Eleven-Year Financial Summary

		For the years ended January 31
Dollars in thousands, except per-share data		2010				2009				2008
OPERATIONS FOR THE YEAR
Net sales
Ongoing operations		$	237,782			$	279,913			$	233,957
Sold businesses(a)			—				—				—
Total			237,782				279,913				233,957
Gross profit(b)			67,852				73,448				63,676
Operating income
Ongoing operations			43,220				46,394				41,145
Sold businesses(a)			—				—				—
Total			43,220				46,394				41,145
Income before income taxes			43,322				46,901				42,224
Net income		$	28,574			$	30,770			$	27,802
Net income as % of sales			12.0	%			11.0	%			11.9	%
Net income as % of beginning equity			25.2	%			26.0	%			28.3	%
Cash dividends		$	9,911			$	31,884	(c)		$	7,966
FINANCIAL POSITION
Current assets		$	117,747			$	98,073			$	100,869
Current liabilities			25,960				23,322				22,108
Working capital		$	91,787			$	74,751			$	78,761
Current ratio			4.54				4.21				4.56
Property, plant and equipment		$	33,029			$	35,880			$	35,743
Total assets			170,309				144,415				147,861
Long-term debt, less current portion			—				—				—
Shareholders’ equity		$	133,251			$	113,556			$	118,275
Long-term debt / total capitalization			0.0	%			0.0	%			0.0	%
Inventory turnover (CGS / average inventory)(b)			5.3				5.2				5.3
CASH FLOWS PROVIDED BY (USED IN)
Operating activities		$	47,643			$	39,037			$	27,151
Investing activities			(13,396	)			(7,000	)			(4,433	)
Financing activities			(9,867	)			(36,969	)			(8,270	)
Increase (decrease) in cash and cash equivalents			24,417				(5,005	)			14,489
COMMON STOCK DATA
Net income per share—basic		$	1.58			$	1.71			$	1.54
Net income per share—diluted			1.58				1.70				1.53
Cash dividends per share			0.55				1.77	(c)			0.44
Book value per share			7.38				6.30				6.52
Stock price range during year
High		$	33.18			$	47.82			$	45.85
Low			15.37				20.60				26.20
Close		$	28.58			$	21.81			$	30.02
Shares and stock units outstanding, year-end (in thousands)			18,051				18,027				18,130
Number of shareholders, year-end			7,767				8,268				8,700
OTHER DATA
Price / earnings ratio			18.1				12.8				19.6
Average number of employees			930				1,070				930
Sales per employee		$	256			$	262			$	252
Backlog		$	74,718			$	80,361			$	66,628

16 2010 ANNUAL REPORT RAVEN

2007				2006				2005				2004				2003				2002				2001				2000
$	217,529			$	204,528			$	168,086			$	142,727			$	119,589			$	112,018			$	113,360			$	107,862
	—				—				—				—				1,314				6,497				19,498				42,523
	217,529				204,528				168,086				142,727				120,903				118,515				132,858				150,385
	57,540				55,714				45,212				35,488				28,828				25,340				21,740				24,853
	38,302				37,284				27,862				21,981				16,861				13,788				7,417	(d)			7,971
	—				—				—				(355	)			204				(613	)			3,331	(e)			2,606	(f)
	38,302				37,284				27,862				21,626				17,065				13,175				10,748				10,577
	38,835				37,494				27,955				21,716				17,254				13,565				10,924				10,503
$	25,441			$	24,262			$	17,891			$	13,836			$	11,185			$	8,847			$	6,411	(d)(e)		$	6,762	(f)
	11.7	%			11.9	%			10.6	%			9.7	%			9.3	%			7.5	%			4.8	%			4.5	%
	30.1	%			36.7	%			26.9	%			23.8	%			21.5	%			18.4	%			11.8	%			10.9	%
$	6,507			$	5,056			$	15,298	(c)		$	3,075			$	2,563			$	2,371			$	2,399			$	2,895
$	73,219			$	71,345			$	61,592			$	55,710			$	49,351			$	45,308			$	51,817			$	55,371
	16,464				20,050				20,950				11,895				13,167				13,810				13,935				14,702
$	56,755			$	51,295			$	40,642			$	43,815			$	36,184			$	31,498			$	37,882			$	40,669
	4.45				3.56				2.94				4.68				3.75				3.28				3.72				3.77
$	36,264			$	25,602			$	19,964			$	15,950			$	16,455			$	14,059			$	11,647			$	15,068
	119,764				106,157				88,509				79,508				72,816				67,836				65,656				74,047
	—				9				—				57				151				280				2,013				3,024
$	98,268			$	84,389			$	66,082			$	66,471			$	58,236			$	52,032			$	47,989			$	54,519
	0.0	%			0.0	%			0.0	%			0.1	%			0.3	%			0.5	%			4.0	%			5.3	%
	5.4				5.9				5.8				6.1				4.8				5.1				4.5				3.8
$	26,313			$	21,189			$	18,871			$	19,732			$	12,735			$	18,496			$	9,441			$	10,375
	(18,664	)			(11,435	)			(7,631	)			(4,352	)			(9,166	)			(13,152	)			9,752				6,323
	(10,277	)			(6,946	)			(19,063	)			(6,155	)			(5,830	)			(8,539	)			(14,227	)			(16,326	)
	(2,626	)			2,790				(7,823	)			9,225				(2,261	)			(3,195	)			4,966				372
$	1.41			$	1.34			$	0.99			$	0.77			$	0.61			$	0.48			$	0.31			$	0.26
	1.39				1.32				0.97				0.75				0.60				0.47				0.31				0.26
	0.36				0.28				0.85	(c)			0.17				0.14				0.13				0.12				0.11
	5.45				4.67				3.67				3.68				3.21				2.82				2.53				2.32
$	42.70			$	33.15			$	26.94			$	15.23			$	9.20			$	5.88			$	3.48			$	3.04
	25.46				16.54				13.08				7.56				4.38				3.02				1.88				2.25
$	28.43			$	31.60			$	18.38			$	14.11			$	7.91			$	5.64			$	3.04			$	2.40
	18,044				18,072				17,999				18,041				18,133				18,424				18,956				23,496
	8,992				9,263				6,269				3,560				2,781				2,387				2,460				2,749
	20.5				23.9				18.9				18.8				13.2				12.1				9.8				9.2
	884				845				835				787				784				858				1,082				1,369
$	246			$	242			$	201			$	181			$	154			$	138			$	123			$	110
$	44,237			$	43,619			$	43,646			$	47,120			$	42,826			$	33,834			$	38,239			$	44,935

2010 ANNUAL REPORT RAVEN 17

Financial Review and Analysis

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, 2010 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

Reclassification of Research and Development Expenses

Research and development (R&D) expenses include costs related to product development and significant enhancements of existing products. Beginning in fiscal 2010, gross margins were affected by the reclassification of R&D expenses, removing them from cost of goods sold to a separate item below gross profit. As a result, the Applied Technology Division’s gross margins were recomputed and adjusted from 40.2% to 45.2% for fiscal 2009, and 37.9% to 44.5% for fiscal 2008. The impact of the reclassification of R&D expenses on gross margins was not significant for the company’s other segments. Additionally, R&D expenses that were previously classified as selling, general and administrative expenses were also reclassified to the separate R&D expenses line. The reclassifications had no affect on any segment’s previously reported operating income or consolidated operating income.

