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EX-21.1 - SUBSIDIARIES OF THE REGISTRANT - RAVEN INDUSTRIES INCexhibit21january312015.htm
EX-10.1 - EXHIBIT 10.1 - RAVEN INDUSTRIES INCexhibit101january312015.htm
EXCEL - IDEA: XBRL DOCUMENT - RAVEN INDUSTRIES INCFinancial_Report.xls
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) OF THE SECUR - RAVEN INDUSTRIES INCexhibit311january312015.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) OF THE SECUR - RAVEN INDUSTRIES INCexhibit312january312015.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS - RAVEN INDUSTRIES INCexhibit322january312015.htm
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - RAVEN INDUSTRIES INCexhibit23january312015.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS - RAVEN INDUSTRIES INCexhibit321january312015.htm

 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2015
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
South Dakota
 
46-0246171
 
 
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
 
205 E. 6th Street, P.O. Box 5107, Sioux Falls, SD
 
57117- 5107
 
 
(Address of principal executive offices)
 
(zip code)
 
 
Registrant's telephone number including area code (605) 336-2750
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class:
 
Name of Each Exchange on which Registered
 
 
Common Stock, $1 par value
 
The NASDAQ Stock Market
 
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
 
 
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ
Yes
o
No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o
Yes
þ
No
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
þ
 
 
 
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
Accelerated filer
o
Non-accelerated filer
o
 
 
Smaller reporting company
o
(Do not check if a smaller reporting company)
 
 
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o
Yes
þ
No
The aggregate market value of the registrant's common stock held by non-affiliates at July 31, 2014 was approximately $1,004,061,955. The aggregate market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $27.87, on July 31, 2014, which was as of the last business day of the registrant's most recently completed second fiscal quarter. The number of shares outstanding on March 20, 2015 was 38,049,802.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 21, 2015, is incorporated by reference into Part III to the extent described therein.
 
 
 
 
 



PART I
 
 
Item 1.
BUSINESS
 
Item 1A.
RISK FACTORS
 
Item 1B.
UNRESOLVED STAFF COMMENTS
 
Item 2.
PROPERTIES
 
Item 3.
LEGAL PROCEEDINGS
 
Item 4.
MINE SAFETY DISCLOSURES
 
 
 
 
 
PART II
 
 
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 
Quarterly Information
 
 
Stock Performance
 
Item 6.
SELECTED FINANCIAL DATA
 
 
Eleven-year Financial Summary
 
 
Business Segments
 
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
Executive Summary
 
 
Results of Operations - Segment Analysis
 
 
Outlook
 
 
Liquidity and Capital Resources
 
 
Off-Balance Sheet Arrangements and Contractual Obligations
 
 
Critical Accounting Estimates
 
 
Accounting Pronouncements
 
 
Forward-Looking Statements
 
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
Management's Report on Internal Control Over Financial Reporting
 
 
Report of Independent Registered Public Accounting Firm
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Income and Comprehensive Income
 
 
Consolidated Statements of Shareholders' Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Item 9A.
CONTROLS AND PROCEDURES
 
Item 9B.
OTHER INFORMATION
 
 
 
 
 
PART III
 
 
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Item 11.
EXECUTIVE COMPENSATION
 
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
 
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES 
 
 
 
 
 
PART IV
 
 
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
 
INDEX TO EXHIBITS
 
SIGNATURES
 
SCHEDULE II
 






PART I
 
 
 
ITEM 1.
BUSINESS

Raven Industries, Inc. (the Company or Raven) was incorporated in February 1956 under the laws of the State of South Dakota and began operations later that same year. The Company is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy, construction, and military/aerospace markets. The Company markets its products around the world and has its principal operations in the United States of America. Raven began operations as a manufacturer of high-altitude research balloons before diversifying into product lines that extended from technologies and production methods of this original balloon business. The Company employs approximately 1,200 people and is headquartered at 205 E. Sixth Street, Sioux Falls, SD 57104 - telephone (605) 336-2750. The Company's Internet address is http://www.ravenind.com and its common stock trades on the NASDAQ Global Select Market under the symbol RAVN. The Company has adopted a Code of Conduct applicable to all officers, directors and employees, which is available on the website. Information on the Company's website is not part of this filing.

All reports (including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K) and proxy and information statements filed with the Securities and Exchange Commission (SEC) are available through a link from the Company's website to the SEC website. All such information is available as soon as reasonably practicable after it has been electronically filed. Filings can also be obtained free of charge by contacting the Company or through the SEC's website at http://www.sec.gov or by contacting the SEC's Office of FOIA/PA Operations at 100 F Street N.E., Washington, DC 20549-2736, or calling the SEC at 1-800-SEC-0330.

