beginning after December 15, 2014. Early
adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its consolidated
financial position, results of operations or cash flows.
37
(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
Federal income tax receivable
Prepaid expenses and other
Property, plant and equipment, net:
Land
Buildings and improvements
Machinery and equipment
Accumulated depreciation
Other assets, net:
Investment in affiliate
Other, net
Accrued liabilities:
Salaries and benefits
Vacation
401(k) contributions
Insurance obligations
Warranties
Taxes - accrued and withheld
Acquisition-related contingent consideration
Other
Other liabilities:
Postretirement benefits
Acquisition-related contingent consideration
Deferred income taxes
Uncertain tax positions
2014
As of January 31,
2013
2012
$
$
$
$
$
$
$
$
$
$
$
$
$
$
54,962
(319)
54,643
7,232
2,131
45,502
54,865
733
1,197
1,358
3,288
2,077
66,278
114,345
(84,624)
98,076
3,684
224
3,908
1,858
3,700
727
2,428
2,525
1,743
890
2,377
16,248
7,998
2,457
3,526
6,557
20,538
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
4,265
4,025
520
2,506
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
5,541
4,387
966
2,789
1,699
2,596
3,266
1,749
22,993
7,348
7,655
4,518
4,946
24,467
38
(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 changes in the components of accumulated other comprehensive
income (loss) (AOCI) are shown below:
Cumulative
foreign currency
translation
adjustment
Postretirement
benefits
Total
Balance at January 31, 2011
$
183
$
(1,303) $
Other comprehensive (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss) after tax benefit of $432
Balance at January 31, 2012
Other comprehensive (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss) after tax benefit of $70
Balance at January 31, 2013
Other comprehensive (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income after tax (expense) of ($183)
(38)
—
145
(3)
—
142
(424)
—
—
(804)
(2,107)
—
(130)
(2,237)
—
340
(1,120)
(38)
(804)
(1,962)
(3)
(130)
(2,095)
(424)
340
Balance at January 31, 2014
$
(282) $
(1,897) $
(2,179)
Postretirement benefit cost components are reclassified in their entirety from AOCI to net periodic benefit cost. Net periodic
benefit costs are reported in net income as “Cost of sales” or “Selling, general and administrative expenses” in a manner consistent
with the classification of direct labor and personnel costs of the eligible employees.
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,
2014
2013
2012
$
$
$
$
1,297
(9,190)
(239)
(994)
(1,150)
(173)
(10,449)
20,002
1,083
$
$
$
$
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
39
(Dollars in thousands, except per-share amounts)
NOTE 5
ACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Vista Research
In January 2012, the Company purchased 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.
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 $3,347, of which $890 was classified in "Accrued liabilities" and $2,457 as "Other liabilities" in the Consolidated Balance Sheet
for the year ended January 31, 2014. At January 31, 2013, the fair value of the contingent consideration for the Vista acquisition
was $3,071, of which $712 was classified as "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.
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.
40
(Dollars in thousands, except per-share amounts)
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 the 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 year ended
January 31,
2012
$
$
$
395,974
49,907
1.38
1.37
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). 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.
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
2014
As of January 31,
2013
2012
$
$
4,063
116
(495)
—
3,684
$
$
4,409
156
(477)
(25)
4,063
$
$
4,728
156
(475)
—
4,409
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 was included in Applied Technology
operating income.