Components of consolidated operating income for the fiscal years ended January 31, 2009 and 2008, as originally reported and as reclassified, were as follows:

		For the year ended								For the year ended
		January 31, 2009								January 31, 2008
		As				As				As				As
Dollars in thousands		reported				reclassified				reported				reclassified
Net sales		$	279,913			$	279,913			$	233,957			$	233,957
Cost of goods sold			212,032				206,465				174,809				170,281
Gross profit			67,881				73,448				59,148				63,676
Gross margins			24.3	%			26.2	%			25.3	%			27.2	%
Research and development expenses			—				5,848				—				4,925
Selling, general and administrative expenses			21,487				21,206				18,003				17,606
Operating income		$	46,394			$	46,394			$	41,145			$	41,145

EXECUTIVE SUMMARY

Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, construction and military/aerospace markets, primarily in North America. The company operates in four business segments: Applied Technology (formerly Flow Controls), Engineered Films, Electronic Systems and Aerostar.

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 payments to shareholders
	•		Return on sales, assets and equity
	•		Segment net sales, gross profit, gross margins, operating income and operating margins

2010 ANNUAL REPORT RAVEN 19

Financial Review and Analysis (continued)

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

Financial highlights for fiscal years ended January 31,

						%								%
Dollars in thousands, except per share data		2010				change				2009				change				2008
Results of Operations
Net sales		$	237,782				(15	)%		$	279,913				20	%		$	233,957
Gross margins(a)			28.5	%							26.2	%							27.2	%
Operating income		$	43,220				(7	)%		$	46,394				13	%		$	41,145
Operating margins			18.2	%							16.6	%							17.6	%
Net income		$	28,574				(7	)%		$	30,770				11	%		$	27,802
Diluted earnings per share		$	1.58				(7	)%		$	1.70				11	%		$	1.53

Cash Flow and Payments to Shareholders
Cash flow from operations		$	47,643							$	39,037							$	27,151
Cash dividends		$	9,911							$	31,884							$	7,966
Common stock repurchases			—								5,180								592
Cash returned to shareholders		$	9,911							$	37,064							$	8,558
Performance Measures
Return on net sales (net income / net sales)			12.0	%							11.0	%							11.9	%
Return on average assets (net income / average assets)			18.2	%							21.1	%							20.8	%
Return on beginning equity (net income / beginning equity)			25.2	%							26.0	%							28.3	%

Results of Operations—Fiscal 2010 versus Fiscal 2009

The slump in global economic activity that began negatively affecting the company’s financial results in the last quarter of fiscal 2009 continued through fiscal 2010. During the second half of fiscal 2010, global economies began to show signs of a recovery from the unprecedented volatility and disruption. However, there is substantial uncertainty as to the strength and sustainability of the economic recovery.

The 15% decrease in net sales is the result of year-over-year sales declines in Applied Technology (16%) and Engineered Films (29%). Electronic Systems and Aerostar sales were relatively flat year-over-year. Expectations of lower farm income and economic uncertainty caused growers and custom spray applicators to defer purchases, which negatively affected substantially all of Applied Technology’s product categories. The impact of the weak economy on Engineered Films’ largest markets resulted in year-over-year declines of energy market sales (40%) and construction market sales (25%). Electronic Systems sales were up 2% year-over-year, reflecting increased deliveries of avionics and secure communication electronics to meet rising demand from government agencies and the aerospace market, which was partially offset by a smaller customer base. Aerostar sales were flat compared with last year, as increased deliveries of MC-6 Army parachutes, aerostats and research balloons were offset by decreased deliveries of protective wear.

Applied Technology operating margins contracted year-over-year, reflecting the negative impact of lower sales on operating leverage. However, disciplined margin management, operational efficiencies and higher productivity brought improved operating margins for Engineered Films, Electronic Systems and Aerostar. Consequently, the 7% year-over-year decrease in operating income was less severe than the 15% drop in sales.

While fourth quarter revenues of $55.8 million were down 7%, net income grew 25% from the fourth quarter of fiscal 2009. Applied Technology quarterly sales fell 12%, resulting from the negative impact of lower farm income and economic uncertainty. Electronic Systems fourth quarter sales declined 14% due to lower sales of secure communication electronics, reflecting lower demand from government agencies, and slower avionics deliveries, as commercial airlines began cancelling or delaying delivery schedules. Aerostar’s quarterly sales dropped 12%, as fiscal 2009 fourth quarter results included nearly $3 million of MC-6 parachute deliveries that were delayed from the prior quarter due to contract modifications. Engineered Films fourth quarter sales rose 15% due to increased business activity and higher energy prices, as growth in emerging markets drove oil prices to levels adequate to support an increase in drilling activity. This resulted in a 40% increase in fourth quarter sales of pit and pond lining films to the oil and gas exploration markets from the prior year.

Fourth quarter net income of $5.8 million rose 25% year-over-year. Disciplined margin management at Engineered Films led to $2.4 million of operating income versus an operating loss of $178,000 in the fourth quarter of fiscal 2009. Management responded quickly and decisively to the freefall in business activity experienced in the fourth quarter of fiscal 2009 by tightly managing expenses and decreasing headcount—necessary steps to align the division with the weak business environment.

20 2010 ANNUAL REPORT RAVEN

Results of Operations—Fiscal 2009 versus Fiscal 2008

In fiscal 2009, the company posted record sales, operating income, net income, diluted earnings per share and operating cash flow. The results were fueled by a strong agricultural market and new product introductions in the Applied Technology segment and, to a lesser extent, shipments under government contracts at Aerostar. The 20% increase in net sales was the result of year-over-year sales growth in Applied Technology (60%), Aerostar (57%) and Engineered Films (5%). The 13% rise in operating income was primarily the result of sales growth and positive operating leverage generated by Applied Technology. The increase in operating income fell short of the growth in sales as a result of negative operating leverage at Electronic Systems, when sales volume slipped due to the loss of a customer and the weak economy. In addition, Engineered Films margins contracted as competitive pricing pressures created by the slowdown in construction activity prevented the pass-through of increased plastic resin costs.

Strategic Investments

In November 2009, the company made two significant investments. These enhanced Applied Technology’s information strategy of providing a comprehensive precision agriculture system to improve productivity and efficiency by transforming field data into knowledge.

Site-Specific Technology Development Group, Inc. (SST)

The company acquired a 20% interest in SST, a privately held agricultural software development and information services provider, for $5.0 million. Raven and SST are strategically aligned to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market.

