10-K 1 form10-kforyearendedjanuar.htm RAVEN INDUSTRIES, INC. FORM 10-K Form 10-K for year ended January 31, 2012
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2012
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
South Dakota
 
46-0246171
 
 
(State of incorporation)
 
(IRS Employer Identification No.)
 
 
205 E. 6th Street, P.O. Box 5107, Sioux Falls, SD
 
 57117- 5107
 
 
(Address of principal executive offices)
 
 (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:
 
Name of Each Exchange on which Registered
 
 
Common Stock, $1 par value
 
The NASDAQ Stock Market
 
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o
Yes
þ
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o
Yes
þ
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days.
þ
Yes
o
No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
o
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
þ
 
 
Accelerated filer
o
Non-accelerated filer
o
 
 
Smaller reporting company
o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
o
Yes
þ
No
The aggregate market value of the registrant's common stock held by non-affiliates at July 31, 2011 was approximately $934,229,237. The aggregate market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $52.83, on July 29, 2011, 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 21, 2012 was 18,120,066.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 22, 2012, is incorporated by reference into Part III to the extent described therein.
 
 
 
 
 



PART I
 
 
Item 1.
BUSINESS
 
Item 1A.
RISK FACTORS
 
Item 1B.
UNRESOLVED STAFF COMMENTS
 
Item 2.
PROPERTIES
 
Item 3.
LEGAL PROCEEDINGS
 
Item 4.
MINE SAFETY DISCLOSURES
 
 
 
 
 
PART II
 
 
Item 5.
MARKET FOR THE 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
 
 
New Accounting Standards
 
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
Management's Report on Internal Control Over Financial Reporting
 
 
Report of Independent Registered Public Accounting Firm
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Income and Comprehensive Income
 
 
Consolidated Statements of Shareholders' Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Item 9A.
CONTROLS AND PROCEDURES
 
Item 9B.
OTHER INFORMATION
 
 
 
 
 
PART III
 
 
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Item 11.
EXECUTIVE COMPENSATION
 
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
 
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Item 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
 
 
 
 
 
PART IV
 
 
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
 
INDEX TO EXHIBITS
 
SIGNATURES
 
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE
 
SCHEDULE II
 





PART I
 
 
 
ITEM 1.
BUSINESS

Raven Industries, Inc. was incorporated in February 1956 under the laws of the State of South Dakota and began operations later that same year. Raven is an industrial manufacturer providing a variety of products. The company markets its products around the world and has its principal operations in the United States of America. Raven began operations as a manufacturer of high-altitude research balloons before diversifying into the industrial, agricultural, energy, construction and military/aerospace markets. The company employs approximately 1,400 people and is headquartered at 205 E. Sixth Street, Sioux Falls, SD 57104 - telephone (605) 336-2750. The company's Internet address is http://www.ravenind.com and its common stock trades on the NASDAQ Global Select Market under the symbol RAVN. The company has adopted a Code of Conduct applicable to all officers, directors, and employees, which is available on the website. Information on the company's website is not part of this filing.

All reports (including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K) and proxy and information statements filed with the Securities and Exchange Commission (SEC) are available through a link from the company's website to the SEC website. All such information is available as soon as reasonably practicable after it has been electronically filed. Filings can also be obtained free of charge by contacting the company, the SEC's Public Reference Room at 100 F Street N.E., Washington, DC 20549, through the SEC's website at http://www.sec.gov, or by calling the SEC at 1-800-SEC-0330.

The company has four business segments: Applied Technology Division, Engineered Films Division, Aerostar Division and Electronic Systems Division. Many of the past and present product lines are an extension of technology and production methods developed in the original balloon business. Product lines have been grouped in these segments based on common technologies, production methods and raw materials; however, more than one business segment may serve each of the product markets identified above.
Business segment financial information is found on the following pages:
"Business Segments"
"Results of Operations – Segment Analysis"
"Note 13. Business Segments and Major Customer Information"

BUSINESS SEGMENTS

Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs and improve farm yields around the world.  The Applied Technology product families include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, yield monitoring planter controls and an integrated RTK and information platform called SlingshotTM.  Recent investments in Site-Specific Technology Development Group, Inc. (SST), a software company, and the continued build out of the Slingshot API platform are positioning Applied Technology to be able to provide the information platform of choice that improves grower decision-making and business efficiencies for our agriculture retail partners.
                                                                                                                      
Applied Technology sells their precision agriculture control products to both original equipment manufacturers (OEMs) and through after market distribution, in the United States and in most major agriculture areas around the world. The division has personnel and distribution representatives located in the U.S. and key geographic areas throughout the world, including Canada, Europe, the former Soviet Republics, South Africa, South America, Australia, and China. The company's competitive advantage in this segment is designing and selling an easy to use, reliable, and value added products that are supported by an industry leading service and support team.

Engineered Films
This segment produces rugged reinforced plastic sheeting for industrial, energy, construction, geomembrane and agricultural applications.

The company's sales force sells plastic sheeting to independent third-party distributors in each of the various markets it serves. The company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest

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sheeting converters in the United States. Engineered Films believes its ability to both extrude and convert films allows it to provide a more customized solution to customer needs. A number of suppliers of sheeting compete with Raven on both price and product availability. Engineered Films is the company's most capital-intensive business segment, requiring regular investments in new extrusion capacity along with printers and conversion equipment. This segment's capital expenditures were $10.9 million in fiscal 2012, $8.5 million in fiscal 2011 and $1.5 million in fiscal 2010.

Aerostar
Aerostar sells high-altitude research balloons and tethered aerostats for government and commercial research. It produces military parachutes, uniforms and protective wear for U.S. government agencies and as a subcontractor. It also manufactures other sewn and sealed products on a contract basis. Sales are made in response to competitive bid requests. High-altitude research balloons are sold directly to government agencies (usually funded by the National Aeronautics and Space Administration) or commercial users. Aerostar is the only balloon supplier for high-altitude research in the United States.

During fiscal 2012, Aerostar expanded its business through a business venture and acquisition. The business venture, Aerostar Integrated Systems, is 75% owned by Aerostar and pursues potential product and support services contracts for agencies and instrumentalities of the United States Government. The acquisition in January 2012 of Vista Research, Inc., a leading provider of surveillance systems that enhance the effectiveness of radar using sophisticated algorithms, will immediately allow Aerostar to enhance its tethered aerostat security solutions. Longer-term, the company is positioned to meet growing global demand for lower-cost detection and tracking systems used by government and law enforcement agencies.

Electronic Systems
The company has focused this segment's capabilities in electronics manufacturing services (EMS) for commercial customers with a focus on high-mix, low-volume production. Assemblies manufactured by the Electronic Systems segment include avionics, secure communication, environmental controls and other products where high quality is critical.