BUSINESS SEGMENTS

The Company has three unique operating units, or divisions, that are also its reportable segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films), and Aerostar Division (Aerostar). Many of the past and present product lines are an extension of technology and production methods developed in the original balloon business. Product lines have been grouped in these segments based on common technologies, production methods and inventories; however, more than one business segment may serve each of the product markets identified above. The Company measures the performance of its segments based on their operating income excluding administrative and general expenses. Other expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets. Segment information is reported consistent with the Company's management reporting structure.
Business segment financial information is found on the following pages of this Annual Report on Form 10-K (Form 10-K):
Business Segments
Results of Operations – Segment Analysis
Note 13 Business Segments and Major Customer Information

Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs and improve farm yields around the world.  The Applied Technology product families include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, planter controls, and harvest controls. As described more fully in Note 5 Acquisition of and Investments in Businesses and Technologies of the Notes to the Consolidated Financial Statements of this Form10-K, in May 2014, the Company completed the purchase of SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG). The acquisition broadened Applied Technology Division’s guided steering system product line by adding high-accuracy implement steering applications. Applied Technology's services include high-speed in-field Internet connectivity and cloud-based data management. The Company's investments in Site-Specific Technology Development Group, Inc. (SST), a software company, and the continued build-out of the Slingshot API platform have positioned Applied Technology to provide an information platform of choice that improves grower decision-making and business efficiencies for our agriculture retail partners.
                                                                                                                      
Applied Technology sells its precision agriculture control products to both original equipment manufacturers (OEMs) and through aftermarket distribution in the United States and in most major agricultural areas around the world. Applied Technology has personnel and third-party distribution representatives located in the U.S. and key geographic areas throughout the world. The

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Company's competitive advantage in this segment is designing and selling easy to use, reliable, and value-added products that are supported by an industry-leading service and support team.

Engineered Films
Engineered Films produces high-performance plastic films and sheeting for energy, agricultural, construction, geomembrane, and industrial applications.

Engineered Films sells plastic sheeting to independent third-party distributors in each of the various markets it serves. The Company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest sheeting converters in the United States in the markets it serves. The acquisition of Integra Plastics, Inc. described more fully in Note 5 Acquisition of and Investments in Businesses and Technologies of this Form 10-K expanded the Company's film production capacity, broadened its product offerings and enhanced conversion capabilities. Engineered Films believes its ability to both extrude and convert films allows it to provide a more customized solution to customer needs. A number of suppliers of sheeting compete with the Company on both price and product availability. Engineered Films is the Company's most capital-intensive business segment, requiring regular investments in new extrusion capacity along with printers and conversion equipment. This segment's capital expenditures were $8.2 million in fiscal 2015, $6.7 million in fiscal 2014, and $11.5 million in fiscal 2013.

Aerostar
Aerostar serves aerospace and situational awareness markets and produces products as a contract manufacturing services provider. These manufactured products have included military parachutes, uniforms, and protective wear. Aerostar's proprietary products include high-altitude balloons, tethered aerostats and radar processing systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness to government and commercial customers. Aerostar’s growth strategy emphasizes the design and manufacture of proprietary products in these markets and is winding down its contract manufacturing operations as planned. Net sales from proprietary products increased from $39.3 million in fiscal 2014 to $49.1 million in fiscal 2015. Net sales from contract manufacturing decreased from $51.3 million in fiscal 2014 to $31.7 million in fiscal 2015.

Aerostar sells to government agencies or commercial users as a prime or sub-contractor. The projects Aerostar bids on can be large-scale, with opportunities in the $10-$100 million range. These opportunities can result in volatility in Aerostar’s results.

Through Vista Research, Inc. (Vista) and a separate business venture that is majority-owned by the Company, Aerostar pursues potential product and support services contracts for agencies and instrumentalities of the U.S. government. The acquisition of Vista in January 2012 positioned the Company to meet growing global demand for lower-cost detection and tracking systems used by government and law enforcement agencies. As a leading provider of surveillance systems that enhance the effectiveness of radar using sophisticated algorithms, Vista allows Aerostar to enhance its tethered aerostat security solutions.

MAJOR CUSTOMER INFORMATION

One customer, Brawler Industrial Fabrics (Brawler) accounted for 10% or more of consolidated sales in fiscal 2015. Sales to Brawler, a customer in the Engineered Films Division, accounted for 14%, 13%, and 11% of consolidated sales in fiscal years 2015, 2014, and 2013.

SEASONAL WORKING CAPITAL REQUIREMENTS

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

FINANCIAL INSTRUMENTS

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

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


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RAW MATERIALS

The Company obtains a wide variety of materials from several vendors. Principal materials include numerous electronic components for Aerostar and Applied Technology, various plastic resins for Engineered Films, and fabrics for Aerostar. Engineered Films has experienced volatile resin prices over the past three years. Price increases could not always be passed on to customers due to weak demand and a competitive pricing environment. Aerostar experiences variability in lead times for components as business cycles impact demand. However, predicting future material volatility and the related potential impact on the Company is not possible.

PATENTS

The Company owns a number of patents. The Company does not believe that its business, as a whole, is materially dependent on any one patent or related group of patents. As the Company continues to develop more technology-based offerings, protection of the Company’s intellectual property has become an increasingly important strategic objective. Along with a more aggressive posture toward patenting new technology and protecting trade secrets, the Company is tightening restrictions on the disclosure of our technology to industry and business partners to ensure that our technological edge is maintained and our markets for new products are protected.
RESEARCH AND DEVELOPMENT

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

ENVIRONMENTAL MATTERS

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

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

The Company and the purchasers of the Company's Glasstite subsidiary conducted environmental assessments of the properties. Although these assessments continue to be evaluated by the MPCA on the basis of the data available, the Company believes that any activities that might be required as a result of the findings of the assessments will not have a material effect on the Company's results of operations, financial position or cash flows. The Company had $37 thousand accrued at January 31, 2015, representing its best estimate of probable costs to be incurred related to these matters.