Ranchview, Inc. (Ranchview)

The company purchased substantially all of the assets of Ranchview, Inc., a privately held Canadian start-up company for $1.5 million cash and contingent consideration valued at $2.3 million. Raven has agreed to pay additional consideration on a quarterly basis of 6% on future sales of Ranchview products, up to a maximum payment of $4.0 million. Ranchview developed products that use cellular networks instead of traditional radio systems that are typically used to deliver RTK (Real Time Kinematic) corrections to GPS enabled equipment.

Cash Flow and Payments to Shareholders

Raven continues to generate strong operating cash flows, hitting a record $47.6 million in fiscal 2010 due to company earnings and lower accounts receivable and inventory levels. Working capital levels reflected both lower business activity and improved management of working capital.

During fiscal 2010, $9.9 million was returned to shareholders through quarterly dividends. The quarterly cash dividend increased from 13 cents per share to 14 cents per share beginning in the second quarter. This represents the 23rd consecutive increase in the annual dividend (excluding special dividends).

During fiscal 2009, $37.1 million was returned to shareholders through stock repurchases, quarterly dividends and a special dividend of $22.5 million paid in November 2008.

Performance Measures

Despite challenging economic conditions, the company continues to generate solid 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 12% return on sales in fiscal 2010. Improved operating efficiencies and cost containment overcame the negative impact of weak market conditions on the company’s net sales and earnings.

2010 ANNUAL REPORT RAVEN 21

Financial Review and Analysis (continued)

RESULTS OF OPERATIONS—SEGMENT ANALYSIS

Applied Technology

Applied Technology provides electronic and Global Positioning System (GPS) products designed to reduce operating costs and improve yields for the agriculture market.

Financial highlights for fiscal years ended January 31,

						%								%
Dollars in thousands		2010				change				2009				change				2008
Applied Technology
Net sales		$	86,217				(16	)%		$	103,098				60	%		$	64,291
Gross profit			37,889				(19	)%			46,591				63	%			28,640
Gross margins			43.9	%							45.2	%							44.5	%
Operating income		$	25,722				(24	)%		$	33,884				77	%		$	19,102
Operating margins			29.8	%							32.9	%							29.7	%

Fiscal 2010 net sales of $86.2 million decreased $16.9 million (16%) and operating income of $25.7 million was down $8.2 million (24%) versus fiscal 2009. Lower sales and operating income were due primarily to a decrease in sales volume partially offset by modest selling price increases.

Fiscal 2010 fourth quarter net sales of $17.3 million were off $2.4 million (12%) and operating income of $4.1 million fell $1.1 million (21%).

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

	•		Economic uncertainty. The government’s calendar 2009 farm income forecast was significantly lower than 2008 actual levels. Farm production costs declined from prior-year levels; however, they were outpaced by the decline in crop prices. Expectations of lower farm income and economic uncertainty led growers and custom spray applicators to defer purchases. These factors had a negative impact on substantially all of the segment’s product categories.
	•		New product sales. Products that enable entry into new markets, have new applications, or are customized are included in the new product sales category for 24 months from their release date. Fiscal 2010 new product sales decreased from a year ago, reflecting the highly successful fiscal 2009 launches of innovative field computers.
	•		International sales. International sales of $17.1 million fell $1.7 million (9%) year-over-year. Net sales outside the U.S. accounted for 20% of segment sales in fiscal 2010 versus 18% in fiscal 2009. Declines in some markets were partially offset by expansion into regions not previously served.
	•		Negative operating leverage. Gross margins of 43.9% in fiscal 2010 fell from 45.2% in fiscal 2009. Selling expenses in the latest year were $7.0 million, or 8.1% of net sales, compared with $7.5 million, or 7.3% of net sales, for fiscal 2009. The change in profits and selling expenses as a percentage of sales reflected the negative impact of falling sales on operating leverage.
	•		Research and development. R&D expenses of $5.2 million were flat between the two years; however, they increased as a percentage of net sales—6.0% for fiscal 2010 versus 5.0% for fiscal 2009. Focused investments in R&D are critical to product development, which will support future growth and competitive position in the marketplace.

Fiscal 2009 net sales of $103.1 million increased $38.8 million (60%) and operating income of $33.9 million grew $14.8 million (77%) over fiscal 2008. The increase in sales and operating income was due primarily to higher sales volume and modest selling price increases.

These factors contributed to higher sales volume and strong operating results:

	•		Healthy global farm fundamentals. Commodity prices were strong through the first nine months of the year but fell from their highs. However, agricultural market fundamentals remained strong and continued to influence growers’ capital investment decisions, increasing demand for Applied Technology precision agriculture equipment.
	•		Investments in select global markets. International sales rose to 18% of segment sales in fiscal 2009 compared with 16% in fiscal 2008, an increase of $8.7 million.
	•		Increased acceptance of precision agriculture. Double-digit year-over-year sales growth was achieved for all product categories (standard, precision, steering and AutoboomTM). This reflected strong customer demand for flagship sprayer products as well as newer products such as the CruizerTM—a simple and affordable guidance system targeted at new entrants to the precision agriculture market.

22 2010 ANNUAL REPORT RAVEN

•

Positive operating leverage. Gross margins of 45.2% in fiscal 2009 compared favorably to fiscal 2008 gross margins of 44.5%. Fiscal 2009 selling expenses were $7.5 million, or 7.3% of net sales, compared with fiscal 2008 selling expenses of $5.3 million, or 8.2% of net sales. These improvements came from positive operating leverage generated through increased sales volume.

Engineered Films

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

Financial highlights for fiscal years ended January 31,

						%								%
Dollars in thousands		2010				change				2009				change				2008
Engineered Films
Net sales		$	63,783				(29	)%		$	89,858				5	%		$	85,316
Gross profit			13,013				(10	)%			14,502				(32	)%			21,236
Gross margins			20.4	%							16.1	%							24.9	%
Operating income		$	10,232				(6	)%		$	10,919				(38	)%		$	17,739
Operating margins			16.0	%							12.2	%							20.8	%

Fiscal 2010 net sales of $63.8 million decreased $26.1 million (29%) while operating income of $10.2 million was off $687,000 (6%) versus fiscal 2009. Lower sales and operating income reflected falling sales volume and selling prices.