41
(Dollars in thousands, except per-share amounts)
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, 2011
Acquired goodwill
Balance at January 31, 2012
Acquired goodwill
Balance at January 31, 2013
Acquired goodwill
Balance at January 31, 2014
$
Applied
Technology
9,892
$
—
9,892
—
9,892
—
$
9,892
$
Engineered
Films
Aerostar
Total
96
—
96
—
96
—
96
$
789
$
11,497
12,286
—
12,286
—
$
12,286
$
10,777
11,497
22,274
—
22,274
—
22,274
Intangible Assets
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
2014
Accumulated
Amount Amortization
Net
For the years ended January 31,
2013
Accumulated
Amount Amortization
Net
2012
Accumulated
Amount Amortization
Net
Existing technology
$ 7,840 $
(4,164) $ 3,676
$ 7,500 $
(3,375) $ 4,125
$ 7,500 $
(2,637) $ 4,863
Customer relationships
Other intangibles
Total
3,494
2,891
(525)
2,969
(1,380)
1,511
3,494
2,506
(300)
3,194
(1,144)
1,362
3,494
2,225
(155)
3,339
(1,015)
1,210
$ 14,225 $
(6,069) $ 8,156
$ 13,500 $
(4,819) $ 8,681
$ 13,219 $
(3,807) $ 9,412
The estimated future amortization expense for these definite-lived intangible assets, as well as definite-lived intangible assets
held by SST, during the next five years is as follows:
Estimated amortization expense
$
2,230
$
2,429
$
2,256
$
1,634
$
840
2015
2016
2017
2018
2019
NOTE 7
EMPLOYEE POSTRETIREMENT BENEFITS
The Company has two 401(k) plans covering substantially all employees as of January 31, 2014. One plan, which covers the
majority of employees, matches employee contributions up to 4%. Under this plan all account balances and future contributions
and related earnings can be invested in several investment alternatives as well as Raven's common stock in accordance with each
participant's elections. Participants' contributions to the 401(k) and the employer matching contributions are limited to 20%
investment in Raven's common stock. Participants may choose to make separate investment choices for current account balances
and for future contributions. 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 contribution expense to such plans was $2,412, $2,021 and $1,556 for fiscal 2014, 2013 and 2012,
respectively.
42
(Dollars in thousands, except per-share amounts)
In addition, the Company provides postretirement medical and other benefits to senior executive officers and senior managers.
These plan obligations are unfunded. The accumulated benefit obligation for these benefits is as follows:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss and assumption changes
Retiree benefits paid
For the years ended January 31,
2013
2014
2012
$
$
8,307
202
348
(340)
(263)
$
7,560
187
335
433
(208)
5,969
121
334
1,363
(227)
Benefit obligation at end of year
$
8,254
$
8,307
$
7,560
The following tables set forth the plans pre-tax adjustment to accumulated other comprehensive income/loss:
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 (gain) loss
For the years ended January 31,
2014
2013
2012
$
$
$
$
$
$
2,918
—
2,918
3,441
(183)
—
(340)
$
$
$
3,441
—
3,441
3,241
(210)
(23)
3,218
23
3,241
1,957
(104)
(23)
433
1,411
Pre-tax accumulated other comprehensive loss - end of year related to benefit
obligation
$
2,918
$
3,441
$
3,241
The net actuarial gain for fiscal year 2014 was driven by an increase in the discount rate The net actuarial loss in fiscal year 2013
was driven by a decrease in the discount rate and demographic changes, partially offset by better than expected claims experience.
The net actuarial loss in fiscal year 2012 was primarily caused by the decrease in discount rate.
43
(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,
2013
2012
2014
$
$
$
$
8,307
733
(523)
210
(263)
8,254
255
7,999
4.50%
4.00%
7.70%
5.00%
2025
$
$
$
$
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
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 $153.
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:
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:
Beginning balance
Acquired
Accrual for warranties
Settlements made (in cash or in kind)
Ending balance
January 31, 2014
One-percentage-
point increase
One-percentage-
point decrease
$
$
145
1,542
$
$
(107)
(1,198)
For the years ended January 31,
2014
2013
2012
$
$
1,888
—
4,561
(3,924)
2,525
$
$
1,699
—
2,968
(2,779)
1,888
$
$
1,437
192
3,010
(2,940)
1,699
44
(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,
2013
2012
2014
35.0%
1.5
(2.9)
(1.2)
0.2
32.6%
35.0%
1.6
(3.2)
(0.9)
(0.2)
32.3%
35.0%
1.0
(2.4)
(0.7)
0.2
33.1%
Significant components of the Company's income tax provision were as follows:
Income taxes:
Currently payable
Deferred expense (benefit)
For the years ended January 31,
2013
2014
2012
$
$
20,098
623
20,721
$
$
26,894
(1,803)
25,091
$
$
19,705
5,358
25,063
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 (liability) asset
2014
As of January 31,
2013
2012
$
$
111
583
1,032
567
898
181
3,372
2,799
(11,522)
2,219
2,309
669
(3,526)
(154)
$
$
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)
Pre-tax book income for the U.S. companies and the Canadian subsidiary was $62,996 and $481, respectively. As of January 31,
2014, 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.