BACKLOG

As of February 1, 2015, the Company's order backlog totaled approximately $26.7 million. Backlog amounts as of February 1, 2014 and 2013 were $51.8 million and $51.1 million, respectively. Because the length of time between order and shipment varies considerably by business segment and customers can change delivery schedules or potentially cancel orders, the Company does not believe that backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.

EMPLOYEES

As of January 31, 2015, the Company had approximately 1,200 employees. Following is a summary of active employees by segment: Applied Technology - 458; Engineered Films - 374; Aerostar - 263; and Corporate Services - 88. Management believes its employee relations are satisfactory.

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EXECUTIVE OFFICERS
 
 
 
 
 
Name, Age and Position
 
Biographical Data
Daniel A. Rykhus, 50
 
Mr. Rykhus became the Company's President and Chief Executive Officer in 2010. He joined the Company in 1990 as Director of World Class Manufacturing, was General Manager of the Applied Technology Division from1998 through 2009, and served as Executive Vice President from 2004 through 2010.
President and Chief Executive Officer
 
 
 
 
 
 
Steven E. Brazones, 41
 
On December 1, 2014, Steven Brazones joined the Company as its Vice President, Chief Financial Officer, and Treasurer. From 2002 to 2014, Mr. Brazones held a variety of positions with H.B. Fuller Company. Most recently, he served as H.B. Fuller's Americas regional Finance Director. Previously, he served as the Assistant Treasurer and the Director of Investor Relations. Prior to his tenure with H.B. Fuller, Mr. Brazones held various roles at Northwestern Growth.
Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
Stephanie Herseth Sandlin, 44
 
Ms. Herseth Sandlin joined the Company in August 2012 as General Counsel and Vice President of Corporate Development and also became the Company's Secretary in March 2013. Prior to joining the Company, Ms. Herseth Sandlin was a partner at OFW Law in Washington, D.C. from 2011 to 2012 and served as South Dakota's lone member of the United States House of Representatives from 2004 through 2011.  
General Counsel and Vice President of Corporate Development
 
 
 
 
 
 
Janet L. Matthiesen, 57
 
Ms. Matthiesen joined the Company in 2010 as Director of Administration and has been the Company's Vice President of Human Resources since 2012. Prior to joining Raven, Ms. Matthiesen was a Human Resource Manager at Science Applications International Corporation from 2002 to 2010.


Vice President of Human Resources
 
 
 
 
 
 
Matthew T. Burkhart, 39
 
Mr. Burkhart was named Division Vice President and General Manager of the Applied Technology Division in 2010. He joined the Company in 2008 as Director of Sales and became General Manager - Applied Technology Division in 2009. Prior to joining the Company, he was a Branch Manager for Johnson Controls.

Division Vice President and General Manager -
 
Applied Technology Division
 
 
 
 
Anthony D. Schmidt, 43
 
Mr. Schmidt was named Division Vice President and General Manager of the Engineered Films Division in 2012. He joined the Company in 1995 in the Applied Technology Division performing various leadership roles within manufacturing and engineering. He transitioned to Engineered Films Division in 2011 as Manufacturing Manager.
Division Vice President and General Manager -
 
Engineered Films Division
 
 
 
 
Lon E. Stroschein, 40
 
Mr. Stroschein was named Vice President and General Manager of the Aerostar Division in 2010.  He joined the Company in 2008 as International Sales Manager for Applied Technology.  Prior to joining the Company, he was a bank vice president and was a member of the executive staff for a U.S. Senator.   

Division Vice President and General Manager -
 
Aerostar Division
 

ITEM 1A.
RISK FACTORS

RISKS RELATING TO THE COMPANY

The Company's business is subject to many risks. Set forth below are the most important risks that we face. In evaluating our business and your investment in us, you should also consider the other information presented in or incorporated by reference into this Annual Report on Form 10-K.
Weather conditions could affect certain of the Company's markets such as agriculture and construction.
The Company's Applied Technology Division is largely dependent on the ability of farmers and agricultural subcontractors known as custom operators to purchase agricultural equipment that includes its products. If such farmers experience adverse weather conditions resulting in poor growing conditions, or experience unfavorable crop prices or expenses, potential buyers may be less likely to purchase agricultural equipment. Accordingly, weather conditions may adversely affect sales in the Applied Technology Division.