The year-over-year change was driven primarily by the following factors:

	•		Depressed markets. Dysfunctional credit markets and plunging asset values resulted in weak economic activity. Energy prices plunged as a result of the reduction in economic activity, leading to the decline in the oil and gas exploration market throughout the majority of the year. Similarly, as the flow of credit slowed and economic uncertainty rose, the commercial construction markets suffered. Agricultural commodity prices also fell sharply, resulting in a softening of the agricultural market. The impact of the recession was felt across all of the division’s markets, with sales to the two largest markets—energy and construction—decreasing approximately 40% and 25%, respectively.
	•		Sales volume and selling prices. Selling prices decreased approximately 16% and sales volume, as measured by pounds shipped, fell 17% year-over-year. These negative trends reflected market disruptions, competitive pricing pressures stemming from excess industry capacity and lower resin costs due to relatively low natural gas prices.
	•		Cost containment. Management responded quickly and decisively to the freefall in business activity experienced in the fourth quarter of fiscal 2009. The necessary steps were taken to align the division with the weak business environment, by tightly managing expenses and decreasing headcount.
	•		Margin preservation. Poor economic conditions, volatile material costs and competitive pricing pressures squeezed margins. However, the impact of these factors was more than offset by opportune purchases of prime grade resin and cost containments. Consequently, gross margins increased from 16.1% to 20.4%.
	•		Selling expenses. Selling expenses increased to 3.8% of sales from 3.6% in the prior year. Selling expenses of $2.4 million decreased 25% year-over-year, through reductions in personnel and promotional expenses. However, this lagged the 29% drop in sales.

Fiscal 2010 fourth quarter net sales of $16.7 million increased $2.2 million (15%) from the fourth quarter of fiscal 2009. In addition, the segment posted fourth quarter fiscal 2010 operating income of $2.4 million compared with an operating loss of $178,000 in the fourth quarter of fiscal 2009.

Fiscal 2010 fourth quarter results were affected by the following:

	•		Market stabilization. Sales and profit comparisons were favorable, as fourth quarter fiscal 2009 financial results were deeply affected by the freefall in business activity.
	•		Sales volume. Higher sales for the quarter were largely volume driven. Greater business activity and growth in emerging markets drove oil prices to levels adequate to support an increase in drilling activity. As a result, fourth quarter sales of pit and pond lining films to the oil and gas exploration markets rose 40% as distributors replenished inventory levels.
	•		Margin expansion. Gross margins increased from 3.6% for last year’s fourth quarter to 18.5%. Last year’s margins were negatively affected by a sudden decrease in sales volume on a relatively high-cost base and high-cost inventory.

2010 ANNUAL REPORT RAVEN 23

Financial Review and Analysis (continued)

Fiscal 2009 net sales of $89.9 million increased $4.5 million (5%) while operating income of $10.9 million fell $6.8 million (38%) versus fiscal 2008.

Fiscal 2009 results were driven by these trends:

	•		Sales volume and selling prices. Sales increased due to higher volume coupled with a modest increase in selling prices. Strong sales of pit and pond lining films to the oil and gas market and higher agriculture sales were partially offset by a decline in sales to the manufactured housing market.
	•		Margin contraction. Depressed margins reflected volatile material costs, increased price competition and poor economic conditions. Competitive pricing pressures—especially in the construction market—hindered the ability to pass on higher resin costs. This meant production costs outpaced increases in selling prices. Gross margins decreased from 24.9% in fiscal 2008 to 16.1% in fiscal 2009.
	•		Selling expenses. Fiscal 2009 selling expenses of $3.2 million were relatively flat year-over-year.

Electronic Systems

Electronic Systems is a total-solutions provider of electronics manufacturing services, primarily to North American original equipment manufacturers.

Financial highlights for fiscal years ended January 31,

						%								%
Dollars in thousands		2010				change				2009				change				2008
Electronic Systems
Net sales		$	63,525				2	%		$	61,983				(9	)%		$	67,987
Gross profit			10,258				42	%			7,218				(38	)%			11,557
Gross margins			16.1	%							11.6	%							17.0	%
Operating income		$	8,979				52	%		$	5,926				(43	)%		$	10,365
Operating margins			14.1	%							9.6	%							15.2	%

Fiscal 2010 net sales of $63.5 million increased $1.5 million (2%) and operating income of $9.0 million grew $3.1 million (52%) from fiscal 2009.

Fiscal 2010 full-year comparative results reflected the following:

	•		Growth from existing customers. The 2% rise in sales was attributable to higher deliveries of avionics (10%) and secure communication electronics (20%) to meet increased demand from government agencies and the aerospace market, partially offset by a smaller customer base.
	•		Margin expansion. Gross margins expanded as a result of positive operating leverage produced through increased sales to existing customers, favorable product mix and cost controls—such as headcount reductions and facility consolidation.
	•		Selling expenses. Selling expenses of $1.2 million (1.8% of sales) were consistent with the prior year.

Fiscal 2010 fourth quarter net sales of $13.8 million fell $2.3 million (14%) and operating income of $2.0 million decreased $288,000 (13%) from fourth quarter fiscal 2009.

Fiscal 2010 fourth quarter comparative results reflected the following:

•

Secure communication electronics and avionics. Fourth quarter sales declined 14% due to lower sales of secure communication electronics, reflecting lower demand from government agencies, and slower avionics deliveries, as commercial airlines began cancelling or delaying delivery schedules. Approximately 70% of avionics sales are related to military aircraft, which mitigate the negative impact of disruptions on commercial deliveries.

Fiscal 2009 net sales of $62.0 million decreased $6.0 million (9%) and operating income of $5.9 million declined $4.4 million (43%) from fiscal 2008.

The following factors affected fiscal 2009 full-year comparative results:

	•		Slower consumer spending. Hand-held bed control shipments were negatively affected by lower consumer spending on non-essential home-related products, reflecting the influence of financial uncertainty on consumer sentiment and a soft construction market.
	•		Loss of a customer. Fiscal 2008 results included $7 million of sales to a former customer (which was acquired) and a profitable non-repeat close-out order.

24 2010 ANNUAL REPORT RAVEN

	•		Increased sales of avionics. Strong sales of avionics partially offset the negative impact of the factors mentioned earlier.
	•		Negative operating leverage. Gross margins suffered from negative operating leverage on lower sales and a less favorable product mix. Fiscal 2009 third and fourth quarter operating expenses were reduced by consolidating manufacturing space, which led to improved gross margins in the second half of the year.
	•		Selling expenses. Selling expenses of $1.1 million (1.7% of sales) were consistent with the prior year.

Aerostar

Aerostar manufactures military parachutes, protective wear, custom-shaped inflatable products and high-altitude and tethered aerostats for government and commercial research.

Financial highlights for fiscal years ended January 31,

						%								%
Dollars in thousands		2010				change				2009				change				2008
Aerostar
Net sales		$	27,244				0	%		$	27,186				57	%		$	17,290
Gross profit			6,632				28	%			5,189				121	%			2,343
Gross margins			24.3	%							19.1	%							13.6	%
Operating income		$	5,634				34	%		$	4,219				180	%		$	1,506
Operating margins			20.7	%							15.5	%							8.7	%

Fiscal 2010 net sales of $27.2 million were flat and operating income of $5.6 million grew $1.4 million (34%) over fiscal 2009.

Fiscal 2010 fourth quarter net sales of $8.9 million decreased $1.3 million (12%) and operating income of $2.1 million increased $299,000 (17%) versus fiscal 2009.

