10-Q 1 raven013462_10q.htm RAVEN INDUSTRIES FORM 10-Q Raven Industries Form 10-Q 7-31-01

FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 31, 2001

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________

Commission file number: 0-3136

RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

SOUTH DAKOTA	46-0246171
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

205 EAST 6TH STREET
P.O. BOX 5107
SIOUX FALLS, SD 57117-5107
(Address of principal executive offices) (Zip code)

605-336-2750
Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes __X__ No _____

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of August 31, 2001
Common Stock	4,625,199 shares

RAVEN INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

	PAGE NO.
PART I-FINANCIAL INFORMATION

Consolidated Balance Sheet as of July 31, 2001,
January 31, 2001 and July 31, 2000	3

Consolidated Statement of Income for the three and six
month periods ended July 31, 2001 and 2000	4

Consolidated Statement of Cash Flows for the six
month periods ended July 31, 2001 and 2000	5

Notes to Consolidated Financial Statements	6-9

Management’s Discussion and Analysis of Financial
Condition and Results of Operations	10-14

PART II-OTHER INFORMATION	15

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)

	July 31, 2001			Jan. 31, 2001			July 31, 2000
	(unaudited)						(unaudited)
*ASSETS*
Cash and cash equivalents	$	17,601		$	10,673		$	1,956
Accounts receivable, less allowance for doubtful accounts of $399, $400 and $422 as of 07/31/01, 01/31/01 and 07/31/00, respectively		13,307			19,274			20,273
Inventories:
Materials		11,098			12,317			17,767
In process		3,091			2,497			4,300
Finished goods		3,542			4,170			5,219

Total inventories		17,731			18,984			27,286
Deferred income taxes		2,479			2,516			2,070
Prepaid expenses and other current assets		446			371			563

Total current assets		51,564			51,818			52,148

Property, plant and equipment		38,998			37,878			37,482
Accumulated depreciation		(27,364	)		(26,231	)		(25,649	)

Property, plant and equipment, net		11,634			11,647			11,833
Other assets, net		1,794			2,191			1,725
Noncurrent assets held for sale		–			–			4,779

Total assets	$	64,992		$	65,656		$	70,485

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Notes payable, bank	$	1,000		$	–		$	3,500
Current portion of long-term debt		13			1,012			1,023
Accounts payable		3,915			3,490			5,009
Accrued liabilities and customer advances		9,019			9,433			8,204

Total current liabilities		13,947			13,935			17,736

Long-term debt, less current portion		–			2,013			2,013
Other liabilities, primarily compensation and benefits		1,793			1,719			2,039

Stockholders’ equity:
Common stock, $1 par value, authorized shares: 100,000,000; issued: 7,857,918; 5,223,239 and 5,218,114 shares as of 07/31/01, 01/31/01 and 07/31/00, respectively		7,858			5,223			5,218
Paid in capital		1,037			3,459			3,177
Retained earnings		71,330			68,248			65,859

		80,225			76,930			74,254
Less treasury stock, at cost:
3,232,719; 2,063,807 and 1,853,207 shares as of 07/31/01,
01/31/01 and 07/31/00, respectively		30,973			28,941			25,557

Total stockholders’ equity		49,252			47,989			48,697

Total liabilities and stockholders’ equity	$	64,992		$	65,656		$	70,485

The accompanying notes are an integral part of the unaudited consolidated financial information.

Page 3

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(Dollars in thousands, except per share data)

	FOR THE THREE MONTHS ENDED						FOR THE SIX MONTHS ENDED
	July 31, 2001			July 31, 2000			July 31, 2001			July 31, 2000
Net sales	$	28,157		$	33,178		$	59,129		$	65,347
Cost of goods sold		22,858			28,105			47,591			54,116

Gross profit		5,299			5,073			11,538			11,231

Selling, general and administrative expenses		2,624			3,222			5,569			6,781
Gain on sale of businesses and assets		(345	)					(345	)

Operating income		3,020			1,851			6,314			4,450

Interest expense		(30	)		(64	)		(69	)		(121	)
Other income, net		167			45			327			124


Income before income taxes		3,157			1,832			6,572			4,453

Income taxes		1,114			659			2,320			1,603

Net income	$	2,043		$	1,173		$	4,252		$	2,850



Net income per common share:
Basic	$	0.44		$	0.23		$	0.91		$	0.52
Diluted	$	0.43		$	0.23		$	0.90		$	0.52

Cash dividends paid per share	$	0.13		$	0.113		$	0.25		$	0.227

The accompanying notes are an integral part of the unaudited consolidated financial information.