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Weather conditions can also adversely affect sales in the Company's Engineered Films Division. To the extent weather conditions curtail construction or agricultural activity, sales of the segment's plastic sheeting will likely decrease.
Price fluctuations in and shortages of raw materials could have a significant impact on the Company's ability to sustain and grow earnings.
The Company's Engineered Films Division consumes significant amounts of plastic resin, the costs of which reflect market prices for natural gas and oil and other market forces. These prices are subject to worldwide supply and demand as well as other factors beyond the control of the Company. Although the Engineered Films Division is sometimes able to pass such price increases to its customers, significant variations in the cost of plastic resins can affect the Company's operating results from period to period. Unusual supply disruptions, such as caused by a natural disaster, could cause suppliers to invoke “force majeure” clauses in their supply agreements, causing shortages of material. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. If the Company is not able to fully offset the effects of material availability and costs, financial results could be adversely affected.
Electronic components, used by both the Applied Technology Division and Aerostar Division, are sometimes in short supply, impacting our ability to meet customer demand.
If a supplier of raw materials or components were unable to deliver due to shortage or financial difficulty, any of the Company's segments could be adversely affected.
Fluctuations in commodity prices can increase our costs and decrease our sales.
Agricultural income levels are affected by agricultural commodity prices and input costs. As a result, changes in commodity prices that reduce agricultural income levels could have a negative effect on the ability of growers and their contractors to purchase the Company's precision agriculture products manufactured by its Applied Technology Division.
Exploration for oil and natural gas fluctuates with their price. Plastic sheeting manufactured and sold by our Engineered Films Division is sold as pit and pond liners to contain water used in the drilling process. Lower prices for oil and natural gas could reduce exploration activities and demand for our products. Plastic sheeting manufacturing uses plastic resins, which can be subject to changes in price as the cost of natural gas or oil changes. Accordingly, volatility in oil and natural gas prices may negatively affect our cost of goods sold or cause us to change prices, which could adversely affect our sales and profitability.
Failure to develop and market new technologies and products could impact the Company's competitive position and have an adverse effect on the Company's financial results.
The Company's operating results in Applied Technology, Engineered Films, and Aerostar depend upon the ability to renew the pipeline of new products and to bring those products to market. This ability could be adversely affected by difficulties or delays in product development such as the inability to identify viable new products, successfully complete research and development, obtain relevant regulatory approvals, obtain intellectual property protection or gain market acceptance of new products and services. Because of the lengthy development process, technological challenges and intense competition, there can be no assurance that any of the products the Company is currently developing, or could begin to develop in the future, will achieve substantial commercial success. Technical advancements in products may also increase the risk of product failure, increasing product returns or warranty claims and settlements. In addition, sales of the Company's new products could replace sales of some of its current products, offsetting the benefit of even a successful product introduction.
The Company's sales of proprietary products are subject to uncertainties, start-up costs and inefficiencies and both competitive and compliance risks.
The Company's sales of proprietary products, which are specialized and highly technical in nature, are subject to uncertainties, start-up costs and inefficiencies as well as market, competitive, and compliance risks.
The Company’s growth strategy emphasizes the design and manufacture of proprietary products while transitioning its contract manufacturing services capabilities principally to support proprietary market opportunities. For Aerostar in particular, this transition from contract manufacturing services could take too long or be unsuccessful. Further, highly technical, specialized product inventories may be more susceptible to fluctuations in market demand. If demand is unexpectedly low, write-downs or impairments of such inventory may become necessary. Either of these outcomes could adversely affect our results of operations.
The Company's contract electronic manufacturing services business and sewing businesses in the Aerostar Division have been dependent on the continued growth, viability and financial stability of a small group of customers. Aerostar is moving to transform itself into a proprietary manufacturer and service provider. To compete effectively, Aerostar must continue to provide technologically advanced products and services, maintain strict quality standards, respond flexibly and rapidly to customer needs and deliver products globally on a reliable basis at competitive prices. Start-up costs and inefficiencies can adversely affect operating results and such costs may not be recoverable in a proprietary product environment, because the Company may not

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receive reimbursement from its customers for such costs. Reductions in the Company's existing contract revenues, unless offset by other programs and opportunities, will adversely affect its ability to sustain and grow its future sales and earnings.
Future sales will be dependent on the success of Aerostar's growth drivers, including advanced radar systems, high-altitude balloons, and aerostats to international markets. Sales of certain of these products into international markets increase the compliance risk associated with regulations such as The International Traffic in Arms Regulations (ITAR), as well as others, exposing the Company to fines and its employees to fines, imprisonment or civil penalties. Potential consequences of a material violation of such regulations include damage to our reputation, litigation, and increased costs. These consequences could adversely affect our results of operations.
The Company's Aerostar segment depends on the U.S. government for a significant portion of its sales, creating uncertainty in the timing of and funding for projected contracts.
A significant portion of Aerostar's sales are to the U.S. government or U.S. government agencies as a prime or sub-contractor. Government spending has historically been cyclical. A decrease in U.S. government defense or near-space research spending or changes in spending allocation could result in one or more of the Company's programs being reduced, delayed, or terminated. Reductions in the Company's existing programs, unless offset by other programs and opportunities, could adversely affect its ability to sustain and grow its future sales and earnings. The Company's U.S. government sales are funded by the federal budget, which operates on an October-to-September fiscal year. Changes in congressional schedules, negotiations for program funding levels, reduced program funding due to U.S government debt limitations, automatic budget cuts ("sequestration") or unforeseen world events can interrupt the funding for a program or contract. Funds for multi-year contracts can be changed in subsequent years in the appropriations process.
In addition, the U.S. government has increasingly relied on indefinite delivery, indefinite quantity (IDIQ) contracts and other procurement vehicles that are subject to a competitive bidding and funding process even after the award of the basic contract, adding an additional element of uncertainty to future funding levels. Delays in the funding process or changes in funding can impact the timing of available funds or can lead to changes in program content or termination at the government's convenience. The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on the Company's future sales and earnings.
The Company derives a portion of its revenues from foreign markets, which subjects the Company to business risks, including risk of changes in government policies and laws or worldwide economic conditions.
The Company's sales outside the U.S. were $36.8 million in fiscal 2015, representing 10% of consolidated net sales. The Company's financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations, along with changes in worldwide economic conditions. These conditions include, but are not limited to, changes in a country's or region's economic or political condition; trade regulations affecting production, pricing and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights in some countries; changes in the regulatory or legal environment; restrictions on currency exchange activities; the impact of fluctuations in foreign currency exchange rates, which may affect product demand and may adversely affect the profitability of our products in U.S. dollars in foreign markets where payments are made in the local currency; burdensome taxes and tariffs; and other trade barriers. International risks and uncertainties also include changing social and economic conditions, terrorism, political hostilities and war, difficulty in enforcing agreements or collecting receivables, and increased transportation or other shipping costs. Any of these such risks could lead to reduced sales and reduced profitability associated with such sales.
Adverse economic conditions in the major industries the Company serves may materially affect segment performance and consolidated results of operations.
The Company's results of operations are impacted by the market fundamentals of the primary industries served. Significant declines of economic activity in the agricultural, oil and gas exploration, construction, industrial, aerospace/aviation, communication, defense and other major markets served may adversely affect segment performance and consolidated results of operations.
The Company may not be able to achieve the benefits of its restructuring efforts.
Supplementing the actions taken in the fourth quarter of fiscal 2015, on March 10, 2015 we announced an additional plan to restructure our business to lower the cost structure of each of our business segments to address current end-market weakness. There is no guarantee that these restructuring efforts will increase our operating margins or profitability and these efforts could cause unforeseen complexities and additional cash outflows.
The Company may pursue or complete acquisitions which represent additional risk and could impact future financial results.
The Company's business strategy includes the potential for future acquisitions. Acquisitions involve a number of risks including integration of the acquired company with the Company's operations and unanticipated liabilities or contingencies related to the acquired company. Further, business strategies supported by the acquisition may be in perceived, or actual, opposition to strategies