Fiscal 2010 fourth quarter and full-year comparative results were primarily attributable to the following:

	•		Sales volumes. Flat year-over-year sales reflected increased deliveries of MC-6 Army parachutes, aerostats and research balloons, which were offset by decreased deliveries of protective wear due to the completion of a large contract in January 2009. Fourth quarter sales dropped 12% as fiscal 2009 fourth quarter results included nearly $3 million of MC-6 parachute deliveries that were delayed from the prior quarter due to contract modifications.
	•		Margin expansion. The improvement in gross and operating margins came from increased parachute manufacturing efficiencies. Final production runs and deliveries of the MC-6 parachute contract were made at the end of fiscal 2010. Fiscal 2010 was the most profitable year for the program, primarily due to the higher efficiency level attained.
	•		Selling expenses. Selling expenses of $800,000 (2.9% of sales) were consistent with the prior year.

Fiscal 2009 net sales of $27.2 million increased $9.9 million (57%) and operating income of $4.2 million grew $2.7 million (180%) over fiscal 2008.

Fiscal 2009 comparative results were primarily affected by the following items:

	•		Government contracts. Shipments of protective wear and MC-6 parachutes increased year-over-year. Deliveries under the $20.7 million MC-6 Army parachute and $6.5 million protective wear contracts began in the fourth quarter of fiscal 2008.
	•		Positive operating leverage. Gross margins of 19.1% in fiscal 2009 compared favorably with gross margins of 13.6% in fiscal 2008, bolstered by increased MC-6 Army parachute and protective wear shipments.
	•		Selling expenses. Fiscal 2009 selling expenses of 3.1% of net sales compared favorably with 4.1% of net sales in fiscal 2008. Selling expenses of $856,000 increased 22% year-over-year; however, the increase lagged the 57% rise in sales.

2010 ANNUAL REPORT RAVEN 25

		Financial Review and Analysis (continued)
		Corporate Expenses (administrative expenses, income taxes and interest income and other, net)

Dollars in thousands		2010				2009				2008
Administrative expenses		$	7,407			$	8,502			$	7,467
Administrative expenses as a % of sales			3.1	%			3.0	%			3.2	%
Interest income and other, net		$	102			$	507			$	1,079
Effective tax rate			34.0	%			34.4	%			34.2	%

Administrative expenses declined 13% in fiscal 2010 compared with fiscal 2009, driven by headcount reductions and lower incentive compensation and legal expenses. Administrative expenses increased 14% in fiscal 2009 compared with fiscal 2008, as a result of higher compensation and professional service expense.

“Interest income and other, net” consists mainly of interest income, bank fees and foreign currency transaction gain or loss. The year-over-year declines of $405,000 in fiscal 2010 and $572,000 in fiscal 2009 were attributable primarily to a decrease in interest income due to lower interest rates.

Effective tax rates for the three years presented were favorably affected by the U.S. federal tax deduction from income attributable to manufacturing activities.

OUTLOOK

Management expects to be challenged by a difficult operating environment in fiscal 2011, due to high unemployment, weak residential and consumer construction and continued de-leveraging of consumer and corporate balance sheets. Despite this subdued economic outlook, management anticipates near-term growth through market share gains, new products and geographic expansion. Long-term growth will be driven by 1) research and development, 2) capital investment in new products and technologies, 3) strategic investments to augment existing products and markets and 4) continued expansion of the company’s global reach. The successful execution of the company’s fiscal 2010 strategy of preserving and generating cash and tightly managing costs has strengthened the company’s core businesses.

Applied Technology

Management anticipates fiscal 2011 sales growth to be in the 10% range. New product sales—including those developed through the Ranchview acquisition—and international market growth are expected to offset weakness in the domestic agriculture market.

Global opportunities continue, due to rising global demand for food, heightened environmental concerns and broadening recognition of precision agriculture as a modest capital investment with rapid returns. Applied Technology continues to see significant opportunities in developing markets—such as Eastern Europe, Russia and Brazil—and developed markets—such as Canada, Europe and Australia.

Previous investments in product development and global expansion, along with the recent investments in SST and Ranchview, position Applied Technology as a premier total precision solutions provider (GPS steering devices, planting and spraying controls, data collection, transmission, storage and analysis). In addition, the division will benefit from the continued focus on “ease of use” and product “localization.”

Engineered Films

Engineered Films financial results have been affected by global economic weakness and associated declines in oil and gas consumption and construction activity. However, the prompt re-alignment of the cost structure with market conditions has strengthened the division’s position for fiscal 2011.

Fiscal 2011 revenue growth is targeted in the 10% range on a constant dollar basis. The volatile pricing environment could materially affect actual sales levels. Management anticipates increased sales of geomembrane products for lining and capping landfills, water canals and reservoirs. In addition, Engineered Films continues to develop new products, and market innovative products such as FeedFresh^TM silage covers and VaporBlock Plus^TM radon barriers. Ultimately, Engineered Films growth is dependent on the reversal of the severe economic contraction, particularly in the oil and gas drilling and construction markets.

Electronic Systems

In fiscal 2011, management anticipates Electronic Systems to maintain a good level of profit and cash flow on relatively flat sales. Lower avionics revenues are expected to be substantially offset by higher sales of secure communications and controls.

Aerostar

Management believes revenue growth of 50% or more can be achieved by Aerostar in the coming year. The three-year MC-6 parachute contract, completed at the end of fiscal 2010, will be replaced by deliveries on the T-11 parachute contract in fiscal 2011. In addition, Aerostar’s growth

26 2010 ANNUAL REPORT RAVEN

strategy, which focused on tethered aerostat systems for use in persistent surveillance by the military, is beginning to generate significant sales orders. More than $7 million in orders were received in the fourth quarter of fiscal 2010. Aerostar will continue to capitalize on opportunities in the tethered aerostat market throughout fiscal 2011 and expects significant growth in this product line. The profit impact of higher sales is expected to be partially offset by start-up costs on new contracts.

Corporate and other

Administrative costs in fiscal 2011 are expected to approach fiscal 2009 levels due to higher compensation costs. The increase in the U.S. manufacturer’s tax deduction should reduce the company’s effective income tax rate by approximately one percentage point, although this could be offset if the research and development income tax credit is not renewed in the U.S.

LIQUIDITY AND CAPITAL RESOURCES

The company’s liquidity and capital resources are strong despite the global economic recession. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been Raven’s primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows, will be enough to fund the company’s operating, investing and financing activities.

Raven’s cash needs are seasonal, with working capital demands strongest in the first quarter. As a result, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in working capital.

Cash, cash equivalents and short-term investments totaled $43.7 million at January 31, 2010, a $27.4 million increase from $16.3 million on the same date in 2009. In November 2008, the company paid a special cash dividend of $22.5 million.

In addition, Raven has an uncollateralized credit agreement that provides an $8.0 million line of credit. The credit line is expected to be renewed during fiscal 2011, as the maturity date on the current line of credit is September 1, 2010.