45
(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,
2013
2014
2012
$
$
4,213
795
(348)
4,660
$
$
3,567
993
(347)
4,213
$
$
3,112
699
(244)
3,567
During the fiscal year ended January 31, 2014, 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 $3,029, $2,738 and $2,318 as of January 31, 2014, January 31, 2013 and January 31, 2012, 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,
2014, January 31, 2013 and January 31, 2012, accrued interest and penalties were $1,897, $1,605 and $1,379, 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, 2014, federal tax returns filed in the
U.S., Canada and Switzerland for fiscal years ended January 31, 2009 through January 31, 2013 remain subject to examination
by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2006 through January 31,
2013 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, 2014, bearing interest at 1.5% above the daily one-month London Inter-Bank Market Rate.
Letters of credit totaling $850 have been issued under the line, primarily to support self-insured workers' compensation bonding
requirements. No borrowings were outstanding as of January 31, 2014, 2013 and 2012 and $9,650 was available at January 31,
2014. 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 $2,395,
$2,095 and $759 in fiscal 2014, 2013 and 2012, respectively.
Future minimum lease payments under non-cancelable operating leases are as follows:
Minimum lease payments $ 1,455 $ 1,161 $ 287 $ 201 $ 80 $ 160
2015 2016 2017 2018 2019 Thereafter
46
(Dollars in thousands, except per-share amounts)
NOTE 11 SHARE-BASED COMPENSATION
At January 31, 2014, 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,
2013
2014
2012
$
4,198
1,460
$
3,075
1,057
$
1,922
547
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) 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, 2014, the number of shares available for grant under
the Plan was 900,761. 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 2014.
Stock Option Awards
On March 25, 2013, the Company granted 198,900 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,
2014
2013
2012
0.59%
1.46%
41.39%
3.75
0.86%
1.33%
49.62%
3.75
0.67%
1.20%
51.44%
4.00
Weighted average grant date fair value
$
9.34
$
10.92
$
11.05
47
(Dollars in thousands, except per-share amounts)
Outstanding stock options as of January 31, 2014 and activity for the year then ended are presented below:
Outstanding, January 31, 2013
Granted
Exercised
Forfeited
Expired
Outstanding, January 31, 2014
Outstanding exercisable, January 31, 2014
Number
of options
910,629
198,900
(158,971)
(4,425)
—
946,133
439,783
Weighted
average
exercise
price
Aggregate
intrinsic
value
Weighted
average
remaining
contractual
term
(years)
$
$
$
23.36
32.85
14.28
23.34
—
26.88
23.06
$
$
10,003
6,327
2.63
1.93
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 $3,019, $2,573 and $2,362 during the years ended January 31, 2014,
2013 and 2012, respectively. As of January 31, 2014, the total unrecognized compensation cost for non-vested awards was $3,216,
net of the effect of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.27 years.
Restricted Stock Unit Awards
The Company granted 25,540 time-vested RSUs to employees during the year ended January 31, 2014. 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 2014 was as follows:
Outstanding, January 31, 2013
Granted
Vested
Forfeited
Outstanding, January 31, 2014
Cumulative dividends, January 31, 2014
Number
of restricted
stock units
Weighted
average
grant date
fair value
31.66
32.85
—
32.24
32.32
$
$
20,640
25,540
—
(2,820)
43,360
903
The Company also granted performance-based RSUs during the year ended January 31, 2014. 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 based on return on sales (ROS), which is defined as net income divided by
net sales. The performance-based RSUs 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.