EMS sales are made in response to competitive bid requests by customers. The level and nature of competition varies with the type of product, but the company frequently competes with a number of EMS manufacturers on any given bid request. The markets in which the company participates are highly competitive, with customers having many suppliers from which to choose.

MAJOR CUSTOMER INFORMATION

Two customers accounted for 10% or more of consolidated sales in fiscal 2012 compared to one customer in fiscal 2011 and 2010. Fiscal 2012 sales to WT Plastics Limited, a customer in the Engineered Films Division, accounted for 11% of consolidated sales. Sales in fiscal 2012, 2011 and 2010 to Goodrich Corporation, a customer of the Electronic Systems segment, accounted for 10%, 13% and 16%, respectively, of consolidated sales. While Electronic Systems expects revenue from this customer continue to decline, the company does not anticipate any sudden disruptions to this relationship.

SEASONAL WORKING CAPITAL REQUIREMENTS

Some seasonal demand exists in Applied Technology's agricultural market. Applied Technology builds product in the fall for winter and spring delivery. Certain sales to agricultural customers offer spring payment terms for fall and early winter shipments. The resulting fluctuations in inventory and accounts receivable have required, and may require, seasonal short-term financing.

FINANCIAL INSTRUMENTS

The principal financial instruments that the company maintains are cash, cash equivalents, short-term investments, accounts receivable, accounts payable, and acquisition related contingent payments. The company manages the interest rate, credit and market risks associated with these accounts through periodic reviews of the carrying value of assets and liabilities and establishment of appropriate allowances in connection with company policies. The company does not use off-balance sheet financing, except to enter into operating leases.

The company uses derivative financial instruments to manage foreign currency risk. The use of these financial instruments has had no material effect on consolidated results of operations, financial condition or cash flows.

RAW MATERIALS

The company obtains a wide variety of materials from several vendors. Principal materials include numerous electronic components for the Electronic Systems and Applied Technology segments, various plastic resins for the Engineered Films segment and fabrics for the Aerostar segment. The Engineered Films segment has experienced volatile resin prices over the past three years. Price

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increases could not always be passed on to customers due to weak demand and a competitive pricing environment. The Electronic Systems segment experiences variability in lead times for components as business cycles impact demand. However, predicting future material shortages and the related potential impact on Raven is not possible.

PATENTS

The company owns a number of patents. However, Raven does not believe that its business, as a whole, is materially dependent on any one patent or related group of patents. It believes the successful manufacture and sale of its products generally depend more upon its technical expertise, speed to market and manufacturing skills.

RESEARCH AND DEVELOPMENT

The business segments conduct ongoing research and development efforts. Most of the company's research and development expenditures are directed toward new products in the Applied Technology, Engineered Films and Aerostar segments. Total company research and development costs are presented on the Consolidated Statements of Income and Comprehensive Income.

ENVIRONMENTAL MATTERS

Except as described below, the company believes that, in all material respects, it is in compliance with applicable federal, state and local environmental laws and regulations. Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected the company's capital expenditures, earnings or competitive position.

In connection with the sale of substantially all of the assets of the company's Glasstite, Inc. subsidiary in fiscal 2000, the company has agreed to assume responsibility for the investigation and remediation of any pre-October 29, 1999 environmental contamination at the company's former Glasstite pickup-truck topper facility in Dunnell, Minnesota, as required by the Minnesota Pollution Control Agency (MPCA) or the United States Environmental Protection Agency (EPA).

The company and the purchasers of the company's Glasstite subsidiary conducted environmental assessments of the properties. Although these assessments continue to be evaluated by the MPCA on the basis of the data available, there is no reason to believe that any activities that might be required as a result of the findings of the assessments will have a material effect on the company's results of operations, financial position or cash flows. The company had $55 thousand accrued at January 31, 2012, representing its best estimate of probable costs to be incurred related to these matters.

BACKLOG

As of February 1, 2012, the company's order backlog totaled $66.6 million. Backlog amounts as of February 1, 2011 and 2010 were $76.0 million and $74.7 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, 2012, the company had 1,405 employees, 1,382 in an active status. Following is a summary of active employees by segment: Electronic Systems - 262; Applied Technology - 403; Engineered Films - 267; Aerostar - 373; Administration - 77. Management believes its employee relations are satisfactory.

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EXECUTIVE OFFICERS
 
 
 
 
 
NAME, AGE AND POSITION
 
BIOGRAPHICAL DATA
Daniel A. Rykhus, 47
 
Mr. Rykhus became the company's President and Chief Executive Officer in 2010. He joined Raven in 1990 as Director of World Class Manufacturing, was General Manager of the Applied Technology Division from 1998 through 2009, and served as Executive Vice President from 2004 through 2010.
President and Chief Executive Officer
 
 
 
 
 
 
Thomas Iacarella, 58
 
Mr. Iacarella joined Raven in 1991 as Corporate Controller and has been the company's Chief Financial Officer, Secretary and Treasurer since 1998. Prior to joining the company, he held positions with Tonka Corporation and the accounting firm now known as Ernst & Young.
Vice President and Chief Financial Officer
 
 
 
 
 
 
David R. Bair, 55
 
Mr. Bair joined Raven in 1999 as Division Vice President and General Manager of the Electronic Systems Division.

Division Vice President and General Manager -
 
Electronic Systems Division
 
 
 
 
Anthony D. Schmidt, 40
 
Mr. Schmidt was named Division Vice President and General Manager of the Engineered Films Division on February 1 2012. He joined Raven in 1995 in the Applied Technology Division performing various leadership roles within manufacturing and engineering. He transitioned to Engineered Films Division in September 2011 as Manufacturing Manager.
Division Vice President and General Manager -
 
Engineered Films Division
 
 
 
 
Barbara K. Ohme, 64
 
Ms. Ohme joined Raven in 1987 as Employment Manager and has been the company's Vice President of Administration since 2004.


Vice President - Administration
 
 
 
 
Matthew T. Burkhart, 36
 
Mr. Burkhart was named Division Vice President and General Manager of the Applied Technology Division on February 1, 2010. He joined Raven in 2008 as Director of Sales and became General Manager - Applied Technology Division on February 1, 2009. Prior to joining the company, he was a Branch Manager for Johnson Controls.

Division Vice President and General Manager -
 
Applied Technology Division
 
 
 
 
Lon E. Stroschein, 37
 
Mr. Stroschein was named Vice President and General Manager of the Aerostar Division in October 2010.  He joined Raven in 2008 as International Sales Manager for Applied Technology.  Prior to joining Raven, he was a bank Vice President and was a member of the executive staff for a U.S. Senator.   