Page 4

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(Dollars in thousands)

	FOR THE SIX MONTHS ENDED
	July 31, 2001			July 31, 2000
Cash flows from operating activities:
Net income	$	4,252		$	2,850
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		1,585			2,184
Provision for losses on accounts receivable, net of recoveries		(61	)		173
Gain on sale of businesses and assets		(345	)		–
Deferred income taxes		23			(236	)
Change in accounts receivable		6,013			2,063
Change in inventories		1,410			(2,824	)
Change in prepaid expenses and other assets		265			3
Change in operating liabilities		(105	)		(208	)
Other, net		–			16

Net cash provided by operating activities		13,037			4,021


Cash flows from investing activities:
Capital expenditures		(1,579	)		(1,783	)
Proceeds from the sale of businesses and assets		550			208
Other, net		11			8

Net cash provided by (used in) investing activities		(1,018	)		(1,567	)


Cash flows from financing activities:
Issuance of short-term debt		1,200			3,500
Payment of short-term debt		(200	)		–
Long-term debt principal payments		(3,012	)		(1,033	)
Proceeds from exercise of stock options		125			–
Dividends paid		(1,170	)		(1,227	)
Purchase of treasury stock		(2,032	)		(7,445	)
Other, net		(2	)		–

Net cash provided by (used in) financing activities		(5,091	)		(6,205	)

Net increase (decrease) in cash and equivalents		6,928			(3,751	)

Cash and cash equivalents at beginning of period		10,673			5,707

Cash and cash equivalents at end of period	$	17,601		$	1,956

The accompanying notes are an integral part of the unaudited consolidated financial information.

Page 5

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The accompanying unaudited consolidated financial information has been prepared by Raven Industries, Inc. (the company) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair representation have been included. Financial results for the interim three and six-month periods are not necessarily indicative of the results that may be expected for the year ending January 31. The January 31, 2001 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. This financial information should be read in conjunction with the consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended January 31, 2001.

Certain reclassifications have been made to the July 31, 2000 and January 31, 2001 consolidated balance sheets and the July 31, 2000 statement of income to conform to the July 31, 2001 presentation. These reclassifications had no impact on previously reported total assets, total liabilities, stockholders’ equity or operating income.

Options to purchase approximately 363,000 shares of the Company’s common stock were excluded from the diluted earnings per share calculations for the three and six-month periods ended July 31, 2000 because their exercise prices were greater than the average market price of the company’s common stock during that period. Details of the earnings per share computation are presented below:

	FOR THE THREE MONTHS ENDED:				FOR THE SIX MONTHS ENDED:
(Dollars in thousands, except per share data)	07/31/01		07/31/00		07/31/01		07/31/00

Net income	$	2,043	$	1,173	$	4,252	$	2,850


Weighted average common shares outstanding		4,665		5,213		4,686		5,471

Dilutive impact of stock options		78		–		59		–

Weighted average common and
common equivalent shares outstanding		4,743		5,213		4,745		5,471


Net income per share:
Basic	$	0.44	$	0.23	$	0.91	$	0.52

Diluted	$	0.43	$	0.23	$	0.90	$	0.52

The company’s reportable segments are defined by their common technologies, production processes and raw materials. These segments are consistent with the company’s management reporting structure. The company measures the performance of its segments based on their operating income exclusive of administrative and general expenses. The results of these segments are shown on the following table:

Page 6

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(Dollars in thousands)	FOR THE THREE MONTHS ENDED:						FOR THE SIX MONTHS ENDED:
	07/31/01			07/31/00			07/31/01			07/31/00
NET SALES:
Electronic Systems	$	8,886		$	7,364		$	16,245		$	15,015
Flow Controls		2,858			2,818			10,752			8,287
Engineered Films		10,837			10,141			20,217			18,865
Aerostar		4,053			6,309			7,567			9,767
Beta Raven		475			782			1,288			1,783
Businesses sold and for sale		1,048			5,764			3,060			11,630

Total company	$	28,157		$	33,178		$	59,129		$	65,347


OPERATING INCOME (LOSS):
Electronic Systems	$	766		$	(188	)	$	907		$	305
Flow Controls		216			463			2,593			2,129
Engineered Films		2,847			2,419			5,134			4,175
Aerostar		842			419			1,051			411
Beta Raven		(252	)		(137	)		(772	)		(51	)
Businesses sold and for sale		(32	)		409			320			770