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of certain of our customers and our business could be materially adversely affected if those relationships are terminated and the expected strategic benefits are delayed or are not achieved. The Company cannot ensure that the expected benefits of any acquisition will be realized. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could significantly impact the operating results, financial condition or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Other acquisition risks include delays in realizing benefits from the acquired companies or products; difficulties due to lack of or limited prior experience in any new product or geographic markets we enter; unforeseen adjustments, charges or write-offs; unforeseen losses of customers of, or suppliers to, acquired businesses; difficulties in retaining key employees of the acquired businesses; or challenges arising from increased geographic diversity and complexity of our operations and our information technology systems.
Total goodwill and intangible assets account for approximately $70.6 million, or 19%, of the Company's total assets as of January 31, 2015. The Company evaluates goodwill and intangible assets for impairment annually, or when evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Principally, a significant decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or intangible assets. Our expected future cash flows could be adversely impacted if our anticipated sales growth is not realized. An impairment would adversely impact the Company's results of operations and financial condition.
The Company may fail to continue to attract, develop and retain key management and other key employees, which could negatively impact our operating results.
We depend on the performance of our senior management team and other key employees, including experienced and skilled technical personnel.  The loss of certain members of our senior management, including our Chief Executive Officer, could negatively impact our operating results and ability to execute our business strategy.  Our future success will also depend in part upon our ability to attract, train, motivate, and retain qualified personnel.  
The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others.  
The Company has developed significant proprietary technology and other rights that are used in its businesses. The Company relies on trade secret, copyright, trademark, and patent laws and contractual provisions to protect the Company's intellectual property. While the Company takes enforcement of these rights seriously, other companies such as competitors, or analogous persons in markets the Company does not participate, may attempt to copy or use the Company's intellectual property for their own benefit.
In addition, intellectual property of others also has an impact on the Company's ability to offer some of its products and services for specific uses or at competitive prices. Competitors' patents or other intellectual property may limit the Company's ability to offer products and services to its customers. Any infringement or claimed infringement of the intellectual property rights of others could result in litigation and adversely affect the Company's ability to continue to provide, or could increase the cost of providing, products and services.
Intellectual property litigation is very costly and could result in substantial expense and diversions of the Company's resources, both of which could adversely affect its businesses and financial condition and results. In addition, there may be no effective legal recourse against infringement of the Company's intellectual property by third parties, whether due to limitations on enforcement of rights in foreign jurisdictions or as a result of other factors.
Technology failures or cyber-attacks on the Company's systems could disrupt the Company's operations or the functionality of its products and negatively impact the Company's business.
The Company increasingly relies on information technology systems to process, transmit, and store electronic information. In addition, a significant portion of internal communications, as well as communication with customers and suppliers depends on information technology. Further, the products in our Applied Technology segment depend upon GPS and other systems through which our products interact with government computer systems and other centralized information sources. We are exposed to the risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional events. Like most companies, the Company's information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. Further, attacks on centralized information sources could affect the operation of our products or cause them to malfunction. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company's risk to these vulnerabilities, but these measures may not be adequate or implemented properly to ensure that the Company's operations are not disrupted. Potential consequences of a material cyber incident include damage to our reputation, litigation, and increased cyber security protection and remediation costs. Such consequences could adversely affect our results of operations.