Division Vice President and General Manager -
 
Aerostar Division
 
 
 

Effective February 1, 2012, Anthony Schmidt was named Division Vice President and General Manager for the Engineered Films Division, replacing James Groninger, who will transition to a new role as the Director of Business Development in the Engineered Films Division.

Effective April 20, 2012, Barbara Ohme will be retiring as Vice President of Administration. She will be succeeded by Jan L. Matthiesen, 54, who joined the company in September 2010 as Director of Administration and brings 18 years of government contracting experience through her work with the Department of the Interior's U.S. Geological Survey and the Department of Defense. Prior to joining Raven, she was a Human Resource Manager at Science Applications International Corporation (SAIC).

ITEM 1A.
RISK FACTORS

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. Without limiting the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “may,” “plans” and similar expressions are intended to identify forward-looking statements. The company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act. Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there is no assurance that such assumptions are correct or that these expectations will be achieved. Such

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assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to weather conditions and commodity prices, which could affect certain of the company's primary markets, such as agriculture and construction and oil and gas well drilling; or changes in competition, raw material availability, technology or relationships with the company's largest customers, any of which could adversely impact any of the company's product lines, as well as other risks described below. The foregoing list is not exhaustive and the company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements.

RISKS RELATING TO THE COMPANY
The company operates in markets that involve significant risks, many of which are beyond the company's control. Based on current information, the company believes that the following identifies the most significant risk factors that could affect its businesses. However, the risks and uncertainties the company faces are not limited to those discussed below. There could be other unknown or unpredictable economic, business, competitive or regulatory factors, including factors that the company currently believes to be immaterial, that could have material adverse effects on the company's financial position, liquidity and results of operations. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Weather conditions could affect certain of the company's markets such as agriculture and construction.
The company's Applied Technology Division is largely dependent on the ability of farmers and agricultural subcontractors known as custom operators to purchase agricultural equipment that includes its products. If such farmers experience adverse weather conditions resulting in poor growing conditions, or experience unfavorable crop prices or expenses, potential buyers may be less likely to purchase agricultural equipment. Accordingly, weather conditions may adversely affect sales in the Applied Technology Division.

Weather conditions can also adversely affect sales in the company's Engineered Films Division. To the extent weather conditions curtail construction activity, sales of the segment's plastic sheeting will likely decrease.

Price fluctuations in and shortages of raw materials could have a significant impact on the company's ability to sustain and grow earnings.
The company's Engineered Films Division consumes significant amounts of plastic resin, the costs of which reflect market prices for natural gas, oil and other market forces. These prices are subject to worldwide supply and demand as well as other factors beyond the control of the company. Although the Engineered Films Division is sometimes able to pass such price increases to its customers, significant variations in the cost of plastic resins can affect the company's operating results from period to period. Unusual supply disruptions, such as caused by a natural disaster, could cause suppliers to invoke “force majeure” clauses in their supply agreements, causing shortages of material. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. If the company is not able to fully offset the effects of material availability and costs, financial results could be adversely affected.

Electronic components, used by both the Applied Technology Division and Electronic Systems Division, are sometimes in short supply, impacting our ability to meet customer demand.

If a supplier of raw materials or components were unable to deliver due to shortage or financial difficulty, any of the company's segments could be adversely affected.

Fluctuations in commodity prices can increase our costs and decrease our sales.
Agricultural income levels are affected by agricultural commodity prices and input costs. As a result, changes in commodity prices that reduce agricultural income levels could have a negative effect on the ability of growers and their contractors to purchase the company's precision agriculture products manufactured by its Applied Technology Division.

Exploration for oil and natural gas fluctuates with their price. Plastic sheeting manufactured and sold by our Engineered Films Division is sold as pit and pond liners to contain water used in the drilling process. Lower prices for oil and natural gas could reduce exploration activities and demand for our products. Plastic sheeting manufacture uses plastic resins, which can be subject to change in price as the cost of natural gas or oil changes. Accordingly, volatility in oil and natural gas prices may negatively affect our cost of goods sold or cause us to change prices, which could adversely affect our sales and profitability.

Failure to develop and market new technologies and products could impact the company's competitive position and have an adverse effect on the company's financial results.
The company's operating results in its Applied Technology and to a lesser extent, its Engineered Films and Aerostar segments, are largely dependent on the ability to renew the pipeline of new products and to bring those products to market. This ability could

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be adversely affected by difficulties or delays in product development such as the inability to identify viable new products, successfully complete research and development, obtain relevant regulatory approvals, obtain intellectual property protection, or gain market acceptance of new products and services. Because of the lengthy development process, technological challenges and intense competition, there can be no assurance that any of the products the company is currently developing, or could begin to develop in the future, will achieve substantial commercial success. In addition, sales of the company's new products could replace sales of some of its current products, offsetting the benefit of even a successful product introduction.

The company's Electronic Systems Division is dependent on a small number of customers and faces competitive risks.
The company's Electronic Systems Division (ESD) is dependent on a small number of customers with the top customer representing over half of ESD sales. Accordingly, the ESD segment is dependent on the continued growth, viability and financial stability of its customers, which consist of original equipment manufacturers of avionics, consumer beds and secure telecommunication equipment. Future sales are dependent on the success of the company's customers, some of which operate in businesses associated with rapid technological change and consequent product obsolescence. Developments adverse to major customers or their products, or the failure of a major customer to pay for components or services, could have an adverse effect on the performance of ESD.

Further, ESD competes against many providers of electronics manufacturing services. Certain competitors have substantially greater resources and more geographically diversified international operations than ESD. This segment may also be at a competitive disadvantage with respect to price when compared to manufacturers with lower cost structures, particularly those with more offshore facilities located where labor and other costs are lower. The company also faces competition from the manufacturing operations of current and future customers, who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to electronics manufacturing services providers. Accordingly, to compete effectively, ESD must continue to provide technologically advanced manufacturing services, maintain strict quality standards, respond flexibly and rapidly to customers' design and schedule changes and deliver products globally on a reliable basis at competitive prices. Customers may cancel their orders, change production quantities or delay production. Start-up costs and inefficiencies related to new or transferred programs can adversely affect operating results and such costs may not be recoverable if such new programs or transferred programs are cancelled.

