2015
Continuous
Execution of
Core Strategy
A N N U A L R E P O R T
Continuous Execution
of Core Strategy
For 59 years, Raven has demonstrated strength and persistence
by never compromising our values and being willing to make
adjustments to our tactics as conditions change. While there are
common threads to our current product lines, the majority of our
profits this fiscal year were derived from products introduced in the
last 10 years. Our history of innovation, fostered through research and
development, shows our commitment to investing for the future.
Throughout the year, Raven continued to move away from contract
manufacturing and toward technology-based solutions to solve some
of the world’s greatest challenges. This ability to respond to changing
end-market conditions and solve great challenges is deeply rooted in our
business model of diversification. By strengthening the balance of our
business, it provides focus, reduced volatility, and better risk mitigation,
while still maintaining excellent long-term growth opportunities.
Today as we strengthen the balance of the corporation, we do so with
confidence and history on our side. Our team members work tirelessly
on fulfilling our purpose to Solve Great Challenges through continuous
improvement in areas of innovation, quality, and service. Although Raven is
comprised of three distinct operating divisions, each with unique products
and markets served, we work together as One Raven. Raven’s ability to
remain flexible and rebalance for changing needs makes us a stronger
company and well positioned to capitalize on future opportunities.
Inside this Report
Financial Highlights
Letter to Shareholders
Board of Directors and Executive Team
Raven At-A-Glance
10-K Table of Contents
Management’s Discussion and Analysis
Financial Statements
1
2
3
4
10K-2
10K-17
10K-33
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
NET SALES
(Dollars in millions)
406.2 394.7
381.5
378.2
CASH FLOWS FROM
OPERATING ACTIVITIES
(Dollars in millions)
76.5
For the years ended January 31,
2015
2014
Change
$378,153
43,801
31,733
60,083
17,369
$0.86
0.50
8.01
11.6%
8.4%
9.5%
12.6%
38,119
1,251
$394,677
63,994
42,903
52,836
14,195
$1.17
0.48
6.89
16.2%
10.9%
14.9%
19.4%
36,492
1,264
(4.2)%
(31.6)%
(26.0)%
13.7%
22.4%
(26.5)%
4.2%
16.3%
(4.6) pct. pts.
(2.5) pct. pts.
(5.4) pct. pts.
(6.8) pct. pts.
4.5%
(1.0)%
REGULAR DIVIDENDS PER SHARE
(Dollars)
0.50
0.48
0.42
314.7
237.8
60.1
52.8
47.6
42.1 43.8
0.36
0.325
0.28
’10
’11
’12
’13
’14
’15
’10
’11
’12
’13
’14
’15
’10
’11
’12
’13
’14
’15
Contract Manufacturing Sales
Proprietary Product Sales
Underlying strong growth in
proprietary product sales
Stable cash flow generation despite
near term challenges
Consistent and steady dividends
per share
2014 ANNUAL REPORT 1
80
70
60
50
40
30
20
10
0
0.5
0.4
0.3
0.2
0.1
0.0
500000
400000
300000
200000
100000
0
To Our Shareholders, Customers and Team Members:
Fiscal 2015 was a year marked with several obstacles—
many of which were the direct result of the headwinds we
faced from the end-markets we serve. This unique set
of circumstances presented an opportunity to recognize
necessary adjustments, foremost our need to pro-actively
rebalance the profit mix of the company to enable us to reduce
the volatility of earnings over the long term.
In previous years, we’ve relied heavily on ATD’s profit contribution,
which works extremely well when market conditions are right.
However, our dependence on one market makes growth for
the entire corporation very difficult when the precision ag market
is in a down cycle. Therefore, we have taken this opportunity to
proactively channel our investments to accelerate growth
in EFD and Aerostar, while ATD continues to strengthen its core.
Through this rebalancing, we’ve invested in R&D and capital
expenditures throughout all three divisions. We’ve strengthened
Although a significant
part of Raven’s longevity
resides in the foundation
set forth by our business
model, our ability to
adapt to the needs
of our ever-changing
world while retaining
our corporate values
has been exhibited time
after time throughout
our rich history. Our
shift in strategy this year
will result in an even
stronger, more balanced
corporation centered on
our purpose to Solve
Great Challenges.
our existing product lines through
improvements in both quality and
competitiveness. We have begun to
put our balance sheet to work by
making sound investments, and we
will continue to do so as we move
toward a long-term profit mix of
40-55% from ATD, 25-40% from EFD
and 15-30% from Aerostar. As we
continue to manage the business
carefully for the short term and
aggressively for the long term, we will
establish a structure that is more
likely to generate long-term earnings
growth and above average returns
with reduced volatility.
Fiscal 2015 Highlights
Two of our operating Divisions,
Engineered Films and Aerostar,
exceeded our long-term goals of
growing earnings by 10 to 12%
annually. While this was not enough
to offset the declines in ATD, we are
pleased with the progress made in
each of these Divisions.
Key Accomplishments
Our commitment to execute our strategy led to several
highlights in fiscal 2015.
In Aerostar, we:
• Exceeded operating income growth expectations, despite
running off 22% of prior year revenues through our purposeful
strategy to exit the contract manufacturing business;
• Set high altitude balloon flight duration records through
our collaboration with Google on Project Loon as their design
and manufacturing partner to help with their initiative to
bring internet access to the world;
• Delivered strong growth from our Vista radar product line; and
• Improved operating margins.
2 RAV E N INDU S TR IE S, INC .
In Applied Technology, we:
• Upheld our investments in new product develoment,
focusing on OEM initiatives and penetration across the
crop production segment.
• Acquired Netherlands-based SBG Innovatie BV and its
affiliate, Navtronics BVBA to broaden our guided steering
system product line and established Raven’s European
headquarters;
• Successfully launched several new, award-winning precision
ag products, including a first-to-market multi-hybrid
planting solution designed to allow growers to switch
between two hybrids simultaneously; and
• Completed key quality improvement initiatives.
In Engineered Films, we:
• Acquired Integra Plastics, Inc., headquartered in Madison,
SD, to expand capacity and gain fabrication and converting
expertise to lead the reinforced polyethylene film and
sheeting industry;
• Exceeded operating income growth expectations despite
absorbing the deal and integration costs for the acquisition
of Integra Plastics, Inc.;
• Measurably grew our presence in the high-value agricultural
films market; and
• Improved operating margins.
Looking Ahead
In this time of rebalancing our company, Raven’s vision and
values, and business strategies remain unchanged and
continue to guide the direction of the company and help to
define success as we progress. We like the long-term prospects
for each of our three divisions and will remain focused on the
success of each of them. We will continue to be a leader in
providing the world with more food, protecting natural
resources and allowing people to live more safely. In looking to
the future, Raven is committed to strengthening our business
and improving our performance.
Looking to fiscal 2016, we will focus on:
• Measurably growing revenues from our situational
awareness and lighter-than-air product lines in Aerostar;
• Bringing high-value plastic film applications to each of our
Engineered Films markets;
• Selectively pursuing targeted Applied Technology
opportunities through new products and broadening OEM
relationships; and
• Managing our costs to reflect end market conditions.
On behalf of our board of directors and executive team,
I want to thank you for your continued support. I look
forward to a year focused on improving operating results
while strengthening Raven for the future.
Daniel A. Rykhus
President and Chief Executive Officer
Board of Directors
Executive Team
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 &
Chief Operating Officer, 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
Left to right:
Brian E. Meyer, Chief Information
Officer
Jan L. Matthiesen, Vice President
of Human Resources
Steven E. Brazones, Vice President
& Chief Financial Officer
Daniel A. Rykhus, President &
Chief Executive Officer
Matthew T. Burkhart, Division
Vice President & General Manager,
Applied Technology Division
Anthony D. Schmidt, Division
Vice President & General Manager,
Engineered Films Division
Lon E. Stroschein, Division Vice
President & General Manager,
Aerostar Division
Stephanie Herseth Sandlin,
General Counsel & Vice President
of Corporate Development
2015 ANNUAL REPORT 3
Raven: At-A-Glance
Raven is comprised of three unique
operating divisions. We follow a
consistent approach in delivering
quality financial results.
Operating Unit
Products/Services
FY 2015 Results
ATD FY 2015 RESULTS
Key Performance Goals
Applied Technology
Division (ATD)
Precision agriculture
products and
information
management tools
to reduce costs, save
time and improve crop
yields to feed a growing
world population.
• Application controls
• 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)
High-performance,
engineered plastic films
for applications in energy,
construction, agriculture,
environmental and
industrial markets to
protect natural resources.
• Environmental liners and
covers
• Oil and gas drilling
containment liners
• Agricultural covers and soil
fumigation films
• Industrial packaging and
specialty film/sheeting
• Construction vapor/gas
barriers and job-site
enclosures
Aerostar Division
Persistent situational
awareness and
communications
solutions through
our highly technical
sensors, lighter-than-
air (LTA) platforms and
integration services.
• Radar and communication
systems
• Tethered aerostat integrated
systems
• High altitude research balloons
• High altitude communications
• Integration and logistics support
services
• Inflatable military decoys
OPERATING
NET SALES
ATD FY 2015 RESULTS
ATD FY 2015 RESULTS
INCOME
(Dollars in millions)
(Dollars in millions)
OPERATING
OPERATING
59.6 57.0
INCOME
INCOME
(Dollars in millions)
(Dollars in millions)
NET SALES
NET SALES
171.8
170.5
(Dollars in millions)
(Dollars in millions)
142.2
171.8
171.8
170.5
170.5
142.2
142.2
59.6 57.0
59.6 57.0
34.6
• Differentiate our business by
providing an enhanced and high-
quality customer experience
• Strengthen OEM relationships,
delivering value through technology
• Expand our information
management offerings
’13 ’14
’15
’13 ’14
’15
product innovations
34.6
34.6
• Capture market share with new
’13 ’14
’13 ’14
’15
’13 ’14
’13 ’14
’15
EFD FY 2015 RESULTS
’15
’15
OPERATING
NET SALES
EFD FY 2015 RESULTS
INCOME
(Dollars in millions)
EFD FY 2015 RESULTS
(Dollars in millions)
NET SALES
166.6
NET SALES
(Dollars in millions)
147.6
142.0
(Dollars in millions)
OPERATING
OPERATING
25.1
INCOME
21.8
INCOME
(Dollars in millions)
18.2
(Dollars in millions)
166.6
166.6
25.1
25.1
142.0
142.0
147.6
147.6
21.8
21.8
18.2
18.2
’13 ’14
’15
’13 ’14
’15
’15
’13 ’14
’13 ’14
’15
AEROSTAR
’13 ’14
’13 ’14
’15
’15
NET SALES
(Dollars in millions)
AEROSTAR
AEROSTAR
102.1
NET SALES
NET SALES
90.6
(Dollars in millions)
80.8
(Dollars in millions)
OPERATING
INCOME
(Dollars in millions)
10.3
OPERATING
OPERATING
9.0
INCOME
INCOME
7.8
(Dollars in millions)
(Dollars in millions)
102.1
102.1
90.6
90.6
80.8
80.8
10.3
10.3
9.0
9.0
7.8
7.8
’13 ’14
’15
’13 ’14
’15
’13 ’14
’13 ’14
’15
’15
’13 ’14
’13 ’14
’15
’15
• Continue to deepen and expand
core application control products
to control inputs and maximize
yields
• Drive profitability through
value engineering
• Expand market share of
specialty barrier products
in all market areas
• Continue to focus on
operational excellence
• Grow existing product sales
through enhanced conversion
and fabrication capabilities
• Capture international sales
opportunities across proprietary
product lines
• Continue to lead the world in
high altitude capabilities
• Expand the market penetration
of Vista Smart Sensor Radar
technology
• Drive margin expansion through
growth in proprietary products
4 RAVE N IND U STRI E 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, 2015
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, 2014 was approximately $1,004,061,955. The aggregate
market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $27.87, on July 31, 2014, 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 20, 2015 was
38,049,802.
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 21, 2015, 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 ACCOUNTANT FEES AND SERVICES
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
INDEX TO EXHIBITS
SIGNATURES
SCHEDULE II
3
6
10
10
10
10
11
11
12
14
14
16
17
17
20
25
26
27
28
30
30
32
33
34
35
36
37
38
39
40
60
60
60
61
61
61
61
61
62
63
65
66
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. The Company 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 product lines that extended from technologies and production methods
of this original balloon business. The Company employs approximately 1,200 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 of this Annual Report on Form 10-K (Form 10-K):
16
20
58
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,
planter controls, and harvest controls. As described more fully in Note 5 Acquisition of and Investments in Businesses and
Technologies of the Notes to the Consolidated Financial Statements of this Form10-K, in May 2014, the Company completed the
purchase of SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG). The acquisition broadened Applied
Technology Division’s guided steering system product line by adding high-accuracy implement steering applications. 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 agricultural 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
3
Company's competitive advantage in this segment is designing and selling easy to use, reliable, and value-added products that are
supported by an industry-leading service and support team.
Engineered Films
Engineered Films produces high-performance plastic films and sheeting for energy, agricultural, construction, geomembrane, and
industrial applications.