Sub-total		4,387			3,385			9,233			16,972
Administrative and general expenses		(1,367	)		(1,534	)		(2,919	)		(3,289	)

Total company	$	3,020		$	1,851		$	6,314		$	4,450

In the quarter ended July 31, 2001, the Electronics Manufacturing Services (EMS) operation of Beta Raven was combined with the Electronic Systems Division. This change combines the common EMS operations of the company and is designed to improve operating results from sharing management, marketing and production techniques. Revised segment history for assets, capital expenditures and depreciation and amortization have not yet been computed as it is not yet practicable to do so. The following table restates segment sales and operating income for the Electronic Systems Division and Beta Raven for the prior six fiscal years:

Page 7

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

	Electronic Systems Divison						Beta Raven, Inc.
	Originally Reported			Restated			Originally Reported		Restated
SALES:
FY 2001	$	26,354		$	32,039		$	8,951	$	3,266
FY 2000		24,077			30,176			11,333		5,234
FY 1999		18,817			24,958			12,200		6,059
FY 1998		19,014			23,968			10,081		5,127
FY 1997		18,018			22,133			9,154		5,039
FY 1996		9,022			14,301			10,473		5,194

OPERATING INCOME (LOSS):
FY 2001	$	(1,070	)	$	(542	)	$	117	$	(411	)
FY 2000		728			1,632			1,644		740
FY 1999		1,582			2,322			1,910		1,170
FY 1998		2,730			3,319			1,383		794
FY 1997		1,733			1,971			987		749
FY 1996		1,336			2,088			1,351		599

On August 28, 2000, the company sold substantially all of the assets of its Plastic Tank division to Norwesco, Inc. The sale did not include the company’s plant in Tacoma, Washington, for which the company is actively pursuing its sale. The Tacoma plant assets, primarily inventory and manufacturing equipment, are included in the July 31, 2001 and January 31, 2001 balance sheets at their estimated net realizable value.

The gain on sale of businesses and assets of $345,000 during the three months ended July 31, 2001 consists primarily of the sale in May 2001 of a Sportswear Division distribution warehouse used by the Aerostar segment.

6.	The company incurred approximately $351,000 of inventory write-downs and other costs of goods sold in the six-months ended July 31, 2001 related to the repositioning of its Beta Raven subsidiary, including the closing of its Alabama plant.

7.	During the quarter ended July 31, 2001, the company repaid the remaining $2.0 million of its long-term debt originally due in equal installments in June 2002 and June 2003.

In June 2001, the company entered a new agreement with Wells Fargo Bank South Dakota, N.A. (Wells Fargo) to decrease the short-term credit line to $5.0 million. The terms of this credit line are similar to the $7.0 million line with Wells Fargo that expired on June 30, 2001. On July 31, 2001, the company had no borrowings outstanding under this line of credit.

During the quarter ended July 31, 2001, Aerostar International, Inc. (a subsidiary of Raven Industries, Inc.) entered into a new agreement with Wells Fargo for a short-term credit line of $2.0 million that expires in June 2002. The terms of this credit line contain certain restrictive covenants that among other things require Aerostar to maintain a minimum net worth and minimum cash flow coverage. This credit line will be used to finance seasonal accounts receivable and inventories. On July 31, 2001, Aerostar International had borrowings of $1.0 million outstanding under this line of credit and the interest rate on these borrowings was 6.75%.

Page 8

PART I — FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

On May 23, 2001, the Board of Directors declared a three-for-two stock split of the company’s common stock, to be effected in the form of a stock dividend. The record date for the stock dividend was June 25, 2001, with the shares distributed on July 13, 2001. Earnings-per-share calculations and average shares outstanding included in this report are restated to reflect the stock split.

9.	On June 29, 2001, the Financial Accounting Standard Board approved its proposed Statements of Financial Accounting Standards No. 141 (FAS 141), Business Combinations, and No. 142 (FAS 142), Goodwill And Other Intangible Assets.

FAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), Business Combinations. The most significant changes made by FAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and (2) establishing specific criteria for the recognition of intangible assets separately from goodwill.

FAS 142 supercedes APB 17, Intangible Assets. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of FAS 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by FAS 142 are (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years.

These standards only permit prospective application of the new accounting; accordingly, the adoption of these standards will not affect previously reported financial information. The company is in the process of analyzing the impacts of FAS 141 and 142 on its results of operations and financial condition.