Operating Activities

Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services and employee compensation. Management evaluates working capital levels through the computation of average day’s sales outstanding and inventory turnover. Average day’s sales outstanding is a measure of the company’s efficiency in enforcing its credit policy. The inventory turnover ratio is a metric used to evaluate the effectiveness of inventory management, with further consideration given to balancing the disadvantages of excess inventory with the risk of delayed customer deliveries.

Cash provided by operating activities was $47.6 million in fiscal 2010 compared with $39.0 million in fiscal 2009. The increase in operating cash flows is the result of favorable variability in working capital needs, partially offset by lower company earnings.

Reductions in inventory and accounts receivable have combined to generate $7.9 million in cash versus cash consumed of $4.2 million in fiscal 2009. Lower business levels, disciplined inventory management (inventory turnover of 5.3X in fiscal 2010 versus 5.2X in fiscal 2009) and improved cash collections (average day’s sales outstanding of 52 days in fiscal 2010 versus 54 days in fiscal 2009) resulted in strong operating cash flows. Additionally, year-over-year variability in accounts payable generated $2.9 million in cash, as compared with $963,000 in fiscal 2009, due to more favorable payment terms. This favorable cash impact was partially offset by a decrease in accrued liabilities, which reflected lower compensation accruals and the acceleration of a $1.1 million cash contribution to the employee 401(k) plan, due to a change in the plan design. Fiscal 2010 bad debt recoveries of $183,000 compared favorably to prior-year expense of $629,000, reflecting lower sales and more stable economic conditions—particularly as it related to the company’s international exposure.

Fiscal 2009 cash provided by operating activities was $39.0 million, an increase of $11.9 million from $27.2 million in fiscal 2008. The improvement in fiscal 2009 operating cash flows versus one year earlier was due primarily to company earnings, lower inventory levels and a higher accounts payable balance. Inventory declined to $36.0 million in fiscal 2009 from $36.5 million in fiscal 2008. Lower Engineered Films inventories were partially offset by higher levels at Applied Technology. Accounts payable at January 31, 2009, of $9.4 million was up 13% from one year earlier, reflecting more favorable payment terms. Partially offsetting these cash flow improvements was cash consumed to finance higher accounts receivable. Accounts receivable rose from $36.5 million in fiscal 2008 to $40.3 million at January 31, 2009, with Applied Technology sales growth and seasonal payment terms offered to the agricultural market accounting for the majority of the increase. Fiscal 2009 bad debt expense of $629,000 was up $538,000 from the prior year. This reflected specific customer receivable writeoffs, as well as additional reserves for increased international exposure.

2010 ANNUAL REPORT RAVEN 27

Financial Review and Analysis (continued)

Investing Activities

Cash used in investing activities totaled $13.4 million in fiscal 2010, $7.0 million in fiscal 2009 and $4.4 million in fiscal 2008. The fiscal 2010 increase of $6.4 million reflected a $4.5 million increase in net purchases of short-term investments and $6.5 million of cash outlays for the SST and Ranchview investments, partially offset by a $4.7 million decrease in capital expenditures.

Additional cash consumed between fiscal 2009 and 2008 was due primarily to higher capital expenditures to support the increased manufacturing requirements of Applied Technology.

Management anticipates fiscal 2011 capital spending of roughly $8 million.

Financing Activities

Cash used in financing activities is primarily for dividend payments and repurchases of common stock.

Financing activities consumed cash of $9.9 million in fiscal 2010 compared with $37.0 million in fiscal 2009 and $8.3 million in fiscal 2008.

The quarterly cash dividend was increased by 8 percent to 14 cents per share in the second quarter of fiscal 2010. Quarterly dividends of $9.9 million, or 55 cents per share, were paid in the current year compared with $9.4 million, or 52 cents per share, in fiscal 2009. In addition, a special dividend of $1.25 per share was paid in November 2008. The $22.5 million special dividend was in response to Raven’s strong cash position and commitment to return excess cash to shareholders. Treasury stock purchases totaled $5.2 million for fiscal 2009. No treasury stock purchases were made in fiscal 2010, as the share repurchase program was suspended in July 2008.

The change between fiscal 2009 and 2008 financing activity cash flows was the result of an increase in quarterly dividends, stock repurchases and the fiscal 2009 special dividend. Repurchases of the company’s common stock totaled $5.2 million (161,100 shares) in fiscal 2009 in contrast to $592,000 (20,150 shares) in fiscal 2008. The fiscal 2009 quarterly dividend of 13 cents per share increased from 11 cents per share one year earlier.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

As of January 31, 2010, the company is obligated to make cash payments in connection with its non-cancelable operating leases for facilities and equipment and unconditional purchase obligations—primarily for raw materials—in the amounts listed below. The company has no off-balance sheet debt or other unrecorded obligations other than the items noted in the following table. In addition to the commitments noted there, standby letters of credit totaling $1.3 million have been issued, primarily to support self-insured workers compensation bonding requirements. In the event the bank chooses not to renew the company’s line of credit, the letters of credit would cease and alternative methods of support for the insurance obligations would be necessary, would be more expensive and would require additional cash outlays. Management believes the chances of this are remote. A summary of the obligations and commitments at January 31, 2010, and for the next five years is shown below.

						Less												More
						than				1-3				3-5				than
Dollars in thousands		Total				1 year				years				years				5 years
Contractual Obligations:
Line of credit(a)		$	—			$	—			$	—			$	—			$	—
Operating leases			304				234				70				—				—
Postretirement benefits			5,512				229				528				599				4,156
Unconditional purchase obligations			42,359				42,359				—				—				—
Uncertain tax positions(b)			—				—				—				—				—
		$	48,175			$	42,822			$	598			$	599			$	4,156

CRITICAL ACCOUNTING ESTIMATES

Critical accounting policies are those that require the application of judgment when valuing assets and liabilities on the company’s balance sheet. These policies are discussed below, because a fluctuation in actual results versus expected results could materially affect operating results and because the policies require significant judgments and estimates to be made. Accounting related to these policies is initially based on best estimates at the time of original entry in the accounting records. Adjustments are periodically recorded when the company’s actual experience differs from the expected experience underlying the estimates. These adjustments could be material if experience

28 2010 ANNUAL REPORT RAVEN

were to change significantly in a short period of time. The company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, Raven has used derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on transactions that are denominated in currency other than its functional currency, which is the U.S. dollar. The use of these financial instruments had no material effect on the company’s financial condition, results of operations or cash flows.

Inventories

Raven’s most significant accounting judgment is determining inventory value at the lower of cost or market. The company estimates inventory valuation each quarter. Typically, when a product reaches the end of its life cycle, inventory value declines slowly or the product has alternative uses. Management uses its manufacturing resources planning data to help determine if inventory is slow-moving or has become obsolete due to an engineering change. The company closely reviews items that have balances in excess of the prior year’s requirements, or that have been dropped from production requirements. Despite these reviews, technological or strategic decisions made by management or Raven’s customers may result in unexpected excess material. Electronic Systems typically has recourse to customers for obsolete or excess material. When Electronic Systems customers authorize inventory purchases—especially with long lead-time items—they are required to take delivery of unused material or compensate the company accordingly. In every Raven operating unit, management must manage obsolete inventory risk. The accounting judgment ultimately made is an evaluation of the success that management will have in controlling inventory risk and mitigating the impact of obsolescence when it does occur.