Engineered Films 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 in the markets it serves. The acquisition of Integra Plastics, Inc. described more fully in Note 5
Acquisition of and Investments in Businesses and Technologies of this Form 10-K expanded the Company's film production
capacity, broadened its product offerings and enhanced conversion capabilities. 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 the Company on both price and product availability. Engineered Films is the Company's most capital-intensive
business segment, requiring regular investments in new extrusion capacity along with printers and conversion equipment. This
segment's capital expenditures were $8.2 million in fiscal 2015, $6.7 million in fiscal 2014, and $11.5 million in fiscal 2013.
Aerostar
Aerostar serves aerospace and situational awareness markets and produces products as a contract manufacturing services provider.
These manufactured products have included military parachutes, uniforms, and protective wear. Aerostar's proprietary products
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’s growth strategy emphasizes the design and manufacture of proprietary products in these markets and is winding down
its contract manufacturing operations as planned. Net sales from proprietary products increased from $39.3 million in fiscal 2014
to $49.1 million in fiscal 2015. Net sales from contract manufacturing decreased from $51.3 million in fiscal 2014 to $31.7 million
in fiscal 2015.
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.
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 allows Aerostar to enhance its tethered aerostat security solutions.
MAJOR CUSTOMER INFORMATION
One customer, Brawler Industrial Fabrics (Brawler) accounted for 10% or more of consolidated sales in fiscal 2015. Sales to
Brawler, a customer in the Engineered Films Division, accounted for 14%, 13%, and 11% of consolidated sales in fiscal years
2015, 2014, and 2013.
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 volatility and the related potential impact on the Company
is not possible.
PATENTS
The Company owns a number of patents. The Company does not believe that its business, as a whole, is materially dependent on
any one patent or related group of patents. As the Company continues to develop more technology-based offerings, 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 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.
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 $37 thousand accrued at January 31, 2015, representing
its best estimate of probable costs to be incurred related to these matters.
BACKLOG
As of February 1, 2015, the Company's order backlog totaled approximately $26.7 million. Backlog amounts as of February 1,
2014 and 2013 were $51.8 million and $51.1 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, 2015, the Company had approximately 1,200 employees. Following is a summary of active employees by
segment: Applied Technology - 458; Engineered Films - 374; Aerostar - 263; and Corporate Services - 88. Management believes
its employee relations are satisfactory.
5
EXECUTIVE OFFICERS
Name, Age and Position
Daniel A. Rykhus, 50
President and Chief Executive Officer
Steven E. Brazones, 41
Vice President and Chief Financial Officer
Stephanie Herseth Sandlin, 44
General Counsel and Vice President of
Corporate Development
Biographical Data
Mr. Rykhus became the Company's President and Chief Executive Officer
in 2010. He joined the Company in 1990 as Director of World Class
Manufacturing, was General Manager of the Applied Technology Division
from1998 through 2009, and served as Executive Vice President from 2004
through 2010.
On December 1, 2014, Steven Brazones joined the Company as its Vice
President, Chief Financial Officer, and Treasurer. From 2002 to 2014, Mr.
Brazones held a variety of positions with H.B. Fuller Company. Most
recently, he served as H.B. Fuller's Americas regional Finance Director.
Previously, he served as the Assistant Treasurer and the Director of Investor
Relations. Prior to his tenure with H.B. Fuller, Mr. Brazones held various
roles at Northwestern Growth.
Ms. Herseth Sandlin joined the Company 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 the Company, 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.
Janet L. Matthiesen, 57
Vice President of Human Resources
Ms. Matthiesen joined the Company 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, 39
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 the Company 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, 43
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 the Company 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, 40
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 the Company in 2008 as International
Sales Manager for Applied Technology. Prior to joining the Company, 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.
6
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.
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 and 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 manufacturing uses plastic resins, which can be subject
to changes 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 both competitive
and compliance risks.
The Company's sales of proprietary products, which are specialized and highly technical in nature, are subject to uncertainties,
start-up costs and inefficiencies as well as market, competitive, and compliance risks.
The Company’s growth strategy emphasizes the design and manufacture of proprietary products while transitioning its contract
manufacturing services capabilities principally to support proprietary market opportunities. For Aerostar in particular, this transition
from contract manufacturing services could take too long or be unsuccessful. Further, highly technical, specialized product
inventories may be more susceptible to fluctuations in market demand. If demand is unexpectedly low, write-downs or impairments
of such inventory may become necessary. Either of these outcomes could adversely affect our results of operations.
The Company's contract electronic manufacturing services 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. 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
7
receive reimbursement from its customers for such costs. 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. Sales of certain of these products into international markets increase the compliance risk
associated with regulations such as The International Traffic in Arms Regulations (ITAR), as well as others, exposing the Company
to fines and its employees to fines, imprisonment or civil penalties. Potential consequences of a material violation of such regulations
include damage to our reputation, litigation, and increased costs. These consequences could adversely affect our results of
operations.
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 $36.8 million in fiscal 2015, representing 10% 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, along with changes in worldwide economic conditions. These
conditions include, but are not limited to, changes in a country's or region's economic or political condition; 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;
the impact of fluctuations in foreign currency exchange rates, which may affect product demand and may adversely affect the
profitability of our products in U.S. dollars in foreign markets where payments are made in the local currency; 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 these 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 not be able to achieve the benefits of its restructuring efforts.
Supplementing the actions taken in the fourth quarter of fiscal 2015, on March 10, 2015 we announced an additional plan to
restructure our business to lower the cost structure of each of our business segments to address current end-market weakness.
There is no guarantee that these restructuring efforts will increase our operating margins or profitability and these efforts could
cause unforeseen complexities and additional cash outflows.
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. Further, business strategies supported by the acquisition may be in perceived, or actual, opposition to strategies
8
of certain of our customers and our business could be materially adversely affected if those relationships are terminated and the
expected strategic benefits are delayed or are not achieved. 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 of, 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 $70.6 million, or 19%, of the Company's total assets as of January 31,
2015. 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. Our
expected future cash flows could be adversely impacted if our anticipated sales growth is not realized. An impairment would
adversely impact the Company's results of operations and financial condition.
The Company may fail to continue to attract, develop and retain key management and other key employees, which could
negatively impact our operating results.
We depend on the performance of our senior management team and other key employees, including experienced and skilled
technical personnel. The loss of certain members of our senior management, including our Chief Executive Officer, could
negatively impact our operating results and ability to execute our business strategy. Our future success will also depend in part
upon our ability to attract, train, motivate, and retain qualified personnel.
The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others.
The Company has developed significant proprietary technology and other rights that are used in its businesses. The Company
relies on trade secret, copyright, trademark, and patent laws and contractual provisions to protect the Company's intellectual
property. While the Company takes enforcement of these rights seriously, other companies such as competitors, or analogous
persons in markets the Company does not participate, may attempt to copy or use the Company's intellectual property for their
own benefit.
In addition, intellectual property of others also has an impact on the Company's ability to offer some of its products and services
for specific uses or at competitive prices. Competitors' patents or other intellectual property may limit the Company's ability to
offer products and services to its customers. Any infringement or claimed infringement of the intellectual property rights of others
could result in litigation and adversely affect the Company's ability to continue to provide, or could increase the cost of providing,
products and services.
Intellectual property litigation is very costly and could result in substantial expense and diversions of the Company's resources,
both of which could adversely affect its businesses and financial condition and results. In addition, there may be no effective legal
recourse against infringement of the Company's intellectual property by third parties, whether due to limitations on enforcement
of rights in foreign jurisdictions or as a result of other factors.
Technology failures or cyber-attacks on the Company's systems could disrupt the Company's operations or the functionality
of its products and negatively impact the Company's business.
The Company increasingly relies on information technology systems to process, transmit, and store electronic information. In
addition, a significant portion of internal communications, as well as communication with customers and suppliers depends on
information technology. Further, the products in our Applied Technology segment depend upon GPS and other systems through
which our products interact with government computer systems and other centralized information sources. We are exposed to the
risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual
property or other sensitive information or may be the result of unintentional events. Like most companies, the Company's
information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control,
including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other
security issues. Further, attacks on centralized information sources could affect the operation of our products or cause them to
malfunction. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company's
risk to these vulnerabilities, but these measures may not be adequate or implemented properly to ensure that the Company's
operations are not disrupted. Potential consequences of a material cyber incident include damage to our reputation, litigation,
and increased cyber security protection and remediation costs. Such consequences could adversely affect our results of operations.
9
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Raven's corporate office is at an owned premises located in Sioux Falls, South Dakota. The Company also owns separate
manufacturing facilities for each of our business segments as well as various warehouses, training, and product development
facilities.
In addition to these facilities, Applied Technology owns a product development facility in Austin, Texas and a manufacturing
facility in St. Louis, Missouri as well as leasing smaller research and office facilities in South Dakota. As a result of an acquisition
completed in fiscal 2015 more fully described in Note 5 Acquisitions of and Investments in Businesses and Technologies of this
Form 10-K, Applied Technology also leases manufacturing, research, and office facilities in Middenmeer, Netherlands and Geel,
Belgium.
As a result of a business acquisition completed in fiscal 2015 more fully described in Note 5 Acquisitions of and Investments in
Businesses and Technologies of this Form 10-K, Engineered Films acquired additional production and conversion facilities in
Madison and Brandon, South Dakota and Midland, Texas.
Aerostar has additional owned manufacturing, sewing, and research facilities located in Huron and Madison, South Dakota, and
Sulphur Springs, Texas. Aerostar's subsidiary Vista 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 29.6 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 -
182,000; Engineered Films - 584,000; Aerostar - 383,000; and Corporate - 150,000.
ITEM 3.
LEGAL PROCEEDINGS
The Company is responsible for investigation and remediation of environmental contamination at one of its sold facilities (see
Item 1, Business - Environmental Matters of this Form 10-K). In addition, the Company is involved as a defendant in lawsuits,
claims, regulatory inquiries, or disputes arising in the normal course of its business. The potential costs and liability of such claims
cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated
by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its
results of operations, financial position or cash flows.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
10
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company'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 the Company'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 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
FISCAL 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
FISCAL 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
$102,510 $ 31,766 $ 16,532 $ 16,453 $
94,485
91,292
89,866
25,658
24,339
21,483
10,696
10,159
6,414
10,637
10,087
6,324
$378,153 $ 103,246 $ 43,801 $ 43,501 $
$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 $
11,038 $ 0.30 $ 0.30 $40.06 $ 30.29 $
0.21
7,719
0.18
6,783
6,193
0.16
31,733 $ 0.86 $ 0.86 $40.06 $ 20.75 $
27.75
22.13
20.75
34.56
30.74
26.56
0.21
0.19
0.16
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 $
37.73
34.61
28.19
28.59
26.78
23.01
0.32
0.30
0.31
0.12
0.12
0.13
0.13
0.50
0.12
0.12
0.12
0.12
0.48
0.105
0.105
0.105
0.105
0.42
(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, 2015, the Company had approximately 13,900 beneficial holders, which includes a substantial amount of the
Company's common stock held of record by banks, brokers, and other financial institutions.
On November 3, 2014, the Company announced that its Board of Directors had authorized a $40.0 million stock buyback program.
No shares have been repurchased under this program as of January 31, 2015.
11
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES, INC.,
S&P 1500 INDUSTRIAL MACHINERY INDEX AND RUSSELL 2000 INDEX
The above graph compares the cumulative total shareholders return on the Company's stock with the cumulative return of the S&P
1500 Industrial Machinery Index and the Russell 2000 index. Investors who bought $100 of the Company's stock on January 31,
2010, held this for five years and reinvested the dividends would have seen its value increase to $167.94. Stock performance on
the graph is not necessarily indicative of future price performance.
Company / Index
2010
2011
2012
2013
2014
2015
Raven Industries, Inc.
$ 100.00
$ 174.13
$ 242.35
$ 204.08
$ 287.99
$ 167.94
S&P 1500 Industrial Machinery Index
Russell 2000 Index
100.00
100.00
145.29
131.36
144.75
135.12
174.35
156.03
219.66
198.20
227.73
206.94
Years Ended January 31,
5-Year
CAGR(a)
10.9%
17.9%
15.7%
(a) compound annual growth rate (CAGR)
12
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13
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 average 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,
2014
2013
2015
$ 378,153
103,246
43,801
43,501
31,733
$ 394,677
119,354
63,994
63,623
42,903
$ 406,175
127,673
77,692
77,646
52,545
8.4%
11.4%
10.9%
18.2%
12.9%
26.2%
$ 18,519
$
17,465
$
15,244
$ 170,979
31,843
$ 139,136
5.37
$ 117,513
362,873
—
$ 305,153
$ 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
$
—%
4.9
—%
5.2
—%
5.4
$ 60,083
(29,986)
(30,665)
(1,038)
$
$
$
0.86
0.86
0.50
8.01
40.06
20.75
21.44
38,119
13,861
24.9
1,251
302
$
$ 26,718
$
$
$
$
$
$
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
All per-share, shares outstanding and market price data reflect the July 2012 two-for-one stock split and the October 2004 two-for-one stock split.