Page 9

PART I —FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

The company’s cash and cash equivalents balance was $17.6 million at July 31, 2001 compared with $2.0 million one year earlier. On August 28, 2000, the company sold substantially all of the assets of its Plastic Tank division. The cash proceeds from the sale were approximately $12 million. Accounts receivable of $13.3 million decreased $7.0 million from July 31, 2000 due primarily to the sale of the Plastic Tank division in August 2000 and lower Aerostar sales volume. Inventory levels of $17.7 million decreased $9.6 million from July 31, 2000 due primarily to lower sales levels in Aerostar’s specialty apparel products, inventory reduction efforts in the Electronic Systems Division and the sale of the Plastic Tank division. At July 31, 2001, the company retained a $5.0 million line of credit and it’s Aerostar subsidiary retained an unused balance of $1.0 million on its $2.0 million seasonal line of credit. Long-term debt, including the current portion, at July 31, 2001 was $13,000 compared to $3.0 million the prior year. During the quarter ended July 31, 2001, the company repaid $2.0 million of its long-term debt originally due in June 2002 and June 2003. The company’s capital resources continue to be sufficient to fund all its activities.

RESULTS OF OPERATIONS

Reported sales of $28.2 million for the quarter ended July 31, 2001 compared to $33.2 million in the second quarter of last year. Sales from the Plastic Tank Division (contained in the “Businesses sold and for sale” segment) for the three and six month periods ended July 31, 2001 were $1.0 and $3.1 million, respectively, compared to the prior year’s three and six month sales of $5.8 and $11.6 million, respectively. The reported sales decreases were primarily due to the Plastic Tank Division and the Aerostar segment. These decreases were partially offset by increases in the Electronic Systems and Engineered Films divisions. Reported sales for the first half of fiscal 2002 of $59.1 million compared to $65.3 million in the same period of fiscal 2001. The decrease in sales from sold businesses of $8.6 million was offset by increases in the Electronic Systems, Flow Controls and Engineered Films divisions. Reported operating income of $3.0 million for the second quarter and $6.3 million in the first six-months of FY 2002 were $1.2 million above the second quarter and $1.9 million above the first six-months of fiscal 2001. The impact of lower sales was offset by a higher percentage of products shipped with relatively stronger gross profit rates. In addition, lower selling, general and administrative expenses as well as a gain on the sale of the company’s former warehouse improved operating income. Selling and administrative expenses for the current year’s second quarter were $2.6 million compared to $3.2 million in the previous second quarter. The decrease is primarily due to the sale of most of the Plastic Tank division and related staff reductions. The improvement in non-operating income for the quarter was the result of a higher net cash position and the associated lower interest expense and higher interest earned. Earnings per share, on a diluted basis, in the second quarter and first half of fiscal 2002 were 43 cents and 90 cents per share, respectively, compared to 23 cents in the second quarter and 52 cents in the first half of fiscal 2001. Total average weighted shares outstanding for the quarter ended July 31, 2001 were 4.7 million compared to 5.2 million in the previous year’s second quarter. The lower shares outstanding were primarily a result of the company’s treasury share repurchases.

The results for the quarter and six-months ended July 31, 2001 include nonrecurring items that the company does not believe are relevant to future operations or cash flows. The discussion of operating results, following the tables, is focused on the results of ongoing operations exclusive of these items. Ongoing operation results exclude the results of the company’s Plastic Tank division (both sold and held for sale). The gain on sale of businesses and assets of $345,000 (relating primarily to the sale of Aerostar’s distribution warehouse) and other nonrecurring restructuring costs of $333,000 (relating primarily to Beta Raven’s first-quarter charge for the closing of it’s

Page 10

PART I —FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Alabama plant) were also excluded from ongoing operation results. There were no such gains, losses or nonrecurring items for the quarter or six months ended July 31, 2000.

The following table presents ongoing operation information for the three-month and six-month periods ended July 31, 2001 and July 31, 2000:

(dollars in thousands)	THREE MONTHS ENDED 07/31/2001									THREE MONTHS ENDED 07/31/2000
	As Reported			Adjust- ments			Ongoing Operations			As Reported		Adjust- ments			Ongoing Operations
Net sales	$	28,157		$	1,048		$	27,109		$	33,178	$	5,764		$	27,414

Gross profit		5,299			28			5,271			5,073		803			4,270
Operating expenses		2,624			(12	)		2,636			3,222		394			2,828
Gain on sale of businesses
and assets		345			345			–			–		–			–