The company's Aerostar segment depends on the U.S. government for a significant portion of its sales, creating uncertainty in the timing of and funding for projected contracts.
A significant portion of Aerostar's sales are to the U.S. government or U.S. government agencies as a prime or sub-contractor. Government spending has historically been cyclical. A decrease in U.S. government defense or near-space research spending or changes in spending allocation could result in one or more of the company's programs being reduced, delayed or terminated. Reductions in the company's existing programs, unless offset by other programs and opportunities, could adversely affect its ability to sustain and grow its future sales and earnings. The company's U.S. government sales are funded by the federal budget, which operates on an October-to-September fiscal year. Changes in congressional schedules, negotiations for program funding levels or unforeseen world events can interrupt the funding for a program or contract. Funds for multi-year contracts can be changed in subsequent years in the appropriations process.

In addition, the U.S. government has increasingly relied on indefinite delivery, indefinite quantity (IDIQ) contracts and other procurement vehicles that are subject to a competitive bidding and funding process even after the award of the basic contract, adding an additional element of uncertainty to future funding levels. Delays in the funding process or changes in funding can impact the timing of available funds or can lead to changes in program content or termination at the government's convenience. The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on the company's future sales and earnings.

The company derives a portion of its revenues from foreign markets, which subjects the company to risk of changes in government policies and laws or worldwide economic conditions.
The company's sales outside the U.S. were $38.9 million in fiscal 2012. The company's financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include, but are not limited to, changes in a country's or region's economic or political conditions; trade regulations affecting production, pricing and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights in some countries; changes in the regulatory or legal environment; restrictions on currency exchange activities; burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced sales and reduced profitability associated with such sales.

Adverse economic conditions in the major industries the company serves may materially affect segment performance and consolidated results of operations.
The company's results of operations are impacted by the market fundamentals of the primary industries served. Significant declines

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of economic activity in the agricultural, oil and gas exploration, construction, industrial, aerospace/aviation, communication, defense and other major markets served may adversely affect segment performance and consolidated results of operations.

The company may pursue or complete acquisitions which represent additional risk and could impact future financial results.
The company's business strategy includes the potential for future acquisitions. Acquisitions involve a number of risks including integration of the acquired company with the company's operations and unanticipated liabilities or contingencies related to the acquired company. The company cannot ensure that the expected benefits of any future acquisitions will be realized. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could significantly impact the operating results, financial condition, or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Total goodwill and intangible assets account for approximately $31.7 million, or 13% of Raven's total assets as of January 31, 2012. 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.

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 in, may attempt to copy or use for their own benefit its intellectual property.

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.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.

ITEM 2.
PROPERTIES

Our corporate office is at an owned premises located in Sioux Falls, South Dakota. The company owns seperate manufacturing facilities for each of our business segments located in Sioux Falls as well as various warehouses, training and product development facilities. In addition to our Sioux Falls facilities, Applied Technology has a product development facility in Austin, Texas; Electronic Systems has a manufacturing facility located in St. Louis, Missouri; and Aerostar has additional owned manufacturing, sewing, and research facilities located in Huron and Madison, South Dakota, and Sulphur Springs, Texas; and leased facilities in Arlington, Virgina; and Monterey and Chatsworth, California. Most of the company's manufacturing plants also serve as distribution centers and contain offices for sales, engineering and manufacturing support staff. The company believes that its properties are suitable and adequate to meet existing production needs. Additionally, the productive capacity in the company's facilities is substantially being utilized. The company also owns approximately 6.2 acres of undeveloped land adjacent to the other owned property, which is available for expansion.

The following is an approximate total square feet of the company's owned or leased facilities by segment: Applied Technology -

9

                           

145,000; Engineered Films - 295,000; Aerostar - 250,000; Electronic Systems - 50,000; 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”). In addition, the company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable

PART II
 
 
 
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Raven's common stock is traded on the NASDAQ Global Select Market under the symbol RAVN. The following table shows quarterly unaudited financial results, quarterly high and low closing sales prices per share of Raven's common stock as reported by NASDAQ, and dividends declared for the periods indicated:
QUARTERLY INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
 
 
 
 
 
Net Income
Net Income
Common Stock
Cash
 
Net
Gross
Operating
Pretax
Attributable
Per Share(a)
Market Price
Dividends
 
Sales
 Profit
Income
Income
to Raven
Basic
Diluted
High
Low
Per Share
FISCAL 2012
 
 
 
 
 
 
 
 
 
 
First Quarter
$
101,541

$
32,936

$
23,533

$
23,520

$
15,716

$
0.87

$
0.86

$
61.92

$
47.19

$
0.18

Second Quarter
90,344

28,130

18,674

18,598

12,461

0.69

0.68

59.60

49.35

0.18

Third Quarter
93,300

27,254

16,875

16,871

11,390

0.63

0.63

64.88

43.23

0.18

Fourth Quarter
96,326

27,872

16,559

16,709

11,002

0.61

0.60

69.30

50.18

0.18

Total Year
$
381,511

$
116,192

$
75,641

$
75,698

$
50,569

$
2.79

$
2.77

$
69.30

$
43.23

$
0.72

 
 
 
 
 
 
 
 
 
 
 
FISCAL 2011
 
 
 
 
 
 
 
 
 
 
First Quarter
$
85,030

$
27,171

$
19,505

$
19,557

$
12,945

$
0.72

$
0.72

$
31.79

$
26.54

$
0.16

Second Quarter
73,174

20,389

12,623

12,529

8,353

0.46

0.46

38.18

28.66

0.16

Third Quarter
85,823

24,887

17,866

17,883

11,833

0.65

0.65

42.11

30.00

1.41(b)

Fourth Quarter
70,681

18,982

10,209

10,313

7,406

0.41

0.41

49.59

40.01

0.16

Total Year
$
314,708

$
91,429

$
60,203

$
60,282

$
40,537

$
2.24

$
2.24

$
49.59

$
26.54

$
1.89

 
 
 
 
 
 
 
 
 
 
 
FISCAL 2010
 
 
 
 
 
 
 
 
 
 
First Quarter
$
65,222

$
20,428

$
14,113

$
14,114

$
9,231

$
0.51

$
0.51

$
24.65

$
15.37

$
0.13

Second Quarter
56,586

15,112

9,306

9,411

6,204

0.34

0.34

31.00

23.99

0.14

Third Quarter
60,158

16,918

11,119

11,116

7,293

0.40

0.40

32.43

24.47

0.14

Fourth Quarter
55,816

15,394

8,682

8,681

5,846

0.32

0.32

33.18

24.04

0.14

Total Year
$
237,782

$
67,852

$
43,220

$
43,322

$
28,574

$
1.58

$
1.58

$
33.18

$
15.37

$
0.55

(a) 
Net income per share is computed discretely by quarter and may not add to the full year.
(b) 
A special dividend of $1.25 per share was paid during the third quarter of fiscal 2011.
As of January 31, 2012, the company had approximately 10,600 beneficial holders, which includes a substantial number of the company's common stock held by record by banks, brokers and other financial institutions.