(a) Includes special dividends of $0.625 per share in fiscal 2011 and 2009 and $0.3125 per share in fiscal 2005.
(b) Raven Industries, Inc. shareholders' equity, excluding equity attributable to noncontrolling interests, divided by common shares and stock units outstanding.
(c) Closing stock price divided by EPS — diluted.
14
2012
2011
2010
2009
2008
2007
2006
2005
$ 381,511
116,192
75,641
75,698
50,569
$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
13.3%
31.4%
12.9%
29.5%
12.0%
23.2%
11.0%
26.6%
$ 13,025
$ 34,095
$ 9,911
$ 31,884
$
11.9%
25.7%
7,966
11.7%
27.9%
11.9%
32.3%
10.6%
27.0%
$ 6,507
$ 5,056
$ 15,298
$ 147,559
40,646
$ 106,913
3.63
$ 61,894
245,703
—
$ 180,499
$128,181
34,335
$ 93,846
3.73
$ 41,522
187,760
—
$141,214
$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
—%
5.4
—%
5.6
—%
5.3
—%
5.2
—%
5.3
—%
5.4
—%
5.9
—%
5.8
$ 43,831
(40,313)
(15,234)
(11,721)
$ 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)
$
$
$
1.40
1.39
0.36
4.97
34.65
21.62
32.45
36,284
10,618
23.4
1,252
$
305
$ 66,641
$
1.12
1.12
0.95
3.91
$ 24.80
13.27
$ 23.62
36,178
7,456
21.1
1,036
$
304
$ 75,972
$
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
15
BUSINESS SEGMENTS
(Dollars in thousands)
APPLIED TECHNOLOGY DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
ENGINEERED FILMS DIVISION
Sales
Operating income(b)
Assets
Capital expenditures
Depreciation and amortization
AEROSTAR DIVISION
Sales
Operating income
Assets
Capital expenditures
Depreciation and amortization
INTERSEGMENT ELIMINATIONS
Sales
Applied Technology Division
Engineered Films Division
Aerostar Division
Operating income
Assets
CORPORATE & OTHER
Operating (loss) from administrative expenses
Assets(a)
Capital expenditures
Depreciation and amortization
For the years ended January 31,
2015
2014
2013
2012
2011
2010
$142,154
34,557
88,764
3,478
5,569
$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
$166,634
21,802
140,023
8,241
6,096
$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
$ 80,772
8,983
59,274
2,799
3,474
$ 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
$
(231) $
(652)
(10,524)
163
(148)
(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)
$ (21,704) $ (18,865) $ (17,293) $ (13,730) $ (9,784) $ (7,407)
51,695
279
387
47,233
954
361
34,928
2,002
700
62,843
5,275
1,138
74,116
7,189
1,439
74,960
2,523
2,230
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
$378,153
43,801
362,873
17,041
17,369
$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
16
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance
overall financial disclosure with commentary on the operating results, liquidity, capital resources, and financial condition of Raven
Industries, Inc. (the Company or Raven). This commentary provides management's analysis of the primary drivers of year-over-
year changes in key financial statement elements, business segment results, and the impact of accounting principles on the
Company's financial statements. The most significant risks and uncertainties impacting the operating performance and financial
condition of the Company are discussed in Item 1A., Risk Factors, of this Annual Report on Form 10-K (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, aerospace and situational awareness markets. The Company is comprised of three unique operating units, classified
into reportable segments: Applied Technology Division, Engineered Films Division, and Aerostar Division. 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
Raven's growth strategy focuses on its proprietary product lines and the Company has made an intentional choice to move away
from non-strategic product lines such as contract manufacturing. To assess the effectiveness of this strategy during the transition
period, management is using two additional measures:
• Consolidated net sales excluding contract manufacturing sales (adjusted sales)
Segment net sales excluding contract manufacturing sales (adjusted sales)
•
Information reported as net sales excluding contract manufacturing sales on both a consolidated and segment basis, exclude sales
generated from contract manufacturing activities and do not conform to generally accepted accounting principles (GAAP). These
non-GAAP measures should not be construed as an alternative to the reported results determined in accordance with GAAP.
Management has included this non-GAAP information to assist in understanding the operating performance of the Company and
its operating segments as well as the comparability of results. This non-GAAP information provided may not be consistent with
the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables
below.
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.
17
The Raven business model is our platform for success. Our business model is defensible, sustainable, and gives us a consistent
approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three
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 with which to pursue strategic acquisitions; and
• Make corporate responsibility a top priority.
This diversified business model enables us to better weather near-term challenges, while continuing to grow and build for our
future. It is our culture and it is woven into how we do business.
The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in
the Results of Operations - Segment Analysis section.
dollars in thousands, except per-share data
Results of Operations
Net sales
Gross margins (a)
Operating income
Operating margins (a)
Net income attributable to Raven Industries, Inc.
Diluted income per share (b)
For the years ended January 31,
%
%
change
change
2014
2013
2015
$ 378,153
(4.2)% $ 394,677
(2.8)% $ 406,175
27.3%
30.2%
31.4%
43,801
(31.6)% $
63,994
(17.6)% $
77,692
11.6%
31,733
0.86
16.2%
19.1%
(26.0)% $
(26.5)% $
42,903
1.17
(18.4)% $
(18.8)% $
52,545
1.44
$
$
$
Consolidated net sales, excluding contract
manufacturing sales(c)
$ 351,205
1.8 % $ 344,919
(2.3)% $ 353,004
Cash Flow and Payments to Shareholders
Cash flow from operating activities
Cash outflow for capital expenditures
Cash dividends
$
$
$
60,083
17,041
18,519
$
$
$
52,836
30,701
17,465
$
$
$
76,456
29,675
15,244
Performance Measures
Return on net sales (d)
Return on average assets (e)
Return on average equity (f)
8.4%
9.5%
11.4%
10.9%
14.9%
18.2%
12.9%
20.3%
26.2%
(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) Non-GAAP measure reconciled to GAAP in the table below.
(d) Net income divided by sales.
(e) Net income divided by average assets.
(f) Net income divided by average equity.
18
The following table reconciles the reported net sales to adjusted sales, a non-GAAP financial measure. Adjusted sales excludes
contract manufacturing and represents the Company's sales from proprietary products.
dollars in thousands
Applied Technology
Reported net sales
Less: Contract manufacturing sales
Applied Technology net sales, excluding
contract manufacturing sales
Aerostar
Reported net sales
Less: Contract manufacturing sales
Aerostar net sales, excluding contract
manufacturing sales
Consolidated Raven
Reported net sales
Less: Contract manufacturing sales
Plus: Aerostar sales to Applied Technology
Consolidated net sales, excluding contract
manufacturing sales
For the years ended January 31,
2015
%
change
2014
%
change
2013
$ 142,154
(16.6)% $ 170,461
(0.8)% $ 171,778
5,832
(48.5)%
11,324
(29.2)%
15,998
$ 136,322
(14.3)% $ 159,137
2.2 % $ 155,780
$
80,772
(10.9)% $
90,605
(11.2)% $ 102,051
31,669
(38.3)%
51,311
6.5 %
48,195
$
49,103
25.0 % $
39,294
(27.0)% $
53,856
$ 378,153
(4.2)% $ 394,677
(2.8)% $ 406,175
37,501
10,553
(40.1)%
(18.0)%
62,635
12,877
(2.4)%
16.8 %
64,193
11,022
$ 351,205
1.8 % $ 344,919
(2.3)% $ 353,004
Results of Operations - Fiscal 2015 compared to Fiscal 2014
The Company's net sales in fiscal 2015 were $378.2 million, a decrease of $16.5 million, or 4%, from last year's net sales of $394.7
million. The Company's operating income decreased 32% from $64.0 million in fiscal 2014 to $43.8 million in fiscal 2015.
Engineered Films' sales and operating profit increased. Aerostar's operating income increased despite lower net sales. These
increases in operating income were offset by declines in Applied Technology, which is facing difficult end-market conditions. The
Company is completing the exit of low-growth contract manufacturing business, which resides in both Applied Technology and
Aerostar, and is working to grow its strategic proprietary product sales both organically and through acquisition. The challenges
faced in the agricultural markets have resulted in an opportunity to rebalance the Company’s profit mix by aggressively growing
both the Aerostar and Engineered Films divisions. While Applied Technology's operating income decreased 39%, Aerostar's
operating income grew 15% and Engineered Films' operating income increased 20%.
Engineered Films' fiscal 2015 net sales were up 13% over fiscal 2014, primarily driven by the agricultural and construction markets
and the acquisition of Integra Plastics Inc. (Integra) more fully described in Note 5 Acquisitions of and Investments in Business
and Technologies of this Form 10-K. Integra contributed $5.6 million in net sales in fiscal 2015.
Applied Technology's net sales declined reflecting persistent weakness in the precision agriculture markets, both domestic and
international, and the anticipated decline of contract manufacturing sales to non-strategic legacy customers. Net sales at Applied
Technology were $142.2 million in fiscal 2015 compared to $170.5 million in the prior fiscal year.
Aerostar net sales decreased $9.8 million, or 11%, compared to fiscal 2014. The decrease was due primarily to a shift away from
Aerostar's contract manufacturing business. Increased sales of proprietary products, such as lighter-than-air products, aerostat
products, and Vista radar system sales partially offset these expected decreases. Excluding contract manufacturing sales, Aerostar's
net sales were up 25% year-over-year.
Raven's growth strategy focuses on its proprietary product lines and the Company has made an intentional choice to move away
from non-strategic product lines such as contract manufacturing. For fiscal 2015, Raven continued to show growth in these
strategic proprietary product lines as net sales, excluding contract manufacturing sales, increased $6.3 million, or 2%, to $351.2
million as compared to $344.9 million in the prior year.
19
Fiscal 2015 operating income decreased 32% from fiscal 2014 due primarily to the overall sales decline, lower gross profit margins
in Applied Technology, and higher Corporate general administration spending.
Applied Technology's operating income decreased by 39% due to lower sales volumes as well as continued strategic investment
in pursuing growth through international markets, new product development, and broadening original equipment manufacturer
(OEM) relationships.
Engineered Films' operating income increased 20% as a result of overall selling price increases, higher sales of more profitable
value-added films, continued operating improvements, and leveraging the Company's reclaim production line.
Aerostar posted an increase of 15% from the prior year operating income due to a lower level of contract manufacturing revenue
relative to net sales and less operating expenses.
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 prior year 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
market. Weaker demand in the U.S. aftermarket offset the impact of the introduction of new products and higher OEM demand
and, as a result, Applied Technology's net sales declined 1% 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 primarily due to lower sales and higher operating expense.
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 $52.2 million
cash and short-term investments balance as of January 31, 2015. Capital expenditures totaled $17.0 million in fiscal 2015 compared
to $30.7 million in fiscal 2014. Capital spending consisted primarily of expenditures to expand Engineered Films' manufacturing
capacity. Fiscal 2014 spending included approximately $11.5 million for renovation of the corporate headquarters which was
completed in early fiscal 2015.
During fiscal 2015, $18.5 million was returned to shareholders though quarterly dividends. In the third quarter of fiscal 2015, the
quarterly dividend was raised from 12 cents per share to 13 cents per share. During fiscal 2014, $17.5 million was returned to
shareholders through quarterly dividends.
Performance Measures
Returns on net sales, average assets and average equity are important gauges of Raven's ability to efficiently produce profits.
Although the Company’s fiscal 2015 returns were not at the level of the prior two years’ results, they have remained at competitive
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.
20
Financial highlights for the fiscal years ended January 31,
dollars in thousands
2015
% change
2014
% change
2013
Net sales
Gross profit
Gross margins
Operating expense
Operating expense as % of sales
Operating income
Operating margins
Applied Technology net sales,
excluding contract manufacturing
sales
$ 142,154
58,325
$
$
41.0%
23,768
16.7%
34,557
24.3%
(16.6)% $
(26.6)%
170,461
79,499
(0.8)% $
(1.7)%
171,778
80,853
46.6%
47.1%
5.6 % $
22,499
5.8 % $
21,263
13.2%
12.4%
(39.4)% $
57,000
(4.3)% $
59,590
33.4%
34.7%
$ 136,322
(14.3)% $
159,137
2.2 % $
155,780
Net sales decreased $28.3 million, or 17%, to $142.2 million and operating income was down $22.4 million, or 39%, to $34.6
million for fiscal 2015 compared to fiscal 2014.
Fiscal 2015 fourth quarter net sales declined $9.9 million, or 27%, to $26.5 million and operating income decreased $7.4 million,
or 68%, to $3.4 million compared to fourth quarter fiscal 2014.