Warranties

Estimated warranty liability costs are based on historical warranty costs and average time elapsed between purchases and returns for each business segment. Warranty issues that are unusual in nature are accrued for individually.

Allowance for Doubtful Accounts

Determining the level of the allowance for doubtful accounts requires management’s best estimate of the amount of probable credit losses based on historical writeoff experience by segment and an estimate of the collectibility of any known problem accounts. Factors that are considered beyond historical experience include the length of time the receivables are outstanding, the current business climate and the customer’s current financial condition.

Revenue Recognition

The company recognizes and records revenue when products are shipped because there is persuasive evidence of an arrangement, the sales price is determinable, collectibility is reasonably assured and delivery has occurred. Estimated returns, sales allowances or warranty charges are recognized upon shipment of a product. The company sells directly to customers or distributors that incur the expense and commitment for any post-sale obligations beyond stated warranty terms.

Goodwill

Management assesses goodwill for impairment annually—or more frequently if events or changes in circumstances indicate that an asset might be impaired—using fair value measurement techniques. For goodwill, Raven performs impairment reviews by reporting units. Reporting units are the company’s reportable segments, except that Aerostar’s goodwill is related specifically to its high-altitude research balloon operation and is accordingly evaluated independently from Aerostar’s other operations.

In the first step of goodwill impairment testing, the corporate discount rate is calculated so that the discounted cash flows are equal to Raven’s net enterprise value. The corporate discount rate is then increased when evaluating any individual reporting unit due to any additional risk factors inherent within the unit versus the corporation as a whole. A discounted cash flow analysis is then completed for the reporting unit using the adjusted discount rate. The discounted cash flow assumptions primarily include forecasted sales and costs and the discount rate. Management evaluates the merits of each significant assumption used to determine the fair value of the reporting unit.

The estimated fair value of the reporting unit is then compared with its net assets. If the estimated fair value of the reporting unit is less than the net assets of the reporting unit, an impairment loss is possible and a more refined measurement of the impairment loss would take place. This is the second step of the goodwill impairment testing, in which management may use market comparisons and recent transactions to assign the fair value of the reporting unit to all of the assets and liabilities of that unit. The valuation methodologies in both steps of goodwill impairment testing use significant estimates and assumptions, which include projected future cash flows (including timing and the risks inherent in future cash flows), perpetual growth rates and determination of appropriate market comparables.

2010 ANNUAL REPORT RAVEN 29

Financial Review and Analysis (continued)

Based on the analysis performed during the fourth quarter of fiscal 2010, the fair values of each of the company’s reporting units were in excess of their carrying values by more than 60%; therefore, no impairment indicators were noted through the step one impairment analysis, and a step two analysis was not considered necessary.

Long-lived Assets

For long-lived assets—including intangibles; investments in affiliates; and property, plant and equipment—management tests for recoverability whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. Property, plant and equipment are depreciated over the estimated lives of the assets using accelerated methods, which reduces the likelihood of an impairment loss. Management periodically discusses any significant changes in the utilization of long-lived assets, which may result from—but are not limited to—an adverse change in the asset’s physical condition or a significant adverse change in the business climate. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining its fair value.

Uncertain Tax Positions

Accounting for tax positions requires judgments, including estimating reserves for uncertainties associated with the interpretation of income tax laws and regulations and the resolution of tax positions with tax authorities after discussions and negotiations. The ultimate outcome of these matters could result in material favorable or unfavorable adjustments to the consolidated financial statements.

NEW ACCOUNTING STANDARDS

In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification), which became the single source of authoritative generally accepted accounting principles (GAAP) in the United States, other than rules and interpretive releases issued by the Securities and Exchange Commission (SEC). The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and instead establishes two levels of guidance: authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification became non-authoritative. The company adopted the Codification in the third quarter of fiscal 2010, which resulted in no changes to the content of the company’s financial statements or disclosures.

At the beginning of fiscal 2010, the company adopted FASB guidance that amends required disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures about (a) how and why derivative instruments are used; (b) how derivative instruments and related hedged items are accounted for; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows.

At the beginning of fiscal 2010, the company adopted FASB guidance that amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets and apply to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. Entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows.

In June 2009, the FASB amended its guidance on accounting for variable interest entities. This guidance alters the approach to determining the primary beneficiary of a variable interest entity, and requires companies to more frequently assess whether they must consolidate variable interest entities. The guidance is effective for the first annual reporting period beginning after November 15, 2009, and for interim periods within that first annual reporting period. The adoption of this guidance on February 1, 2010, is not expected to have a material impact on the company’s consolidated results of operations, financial condition or cash flows.

In October 2009, the FASB issued guidance on the accounting for multiple-deliverable revenue arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate of selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand-alone basis. This guidance also expands the required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The guidance is effective beginning February 1, 2011, with early adoption permitted. The company has adopted the new guidance prospectively from the beginning of the fiscal year and determined that there is no material impact on its consolidated results of operations, financial condition, cash flows or disclosures, as the company had no significant multiple-deliverable arrangements during or at the end of the fiscal year.

30 2010 ANNUAL REPORT RAVEN

Monthly Closing Stock Price and Volume

Quarterly Information (Unaudited)

						Gross Profit																				Net Income								Common Stock								Cash
Dollars in thousands,		Net				As				As				Operating				Pretax				Net				Per Share (b)								Market Price								Dividends
except per-share data		Sales				Reported				Reclassified(a)				Income				Income				Income				Basic				Diluted				High				Low				Per Share
FISCAL 2010
First Quarter		$	65,222			$	18,970			$	20,428			$	14,113			$	14,114			$	9,231			$	0.51			$	0.51			$	24.65			$	15.37			$	0.13
Second Quarter			56,586				13,821				15,112				9,306				9,411				6,204				0.34				0.34				31.00				23.99				0.14
Third Quarter			60,158				15,510				16,918				11,119				11,116				7,293				0.40				0.40				32.43				24.47				0.14
Fourth Quarter			55,816				14,034				15,394				8,682				8,681				5,846				0.32				0.32				33.18				24.04				0.14
Total Year		$	237,782			$	62,335			$	67,852			$	43,220			$	43,322			$	28,574			$	1.58			$	1.58			$	33.18			$	15.37			$	0.55
FISCAL 2009
First Quarter		$	75,166			$	22,015			$	23,288			$	16,641			$	16,759			$	10,882			$	0.60			$	0.60			$	32.80			$	25.94			$	0.13
Second Quarter			69,278				15,786				17,197				10,312				10,488				6,815				0.38				0.38				39.50				29.46				0.13
Third Quarter			75,538				18,001				19,564				12,371				12,548				8,385				0.47				0.46				47.82				25.79				0.13
Fourth Quarter			59,931				12,079				13,399				7,070				7,106				4,688				0.26				0.26				33.24				20.60				1.38	(c)
Total Year		$	279,913			$	67,881			$	73,448			$	46,394			$	46,901			$	30,770			$	1.71			$	1.70			$	47.82			$	20.60			$	1.77
FISCAL 2008
First Quarter		$	58,103			$	17,374			$	18,400			$	12,838			$	13,025			$	8,540			$	0.41			$	0.47			$	30.84			$	26.20			$	0.11
Second Quarter			55,653				13,407				14,445				8,543				8,857				5,843				0.32				0.32				39.36				28.39				0.11
Third Quarter			61,842				15,299				16,504				10,940				11,254				7,398				0.41				0.41				45.85				33.42				0.11
Fourth Quarter			58,359				13,068				14,327				8,824				9,088				6,021				0.33				0.33				42.75				27.57				0.11
Total Year		$	233,957			$	59,148			$	63,676			$	41,145			$	42,224			$	27,802			$	1.54			$	1.53			$	45.85			$	26.20			$	0.44