#10

                           

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES, S&P 1500 INDUSTRIAL MACHINERY INDEX AND RUSSELL 2000 INDEX




Raven continues to outperform its industrial peers and the overall market in shareholder return. Investors who bought $100 of the company's stock on January 31, 2007, held this for five years and reinvested the dividends, have seen its value increase to $265.30.
 
 
Year Ended January 31
 
5-Year
Company / Index
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
 
CAGR(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Raven Industries, Inc.
 
$
100.00

 
$
106.99

 
$
81.37

 
$
108.89

 
$
190.65

 
$
265.30

 
21.5
%
S&P 1500 Industrial Machinery
 
100.00

 
105.42

 
59.13

 
80.59

 
108.57

 
111.11

 
2.1
%
Russell 2000
 
100.00

 
90.22

 
56.98

 
78.53

 
103.16

 
106.11

 
1.2
%
(a)  compound annual growth rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 









#11

                           

ITEM 6.
SELECTED FINANCIAL DATA
ELEVEN-YEAR FINANCIAL SUMMARY
 
 
 
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
 
For the years ended January 31
 
 
 
2012
 
2011
 
2010
 
OPERATIONS
 
 
 
 
 
 
 
 Net sales
 
$
381,511

 
$
314,708

 
$
237,782

 
 Gross profit
 
116,192

 
91,429

 
67,852

 
 Operating income
 
75,641

 
60,203

 
43,220

 
 Income before income taxes
 
75,698

 
60,282

 
43,322

 
 Net income attributable to Raven Industries, Inc.
 
$
50,569

 
$
40,537

 
$
28,574

 
 Net income % of sales
 
13.3
%
 
12.9
%
 
12.0
%
 
 Net income % of beginning equity
 
35.8
%
 
30.4
%
 
25.2
%
 
 Cash dividends(a)
 
$
13,025

 
$
34,095

 
$
9,911

 
FINANCIAL POSITION
 
 
 
 
 
 
 
 Current assets
 
$
147,559

 
$
128,181

 
$
117,747

 
 Current liabilities
 
40,646

 
34,335

 
25,960

 
 Working capital
 
$
106,913

 
$
93,846

 
$
91,787

 
 Current ratio
 
3.63

 
3.73

 
4.54

 
 Property, plant and equipment
 
$
61,894

 
$
41,522

 
$
33,029

 
 Total assets
 
245,703

 
187,760

 
170,309

 
 Long-term debt, less current portion
 

 

 

 
 Shareholders' equity
 
$
180,499

 
$
141,214

 
$
133,251

 
 Long-term debt / total capitalization
 
%
 
%
 
%
 
 Inventory turnover (COS / average inventory)
 
5.4

 
5.6

 
5.3

 
CASH FLOWS PROVIDED BY (USED IN)
 
 
 
 
 
 Operating activities
 
$
43,831

 
$
42,085

 
$
47,643

 
 Investing activities
 
(40,313
)
 
(11,418
)
 
(13,396
)
 
 Financing activities
 
(15,234
)
 
(33,834
)
 
(9,867
)
 
 Change in cash
 
(11,721
)
 
(3,121
)
 
24,417

 
COMMON STOCK DATA
 
 
 
 
 
 
 
 EPS — basic
 
$
2.79

 
$
2.24

 
$
1.58

 
 EPS — diluted
 
2.77

 
2.24

 
1.58

 
 Cash dividends per share(a)
 
0.72

 
1.89

 
0.55

 
 Book value per share(b)
 
9.95

 
7.81

 
7.38

 
 Stock price range during the year
 
 
 
 
 
 
 
   High
 
$
69.30

 
$
49.59

 
$
33.18

 
   Low
 
43.23

 
26.54

 
15.37

 
   Close
 
$
64.89

 
$
47.24

 
$
28.58

 
 Shares and stock units outstanding, year-end
 
18,142

 
18,089

 
18,051

 
 Number of shareholders, year-end
 
10,618

 
7,456

 
7,767

 
OTHER DATA
 
 
 
 
 
 
 
 Price / earnings ratio(c)
 
23.4

 
21.1

 
18.1

 
 Average number of employees
 
1,252

 
1,036

 
930

 
 Sales per employee
 
$
305

 
$
304

 
$
256

 
 Backlog
 
$
66,641

 
$
75,972

 
$
74,718

 
 
 
 
 
 
 
 
 
All per-share, shares outstanding and market price data reflect the October 2004 two-for-one stock split, the January 2003 two-for-one stock split, and the July 2001 three-for-two stock split.
 
 
 
(a) Includes special dividends of $1.25 per share in fiscal 2011 and 2009; and $0.625 per share in fiscal 2005
 
(b) Shareholders' equity divided by common shares and stock units outstanding.
 
 
 
 
 
 
 
(c) Closing stock price divided by EPS — diluted.
 
 
 
 
 
 
 

#12




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2009
 
2008
 
2007
 
2006
 
2005
 
2004
 
2003
 
2002
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
279,913

 
$
233,957

 
$
217,529

 
$
204,528

 
$
168,086

 
$
142,727

 
$
120,903

 
$
118,515

 
 
73,448

 
63,676

 
57,540

 
55,714

 
45,212

 
35,488

 
28,828

 
25,340

 
 
46,394

 
41,145

 
38,302

 
37,284

 
27,862

 
21,626

 
17,065

 
13,175

 
 
46,901

 
42,224

 
38,835

 
37,494

 
27,955

 
21,716

 
17,254

 
13,565

 
 
$
30,770

 
$
27,802

 
$
25,441

 
$
24,262

 
$
17,891

 
$
13,836

 
$
11,185

 
$
8,847

 
 
11.0
%
 
11.9
%
 
11.7
%
 
11.9
%
 
10.6
%
 
9.7
%
 
9.3
%
 
7.5
%
 
 
26.0
%
 
28.3
%
 
30.1
%
 
36.7
%
 
26.9
%
 
23.8
%
 
21.5
%
 
18.4
%
 
 
$
31,884

 
$
7,966

 
$
6,507

 
$
5,056

 
$
15,298

 
$
3,075

 
$
2,563

 
$
2,371

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
98,073

 
$
100,869

 
$
73,219

 
$
71,345

 
$
61,592

 
$
55,710

 
$
49,351

 
$
45,308

 
 
23,322

 
22,108

 
16,464

 
20,050

 
20,950

 
11,895

 
13,167

 
13,810

 
 
$
74,751

 
$
78,761

 
$
56,755

 
$
51,295

 
$
40,642

 
$
43,815

 
$
36,184

 
$
31,498

 
 
4.21

 
4.56

 
4.45

 
3.56

 
2.94

 
4.68

 
3.75

 
3.28

 
 