A number of factors contributed to the full-year and fourth-quarter comparative results:
•
• Market conditions. Continued softness in the agriculture market put pressure on Applied Technology throughout fiscal
2015. With contraction of end-market demand becoming even more pronounced than expected, several OEMs are
reducing production levels again and lowering their outlooks for the year. With historically high corn inventories,
cyclically high input costs, and waning grower sentiment, demand remains subdued for precision agricultural equipment
and is not expected to recover until late in fiscal 2016 at best. With the world’s population growing toward nine billion
and income growth in emerging economies, greater demand for food will ultimately support healthy growth. The
Company continues to invest in growth internationally for the long term. Emerging agriculture markets abroad are at
varying life cycle stages providing opportunities for Raven's precision agriculture products to meet market needs.
Sales volume and new products. Persistent headwinds in the agriculture equipment markets continued in the fourth
quarter. Lower end-market demand drove sales lower in most of Applied Technology's product lines for the fourth quarter
and year-to-date. New product sales were also affected by lower levels of demand but contributed approximately $16.5
million of sales in fiscal 2015. These declines were partially offset by sales contributed by SBG since the acquisition in
May 2014. Year-to-date sales declined 17% to $142.2 million as compared to $170.5 million in the prior year. The sales
decline reflects both lower international sales and weakness in the North American precision agriculture equipment
market, in particular with OEM sales as the aftermarket conditions were slightly better.
Strategic Sales. Applied Technology’s net sales, excluding contract manufacturing sales, for fiscal 2015 were $136.3
million, a decrease of $22.8 million, or 14%, compared to fiscal 2014 net sales, excluding contract manufacturing sales
of $159.1 million.
International sales. Net sales outside the U.S. accounted for 22% of segment sales in fiscal 2015 compared to 24% in
fiscal 2014. International sales decreased $10.5 million, or 25%, to $31.3 million in fiscal 2015 compared to fiscal 2014.
Lower sales in Brazil and Canada were the main drivers of the decline, partially offset by increased sales in South Africa
and $3.2 million of European revenues from the acquisition of SBG in May 2014. For the fourth quarter, international
sales totaled $3.1 million, a decrease of 55% from the prior year comparative quarter.
•
•
• Gross margins. Gross margins declined from 46.6% in fiscal 2014 to 41.0% in fiscal 2015. Similar declines occurred
in the fourth quarter as the gross margin for the three-months ended January 31, 2015 was 33.5% compared to 44.4% in
the prior year fourth quarter. Lower net sales, lower production levels, and higher warranty expense contributed to the
lower gross margins.
• Operating expenses. Fiscal 2015 operating expenses were 16.7% of net sales compared to 13.2% for the prior year.
This increase is attributable to higher spending in research and development (R&D) to preserve future growth
opportunities on lower sales volumes.
For fiscal 2014, 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%, from $59.6 million in fiscal 2013.
21
Several factors contributed to the results for fiscal 2014 as compared to fiscal 2013:
•
•
• Market conditions. 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.
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.
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.
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 was attributable to higher spending in R&D on relatively flat sales volumes.
•
•
Engineered Films
Engineered Films manufactures high performance plastic films and sheeting for energy, agricultural, construction, geomembrane,
and industrial applications.
The Company acquired Integra Plastics, Inc. (Integra) in a merger agreement that was effective November 3, 2014, valued at
approximately $48.2 million, net of debt assumed. This acquisition expanded Engineered Films’ production capacity, broadened
its product offerings, and enhanced current converting capabilities. Adding Integra's fabrication and conversion skill sets with
Raven's ability to develop value-added innovative products better serves our customers, strengthens the profit contributed by
Engineered Films, and expands our major markets: energy, agriculture, construction, geomembrane, and industrial.
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
2015
$ 166,634
28,104
$
$
16.9%
6,302
3.8%
21,802
13.1%
% change
2014
% change
12.9% $ 147,620
23,592
19.1%
15.9% $
16.0%
5,438
3.7%
4.0 %
(23.2)%
(3.1)%
20.1% $
18,154
(27.7)%
12.3%
2013
$ 141,976
30,726
$
$
21.6%
5,611
4.0%
25,115
17.7%
Net sales increased $19.0 million, or 13%, to $166.6 million while operating income was up 20% to $21.8 million for fiscal 2015
compared to $18.2 million for fiscal 2014.
Fiscal 2015 fourth quarter net sales increased $5.3 million, or 15%, from $35.6 million in the fiscal 2014 fourth quarter and
operating income of $4.6 million was $1.2 million, or 37%, higher than the prior year fourth quarter.
These year-over-year and fourth-quarter changes were primarily driven by the following factors:
• Market conditions. The recent Integra acquisition better positions Engineered Films to adapt to sales channel changes
and customers' complex conversion needs emerging in the energy market. Recent declines in oil prices have tempered
demand for pit liners. While this decline challenges sales development in the energy end market, it has a favorable
impact on raw materials costs for the division. Despite the overall slowness in the agricultural equipment market served
by Applied Technology, demand has continued to strengthen for agriculture barrier films used in high-value crop
production. Strength in the construction market and efforts to increase market share have created opportunities to meet
shifting market conditions and offset competitive pressures in the energy market.
Sales volume and selling prices. Fiscal 2015 net sales were up 13% to $166.6 million compared to fiscal 2014 net sales
of $147.6 million. Net sales of construction film and barrier films for specific high-value agriculture applications were
the primary drivers of these increases in fiscal 2015. Sales volume and selling prices for fiscal 2015 were up 5% and
7%, respectively, compared to the prior-year period.
•
22
•
•
•
Integra acquisition. Net sales contributed to Engineered Films from the fourth-quarter Integra acquisition was $5.6
million. Without the acquisition, fourth-quarter net sales would have been down slightly due to the declines in the energy
market.
Gross margins. Fiscal 2015 gross margins were 17% - continuing the trend of higher gross margins than the second half
of fiscal 2014. These margins reflect the impact of higher average selling prices, higher sales of more profitable value-
added films, and continued operating improvements and leveraging the Company's reclaim production line.
Operating expenses. Fiscal 2015 operating expenses as a percentage of net sales increased to 3.8%, compared to 3.7%
in the prior year. Higher selling expenses over higher sales levels drove the year-over-year increase.
For fiscal 2014, net sales increased $5.6 million, or 4%, to $147.6 million while operating income was down $7.0 million, or 28%,
to $18.2 million compared to fiscal 2013.
Fiscal 2014 results were primarily driven by the following factors:
•
•
• Market conditions. Beginning in the second quarter of fiscal 2014, demand 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, rebounded during the second half of fiscal 2014.
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. Average 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. These
margins were impacted by substantially higher resin costs combined with market conditions that did not allow pass-
through of these higher costs.
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.
•
Aerostar
Aerostar serves aerospace and situational awareness markets and produces products as a contract manufacturing services provider.
These products have included military parachutes, uniforms, and protective wear as well as electronics manufacturing services.
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. Like Applied Technology, Aerostar is near completion of a planned exit of
its low-growth contract manufacturing business to focus on growing strategic proprietary product sales.
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. and foreign governments. 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.
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
Aerostar net sales, excluding
contract manufacturing sales
$
$
$
2015
80,772
16,654
20.6%
7,671
9.5%
8,983
11.1%
% change
(10.9)% $
1.7 %
(10.4)%
$
2014
90,605
16,374
18.1%
8,558
9.4%
% change
(11.2)% $
1.4 %
47.2 % $
2013
102,051
16,155
15.8%
5,814
5.7%
14.9 % $ 7,816
(24.4)% $ 10,341
8.6%
10.1%
$
49,103
25.0 % $
39,294
(27.0)% $
53,856
23
Net sales declined 11% to $80.8 million from last year’s net sales of $90.6 million. Operating income was $9.0 million up $1.2
million, or 15%, compared to fiscal 2014.
Fiscal 2015 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.
Uncertain demand in these markets continued into fiscal 2015. Aerostar’s growth strategy emphasizes proprietary products
over contract manufacturing. Focus is on proprietary technology opportunities, including advanced radar systems, high-
altitude balloons, and aerostats to international markets. Aerostar is pioneering leading-edge applications of its high-
altitude balloons in collaboration with Google on Project Loon, a program to provide high-speed wireless Internet
accessibility and telecommunications to rural, remote and under-served areas of the world.
Sales volumes. Fiscal 2015 net sales decreased $9.8 million from the prior year, a year-over-year decrease of 11%. The
drivers of this decline were lower sales of parachutes and planned declines in avionics sales and other contract
manufacturing sales. These decreases were partially offset by higher Vista revenues for support activities under existing
contracts and increased aerostat product and service revenues associated with a government contract.
•
• Proprietary net sales. As discussed previously, Aerostar's growth strategy centers on proprietary products. For fiscal
2015, net sales for proprietary products were $49.1 million; a $9.8 million, or 25%, increase from the prior fiscal year
while contract manufacturing revenues declined $19.6 million, or 38%, from $51.3 million to $31.7 million.
• Gross margins. Gross margins increased from 18.1% in fiscal 2014 to 20.6% for fiscal 2015. Despite the lower sales
levels, gross profit margins have continued to increase in fiscal 2015 compared to the prior year. This improvement in
gross margins was favorably impacted by additional proprietary product revenues, including Vista radar sales that normally
carry higher margins than other products, as well as efficiencies achieved on last-run contract manufacturing business.
• Operating expenses. Fiscal 2015 operating expenses of $7.7 million were 9.5% of net sales compared to $8.6 million, or
9.4% of net sales in fiscal 2014. Operating spending was constrained beginning in the second quarter, driving lower
spending levels in fiscal 2015.
For the fiscal 2015 fourth-quarter, net sales increased $0.7 million to $24.6 million from $23.9 million in the comparative period
of 2014. Fourth quarter gross profit also improved, climbing to $5.9 million compared to $5.0 million in the fourth quarter of
fiscal 2014. Operating income increased $2.0 million to $4.3 million compared to fiscal 2014 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 $24.6 million compared to the
prior year fourth quarter. Higher Vista radar net sales and additional high altitude balloon deliveries helped increase net
sales quarter-over-quarter and improve gross margins as these product lines carry a higher margin than contract
manufacturing services as well as higher margins earned on contract manufacturing services and the production efficiencies
on last-run production.
• Proprietary net sales. As discussed previously, Aerostar's growth strategy centers on proprietary products. For the fourth
quarter of fiscal 2015, net sales for proprietary products were $15.8 million; a $2.7 million, or 21%, increase from the
prior fiscal year fourth quarter.
• Operating expenses. Operating expenses were $1.6 million, or 6.7% of net sales in the fourth quarter, a decrease of $1.1
million from $2.7 million, or 11.3% of net sales in the prior comparative period. In the prior year fourth quarter, increased
R&D spending associated with product development drove the percentage higher.
For fiscal 2014, net sales decreased $11.4 million, or 11%, to $90.6 million compared to fiscal 2013. Operating income declined
$2.5 million, or 24%, to $7.8 million as compared to fiscal 2013.
Fiscal 2014 results were driven by the following:
• Market conditions. Certain of Aerostar's markets are subject to significant variability due to U.S. federal spending.
•
Uncertain demand in these markets continued throughout fiscal 2013 and fiscal 2014.
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
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 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.
24
• 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.
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,
$
$
2015
21,704
5.7%
(300)
26.9%
$
$
2014
18,865
4.8%
(371)
32.6%
$
$
2013
17,293
4.3%
(46)
32.3%
Administrative expenses increased $2.8 million in fiscal 2015 compared with fiscal 2014. Much of this increase is attributable
to the fourth quarter of fiscal 2015. Administration expense was $6.0 million compared to $4.1 million in the prior year fiscal
fourth quarter. This fiscal and fourth quarter year-over-year increase is due primarily to acquisition and integration costs and
higher depreciation.
Other income (expense), net consists primarily of activity related to the Company's equity investment, interest income, and foreign
currency transaction gains or losses.
The fiscal 2015 effective tax rate of 26.9% was lower than the fiscal 2014 effective tax rate of 32.6%. The lower effective tax
rate was due to a recognition of $0.8 million of incremental R&D tax credits based upon a tax study undertaken for fiscal years
2011 to 2014. The rate was also favorably impacted by a discrete tax benefit of $1.0 million recognized upon settlement of a state
tax liability that occurred in fiscal 2015 fourth quarter.
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.
Difficult end-market conditions for Applied Technology and the portion of Engineered Films focused on the energy market are
expected to persist through fiscal 2016. With high corn inventories, continued high input costs, waning grower sentiment, and
OEMs reducing production levels and lowering their outlooks for the year, the Company does not expect a rebound in demand in
Applied Technology's markets until late in the year at best. Further, this decline in end-market demand seems to be worsening in
the first quarter of fiscal 2016. For Engineered Films, the recent and dramatic decline in oil prices impacted exploration activity
and significantly decreased demand for the division’s pit liners. Despite the favorable raw materials costs for Engineered Films
as a whole, the Company faces significant headwinds with the energy market.
For Aerostar and Applied Technology, the exit of low-growth contract manufacturing business is near completion. This allows
the Company to focus on growing strategic product sales both organically and through acquisition. Further, the challenges in
agriculture have given the Company an opportunity to rebalance the profit mix by aggressively growing Engineered Films and
Aerostar and that is a goal moving forward. As the Company transforms and evolves to capitalize on key growth opportunities,
investment focus is on essential strategic initiatives that will directly fuel growth while continuing to reduce operating expenses.