Operating income		3,020			385			2,635			1,851		409			1,442
Other (income) expense		(137	)		–			(137	)		19		(3	)		22

Net income before taxes		3,157			385			2,772			1,832		412			1,420
Income taxes		1,114			135			979			659		152			507

Net income	$	2,043		$	250		$	1,793		$	1,173	$	260		$	913

	SIX MONTHS ENDED 07/31/2001								SIX MONTHS ENDED 07/31/2000
	As Reported			Adjust- ments		Ongoing Operations			As Reported			Adjust- ments			Ongoing Operations
Net sales	$	59,129		$	3,060	$	56,069		$	65,347		$	11,630		$	53,717

Gross profit		11,538			125		11,413			11,231			1,649			9,582
Operating expenses		5,569			73		5,496			6,781			879			5,902
Gain on sale of businesses
and assets		345			345		–			–			–			–

Operating income		6,314			397		5,917			4,450			770			3,680
Other (income) expense		(258	)		–		(258	)		(3	)		(3	)		–

Net income before taxes		6,572			397		6,175			4,453			773			3,680
Income taxes		2,320			140		2,180			1,603			289			1,314

Net income	$	4,252		$	257	$	3,995		$	2,850		$	484		$	2,366

In the quarter ended July 31, 2001, the Electronics Manufacturing Services (EMS) operation of Beta Raven was combined with the Electronic Systems Division. Segment sales and operating income in the following tables have been restated to reflect this change.

Page 11

PART I —FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a table of ongoing operation results by segment:

ONGOING OPERATIONS
SALES AND OPERATING INCOME BY SEGMENT

(dollars in thousands)	THREE MONTHS ENDED JULY 31									SIX MONTHS ENDED JULY 31
	2001			2000			Percent Change			2001			2000			Percent Change
NET SALES:
Electronic Systems	$	8,886		$	7,364			21	%	$	16,245		$	15,015			8	%
Flow Controls		2,858			2,818			1	%		10,752			8,287			30	%
Engineered Films		10,837			10,141			7	%		20,217			18,865			7	%
Aerostar		4,053			6,309			-36	%		7,567			9,767			-23	%
Beta Raven		475			782			-39	%		1,288			1,783			-28	%

Total company	$	27,109		$	27,414			-1	%	$	56,069		$	53,717			4	%

OPERATING INCOME (LOSS):
Electronic Systems	$	748		$	(188	)		498	%	$	889		$	305			191	%
Flow Controls		216			463			-53	%		2,593			2,129			22	%
Engineered Films		2,847			2,419			18	%		5,134			4,175			23	%
Aerostar		432			419			3	%		641			411			56	%
Beta Raven		(241	)		(137	)		-76	%		(421	)		(51	)		-725	%
Administrative and general expenses		(1,367	)		(1,534	)		11	%		(2,919	)		(3,289	)		11	%

Total company	$	2,635		$	1,442			83	%	$	5,917		$	3,680			61	%

Sales from ongoing operations were $27.1 million for the quarter ended July 31, 2001, a decrease of $300,000 from the previous second quarter sales. Sales increases from the previous second quarter were primarily in the Electronic Systems (ESD) and Engineered Films (EFD) segments but were offset by sales decreases in Aerostar’s specialty apparel lines. Increased demand for pit liners in the oil exploration market and foreign research-balloon sales for Engineered Films and increased delivery on Electronic System contracts were responsible for the sales increases. Ongoing operation sales in the first half of fiscal 2002 were $56.1 million versus $53.7 million the first half of the previous fiscal year. In addition to the second quarter sales increases in ESD and EFD, Flow Controls (FCD) experienced sales increases from strong sales of new products in the first quarter of fiscal 2002. Operating income from ongoing operations for the second quarter was $2.6 million compared to $1.4 million in the previous second quarter. Ongoing operating income in the first half of $5.9 million in fiscal 2002 was $2.2 million above the first half of fiscal 2001. The increases in operating income for both the quarter and first half were due primarily to the impact of sales increases in the Flow Controls, Electronic Systems and Engineered Films segments along with lower corporate administrative expenses.

Electronic Systems second quarter sales increased 21% to $8.9 million from $7.4 million the same period last year. The sales rebounded in fiscal 2002 after the fiscal 2001 efforts to streamline Electronic Systems’ customer base. Sales for the first half of fiscal 2002 were $16.2 million, an 8% increase from the $15.0 million in the first half of fiscal 2001. Second quarter operating income increased to $748,000 from an $188,000 loss the prior year. Operating income

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PART I —FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

in the first half of fiscal 2002 was $889,000 compared with $305,000 the previous year. Operating income for the three and six-months improved as a result of increased sales and production efficiencies following the repositioning efforts in the prior year.