$
35,880

 
$
35,743

 
$
36,264

 
$
25,602

 
$
19,964

 
$
15,950

 
$
16,455

 
$
14,059

 
 
144,415

 
147,861

 
119,764

 
106,157

 
88,509

 
79,508

 
72,816

 
67,836

 
 

 

 

 
9

 

 
57

 
151

 
280

 
 
$
113,556

 
$
118,275

 
$
98,268

 
$
84,389

 
$
66,082

 
$
66,471

 
$
58,236

 
$
52,032

 
 
%
 
%
 
%
 
%
 
%
 
0.1
%
 
0.3
%
 
0.5
%
 
 
5.2

 
5.3

 
5.4

 
5.9

 
5.8

 
6.1

 
4.8

 
5.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
39,037

 
$
27,151

 
$
26,313

 
$
21,189

 
$
18,871

 
$
19,732

 
$
12,735

 
$
18,496

 
 
(7,000
)
 
(4,433
)
 
(18,664
)
 
(11,435
)
 
(7,631
)
 
(4,352
)
 
(9,166
)
 
(13,152
)
 
 
(36,969
)
 
(8,270
)
 
(10,277
)
 
(6,946
)
 
(19,063
)
 
(6,155
)
 
(5,830
)
 
(8,539
)
 
 
(5,005
)
 
14,489

 
(2,626
)
 
2,790

 
(7,823
)
 
9,225

 
(2,261
)
 
(3,195
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1.71

 
$
1.54

 
$
1.41

 
$
1.34

 
$
0.99

 
$
0.77

 
$
0.61

 
$
0.48

 
 
1.70

 
1.53

 
1.39

 
1.32

 
0.97

 
0.75

 
0.60

 
0.47

 
 
1.77

 
0.44

 
0.36

 
0.28

 
0.85

 
0.17

 
0.14

 
0.13

 
 
6.30

 
6.52

 
5.45

 
4.67

 
3.67

 
3.68

 
3.21

 
2.82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
47.82

 
$
45.85

 
$
42.70

 
$
33.15

 
$
26.94

 
$
15.23

 
$
9.20

 
$
5.88

 
 
20.60

 
26.20

 
25.46

 
16.54

 
13.08

 
7.56

 
4.38

 
3.02

 
 
$
21.81

 
$
30.02

 
$
28.43

 
$
31.60

 
$
18.38

 
$
14.11

 
$
7.91

 
$
5.64

 
 
18,027

 
18,130

 
18,044

 
18,072

 
17,999

 
18,041

 
18,133

 
18,424

 
 
8,268

 
8,700

 
8,992

 
9,263

 
6,269

 
3,560

 
2,781

 
2,387

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12.8

 
19.6

 
20.5

 
23.9

 
18.9

 
18.8

 
13.2

 
12.1

 
 
1,070

 
930

 
884

 
845

 
835

 
787

 
784

 
858

 
 
$
262

 
$
252

 
$
246

 
$
242

 
$
201

 
$
181

 
$
154

 
$
138

 
 
$
80,361

 
$
66,628

 
$
44,237

 
$
43,619

 
$
43,646

 
$
47,120

 
$
42,826

 
$
33,834

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

#13

                           

BUSINESS SEGMENTS
 
 
 
 
 
 
 
 
 
 
 
 
(DOLLARS IN THOUSANDS)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the years ended January 31
 
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
APPLIED TECHNOLOGY DIVISION
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
132,632

 
$
100,090

 
$
86,217

 
$
103,098

 
$
64,291

 
$
45,515

Operating income
 
45,358

 
31,135

 
25,722

 
33,884

 
19,102

 
10,111

Assets
 
69,977

 
52,669

 
51,029

 
48,881

 
36,938

 
27,629

Capital expenditures
 
11,408

 
1,769

 
941

 
2,674

 
1,008

 
577

Depreciation and amortization
 
2,351

 
2,238

 
1,677

 
1,383

 
1,125

 
1,142

ENGINEERED FILMS DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
133,481

 
$
105,838

 
$
63,783

 
$
89,858

 
$
85,316

 
$
91,082

Operating income
 
21,501

 
19,622

(b)
10,232

 
10,919

 
17,739

 
23,440

Assets
 
65,100

 
46,519

 
35,999

 
35,862

 
43,688

 
41,988

Capital expenditures
 
10,937

 
8,450

 
1,460

 
3,120

 
4,012

 
13,266

Depreciation and amortization
 
4,313

 
3,452

 
3,707

 
4,303

 
4,046

 
2,887

AEROSTAR DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
52,351

 
$
48,787

 
$
27,244

 
$
27,186

 
$
17,290

 
$
14,654

Operating income
 
11,468

 
9,407

 
5,634

 
4,219

 
1,506

 
707

Assets
 
51,822

 
18,140

 
10,462

 
8,744

 
9,941

 
8,161

Capital expenditures
 
3,875

 
2,190

 
332

 
383

 
156

 
812

Depreciation and amortization
 
1,079

 
757

 
398

 
444

 
499

 
375

ELECTRONIC SYSTEMS DIVISION
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
71,744

 
$
65,852

 
$
63,525

 
$
61,983

 
$
67,987

 
$
66,278

Operating income
 
11,264

 
9,917

 
8,979

 
5,926

 
10,365

 
10,850

Assets
 
24,281

 
23,385

 
21,216

 
26,847

 
25,865

 
25,175

Capital expenditures
 
793

 
609

 
290

 
1,399

 
1,077

 
1,357

Depreciation and amortization
 
825

 
823

 
939

 
1,159

 
1,237

 
1,086

INTERSEGMENT ELIMINATIONS
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
 
 
 
 
 
 
 
 
 
 
 
Engineered Films Division
 
$
(193
)
 
$
(307
)
 
$
(210
)
 
$
(210
)
 
$
(533
)
 
$

Aerostar
 
(1
)
 
(32
)
 
(1
)
 
(25
)
 
(16
)
 

Electronic Systems Division
 
(8,503
)
 
(5,520
)
 
(2,776
)
 
(1,977
)
 
(378
)
 

Operating income
 
(220
)
 
(94
)
 
60

 
(52
)
 
(100
)
 

Assets
 
(405
)
 
(186
)
 
(92
)
 
(152
)
 
(100
)
 

CORPORATE & OTHER(a)
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss (from admin expenses)
 
$
(13,730
)
 
$
(9,784
)
 
$
(7,407
)
 
$
(8,502
)
 
$
(7,467
)
 
$
(6,806
)
Assets
 
34,928

 
47,233

 
51,695

 
24,233

 
31,529

 
16,811

Capital expenditures
 
2,002

 
954

 
279

 
425

 
382

 
510

Depreciation and amortization
 
700

 
361

 
387

 
469

 
437

 
395

TOTAL COMPANY
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
381,511

 
$
314,708

 
$
237,782

 
$
279,913

 
$
233,957

 
$
217,529

Operating income
 
75,641

 
60,203

(b)
43,220

 
46,394

 
41,145

 
38,302

Assets
 
245,703

 
187,760

 
170,309

 
144,415

 
147,861

 
119,764

Capital expenditures
 
29,015

 
13,972

 
3,302

 
8,001

 
6,635

 
16,522

Depreciation and amortization
 
9,268

 
7,631

 
7,108

 
7,758

 
7,344

 
5,885

 
(a)  Assets are principally cash, investments, deferred taxes, and other receivables.
 