While the Company is confident in the long-term view of the North American agricultural market, on March 10, 2015 it announced
and implemented a $13.0 million restructuring plan to further lower Raven’s cost structure. The cost reductions covered all
divisions and included the corporate offices, but were heavily weighted to Applied Technology. This action was taken in addition
to a $2.5 million preemptive restructuring of the Engineered Films Division taken in the fourth quarter of fiscal 2015 to address
the expected decline in demand in the energy sector as the result of falling oil prices, as well as the previously announced $7.0
million restructuring in Applied Technology.
Actions included in the $7.0 million restructuring plan included initiating the exit of Applied Technology’s contract manufacturing
services business. Subsequent to the end of fiscal 2015, the Company announced that the manufacturing operations in the St.
Louis, Missouri area had been successfully sold and transferred. This operation produced bed controls and was one of the final
pieces for completing the runoff of contract manufacturing previously discussed. The Company’s financial statements at January
31, 2015 do not reflect any accrued liabilities with respect to these restructuring plans.
25
These actions were part of a multi-faceted approach expected to lead to improved financial results. The second element is to
leverage the underlying strengths of Engineered Films and Aerostar. Both continue to demonstrate strong profit growth profiles
and the Company expects to capitalize on the investments that have been made in these divisions. Further, the Company will
capitalize on the strength of its balance sheet position and pursue strategic acquisitions that support the growth plans of our existing
divisions. And, finally, the Company will continue to take actions to optimize internal investments in each of the three operating
divisions and ensure continued investment in projects with the greatest long-term growth potential.
Despite near-term challenges, the Company’s financial objectives remain unchanged and we continue to target long-term growth
in operating income of 10 to 12 percent. Raven is committed to strengthening its overall business, ultimately creating an even
healthier corporation to drive long-term success.
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 the
Company'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. Management believes
borrowing capacity is available, if necessary, for a large acquisition or major business expansion.
The Company'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 $51.9 million at January 31, 2015 compared to $53.0 million on the same date in 2014, a decrease
of $1.1 million. The decrease was driven by cash outflows for acquisitions, repayment of debt assumed for current year acquisitions,
dividends paid to shareholders, and capital expenditures. These cash outflows were partially offset by positive cash flows from
operating activities. Short-term investments were $0.3 million as of January 31, 2015 and 2014. The Company had no short-term
investments at January 31, 2013.
At January 31, 2015 the Company held cash and cash equivalents of $4.3 million and $0.3 million of short-term investments in
accounts outside the United States. These balances included undistributed earnings of foreign subsidiaries we consider to be
indefinitely reinvested. If repatriated, undistributed earnings of $1.5 million would be subject to United States federal taxation.
This estimated tax liability is approximately $0.2 million net of foreign tax credits. Our liquidity is not materially impacted by the
amount held in accounts outside of the United States.
Raven has an uncollateralized credit agreement that provides a $10.5 million line of credit and expires November 30, 2016. There
is no outstanding balance under the line of credit at January 31, 2015. The line of credit is reduced by outstanding letters of credit
totaling $0.9 million as of January 31, 2015. Among the conditions of the credit agreement is a requirement for the Company to
maintain a current ratio (defined as current assets divided by current liabilities) not less than 2.0 to 1.0 at each fiscal quarter end.
The Company is in compliance with all covenants set forth in the credit agreement.
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 $60.1 million in fiscal 2015 compared with $52.8 million in fiscal 2014. The increase
in operating cash flows is the result of less cash consumed by the change in accounts receivable and inventory. These corresponding
increases in cash flow were partially offset by lower company earnings. While the Company's earnings were lower, these earnings
reflected the impact of higher depreciation and amortization expense.
In fiscal 2015, inventory generated $6.8 million of cash versus consuming $9.2 million in fiscal 2014. The Company's inventory
turnover rate decreased slightly from the prior year primarily due to the higher average inventory levels at Engineered Films
(trailing 12-month inventory turn of 4.9X in fiscal 2015 and 5.2X in fiscal 2014). Cash collections were efficient despite the
increase in trailing 12 months days sales outstanding of 52 days in fiscal 2015 compared to 51 days in fiscal 2014. Accounts
receivable generated $4.7 million in cash in fiscal 2015 as compared to generating $1.3 million cash in fiscal 2014. In fiscal 2015,
26
uncertain tax positions consumed $3.3 million of cash compared to generating cash of $0.7 million in fiscal 2014 due to a payment
made to settle a state tax liability.
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.
Investing Activities
Cash used in investing activities totaled $30.0 million in fiscal 2015, $31.6 million in fiscal 2014 and $29.9 million in fiscal
2013. Capital expenditures totaled $17.0 million in fiscal 2015 compared to $30.7 million in fiscal 2014 and $29.7 million in
fiscal 2013. The change from the prior fiscal year includes lower spending as a result of completion of the renovation of the
Company's headquarters early in fiscal 2015.
Net capital outlay related to the Integra and SBG business acquisitions was $12.5 million during fiscal 2015. There were no
businesses acquired in fiscal 2014 or fiscal 2013.
Management anticipates capital spending in the $13 - $15 million range in fiscal 2016. Expansion of Engineered Films' capacity
and Applied Technology's capital spending to advance product development are expected to continue. In addition, management
will evaluate strategic acquisitions that result in expanded capabilities and improved competitive advantages.
Financing Activities
Financing activities consumed cash of $30.7 million in fiscal 2015 compared with $17.4 million in fiscal 2014 and $23.0 million
in fiscal 2013.
Quarterly dividends paid in fiscal 2015 were $18.5 million, or $0.50 per share, compared to $17.5 million in fiscal 2014 and $15.2
million in fiscal 2013. In the third quarter of fiscal 2015, the Company increased the quarterly dividend rate (excluding special
dividends).
The Company made net debt repayments totaling $12.0 million for assumed debt as part of the Integra and SBG acquisitions in
fiscal 2015. There was no debt outstanding at January 31, 2015. No borrowings or debt repayments occurred in fiscal 2014 or
fiscal 2013.
During fiscal 2015 and fiscal 2014, the Company made payments of $0.5 million and $0.4 million, respectively, of acquisition-
related contingent liabilities. In fiscal 2013, the Company paid $8.4 million on acquisition-related contingent liabilities.
On November 3, 2014, the Company announced that its Board of Directors had authorized a $40.0 million stock buyback program.
No shares have been repurchased under this program as of January 31, 2015.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of January 31, 2015, 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.
27
A summary of the obligations and commitments at January 31, 2015 is shown below.
dollars in thousands
Operating leases
Unconditional purchase obligations
Postretirement benefits(a)
Acquisition-related contingent payments(b)
Uncertain tax positions(c)
Line of credit(c)
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
$
8,687
$
1,913
$
3,023
$
2,424
$
1,327
42,436
29,593
12,316
—
—
42,436
313
1,455
—
—
—
686
4,430
—
—
—
752
6,411
—
—
—
27,842
20
—
—
$ 93,032
$
46,117
$
8,139
$
9,587
$
29,189
(a) Postretirement benefit amounts represent expected payments on the accumulated postretirement benefit obligation before it is discounted.
(b) Amounts reflect the future earn-out payments with respect to 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.
(c)
Acquisition-related obligations
The Company has future obligations for earn-out payments associated with the acquisition of Vista completed in fiscal 2012 and
of SBG completed in fiscal 2015. The total liability recorded on the Consolidated Balance Sheet as of January 31, 2015 related
to these future obligations was $5.0 million, of which $1.4 million was classified as "Accrued liabilities" and $3.6 million as
"Other liabilities". These liabilities represent the present value of earn-out payments classified as consideration at the acquisition
date. Specific to the SBG acquisition, the Company may pay up to $2.5 million in additional earn-out payments calculated and
paid quarterly over the next 10 years contingent upon SBG achieving certain revenues. 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 $3.3 million at January 31, 2015. 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
uncertain tax position is settled or applicable tax year is no longer subject to examination by the tax authorities.
Line of credit
Raven has an uncollateralized credit agreement with Wells Fargo Bank, N.A. (Wells Fargo) providing a line of credit of $10.5
million with a maturity date of November 30, 2016, 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, 2015, 2014, or 2013. Net of the outstanding letters of
credit, $9.6 million was available under the line of credit at January 31, 2015. There have been no borrowings under the credit
line with Wells Fargo in the last three fiscal years.
Among the conditions of the credit agreement is a requirement for the Company to maintain a current ratio (defined as current
assets divided by current liabilities) not less than 2.0 to 1.0 at each fiscal quarter end. The Company is in compliance with all
covenants set forth in the credit agreement. 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
effect 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
28
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 the Company's customers may result in unexpected
excess material. Further, a decline in the market demand for the Company's products may also result in write-down of inventory
balances. The Company assesses current and expected selling prices in determining if inventory balances should be written down
to net realizable value. For certain of the Company's product lines, such as the electronics manufacturing business in Aerostar
Division the Company typically has/had 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.
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.
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, the Company performs impairment reviews
by reporting units which are determined to be: Engineered Films Division; two separate reporting units in the Applied Technology
Division, one of which is SBG and one of which is all other Applied Technology operations; and two separate reporting units in
the Aerostar Division, one of which is Vista and one of which is all other Aerostar operations.
The Company has the option to perform a qualitative impairment assessment based on 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 economic outlooks, industry conditions, cost inputs, overall financial performance, and other
relevant entity-specific events. If events and circumstances indicate the fair value of a reporting unit is more likely than not greater
than its carrying amount, then no further goodwill impairment testing is needed. If events and circumstances indicate the fair
29
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 performs 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.
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. Management evaluates the merits of each significant assumption used to determine the fair value
of the reporting unit. The current fiscal year's calculated fair values of our reporting units exceeded their carrying values by at
least 10% above the carrying value of the reporting unit's net assets. Actual results may differ from those used in our valuations.
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
There were no accounting standards adopted or effective in fiscal year 2015 that were of significance, or potential significance,
to the Company.
Pending Accounting Standards
In January 2015 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-01,
"Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items" (ASU 2015-01). The amendments in ASU 2015-01 eliminate the GAAP concept
of extraordinary items and no longer requires that transactions that met the criteria for classification as extraordinary items be
separately classified and reported in the financial statements. ASU 2015-01 retains the presentation and disclosure guidance for
items that are unusual in nature or occur infrequently and expands them to include items that are both unusual in nature and
infrequently occurring. ASU 2015-01 is effective for fiscal years beginning after December 15, 2015. The amendments may be
applied prospectively or retrospectively to all prior periods presented. Early adoption is permitted. The Company does not expect
the adoption of this guidance to have any impact on its consolidated financial statements or disclosures.
30
In August 2014 the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" (ASU 2014-15). The amendments in ASU
2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon
certain principles that are currently in U.S. auditing standards. ASU 2014-15 requires certain financial statement disclosures when
there is "substantial doubt about the entity's ability to continue as a going concern" within one year after the date that the financial
statements are issued (or available to be issued). ASU 2014-15 is effective for fiscal years beginning after December 15, 2016.
Early adoption is permitted. The Company does not expect the adoption of this guidance to have any impact on its consolidated
financial statements or disclosures.
In June 2014 the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service
Period" (ASU 2014-12). ASU 2014-12 affects entities that grant their employees stock-based payments in which terms of the
award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments
in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition and specifies that a reporting entity should apply existing guidance in FASB Accounting
Standards Codification (ASC) Topic 718 as it relates to awards with performance conditions that affect vesting to account for such
awards. ASU 2014-12 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company
does not believe the guidance applies to any awards that have been granted under the Company's share-based compensation plan.
Accordingly, the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial
position, results of operations or cash flows.
In May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09
provides a comprehensive new recognition model that requires recognition of revenue when a company transfers promised goods
or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for
those goods or services. This guidance supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue
Recognition,” and most industry-specific guidance. ASU 2014-09 defines a five-step process to achieve this core principle and,
in doing so, companies will need to use more judgment and make more estimates than under the current guidance. It also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.
This guidance will be effective for the Company for fiscal 2018 and interim periods therein. The guidance may be applied using
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior
reporting period with the option to elect certain practical expedients or (ii) a retrospective approach with the cumulative effect of
initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption
is not permitted. The Company is currently evaluating the method of adoption and impact the adoption of ASU 2014-09 will have
on the Company’s consolidated financial position and results of operations.
In April 2014 the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" (ASU No.
2014-08). ASU No. 2014-8 changes the criteria for determining which disposals should be presented as discontinued operations
and modifies the related disclosure requirements. Additionally, the new guidance requires that a business that qualifies as held
for sale upon acquisition should be reported as discontinued operations. The new guidance is effective for the Company on
February 1, 2015 and applies prospectively to new disposals and new classifications of disposal groups as held for sale after the
effective date. The Company does not expect adoption of this guidance to have a material impact on its consolidated financial
statements.
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 ASC 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.
31
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, risks of operating in
foreign markets, risks relating to acquisitions, including risks of integration or unanticipated liabilities or contingencies, 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, 2015. 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, principally the Canadian 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.