9



ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.
ITEM 2.
PROPERTIES

Raven's corporate office is at an owned premises located in Sioux Falls, South Dakota. The Company also owns separate manufacturing facilities for each of our business segments as well as various warehouses, training, and product development facilities.

In addition to these facilities, Applied Technology owns a product development facility in Austin, Texas and a manufacturing facility in St. Louis, Missouri as well as leasing smaller research and office facilities in South Dakota. As a result of an acquisition completed in fiscal 2015 more fully described in Note 5 Acquisitions of and Investments in Businesses and Technologies of this Form 10-K, Applied Technology also leases manufacturing, research, and office facilities in Middenmeer, Netherlands and Geel, Belgium.

As a result of a business acquisition completed in fiscal 2015 more fully described in Note 5 Acquisitions of and Investments in Businesses and Technologies of this Form 10-K, Engineered Films acquired additional production and conversion facilities in Madison and Brandon, South Dakota and Midland, Texas.

Aerostar has additional owned manufacturing, sewing, and research facilities located in Huron and Madison, South Dakota, and Sulphur Springs, Texas. Aerostar's subsidiary Vista also leases facilities in Arlington, Virginia; Duncansville, Pennsylvania and Monterey, Chatsworth and Sunnyvale, California.

Most of the Company's manufacturing plants also serve as distribution centers and contain offices for sales, engineering, and manufacturing support staff. The Company believes that its properties are suitable and adequate to meet existing production needs. Additionally, the productive capacity in the Company's facilities is substantially being utilized. The Company also owns approximately 29.6 acres of undeveloped land adjacent to the other owned property, which is available for expansion.

The following is the approximate square footage of the Company's owned or leased facilities by segment: Applied Technology - 182,000; Engineered Films - 584,000; Aerostar - 383,000; and Corporate - 150,000.

ITEM 3.
LEGAL PROCEEDINGS

The Company is responsible for investigation and remediation of environmental contamination at one of its sold facilities (see Item 1, Business - Environmental Matters of this Form 10-K). In addition, the Company is involved as a defendant in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.

10





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

The Company's common stock is traded on the NASDAQ Global Select Market under the symbol RAVN. The following table shows quarterly unaudited financial results, quarterly high and low sales prices per share of the Company's common stock, as reported by NASDAQ, and dividends declared for the periods indicated:
QUARTERLY INFORMATION (UNAUDITED)
(Dollars in thousands, except per-share amounts)
 
Net Sales
Gross Profit
Operating Income
Pre-tax Income
Net Income Attributable to Raven
Net Income Per Share (a) (b)
Common Stock Market Price (b)
Cash Dividends Per Share (b)
 
 
Basic
Diluted
High
Low
FISCAL 2015
 
 
 
 
 
 
 
 
 
 
First Quarter
$
102,510

$
31,766

$
16,532

$
16,453

$
11,038

$
0.30

$
0.30

$
40.06

$
30.29

$
0.12

Second Quarter
94,485

25,658

10,696

10,637

7,719

0.21

0.21

34.56

27.75

0.12

Third Quarter
91,292

24,339

10,159

10,087

6,783

0.19

0.18

30.74

22.13

0.13

Fourth Quarter
89,866

21,483

6,414

6,324

6,193

0.16

0.16

26.56

20.75

0.13

Total Year
$
378,153

$
103,246

$
43,801

$
43,501

$
31,733

$
0.86

$
0.86

$
40.06

$
20.75

$
0.50

 
 
 
 
 
 
 
 
 
 
 
FISCAL 2014
 
 
 
 
 
 
 
 
 
 
First Quarter
$
103,680

$
34,916

$
20,934

$
20,736

$
14,003

$
0.38

$
0.38

$
34.04

$
25.46

$
0.12

Second Quarter
93,421

26,735

12,568

12,349

8,333

0.23

0.23

35.68

28.82

0.12

Third Quarter
104,938

31,940

18,132

18,089

12,289

0.34

0.34

34.83

28.38

0.12

Fourth Quarter
92,638

25,763

12,360

12,449

8,278

0.23

0.23

42.99

32.64

0.12

Total Year
$
394,677

$
119,354

$
63,994

$
63,623

$
42,903

$
1.18

$
1.17

$
42.99

$
25.46

$
0.48

 
 
 
 
 
 
 
 
 
 
 
FISCAL 2013
 
 
 
 
 
 
 
 
 
 
First Quarter
$
117,915

$
41,135

$
28,432

$
28,380

$
19,043

$
0.53

$
0.52

$
35.56

$
28.16

$
0.105

Second Quarter
101,674

30,064

17,407

17,311

11,546

0.32

0.32

37.73

28.59

0.105

Third Quarter
97,011

29,575

16,372

16,316

10,859

0.30

0.30

34.61

26.78

0.105

Fourth Quarter
89,575

26,899

15,481

15,639

11,097

0.31

0.30

28.19

23.01

0.105

Total Year
$
406,175

$
127,673

$
77,692

$
77,646

$
52,545

$
1.45

$
1.44

$
37.73

$
23.01

$
0.42

(a) 
Net income per share is computed discretely by quarter and may not add to the full year.
(b) 
All per-share and market data reflect the July 2012 two-for-one stock split.

As of January 31, 2015, the Company had approximately 13,900 beneficial holders, which includes a substantial amount of the Company's common stock held of record by banks, brokers, and other financial institutions.