 
 
 
 
 
(b)  Includes a $451 pre-tax gain on disposition of assets.
 
 
 
 
 
 


#14



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance overall financial disclosure. It provides management's analysis of the primary drivers of year-over-year changes in key financial statement elements, business segment results and the impact of accounting principles on the company's financial statements.

This discussion should be read in conjunction with the company's January 31, 2012 financial statements and the accompanying notes.

The MD&A is organized as follows:

Executive Summary
Results of Operations - Segment Analysis
Outlook
Liquidity and Capital Resources
Off-balance Sheet Arrangements and Contractual Obligations
Critical Accounting Estimates
New Accounting Standards

EXECUTIVE SUMMARY
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, energy, construction and military/aerospace markets, primarily in North America. The company is comprised of unique operating units, classified into four reportable segments: Applied Technology, Engineered Films, Aerostar and Electronic Systems. While each segment has distinct characteristics, the products and technologies are largely extensions of durable competitive advantages rooted in the original research balloon business.

Management uses a number of metrics to assess the company's performance:

Consolidated net sales, gross margins, operating income, operating margins, net income and earnings per share
Cash flow from operations and shareholder returns
Return on sales, assets and equity
Segment net sales, gross profit, gross margins, operating income and operating margins

Vision and Strategy
The company's vision is to advance its leadership positions in niche markets through the development of innovative solutions to address the needs of customers and help solve great challenges in the areas of hunger, safety, peace, and stability.

The company's primary strategy to achieve this vision is the maintenance of a diversified portfolio of businesses that share a common purpose but serve different markets providing balance, opportunity, and risk mitigation. Diversification has enabled the company to consistently generate cash, achieve profitability and maintain financial strength by limiting the impact of market disruptions and facilitating growth in both strong and weak economic cycles. Additionally, the company continues to achieve increased geographic, product and market diversification.

The company's overall approach to creating value, which is employed across the four unique segments, is summarized as follows:
Seek to expand in niche markets that have strong prospects for growth and above-average profit margins.
Elevate customer service by leveraging innovation, speed and dedicated engineering support to solve the customer's problem.
Reinvest cash generated from operations to fuel growth. Capital is allocated aggressively when the prospects are high for above-average, risk-adjusted returns on capital. If the company accumulates cash in excess of investment opportunities for above-average, risk-adjusted returns, it will be returned to shareholders.
Continue to increase the quarterly dividend annually.

The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.

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For the years ended January 31
dollars in thousands, except per-share data
 
2012
 
%
change
 
2011
 
%
change
 
2010
Results of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
381,511

 
21
%
 
$
314,708

 
32
%
 
$
237,782

Gross margins(a)
 
30.5
%
 
 
 
29.1
%
 
 
 
28.5
%
Operating income
 
$
75,641

 
26
%
 
$
60,203

 
39
%
 
$
43,220

Operating margins(a)
 
19.8
%
 
 
 
19.1
%
 
 
 
18.2
%
Net income attributable to Raven Industries, Inc.
 
$
50,569

 
25
%
 
$
40,537

 
42
%
 
$
28,574

Diluted income per share
 
$
2.77

 
24
%
 
$
2.24

 
42
%
 
$
1.58

 
 
 
 
 
 
 
 
 
 
 
Cash Flow and Payments to Shareholders
 
 
 
 
 
 
 
 
 
 
Cash flow from operating activities
 
$
43,831

 
 
 
$
42,085

 
 
 
$
47,643

Cash outflow for capital expenditures
 
$
29,015

 
 
 
$
13,972

 
 
 
$
3,302

Cash dividends
 
$
13,025

 
 
 
$
34,095

 
 
 
$
9,911

 
 
 
 
 
 
 
 
 
 
 
Performance Measures
 
 
 
 
 
 
 
 
 
 
Return on net sales(b)
 
13.3
%
 
 
 
12.9
%
 
 
 
12.0
%
Return on average assets(c)
 
23.3
%
 
 
 
22.6
%
 
 
 
18.2
%
Return on beginning equity(d)
 
35.8
%
 
 
 
30.4
%
 
 
 
25.2
%
 
 
 
 
 
 
 
 
 
 
 
(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) Net income divided by sales.
(c) Net income divided by average assets.
(d) Net income divided by beginning equity.
Results of Operations - Fiscal 2012 versus Fiscal 2011
The company posted record sales, operating income, net income, and diluted earnings per share for fiscal 2012. These levels resulted in large part from higher demand for Applied Technology's products due to a strong agriculture market and international expansion. In addition, the high crude oil prices resulted in increased drilling, which drove growth of pit liner sales into the energy market for Engineered Films. The 21% increase in net sales is the result of year-over-year sales growth in Applied Technology (33%), Engineered Films (26%), Aerostar (7%) and Electronic Systems (9%).

Fiscal 2012 operating income increased 26% from fiscal 2011 primarily due to sales growth. Applied Technology increased its operating income by 46% due to higher sales and associated operating leverage. Aerostar posted an increase in operating income of 22% from the prior year due to higher sales and improved manufacturing efficiencies. Electronic Systems operating income rose 14% due to a more favorable product mix and higher sales. Operating income growth of 10% in Engineered Films trailed sales growth in that segment, primarily due to higher material costs. For the first nine months of fiscal 2012, increased material costs outpaced the favorable impact of higher sales and increased pricing.

Results of Operations - Fiscal 2011 versus Fiscal 2010
Fiscal 2011 net sales rose 32% to $314.7 million and diluted earnings increased 42% to $2.24 per share as a result of sales growth in all operating segments: Applied Technology (16%), Engineered Films (66%), Aerostar (79%), and Electronic Systems (4%). Fiscal 2011 operating income increased 39% from the prior year due to the increase in net sales and improved margins from the recession impacted year of fiscal 2010.