32
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
34
35
36
37
38
39
40
11
33
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, 2015. In
making this assessment of effectiveness of internal controls over financial reporting, management excluded from this assessment
the internal controls over financial reporting at Integra Plastics, Inc. which was acquired on November 3, 2014. The assets acquired
comprise approximately 11% of the assets of the Company at January 31, 2015. Approximately 1% of net sales for the fiscal year
2015 were contributed by the acquired business since its acquisition.
In making its assessment of effectiveness of internal control over financial reporting, management used the criteria described by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).
Based on this assessment using those criteria, we concluded that, as of January 31, 2015, the Company's internal control over
financial reporting was effective.
The effectiveness of our internal control over financial reporting as of January 31, 2015 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/ STEVEN E. BRAZONES
Steven E. Brazones
President and Chief Executive Officer
Vice President and Chief Financial Officer
March 27, 2015
34
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, 2015, 2014, and 2013, and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 2015 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, 2015, based on criteria established in Internal Control - Integrated Framework (2013) 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.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Integra Plastics,
Inc. from its assessment of internal control over financial reporting as of January 31, 2015, because it was acquired by the Company
in a purchase business combination during fiscal 2015. We have also excluded Integra Plastics, Inc. from our audit of internal
control over financial reporting. The total assets and total net sales of Integra Plastics, Inc. represent approximately 11% and 1%,
respectively, of the related consolidated financial statement amounts as of and for the year ended January 31, 2015.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 27, 2015
35
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
66,947; 65,318; and 65,223, 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.
36
2015
As of January 31,
2014
2013
51,949
250
56,576
55,152
3,958
3,094
$
52,987
250
54,643
54,865
3,372
3,288
$
49,353
—
56,303
46,189
3,107
1,796
170,979
169,405
156,748
117,513
52,148
18,490
3,743
362,873
11,545
19,187
1,111
31,843
25,793
66,947
53,237
244,180
(5,849)
(53,362)
305,153
84
305,237
362,873
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
$
$
$
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), net
Income before income taxes
Income taxes
Net income
Net income (loss) 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 benefit (expense) of
$1,187, ($183), and $70, respectively
Other comprehensive income (loss), net of tax
Comprehensive income
Comprehensive income (loss) attributable to noncontrolling interest
For the years ended January 31,
$
2015
378,153
274,907
103,246
$
2014
394,677
275,323
119,354
$
2013
406,175
278,502
127,673
17,440
42,005
43,801
(300)
43,501
11,705
31,796
63
31,733
0.86
0.86
31,796
(1,466)
(2,204)
(3,670)
28,126
63
$
$
$
$
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)
42,818
52,422
(1)
10
$
$
$
$
Comprehensive income attributable to Raven Industries, Inc.
$
28,063
$
42,819
$
52,412
The accompanying notes are an integral part of the consolidated financial statements.
37
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars and shares in thousands, except per-share amounts)
$1 Par
Common
Stock
Paid-in
Capital
Treasury Stock
Shares
Cost
Retained
Earnings
Accumulated
Other
Comprehen-
sive Income
(Loss)
Raven
Industries, Inc.
Equity
Non-
controlling
Interest
Total
Equity
Balance January 31, 2012
$ 32,566 $ 9,607 (14,449) $ (53,362) $ 193,650 $
(1,962) $ 180,499 $
91 $180,590
Net income
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.42 per share)
—
—
—
—
—
63
—
—
—
—
—
52,545
—
52,545
—
(133)
(133)
10
—
52,555
(133)
— (15,307)
Two-for-one stock split
32,598
(7,405) (14,448)
— (25,193)
Shares surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
(36)
(2,215)
95
2,503
— 3,075
—
257
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(15,244)
— (15,244)
—
—
—
(2,251)
— (2,251)
2,598
3,075
257
—
—
—
2,598
3,075
257
Balance January 31, 2013
65,223
5,885 (28,897)
(53,362)
205,695
(2,095)
221,346
101
221,447
Net income
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.48 per share)
Shares surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
—
—
—
—
—
104
(64)
(2,041)
159
2,111
— 4,198
—
299
—
—
—
—
—
—
—
—
—
42,903
—
— (17,569)
—
—
—
—
—
—
—
—
—
(84)
—
—
—
—
—
42,903
(1)
42,902
(84)
—
(84)
(17,465)
— (17,465)
(2,105)
— (2,105)
2,270
4,198
299
—
—
—
2,270
4,198
299
Balance January 31, 2014
65,318
10,556 (28,897)
(53,362)
231,029
(2,179)
251,362
100
251,462
Net income
Other comprehensive income (loss), net of
income tax
Cash dividends ($0.50 per share)
Dividends of less than wholly-owned
subsidiary paid to noncontrolling
Shares issued in connection with business
combination (net of issuance costs of
$38)
Director shares issued
Shares surrendered upon exercise of stock
options
Employees' stock options exercised
Share-based compensation
Tax benefit from exercise of stock options
—
—
—
—
—
—
142
—
1,542
37,672
18
(18)
(37)
(1,050)
106
1,622
— 4,213
—
100
—
—
—
—
—
—
—
—
—
—
31,733
—
31,733
63
31,796
—
—
—
(3,670)
— (18,582)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,670)
(18,440)
— (3,670)
— (18,440)
—
(79)
(79)
39,214
—
—
—
39,214
—
(1,087)
— (1,087)
1,728
4,213
100
—
—
—
1,728
4,213
100
Balance January 31, 2015
$ 66,947 $ 53,237 (28,897) $ (53,362) $ 244,180 $
(5,849) $ 305,153 $
84 $305,237
The accompanying notes are an integral part of the consolidated financial statements.
38
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended January 31,
2015
2014
2013
$
31,796
$
42,902
$
52,555
14,761
2,608
—
714
(28)
(958)
4,213
7,973
(996)
60,083
(17,041)
(12,472)
500
(500)
(473)
(29,986)
(18,519)
2,127
(14,116)
(533)
376
(30,665)
(470)
(1,038)
52,987
51,949
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
$
$
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Amortization of intangible assets
Gain on acquisition-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
Proceeds from revolving line of credit
Payment of revolving line of credit and acquisition-related debt
Payment of acquisition-related contingent liabilities
Employee stock option exercises and other financing activities, net
Net cash used in financing activities
Effect of exchange rate changes on cash
Net (decrease) increase 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.
39
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 conducts this business
through the following direct and indirect subsidiaries: Aerostar International, Inc. (Aerostar); Vista Research, Inc. (Vista); Raven
International Holding Company BV (Raven Holdings); Raven Industries Canada, Inc. (Raven Canada); SBG Innovatie BV;
Navtronics BVBA; Raven Industries GmbH (Raven GmbH); Raven Industries Australia Pty Ltd (Raven Australia) and Raven Do
Brazil Participacoes E Servicos Technicos LTDA (Raven Brazil). 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 the Company pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). The accompanying consolidated financial statements include
the accounts of the Company 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. The Company owns 75% of a business venture 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
included in the Aerostar business segment. No capital contributions were made by the noncontrolling interest since the initial
capitalization in fiscal year 2012. 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. Foreign currency transaction gains or losses on
intercompany notes receivable and notes payable denominated in foreign currencies for which settlement is not planned in the
foreseeable future are considered part the net investment and are reported in the same manner as foreign currency translation
adjustments.
40
(Dollars in thousands, except per-share amounts)
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. Certificates of
deposit that mature in over 90 days but less than one year are considered short-term investments. Certificates of deposit that
mature in one year or more are considered to be other long-term assets and carried at cost.
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 held for use is carried at the asset's cost and 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 internal costs incurred in connection with developing or obtaining internal-use software in
accordance with the accounting guidance for such costs. These capitalized software costs totaled $0 in fiscal 2015, $203 in fiscal
2014 and $7 in fiscal 2013. 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 Critical Accounting Estimates section of the Management's Discussion and Analysis in Part 7 of this Annual Report on Form
10-K (Form 10-K).
41
(Dollars in thousands, except per-share amounts)
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 Acquisition of and Investments in
Businesses and Technologies.
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
The Company 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.
Long-lived assets determined to be held for sale and classified as such in accordance with the applicable guidance are reported as
long-term assets at the lower of the asset's carrying amount or fair value less the estimated cost to sell. Depreciation is not recorded
once a long-lived asset has been classified as held for sale.
Insurance Obligations
The Company 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, regulatory inquiries, 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
The Company 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
42
(Dollars in thousands, except per-share amounts)
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.
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
and amortization
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
Facility allocation
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
There were no accounting standards adopted or effective in fiscal year 2015 that were of significance, or potential significance,
to the Company.
Pending Accounting Standards
In January 2015 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-01,
"Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items" (ASU 2015-01). The amendments in ASU 2015-01 eliminate the GAAP concept
of extraordinary items and no longer requires that transactions that met the criteria for classification as extraordinary items be
separately classified and reported in the financial statements. ASU 2015-01 retains the presentation and disclosure guidance for
items that are unusual in nature or occur infrequently and expands them to include items that are both unusual in nature and
infrequently occurring. ASU 2015-01 is effective for fiscal years beginning after December 15, 2015. The amendments may be
applied prospectively or retrospectively to all prior periods presented. Early adoption is permitted. The Company does not expect
the adoption of this guidance to have any impact on its consolidated financial statements or disclosures.
In August 2014 the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" (ASU 2014-15). The amendments in ASU
2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon
43
(Dollars in thousands, except per-share amounts)
certain principles that are currently in U.S. auditing standards. ASU 2014-15 requires certain financial statement disclosures when
there is "substantial doubt about the entity's ability to continue as a going concern" within one year after the date that the financial
statements are issued (or available to be issued). ASU 2014-15 is effective for fiscal years beginning after December 15, 2016.
Early adoption is permitted. The Company does not expect the adoption of this guidance to have any impact on its consolidated
financial statements or disclosures.
In June 2014 the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service
Period" (ASU 2014-12). ASU 2014-12 affects entities that grant their employees stock-based payments in which terms of the
award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments
in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition and specifies that a reporting entity should apply existing guidance in FASB Accounting
Standards Codification (ASC) Topic 718 as it relates to awards with performance conditions that affect vesting to account for such
awards. ASU 2014-12 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company
does not believe the guidance applies to any awards that have been granted under the Company's share-based compensation plan.
Accordingly, the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial
position, results of operations or cash flows.
In May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09
provides a comprehensive new recognition model that requires recognition of revenue when a company transfers promised goods
or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for
those goods or services. This guidance supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue
Recognition,” and most industry-specific guidance. ASU 2014-09 defines a five-step process to achieve this core principle and,
in doing so, companies will need to use more judgment and make more estimates than under the current guidance. It also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.
This guidance will be effective for the Company for fiscal 2018 and interim periods therein. The guidance may be applied using
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior
reporting period with the option to elect certain practical expedients or (ii) a retrospective approach with the cumulative effect of
initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption
is not permitted. The Company is currently evaluating the method of adoption and impact the adoption of ASU 2014-09 will have
on the Company’s consolidated financial position and results of operations.
In April 2014 the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" (ASU No.
2014-08). ASU No. 2014-8 changes the criteria for determining which disposals should be presented as discontinued operations
and modifies the related disclosure requirements. Additionally, the new guidance requires that a business that qualifies as held
for sale upon acquisition should be reported as discontinued operations. The new guidance is effective for the Company on
February 1, 2015 and applies prospectively to new disposals and new classifications of disposal groups as held for sale after the
effective date. The Company does not expect adoption of this guidance to have a material impact on its consolidated financial
statements.
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 ASC 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.