On November 3, 2014, the Company announced that its Board of Directors had authorized a $40.0 million stock buyback program.
No shares have been repurchased under this program as of January 31, 2015.


# 11

                           

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

The above graph compares the cumulative total shareholders return on the Company's stock with the cumulative return of the S&P 1500 Industrial Machinery Index and the Russell 2000 index. Investors who bought $100 of the Company's stock on January 31, 2010, held this for five years and reinvested the dividends would have seen its value increase to $167.94. Stock performance on the graph is not necessarily indicative of future price performance.
 
 
Years Ended January 31,
 
5-Year
Company / Index
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
CAGR(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Raven Industries, Inc.
 
$
100.00

 
$
174.13

 
$
242.35

 
$
204.08

 
$
287.99

 
$
167.94

 
10.9
%
S&P 1500 Industrial Machinery Index
 
100.00

 
145.29

 
144.75

 
174.35

 
219.66

 
227.73

 
17.9
%
Russell 2000 Index
 
100.00

 
131.36

 
135.12

 
156.03

 
198.20

 
206.94

 
15.7
%
(a)  compound annual growth rate (CAGR)
 
 
 
 
 
 
 
 
 
 
 
 


# 12

                           


(This page is intentionally left blank)







# 13

                           

ITEM 6.
SELECTED FINANCIAL DATA
ELEVEN-YEAR FINANCIAL SUMMARY
(In thousands, except employee counts and per-share amounts)
 
For the years ended January 31,
 
 
2015
 
2014
 
2013
OPERATIONS
 
 
 
 
 
 
 Net sales
 
$
378,153

 
$
394,677

 
$
406,175

 Gross profit
 
103,246

 
119,354

 
127,673

 Operating income
 
43,801

 
63,994

 
77,692

 Income before income taxes
 
43,501

 
63,623

 
77,646

 Net income attributable to Raven Industries, Inc.
 
31,733

 
42,903

 
52,545

 Net income % of sales
 
8.4
%
 
10.9
%
 
12.9
%
 Net income % of average equity
 
11.4
%
 
18.2
%
 
26.2
%
 Cash dividends(a)
 
$
18,519

 
$
17,465

 
$
15,244

FINANCIAL POSITION
 
 
 
 
 
 
 Current assets
 
$
170,979

 
$
169,405

 
$
156,748

 Current liabilities
 
31,843

 
29,819

 
33,061

 Working capital
 
$
139,136

 
$
139,586

 
$
123,687

 Current ratio
 
5.37

 
5.68

 
4.74

 Property, plant and equipment
 
$
117,513

 
$
98,076

 
$
81,238

 Total assets
 
362,873

 
301,819

 
273,210

 Long-term debt, less current portion
 

 

 

 Raven Industries, Inc. shareholders' equity
 
$
305,153

 
$
251,362

 
$
221,346

 Long-term debt / total capitalization
 
%
 
%
 
%
 Inventory turnover (cost of sales / average inventory)
 
4.9

 
5.2

 
5.4

CASH FLOWS PROVIDED BY (USED IN)
 
 
 
 
 
 
 Operating activities
 
$
60,083

 
$
52,836

 
$
76,456

 Investing activities
 
(29,986
)
 
(31,615
)
 
(29,930
)
 Financing activities
 
(30,665
)
 
(17,354
)
 
(23,007
)
 Change in cash
 
(1,038
)
 
3,634

 
23,511

COMMON STOCK DATA
 
 
 
 
 
 
 EPS — basic
 
$
0.86

 
$
1.18

 
$
1.45

 EPS — diluted
 
0.86

 
1.17

 
1.44

 Cash dividends per share(a)
 
0.50

 
0.48

 
0.42

 Book value per share(b)
 
8.01

 
6.89

 
6.09

 Stock price range during the year
 
 
 
 
 
 
   High
 
$
40.06

 
$
42.99

 
$
37.73

   Low
 
20.75

 
25.46

 
23.01

   Close
 
$
21.44

 
$
37.45

 
$
26.93

 Shares and stock units outstanding, year-end
 
38,119

 
36,492

 
36,326

 Number of shareholders, year-end
 
13,861

 
11,764

 
10,439

OTHER DATA
 
 
 
 
 
 
 Price / earnings ratio(c)
 
24.9

 
32.0

 
18.7

 Average number of employees
 
1,251

 
1,264

 
1,350

 Sales per employee
 
$
302

 
$
312

 
$
301

 Backlog
 
$
26,718

 
$
51,793

 
$
51,121

 
 
 
 
 
 
 
All per-share, shares outstanding and market price data reflect the July 2012 two-for-one stock split and the October 2004 two-for-one stock split.
 
(a) Includes special dividends of $0.625 per share in fiscal 2011 and 2009 and $0.3125 per share in fiscal 2005.
(b) Raven Industries, Inc. shareholders' equity, excluding equity attributable to noncontrolling interests, divided by common shares and stock units outstanding.
(c) Closing stock price divided by EPS — diluted.
 