2010 ANNUAL REPORT RAVEN 31

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed our internal control over financial reporting in relation to criteria described in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using those criteria, we concluded that, as of January 31, 2010, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of January 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on page 46 of this Annual Report.

Ronald M. Moquist				Thomas Iacarella
President & Chief Executive Officer				Vice President & Chief Financial Officer
March 31, 2010

32 2010 ANNUAL REPORT RAVEN

Consolidated Balance Sheets

		As of January 31
Dollars in thousands, except per-share data		2010				2009				2008
ASSETS
Current assets
Cash and cash equivalents		$	40,684			$	16,267			$	21,272
Short-term investments			3,000				—				1,500
Accounts receivable, net			34,327				40,278				36,538
Inventories			34,475				35,977				36,529
Deferred income taxes			2,471				2,542				2,075
Other current assets			2,790				3,009				2,955
Total current assets			117,747				98,073				100,869
Property, plant and equipment, net			33,029				35,880				35,743
Goodwill			10,699				7,450				6,902
Other assets, net			8,834				3,012				4,347
Total assets		$	170,309			$	144,415			$	147,861
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	12,398			$	9,433			$	8,374
Accrued liabilities			12,256				13,281				12,804
Customer advances			1,306				608				930
Total current liabilities			25,960				23,322				22,108
Other liabilities			11,098				7,537				7,478
Commitments and contingencies
Shareholders’ equity			133,251				113,556				118,275
Common shares, par value $1.00 per share Authorized—100,000,000 Outstanding—2010: 18,029,733; 2009: 18,012,251 2008: 18,120,513
Total liabilities and shareholders’ equity		$	170,309			$	144,415			$	147,861

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

2010 ANNUAL REPORT RAVEN 33

Consolidated Statements of Income

		For the years ended January 31
Dollars in thousands, except per-share data		2010				2009				2008
Net sales		$	237,782			$	279,913			$	233,957
Cost of goods sold			169,930				206,465				170,281
Gross profit			67,852				73,448				63,676
Research and development expenses			5,843				5,848				4,925
Selling, general and administrative expenses			18,789				21,206				17,606
Operating income			43,220				46,394				41,145
Interest income and other, net			(102	)			(507	)			(1,079	)
Income before income taxes			43,322				46,901				42,224
Income taxes			14,748				16,131				14,422
Net income		$	28,574			$	30,770			$	27,802
Net income per common share:
—Basic		$	1.58			$	1.71			$	1.54
—Diluted		$	1.58			$	1.70			$	1.53

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

34 2010 ANNUAL REPORT RAVEN

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

																						Accumulated
		$1 Par																				other
		common				Paid-in				Treasury stock								Retained				comprehensive
Dollars in thousands, except per-share data		stock				capital				Shares				Cost				earnings				income (loss)				Total
Balance January 31, 2007		$	32,307			$	2,341				(14,267,433	)		$	(47,590	)		$	113,103			$	(1,893	)		$	98,268
Net income			—				—				—				—				27,802				—				27,802
Postretirement benefits, net of $84 income tax			—				—				—				—				—				156				156
Foreign currency translation			—				—				—				—				—				131				131
Total comprehensive income																											28,089
Change in accounting for uncertain tax positions			—				—				—				—				(716	)			—				(716	)
Dividends ( $.44 per share)			—				4				—				—				(7,970	)			—				(7,966	)
Purchase of stock			—				—				(20,150	)			(592	)			—				—				(592	)
Stock surrendered upon exercise of stock options			(47	)			(1,462	)			—				—				—				—				(1,509	)
Employees’ stock options exercised			148				1,170				—				—				—				—				1,318
Share-based compensation			—				904				—				—				—				—				904
Tax benefit from exercise of stock options			—				479				—				—				—				—				479
Balance January 31, 2008			32,408				3,436				(14,287,583	)			(48,182	)			132,219				(1,606	)			118,275
Net income			—				—				—				—				30,770				—				30,770
Postretirement benefits, net of $375 income tax			—				—				—				—				—				698				698
Foreign currency translation			—				—				—				—				—				(246	)			(246	)
Total comprehensive income																											31,222
Dividends ($.52 per share)			—				7				—				—				(9,381	)			—				(9,374	)
Dividends (special—$1.25 per share)			—				18				—				—				(22,528	)			—				(22,510	)
Purchase of stock			—				—				(161,100	)			(5,180	)			—				—				(5,180	)
Stock surrendered upon exercise of stock options			(34	)			(1,258	)			—				—				—				—				(1,292	)
Employees’ stock options exercised			83				1,176				—				—				—				—				1,259
Share-based compensation			4				1,024				—				—				—				—				1,028
Tax benefit from exercise of stock options			—				128				—				—				—				—				128
Balance January 31, 2009			32,461				4,531				(14,448,683	)			(53,362	)			131,080				(1,154	)			113,556
Net income			—				—				—				—				28,574				—				28,574
Postretirement benefits, net of ($122) income tax			—				—				—				—				—				(226	)			(226	)
Foreign currency translation			—				—				—				—				—				179				179
Total comprehensive income																											28,527
Dividends ( $.55 per share)			—				11				—				—				(9,922	)			—				(9,911	)
Stock surrendered upon exercise of stock options			(51	)			(1,319	)			—				—				—				—				(1,370	)
Employees’ stock options exercised			65				1,374				—				—				—				—				1,439
Share-based compensation			3				1,031				—				—				—				—				1,034
Tax cost from exercise of stock options			—				(24	)			—				—				—				—				(24	)
Balance January 31, 2010		$	32,478			$	5,604				(14,448,683	)		$	(53,362	)		$	149,732			$	(1,201	)		$	133,251