44
(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:
Held for use:
Land
Buildings and improvements
Machinery and equipment
Accumulated depreciation
Held for sale:
Land
Buildings and improvements
Accumulated depreciation
Other assets, net:
Investment in affiliate
Other, net
Accrued liabilities:
Salaries and related
Benefits
Insurance obligations
Warranties
Income taxes
Other taxes
Acquisition-related contingent consideration
Other
Other liabilities:
Postretirement benefits
Acquisition-related contingent consideration
Deferred income taxes
Uncertain tax positions
2015
As of January 31,
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
56,895
(319)
56,576
8,127
1,317
45,708
55,152
733
713
1,648
3,094
3,246
78,140
131,766
(96,545)
116,607
11
1,522
(627)
906
117,513
3,217
526
3,743
4,063
5,001
1,590
3,120
536
1,240
1,375
2,262
19,187
11,812
3,631
7,091
3,259
25,793
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
—
—
—
—
98,076
3,684
224
3,908
2,210
5,538
1,598
2,525
362
1,097
890
2,028
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
—
—
—
—
81,238
4,063
206
4,269
4,422
5,616
1,723
1,888
114
1,139
712
1,578
17,192
8,072
2,359
2,453
5,818
18,702
45
(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, 2012
$
145
$
(2,107)
$
(1,962)
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)
Balance at January 31, 2014
Other comprehensive (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss) after tax benefit of $1,187
(3)
—
142
(424)
—
(282)
(1,466)
—
—
(130)
(2,237)
—
340
(1,897)
—
(2,204)
(3)
(130)
(2,095)
(424)
340
(2,179)
(1,466)
(2,204)
Balance at January 31, 2015
$
(1,748)
$
(4,101)
$
(5,849)
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
Supplemental disclosures of cash flow information
Cash paid during the year for income taxes
Interest paid
Significant non-cash transactions:
Issuance of common stock for business acquisition
Capital expenditures included in accounts payable
For the years ended January 31,
2015
2014
2013
$
$
$
$
$
$
4,699
6,753
195
(3,578)
48
(144)
7,973
14,011
160
39,252
564
$
$
$
$
$
$
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
46
(Dollars in thousands, except per-share amounts)
NOTE 5
ACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Integra
The Company acquired all of the issued and outstanding shares of Integra Plastics, Inc. (Integra) in a transaction that closed on
November 3, 2014. The total purchase price was valued at approximately $48,200, net of an estimated working capital adjustment
included in the terms of the merger and acquisition agreement. These terms provided for payment through the issuance of 1,541,696
shares of the Company's common stock valued at $39,252, based on the closing stock price on the date of acquisition and cash
payments of $9,361. Integra, which was a privately-held company headquartered in Madison, South Dakota specializes in the
manufacture and conversion of high-quality plastic film and sheeting. This acquisition immediately expanded Raven's Engineered
Films Division's production capacity with additional extrusion and lamination operations in Brandon, South Dakota and fabrication
locations in Madison, South Dakota and Midland, Texas, as well as broadened Engineered Films' product offerings and enhanced
current converting capabilities. Results of operations subsequent to acquisition have been included in the Engineered Films segment.
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 $27,216, none 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 Integra products and operations into Engineered Films. Identifiable intangible assets acquired as part of
the acquisition included definite-lived intangibles for customer relationships and other intangibles valued at $10,000 and $200,
respectively. These intangible assets are being amortized using the straight-line method over their estimated useful life as follows:
customer relationships - twelve years and other intangibles - two years. Liabilities assumed from Integra included a revolving
line of credit and long-term notes with Wells Fargo Bank N.A. (Wells Fargo). The Company has a related party relationship with
Wells Fargo described in Note 10 Financing Arrangements. This debt was repaid by the Company and there was no debt outstanding
at January 31, 2015.
The total purchase price was allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
Cash
Accounts receivable
Inventory
Deferred income taxes
Other current assets
Property, plant and equipment, net
Goodwill
Customer relationships and other definite-lived intangibles
Short-term and long-term debt
Current liabilities
Other liabilities
Total purchase price
$
1,600
4,808
7,555
520
24
17,088
27,216
10,200
(11,341)
(4,084)
(5,344)
$
48,242
Integra net sales and net loss recognized in fiscal 2015 from the acquisition date to January 31, 2015 were $5,627 and $(874),
respectively.
SBG
On May 1, 2014, the Company completed the purchase of all issued and outstanding shares of SBG Innovatie BV and its affiliate,
Navtronics BVBA (collectively, SBG). SBG has operations in the Netherlands just outside of Amsterdam and at Navtronics in
Geel, Belgium. The acquisition broadens Applied Technology Division’s guided steering system product line by adding high-
accuracy implement steering applications. Additionally, SBG’s headquarters will become the new home office for Raven in
Europe, expanding the Company’s global presence and reach into key European markets.
In connection with the purchase, the Company paid $5,000 and agreed to pay up to $2,500 in additional earn-out payments
calculated using the undiscounted cash flows and paid quarterly over the next 10 years contingent upon achieving certain revenues.
The fair value of this contingent consideration determined based on the discounted cash flows at January 31, 2015 is $1,432, of
which $236 was classified as "Accrued liabilities" and $1,196 was classified as "Other liabilities". The Company paid $79 in
earn-out payments during fiscal 2015.
47
(Dollars in thousands, except per-share amounts)
The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair
values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill.
Goodwill recorded as part of the purchase price allocation was $3,250, none of which is tax deductible. Identifiable intangible
assets acquired as part of the acquisition were $2,104, and included definite-lived intangibles, such as customer relationships and
proprietary technology. Amortization is being computed over the estimated useful life using the undiscounted cash flows method
as follows: twelve years for customer relationships and five years for proprietary technology. Liabilities acquired included debts
to the former owners, a long-term note with a third-party bank, and deferred income taxes. As further described in Note 10
Financing Arrangements this debt was repaid by the Company and there was no debt outstanding at January 31, 2015.
SBG net sales and net income recognized in fiscal 2015 from the acquisition date to January 31, 2015 were $3,245 and $152,
respectively.
The following pro forma consolidated condensed financial results of operations are presented as if the acquisitions described above
had been completed at the beginning of the period presented (unaudited):
Net sales
Net income attributable to Raven Industries, Inc.
Earnings per common share:
Basic
Diluted
(Unaudited)
For the year ended January 31,
2015
2014
$
408,906
$
431,917
34,424
45,747
$
$
0.90
0.90
$
$
1.20
1.20
These unaudited 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 these business combinations occurred at the beginning of each period presented,
or of future results of the consolidated entities.
Acquisition-related contingent consideration
In addition to the contingent consideration related to the acquisition of SBG, the Company has contingent liabilities related to
prior year acquisitions. Related to the acquisition of Vista in 2012, the Company is committed to 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 $2,989, of which $554 was classified in "Accrued liabilities" and $2,435 as "Other
liabilities" in the Consolidated Balance Sheet for the year ended January 31, 2015. At January 31, 2014, the fair value of the
contingent consideration for the Vista acquisition was $3,347, of which $890 was classified as "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. These fair values were
estimated using forecasted discounted cash flows. The Company paid $454, $353, and $6,500 in earn-out payments in fiscal year
2015, 2014 and 2013, respectively.
Pursuant to the Company's 2009 purchase of substantially all of the assets of Ranchview Inc. (Ranchview), a privately-held
Canadian corporation, 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.
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.
48
(Dollars in thousands, except per-share amounts)
Changes in the net carrying value of the investment in SST were as follows:
Balance at beginning of year
Income from equity investment
Amortization of intangible assets
Dividend received
Balance at end of year
2015
As of January 31,
2014
2013
$
$
3,684
28
(495)
—
3,217
$
$
4,063
116
(495)
—
3,684
$
$
4,409
156
(477)
(25)
4,063
In October 2012, SST purchased approximately 10% of its outstanding common stock to be held as treasury stock. The impact
of this transaction on the Company'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%; The 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.
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, 2012
Balance at January 31, 2013
Balance at January 31, 2014
Acquired goodwill
Foreign currency translation adjustment
Balance at January 31, 2015
Applied
Technology
9,892
$
9,892
9,892
3,250
(592)
12,550
$
$
$
Engineered
Films
Aerostar
Total
$
12,286
$
96
96
96
27,216
—
27,312
$
12,286
12,286
—
—
12,286
$
22,274
22,274
22,274
30,466
(592)
52,148
Intangible Assets
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
2015
Accumulated
Amount Amortization
Net
For the years ended January 31,
2014
Accumulated
Amount Amortization
Net
2013
Accumulated
Amount Amortization
Net
Existing technology
$ 8,870 $
(5,239) $ 3,631
$ 7,840 $
(4,164) $ 3,676
$ 7,500 $
(3,375) $ 4,125
Customer relationships
Other intangibles
Total
14,128
3,657
(1,271) 12,857
(1,655)
2,002
3,494
2,891
(525)
2,969
(1,380)
1,511
3,494
2,506
(300)
3,194
(1,144)
1,362
$ 26,655 $
(8,165) $18,490
$ 14,225 $
(6,069) $ 8,156
$ 13,500 $
(4,819) $ 8,681
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
$
3,655
$
3,521
$
2,890
$
2,024
$
1,437
2016
2017
2018
2019
2020
NOTE 7
EMPLOYEE POSTRETIREMENT BENEFITS
The Company has two 401(k) plans covering substantially all employees as of January 31, 2015. One plan, which covers the
majority of employees, matches employee contributions up to 4%. Under this plan all account balances and future contributions
49
(Dollars in thousands, except per-share amounts)
and related earnings can be invested in several investment alternatives as well as the Company'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 the Company's common stock. Participants may choose to make separate investment choices for current
account balances and for future contributions. Officers of the Company may not include Raven's common stock in their 401(k)
plan elections.
The other 401(k) plan was assumed as part of the Vista acquisition. Employee contributions under this plan include a 3% annual
contribution. This plan was amended in fiscal 2015 to eliminate a provision allowing an additional annual discretionary contribution.
The Company also assumed an additional 401(k) profit sharing plan as part of the Integra acquisition. This plan was merged into
Raven's 401(k) plan on December 31, 2014. Total contribution expense to all such plans was $2,416, $2,412 and $2,021 for fiscal
2015, 2014, and 2013, respectively.
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 loss (gain) and assumption changes
Retiree benefits paid
For the years ended January 31,
2014
2015
2013
$
$
8,254
195
366
3,543
(233)
$
8,307
202
348
(340)
(263)
7,560
187
335
433
(208)
Benefit obligation at end of year
$
12,125
$
8,254
$
8,307
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
Total pre-tax accumulated other comprehensive loss
Pre-tax accumulated other comprehensive loss - beginning of year related to
benefit obligation
Reclassification adjustments recognized in benefit cost:
Recognized net (loss)
Amortization of transition obligation
Amounts recognized in AOCI during the year:
Net actuarial loss (gain)
For the years ended January 31,
2015
2014
2013
$
$
$
$
$
$
6,309
6,309
2,918
(152)
—
3,543
$
$
$
2,918
2,918
3,441
(183)
—
(340)
3,441
3,441
3,241
(210)
(23)
433
Pre-tax accumulated other comprehensive loss - end of year related to benefit
obligation
$
6,309
$
2,918
$
3,441
The net actuarial loss for fiscal year 2015 was the result of a decrease in the discount rate and application of updated mortality
assumptions. The net actuarial gain in 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.
50
(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 loss (income)
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,
2014
2013
2015
$
$
$
$
8,254
713
3,391
4,104
(233)
12,125
313
11,812
$
$
$
$
3.50%
4.00%
7.20%
5.00%
2025
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
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 $337.
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
January 31, 2015
One-percentage-
point increase
One-percentage-
point decrease
$
$
291
2,865
$
$
(203)
(2,138)
The Company expects to contribute $313 in postretirement medical and other benefit payments in fiscal 2016. The following
postretirement other than pension benefit payments, which reflect expected future service as appropriate, are expected to be
paid:
Fiscal
Fiscal
Fiscal
Fiscal
2017
2018
2019
2020
Fiscal
2021 - 2025
$
331
355
370
382
2,170
51
(Dollars in thousands, except per-share amounts)
NOTE 8 WARRANTIES
Changes in the warranty accrual were as follows:
Beginning balance
Acquired
Accrual for warranties
Settlements made
Ending balance
NOTE 9
INCOME TAXES
For the years ended January 31,
2015
2014
2013
$
$
2,525
50
3,467
(2,922)
3,120
$
$
1,888
—
4,561
(3,924)
2,525
$
$
1,699
—
2,968
(2,779)
1,888
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 credit for research activities
Tax benefit on qualified production activities
Other, net
For the years ended January 31,
2014
2013
2015
35.0%
(0.3)
(3.9)
(3.6)
(0.3)
26.9%
35.0%
1.5
(1.2)
(2.9)
0.2
32.6%
35.0%
1.6
(0.9)
(3.2)
(0.2)
32.3%
The effective tax rate for fiscal 2015 was impacted favorably by recognition of a $776 research and development tax credit based
upon a tax study undertaken for fiscal years 2011 through 2014. The Company also recorded a $963 discrete tax benefit in fourth
quarter after reaching a favorable tax settlement with a state tax authority on a previously recorded uncertain tax position.
Significant components of the Company's income tax provision were as follows:
Income taxes:
Currently payable
Deferred (benefit) expense
For the years ended January 31,
2014
2015
2013
$
$
12,663
(958)
11,705
$
$
20,098
623
20,721
$
$
26,894
(1,803)
25,091
52
(Dollars in thousands, except per-share amounts)
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
Accrued benefit liabilities
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
2015
As of January 31,
2014
2013
$
$
194
873
940
271
261
1,225
194
3,958
4,243
(16,099)
1,002
2,897
866
(7,091)
(3,133)
$
$
111
583
1,032
276
291
898
181
3,372
2,799
(11,522)
2,219
2,309
669
(3,526)
(154)
$
$
70
507
1,118
302
274
661
175
3,107
2,826
(9,114)
1,969
1,613
253
(2,453)
654
Pre-tax book income (loss) for the U.S. companies and the Canadian subsidiary was $42,282 and $(38), respectively. As of
January 31, 2015, undistributed earnings of $1,490 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. This estimated tax liability would
be approximately $231 net of foreign tax credits.