Strategic Investments
In January 2012, the company completed the stock purchase agreement for all the outstanding stock of Vista Research, Inc. (Vista) for a purchase price of $23.3 million, of which $12.0 million was cash, $2.9 million was on assumed line of credit paid by Raven at closing, and $8.4 million was valued in contingent consideration and earn-outs.
Vista is a leading provider of surveillance systems that enhance the effectiveness of radars using sophisticated algorithms. Vista's smart sensing radar systems (SSRS) are employed in a host of advanced detection and tracking applications, including wide-area surveillance for the border patrol and the military. In the short term, this acquisition will allow Raven to enhance its tethered

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aerostat security solutions within its Aerostar Division. Longer-term, the company is positioned to meet growing global demand for low-cost detection and tracking systems used by government and law enforcement agencies. Results of operations subsequent to the acquisition have been combined into the Aerostar Division.

Cash Flow and Payments to Shareholders
The company continues to generate strong operating cash flows and maintain a strong capital base. Capital expenditures totaled a record $29.0 million in fiscal 2012 compared to $14.0 million in fiscal 2011. Capital spending consisted primarily of expenditures related to increased manufacturing capacity in Engineered Films, a new manufacturing facility in Applied Technology and Aerostar's commitment to a higher level of product development investments in future growth, including facilities and equipment.

During fiscal 2012, $13.0 million was returned to shareholders though quarterly dividends. In the first quarter of fiscal 2012, the quarterly dividend was raised from 16 cents per share to 18 cents per share, representing the 25th consecutive annual increase in the dividend (excluding special dividends). During fiscal 2011, $34.1 million was returned to shareholders through quarterly dividends totaling $11.5 million, or 64 cents per share, and a special dividend of $22.5 million, or $1.25 per share. A special dividend was paid on September 30, 2010 in response to the company’s strong cash position and commitment to return excess cash to shareholders.

Performance Measures
The company continues to generate positive returns on net sales, average assets and beginning equity, which are important gauges of Raven's ability to efficiently produce profits. Raven generated a record 13.3% return on sales in fiscal 2012 as the company continues to capitalize on competitive advantages in niche markets.


RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs and improve farm yields around the world.
Financial highlights for the fiscal years ended January 31,
dollars in thousands
 
2012
 
% change
 
2011
 
% change
 
2010
Net sales
 
$
132,632

 
33
%
 
$
100,090

 
16
%
 
$
86,217

Gross profit
 
62,146

 
38
%
 
45,106

 
19
%
 
37,889

Gross margins
 
46.9
%
 
 
 
45.1
%
 
 
 
43.9
%
Operating income
 
$
45,358

 
46
%
 
$
31,135

 
21
%
 
$
25,722

Operating margins
 
34.2
%
 
 
 
31.1
%
 
 
 
29.8
%

Fiscal 2012 net sales of $132.6 million increased $32.5 million (33%) and operating income of $45.4 million was up $14.2 million (46%) versus fiscal 2011.

Fiscal 2012 fourth quarter net sales of $28.8 million grew $6.5 million (29%) and operating income of $7.5 million rose $1.6 million (28%) versus fourth quarter fiscal 2011.

A number of factors contributed to the strong full-year and fourth quarter comparative results:

Market conditions. Global market fundamentals were healthy as population and income growth in emerging economies have increased demand for food, while natural disasters and adverse weather conditions have restricted supplies. These factors have resulted in higher crop prices and wider acceptance of precision agriculture as a sound investment for maximizing yields and controlling input costs.
Sales volume and selling prices. The increase in net sales was driven by higher sales volume, as selling prices reflected only a modest increase year-over-year. The favorable year-over-year comparisons reflect strong sales growth across the majority of the division's product offerings, including application controls (i.e. control systems, flow meters, valves), field computers, guidance and steering products and boom controls.
International sales. Net sales outside the U.S. accounted for 25% of segment sales in fiscal 2012 versus 21% for fiscal 2011. International sales of $32.9 million in fiscal 2012 increased $11.6 million, or 54 % year-over-year as improved farm fundamentals drove strong overall demand in Brazil, and to a lesser extent, Eastern Europe, Canada, South Africa, and Australia. New customers have also contributed to the international sales growth, reflecting the segment's current

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and past investment to expand its geographical presence.
Gross margins. Gross margins of 46.9% in fiscal 2012 improved from 45.1% in fiscal 2011 due to higher sales volume and operating leverage on profitability.
Operating expenses. Full-year operating expenses were 12.7% of net sales in fiscal 2012, compared to 14.0% for the prior year. Although spending for R&D and business development efforts increased $2.8 million versus the prior year, such spending declined as a percentage of net sales, due to the significant growth in net sales.

Fiscal 2011 net sales of $100.1 million increased $13.9 million (16%) and operating income of $31.1 million was up $5.4 million (21%) versus fiscal 2010.

Several factors contributed to the strong full-year comparative results:

Market conditions. U.S. farm fundamentals were strong as commodity prices—corn, soybeans and other feed grains— remained above historical levels. In addition, global market conditions were healthy as population and income growth in emerging economies continued to spur increased demand for food.
Sales volume and selling prices. Fiscal 2011 sales growth was driven by higher volume and modest selling price increases. The growth in volume reflects solid year-over-year demand for Slingshot™, application controls and guidance and steering products.
New product sales. Year-to-date new product sales reflected the success of Slingshot™—an information platform which improves data collection, transmission, storage and analysis and provides RTK correction of GPS signals for high accuracy steering solutions.
International sales. Net sales outside the U.S. accounted for 21% of segment sales in fiscal 2011 versus 20% in fiscal 2010. International sales of $21.3 million rose $4.2 million (25%) year-over-year led by strong Slingshot™ demand in Canada. Economic growth and strong farm fundamentals in Argentina and Brazil drove strong overall demand in South America. This growth was partially offset by a decrease in Australian sales due to weak market conditions.
Gross Margins. Gross margins of 45.1% in fiscal 2011 rose from 43.9% in fiscal 2010 due to the positive effect of higher sales and strong operating leverage on profitability.
Operating expenses. Full-year operating expenses decreased from 14.1% of sales in fiscal 2010 to 14.0% in fiscal 2011. Strong sales and growth opportunities drove a $1.1 million (16%) increase in selling expenses and research and development expenses increased $0.7 million (14%) to support product development and strategic initiatives.


Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial, energy, construction, geomembrane and agricultural applications.
Financial highlights for the fiscal years ended January 31,
dollars in thousands
 
2012
 
% change
 
2011
 
% change
 
2010
Net sales
 
$
133,481

 
26
%
 
$
105,838

 
66
%
 
$
63,783

Gross profit
 
26,090

 
15
%
 
22,708

 
75
%