48
(Dollars in thousands, except per-share amounts)
Activity for performance-based RSUs under the Plan in fiscal 2014 was as follows:
Outstanding, January 31, 2013
Granted
Vested
Forfeited
Performance-based adjustment
Outstanding, January 31, 2014
Cumulative dividends, January 31, 2014
Number
of restricted
stock units
expected to
vest
Weighted
average
grant date
fair value
31.66
32.85
—
31.66
32.85
32.27
$
66,233
56,222
—
(562)
14,042
135,935
$
2,234
As of January 31, 2014, the total unrecognized compensation cost for nonvested RSU awards was $3,169 net of the effect for
estimated forfeitures. This amount is expected to be recognized over a weighted average period of 1.82 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 Personnel and Compensation 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 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, 2014 and changes during the year then ended are presented below:
Outstanding, January 31, 2013
Granted
Deferred retainers
Dividends
Outstanding, January 31, 2014
Number
of stock units
57,186
7,700
5,774
958
71,618
$
$
Weighted
average
price
26.93
31.17
31.17
33.89
37.45
NOTE 12 NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average common shares and stock units outstanding.
Diluted net income per share is computed by dividing net income by the weighted average common and common equivalent shares
outstanding (which includes the shares issuable upon exercise of employee stock options, net of shares assumed purchased with
the option proceeds), 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 2014, 2013 and 2012, 577,213, 397,600 and
67,900 options, respectively, were excluded from the diluted net income per-share calculation.
49
(Dollars in thousands, except per-share amounts)
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,
2013
2014
2012
$
42,903
$
52,545
$
50,569
36,379,356
67,724
36,447,080
36,379,356
67,724
198,295
36,645,375
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
$
$
1.18
1.17
$
$
1.45
1.44
$
$
1.40
1.39
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, save time and improve farm yields around the world. Their product families
include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, yield
monitoring and planter and seeder controls, harvest controls, motor controls and an integrated RTK and information platform
called Slingshot. Applied Technology services include high-speed, in-field internet connectivity and cloud-based data management.
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 proprietary products including high-altitude 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 also produces products such as military parachutes, uniforms and
protective wear as a contract manufacturing services provider as well as being a total solutions provider of electronics manufacturing
services.
Through Vista and AIS, Aerostar pursues potential product and support services contracts for agencies and instrumentalities of the
U.S. government. Vista positions 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 products and services enhance Aerostar’s tethered aerostat security solutions.
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.
50
(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
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
REPORTABLE SEGMENTS TOTAL
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
CORPORATE & OTHER(a)
Operating (loss) from administrative expenses
Assets
Capital expenditures
Depreciation and amortization
TOTAL COMPANY
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
(a) Assets are principally cash, investments, deferred taxes and other receivables.
$
$
For the years ended January 31,
2013
2014
2012
$
$
$
$
$
$
$
170,461
57,000
93,395
9,324
4,332
147,620
18,154
71,602
6,681
5,808
90,605
7,816
63,017
7,507
2,616
(386)
(505)
(13,118)
(111)
(311)
394,677
82,859
227,703
23,512
12,756
(18,865)
74,116
7,189
1,439
394,677
63,994
301,819
30,701
14,195
$
$
$
$
$
$
$
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
(974)
(124)
(8,532)
(61)
(347)
406,175
94,985
210,367
24,400
11,960
(17,293)
62,843
5,275
1,138
406,175
77,692
273,210
29,675
13,098
145,261
49,750
73,872
11,971
2,571
133,481
21,501
65,100
10,937
4,313
107,811
18,308
72,089
4,105
1,684
(460)
(193)
(4,389)
(188)
(286)
381,511
89,371
210,775
27,013
8,568
(13,730)
34,928
2,002
700
381,511
75,641
245,703
29,015
9,268
Sales to a customer of the Engineered Films segment accounted for 13% and 11% of consolidated sales in fiscal years 2014 and
2013, respectively and accounted for 2% and 3% of consolidated accounts receivable at January 31, 2014 and January 31, 2013,
respectively.
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.
51
(Dollars in thousands, except per-share amounts)
Foreign sales are attributed to countries based on location of the customer. Net sales to customers outside the United States were
as follows:
Canada
South America
Other foreign sales
Total foreign sales
United States
For the years ended January 31,
2013
2014
2012
$
$
16,141
22,090
7,662
45,893
348,784
394,677
$
$
20,640
14,984
13,630
49,254
356,921
406,175
$
$
15,237
12,360
11,312
38,909
342,602
381,511
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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 Securities
Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in
the SEC's 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, 2014, 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, 2014.
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, 2014. 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, 2014, 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.
52
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 2014 Annual Meeting of Shareholders.