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
Tax settlement with tax authorities
Gross unrecognized tax benefits at end of year
For the years ended January 31,
2014
2015
2013
$
$
4,660
909
(393)
(2,869)
2,307
$
$
4,213
795
(348)
—
4,660
$
$
3,567
993
(347)
—
4,213
Fiscal year 2015 changes to uncertain tax positions related to prior years resulted from both lapses of applicable statutes of limitation
and a favorable settlement reached with a state tax authority. The total unrecognized tax benefits that, if recognized, would affect
the Company's effective tax rate were $1,617, $3,029, and $2,738 as of January 31, 2015, 2014, and 2013, 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,
2015, 2014, and 2013, accrued interest and penalties were $952, $1,897, and $1,605, 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, 2015, federal tax returns filed in the
U.S., Canada and Switzerland for fiscal years ended January 31, 2010 through January 31, 2014 remain subject to examination
by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2007 through January 31,
2014 remain subject to examination by state and local tax authorities.
53
(Dollars in thousands, except per-share amounts)
NOTE 10 FINANCING ARRANGEMENTS
The Company has an uncollateralized credit agreement with Wells Fargo providing a line of credit of $10,500 with a maturity date
of November 30, 2016, 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.
Among the conditions of the credit agreement is a requirement to maintain a current ratio (defined as current assets divided by
current liabilities) not less than 2.0 to 1.0 at each fiscal quarter end. No borrowings were outstanding as of January 31, 2015, 2014
or 2013. Net of the outstanding letters of credit, $9,650 was available under the line of credit at January 31, 2015. There have
been no borrowings under the credit line with Wells Fargo in the last three fiscal years. The Company is in compliance with all
covenants set forth in the credit agreement.
In addition to providing the line of credit, Wells Fargo holds the majority of the Company'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.
Pursuant to the acquisition of SBG and Integra as described in Note 5 Acquisitions of and Investments in Businesses and
Technologies, the Company assumed liabilities including debts to former owners, a line of credit and long-term notes. Although
there was a short-term working capital borrowing under Integra's line of credit, such borrowing and assumed debt was subsequently
paid in full and the line of credit was closed. There was no debt outstanding at January 31, 2015.
The changes in the debt balance during the current fiscal year are shown below:
Debt Assumed
Line of credit
Long-term notes
Notes with former owners and others
Acquired in
Business
Combination
Integra
Integra
SBG
Debt Assumed
at Acquisition
Additional
Borrowings
Debt
Repayment
Debt
Outstanding at
January 31, 2015
$
$
1,465
9,876
648
$
2,127
$
(3,592)
$
—
—
(9,876)
(648)
11,989
$
2,127
$
(14,116)
$
—
—
—
—
The Company leases certain vehicles, equipment and facilities under operating leases. Total rent and lease expense was $1,977,
$2,395 and $2,095 in fiscal 2015, 2014 and 2013, respectively.
Future minimum lease payments under non-cancelable operating leases are as follows:
Minimum lease payments
$
1,913
$
1,616
$
1,407
$
1,200
$
1,224
$
1,327
2016
2017
2018
2019
2020
Thereafter
NOTE 11 SHARE-BASED COMPENSATION
At January 31, 2015, the Company 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,
2014
2015
2013
$
4,213
1,504
$
4,198
1,460
$
3,075
1,057
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
54
(Dollars in thousands, except per-share amounts)
options may be granted under the Plan was 2,000,000. As of January 31, 2015, the number of shares available for grant under
the Plan was 622,085. 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 and
the term of each grant. 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 2015, stock options and restricted stock units.
Stock Option Awards
The Company granted 194,900 non-qualified stock options during fiscal 2015. 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
2015
1.32%
1.53%
38.65%
4.00
0.59%
1.46%
41.39%
3.75
0.86%
1.33%
49.62%
3.75
Weighted average grant date fair value
$
9.18
$
9.34
$
10.92
Outstanding stock options as of January 31, 2015 and activity for the year then ended are presented below:
Outstanding, January 31, 2014
Granted
Exercised
Forfeited
Expired
Outstanding, January 31, 2015
Number
of options
946,133
194,900
(106,383)
(14,750)
(4,625)
1,015,275
Outstanding exercisable, January 31, 2015
557,600
Weighted
average
exercise
price
Aggregate
intrinsic
value
Weighted
average
remaining
contractual
term
(years)
$
$
$
26.88
32.75
16.24
31.24
31.10
29.04
26.40
$
$
298
298
2.32
1.54
The intrinsic value of a stock award is the amount by which the fair value of the underlying stock exceeds the exercise price of
the award. The total intrinsic value of options exercised was $1,467, $3,019, and $2,573 during the years ended January 31, 2015,
2014, and 2013, respectively. As of January 31, 2015, the total unrecognized compensation cost for non-vested awards was $2,856,
net of the effect of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.26 years.
55
(Dollars in thousands, except per-share amounts)
Restricted Stock Unit Awards
The Company granted 27,741 time-vested RSUs to employees during the year ended January 31, 2015. 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. RSUs contain retirement
and change-in-control provisions that may accelerate the vesting period. Dividends are cumulatively earned on the time-vested
RSUs over the vesting period.
Activity for time-vested RSUs under the Plan in fiscal 2015 was as follows:
Outstanding, January 31, 2014
Granted
Vested
Forfeited
Outstanding, January 31, 2015
Cumulative dividends, January 31, 2015
Number
of restricted
stock units
Weighted
average
grant date
fair value
32.32
29.69
—
32.55
31.27
$
$
43,360
27,741
—
(2,964)
68,137
2,174
The Company also granted performance-based RSUs during the year ended January 31, 2015. 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. The target award for the fiscal 2015 grant is based on return on equity (ROE),
which is defined as net income divided by the average of beginning and ending shareholders' equity for the fiscal year. The target
award for the fiscal 2014 and fiscal 2013 grant is 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. Performance-based RSUs contain retirement
and change-in-control provisions that may accelerate the vesting period. 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 the estimated ROE or ROS target over the three-year performance period. The estimated performance
factor used to estimate the number of restricted stock units expected to vest is evaluated at least quarterly. The number of restricted
stock units issued at the vesting date will be based on actual results.
Activity for performance-based RSUs under the Plan in fiscal 2015 was as follows:
Outstanding, January 31, 2014
Granted
Vested
Forfeited
Performance-based adjustment
Outstanding, January 31, 2015
Cumulative dividends, January 31, 2015
Number
of restricted
stock units
expected to
vest
Weighted
average
grant date
fair value
32.27
32.75
—
32.41
32.47
32.40
135,935
$
54,490
—
(6,073)
(31,913)
152,439
5,137
$
As of January 31, 2015, the total unrecognized compensation cost for nonvested RSU awards was $2,738 net of the effect for
estimated forfeitures. This amount is expected to be recognized over a weighted average period of 1.79 years.
56
(Dollars in thousands, except per-share amounts)
Deferred Stock Compensation Plan for Directors
The Company reserved 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, 2015 and changes during the year then ended are presented below:
Outstanding, January 31, 2014
Granted
Deferred retainers
Dividends
Converted into common shares
Outstanding, January 31, 2015
Number
of stock units
71,618
12,012
2,002
1,304
(17,589)
69,347
$
$
Weighted
average
price
37.45
29.97
29.97
26.59
31.19
21.44
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.
The options and restricted stock units excluded from the diluted net income per share calculation were as follows:
Anti-dilutive options and restricted stock units
781,988
577,213
397,600
For the years ended January 31,
2015
2014
2013
57
(Dollars in thousands, except per-share amounts)
The computation of earnings per share is 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,
2014
2015
2013
$
31,733
$
42,903
$
52,545
36,859,026
69,484
36,928,510
36,859,026
69,484
174,784
37,103,294
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
$
$
0.86
0.86
$
$
1.18
1.17
$
$
1.45
1.44
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 the Company's organization into two Raven
divisions and the Aerostar subsidiary. The Company's reportable segments are Applied Technology Division, Engineered Films
Division, and Aerostar Division. Raven Canada, SBG, 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.
The Company'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. As the Company focused its growth strategy on its proprietary products,
the Company made an intentional choice to move away from contract manufacturing. For Aerostar, product lines such as
manufacturing military parachutes, uniforms and protective wear along with electronics manufacturing services are being phased
out.
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.
58
(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
Operating (loss) from administrative expenses
Assets(a)
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,
2014
2015
2013
$
$
$
$
$
$
$
142,154
34,557
88,764
3,478
5,569
166,634
21,802
140,023
8,241
6,096
80,772
8,983
59,274
2,799
3,474
(231)
(652)
(10,524)
163
(148)
378,153
65,505
287,913
14,518
15,139
(21,704)
74,960
2,523
2,230
378,153
43,801
362,873
17,041
17,369
$
$
$
$
$
$
$
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
Sales to a customer of the Engineered Films segment accounted for 14%, 13%, and 11% of consolidated sales in fiscal years 2015
2014 and 2013, respectively and accounted for 5%, 2%, and 3% of consolidated accounts receivable at January 31, 2015, 2014,
and 2013, respectively.
59
(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,
2014
2015
2013
$
$
14,432
9,884
12,519
36,835
341,318
378,153
$
$
16,141
22,090
7,662
45,893
348,784
394,677
$
$
20,640
14,984
13,630
49,254
356,921
406,175
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, 2015, 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, 2015.
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, 2015. 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. In making this assessment of effectiveness of
internal controls over financial reporting, management excluded from this assessment the internal controls over financial reporting
at Integra Plastics, Inc. which was acquired on November 3, 2014. The assets acquired comprise approximately 11% of the assets
of the Company at January 31, 2015. Approximately 1% of net sales for the fiscal year 2015 were contributed by the acquired
business since its acquisition.
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, 2015, 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.
60
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
ACCOUNTANT 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 2015 Annual Meeting of Shareholders.
Information required by Items 10 through 14 will appear in the Proxy Statement and is incorporated herein by reference.
61
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.
62
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).
2(b) Agreement and Plan of Merger and Reorganization, dated as of November 3, 2014, by and among Raven Industries, Inc.,
Infinity Acquisition, Inc., Integra Plastics, Inc. and Nikole Mulder, as the Shareholder Representative (incorporated herein by
reference to Exhibit 2.1 of the Company's Form 8-K filed November 7, 2014).
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 of 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(b) 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(c) 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(d) 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(e)
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(f) 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(g) Raven Industries, Inc. 2000 Stock Option and Compensation Plan adopted May 24, 2000 (incorporated herein by reference to
Exhibit A of the Company's definitive Proxy Statement filed April 19, 2000).†
10(h) 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(i) 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(j) 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(k) Change in Control Agreement between Raven Industries, Inc. and Lon E. Stroschein dated October 1, 2010 (incorporated
herein by reference to Exhibit 10.3 of the Company's 8-K filed October 1, 2010). †
10(l) 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(m) 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(n) 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(o) 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(p) 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(q) 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(r)
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(s) 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). †
10(t) Employment Agreement between Raven Industries, Inc. and Steven E. Brazones dated December 1, 2014 (incorporated herein
by reference to Exhibit 10.1 of the Company's 8-K filed December 4, 2014). †
63
10(u) Change in Control Agreement between Raven Industries, Inc. and Steven E. Brazones dated December 1, 2014 (incorporated
herein by reference to Exhibit 10.2 of the Company's 8-K filed December 4, 2014). †
10(v) Offer Letter between Raven Industries, Inc. and Steven E. Brazones, dated as of October 10, 2014 (filed herewith as Exhibit
10.1). †
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.
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 Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
† Management contract or compensatory plan or arrangement.
64
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 27, 2015
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/ STEVEN E. BRAZONES
Steven E. Brazones
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 27, 2015
65
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2015, 2014 and 2013
(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, 2015
Year ended January 31, 2014
Year ended January 31, 2013
Note:
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
From
Reserves (1)
Balance at
End of Year
$
$
$
319 $
205 $
170 $
211 $
129 $
355 $
19 $
— $
— $
230 $
15 $
320 $
319
319
205
(1) Represents uncollectable accounts receivable written off during the year, net of recoveries.
66
Investor Information
ANNUAL MEETING
May 21, 2015, 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 Reinvestment Plan
INQUIRIES
so shareholders can purchase additional Raven common
Mail to:
Raven Industries, Inc.
Investor Relations
P.O. Box 5107
Sioux Falls, SD 57117-5107
Phone:
605-336-2750
E-mail:
irinfo@ravenind.com
AFFIRMATIVE ACTION PLAN
Raven Industries, Inc., and its U.S. subsidiaries are Equal
Employment Opportunity Employers with approved
affirmative action plans.
stock without paying any brokerage commission or fees. For
more information on how you can take advantage of this
plan, contact your broker or Raven’s stock transfer agent.
Raven Industries does not offer a Direct Stock Purchase Plan.
DIVIDEND POLICY
Our policy is to return a portion of earnings to shareholders
through regular quarterly dividend payments. There are no
significant contractual restrictions on our ability to declare
or pay dividends. We currently expect that comparable
dividends on our common stock will continue to be paid
in the future.
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 INDUS TRIES
PO BOX 51 07
SIOUX FALLS , S D 57117- 5107
WWW.RAVENIND.COM