Flow Controls sales of $2.9 million for the second quarter were slightly above the $2.8 million in the same period last year. Six-month sales of $10.8 million were up 30% from $8.3 million in the first half of fiscal 2001. New product introductions in the chemical injection market accounted for the sales increase, including shipments in the first quarter of fiscal 2002 under a $2 million order announced in October 2000. Second quarter operating income was $216,000, below the $463,000 in the previous year’s second quarter. Operating income in the first six months of $2.6 million was 22% above the $2.1 million for the first half of fiscal 2001. Percentage increases in operating income were lower than the sales increase due to lower profit margins on the new product introductions.

Engineered Films sales of $10.8 million for the second quarter were $696,000 ahead of the $10.1 million sales in the same period last year. Six-month sales of $20.2 million were $1.4 million ahead of the first six month in fiscal 2001. Increased demand for pit-liners in the oil exploration market and foreign research balloons more than offset a decline in manufactured housing market sales. Second quarter operating income of $2.8 million was 18% above the $2.4 million generated in the second quarter of fiscal 2001. Operating income for the first half of fiscal 2002 of $5.1 million was 23% over the $4.2 million in the same period last year. Operating income benefited from increased sales that led to favorable manufacturing efficiencies and a higher-margin product mix.

Aerostar second quarter sales of $4.1 million were $2.3 million below last year’s second quarter. Sales for the first six months of $7.6 million were $2.2 million below the same period the previous year. Operating income of $432,000 was slightly above prior year’s second quarter income of $419,000. Operating income in the first six months was $641,000 and was 56% above the $411,000 income in the first half of fiscal 2001. Operating profit was impacted favorably by sales of several inflatable display projects that carried higher than normal profits. The impact of a new operating structure, including the closure of two sewing plants in the fourth quarter of the prior fiscal year, helped stabilize profits on a lower sales base. The backlog for sewn products at July 31, 2001 remains significantly lower than one year earlier.

Beta Raven sales in the second quarter of $475,000 were below the $782,000 in previous year’s second quarter. Six-month sales of $1.3 million were $495,000 below the first six months of last fiscal year. The second quarter operating loss of $241,000 was unfavorable to the $137,000 operating loss the previous second quarter. Operating losses for the six months were $421,000 and compared unfavorably to the $51,000 loss in the first half of fiscal 2001. The continued weakness in the American poultry industry adversely affected sales and profit margins.

OUTLOOK

The company believes it had a good second quarter and an outstanding first half in terms of revenue and earnings. Management expects ongoing earnings in the second half will enjoy gains over year-earlier results, however, the increases will not be as strong as gains in the first half over the previous year’s comparable period. The Aerostar subsidiary virtually always has its strongest quarter in the third period, so the significant long-term impact of closing two apparel plants last November will be seen in the second half of fiscal 2002. However, improved ongoing operating earnings for the full fiscal year ending January 31, 2002 are expected due to the strong demand for plastic films and higher margins in the Electronic Systems division.

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PART I —FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NEW ACCOUNTING STANDARDS

On June 29, 2001, the Financial Accounting Standard Board approved its proposed Statements of Financial Accounting Standards No. 141 (FAS 141), Business Combinations, and No. 142 (FAS 142), Goodwill And Other Intangible Assets.

FORWARD-LOOKING STATEMENTS

Certain sections of this report contain statements which may constitute forward-looking statements within the meaning of federal securities laws. Although Raven Industries, Inc. believes that expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurances that its expectations will be achieved. Factors that could cause actual results to differ from expectations include general economic conditions, weather conditions which could affect certain of the company’s primary markets such as agriculture or construction, or changes in competition or the company’s customer base which could impact any of the company’s product lines.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings:

The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. The settlement 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 2. Changes in Securities: None

Item 3. Defaults upon Senior Securities: None

Item 4. Submission of Matters to a Vote of Security Holders: None

Item 5. Other Information: None

Item 6. (a) Exhibits Filed: None

(b) Reports on Form 8-K: None

SIGNATURES

Pursuant to the requirements 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.

/s/ Thomas Iacarella
Thomas Iacarella
Vice President & CFO, Secretary
and Treasurer (Principal Financial
and Accounting Officer)

Date: September 7, 2001

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FORM 10-QSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549