Information required by Items 10 through 14 will appear in the Proxy Statement and is incorporated herein by reference.
53
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.
54
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 herein 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 (incorporated herein by reference to the
corresponding exhibit of the Company's 10-K for the year ended January 31, 1989).
3(b) Amended and Restated Bylaws of Raven Industries (incorporated herein by reference to Exhibit B of 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
herein by reference to Exhibit 10.1 of the Company's 8-K filed February 1, 2009). †
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 of 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
herein by reference to Exhibit 10.1 of 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 (incorporated
herein by reference to the corresponding exhibit number of the Company's 10-K for the year ended January 31, 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 (incorporated herein by reference to the corresponding exhibit number of the Company's
10-K filed March 31, 2011). †
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 herein 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 herein 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 herein by reference to
Exhibit 10.1 of 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 herein
by reference to Exhibit 10.1 of 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
herein by reference to Exhibit 10.3 of 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
herein 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 (incorporated herein by reference to the corresponding exhibit number
of the Company's 10-K filed March 31, 2011). †
10(n) Change in Control Agreement between Raven Industries, Inc. and Anthony D. Schmidt dated February 1, 2012 (incorporated
herein by reference to Exhibit 10.3 of 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 of 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 of 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 of 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 (incorporated
herein by reference to Exhibit 10.1 of the Company's 10-K filed March 29, 2013). †
10(s)
Schedule A to Employment Agreement between Raven Industries, Inc. and Stephanie Herseth Sandlin dated August 27, 2012
(incorporated herein by reference to Exhibit 10.2 of the Company's 10-K filed March 29, 2013). †
10(t) Change in Control Agreement between Raven Industries, Inc. and Stephanie Herseth Sandlin dated August 27, 2012
(incorporated herein by reference to Exhibit 10.3 of the Company's 10-K filed March 29, 2013). †
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.
55
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.
56
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RAVEN INDUSTRIES, INC.
(Registrant)
By: /s/ DANIEL A. RYKHUS
Daniel A. Rykhus
President and Chief Executive Officer
Date: March 31, 2014
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/ MARK E. GRIFFIN
Mark E. Griffin
Director
/s/ KEVIN T. KIRBY
Kevin T. Kirby
Director
/s/ MARC E. LEBARON
Marc E. LeBaron
Director
/s/ JASON M. ANDRINGA
/s/ CYNTHIA H. MILLIGAN
Jason M. Andringa
Director
Cynthia H. Milligan
Director
Date: March 31, 2014
57
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2014, 2013 and 2012
(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, 2014
Year ended January 31, 2013
Year ended January 31, 2012
Note:
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
From
Reserves (1)
Balance at
End of Year
$
$
$
205 $
170 $
300 $
129 $
355 $
(91) $
— $
— $
— $
15 $
320 $
39 $
319
205
170
(1) Represents uncollectable accounts receivable written off during the year, net of recoveries.
58
InveSTOR InFORMaTIOn
annual Meeting
May 22, 2014, 9:00 a.m. CDT
Hilton Garden Inn Downtown
201 E. 8th Street
Sioux Falls, SD 57103
dividend Reinvestment Plan
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
Raven Industries, Inc. sponsors a Dividend
Inquiries
Reinvestment Plan so shareholders can purchase
Mail to:
Raven Industries, Inc.
additional Raven common stock without paying any
brokerage commission or fees. For more information
Investor Relations
P.O. Box 5107
on how you can take advantage of this plan, contact
Sioux Falls, SD 57117-5107
your broker, Raven’s stock transfer agent or write to our
Investor Relations Department. Raven Industries does
not offer a Direct Stock Purchase Plan.
Phone:
605-336-2750
E-mail:
irinfo@ravenind.com
affirmative action Plan
Raven Industries, Inc., and its U.S. subsidiaries are Equal
Employment Opportunity Employers with approved
affirmative action plans.
dividend Policy
Our policy is to return a substantial portion of earnings
to shareholders through regular dividends. Each year
our board of directors reviews Raven’s dividend and
will increase it when the new level is sustainable. Fiscal
2014 was the 27th 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
RAven IndustRIes
po Box 5 107
sIoux F Alls , sd 571 17-5107
www.RA venIn d.com