 
 
 
 
 

# 14




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
381,511

 
$
314,708

 
$
237,782

 
$
279,913

 
$
233,957

 
$
217,529

 
$
204,528

 
$
168,086

116,192

 
91,429

 
67,852

 
73,448

 
63,676

 
57,540

 
55,714

 
45,212

75,641

 
60,203

 
43,220

 
46,394

 
41,145

 
38,302

 
37,284

 
27,862

75,698

 
60,282

 
43,322

 
46,901

 
42,224

 
38,835

 
37,494

 
27,955

50,569

 
$
40,537

 
$
28,574

 
$
30,770

 
$
27,802

 
$
25,441

 
$
24,262

 
$
17,891

13.3
%
 
12.9
%
 
12.0
%
 
11.0
%
 
11.9
%
 
11.7
%
 
11.9
%
 
10.6
%
31.4
%
 
29.5
%
 
23.2
%
 
26.6
%
 
25.7
%
 
27.9
%
 
32.3
%
 
27.0
%
$
13,025

 
$
34,095

 
$
9,911

 
$
31,884

 
$
7,966

 
$
6,507

 
$
5,056

 
$
15,298

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
147,559

 
$
128,181

 
$
117,747

 
$
98,073

 
$
100,869

 
$
73,219

 
$
71,345

 
$
61,592

40,646

 
34,335

 
25,960

 
23,322

 
22,108

 
16,464

 
20,050

 
20,950

$
106,913

 
$
93,846

 
$
91,787

 
$
74,751

 
$
78,761

 
$
56,755

 
$
51,295

 
$
40,642

3.63

 
3.73

 
4.54

 
4.21

 
4.56

 
4.45

 
3.56

 
2.94

$
61,894

 
$
41,522

 
$
33,029

 
$
35,880

 
$
35,743

 
$
36,264

 
$
25,602

 
$
19,964

245,703

 
187,760

 
170,309

 
144,415

 
147,861

 
119,764

 
106,157

 
88,509


 

 

 

 

 

 
9

 

$
180,499

 
$
141,214

 
$
133,251

 
$
113,556

 
$
118,275

 
$
98,268

 
$
84,389

 
$
66,082

%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
5.4

 
5.6

 
5.3

 
5.2

 
5.3

 
5.4

 
5.9

 
5.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
43,831

 
$
42,085

 
$
47,643

 
$
39,037

 
$
27,151

 
$
26,313

 
$
21,189

 
$
18,871

(40,313
)
 
(11,418
)
 
(13,396
)
 
(7,000
)
 
(4,433
)
 
(18,664
)
 
(11,435
)
 
(7,631
)
(15,234
)
 
(33,834
)
 
(9,867
)
 
(36,969
)
 
(8,270
)
 
(10,277
)
 
(6,946
)
 
(19,063
)
(11,721
)
 
(3,121
)
 
24,417

 
(5,005
)
 
14,489

 
(2,626
)
 
2,790

 
(7,823
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1.40

 
$
1.12

 
$
0.79

 
$
0.86

 
$
0.77

 
$
0.71

 
$
0.67

 
$
0.50

1.39

 
1.12

 
0.79

 
0.85

 
0.77

 
0.70

 
0.66

 
0.49

0.36

 
0.95

 
0.28

 
0.89

 
0.22

 
0.18

 
0.14

 
0.43

4.97

 
3.91

 
3.69

 
3.15

 
3.26

 
2.73

 
2.34

 
1.84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
34.65

 
$
24.80

 
$
16.59

 
$
23.91

 
$
22.93

 
$
21.35

 
$
16.58

 
$
13.47

21.62

 
13.27

 
7.69

 
10.30

 
13.10

 
12.73

 
8.27

 
6.54

$
32.45

 
$
23.62

 
$
14.29

 
$
10.91

 
$
15.01

 
$
14.22

 
$
15.80

 
$
9.19

36,284

 
36,178

 
36,102

 
36,054

 
36,260

 
36,088

 
36,144

 
35,998

10,618

 
7,456

 
7,767

 
8,268

 
8,700

 
8,992

 
9,263

 
6,269

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23.4

 
21.1

 
18.1

 
12.8

 
19.6

 
20.5

 
23.9

 
18.9

1,252

 
1,036

 
930

 
1,070

 
930

 
884

 
845

 
835

$
305

 
$
304

 
$
256

 
$
262

 
$
252

 
$
246

 
$
242

 
$
201

$
66,641

 
$
75,972

 
$
74,718

 
$
80,361

 
$
66,628

 
$
44,237

 
$
43,619

 
$
43,646

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

# 15

                           

BUSINESS SEGMENTS
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the years ended January 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
2010
APPLIED TECHNOLOGY DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
142,154

 
$
170,461

 
$
171,778

 
$
145,261

 
$
107,910

 
$
94,005

Operating income
 
34,557

 
57,000

 
59,590

 
49,750

 
33,197

 
27,538

Assets
 
88,764

 
93,395

 
84,224

 
73,872

 
55,740

 
54,007

Capital expenditures
 
3,478

 
9,324

 
10,780

 
11,971

 
1,947

 
1,092

Depreciation and amortization
 
5,569

 
4,332

 
3,874

 
2,571

 
2,483

 
1,863

ENGINEERED FILMS DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
166,634

 
$
147,620

 
$
141,976

 
$
133,481

 
$
105,838

 
$
63,783

Operating income(b)
 
21,802

 
18,154

 
25,115

 
21,501

 
19,622

 
10,232

Assets
 
140,023

 
71,602

 
65,801

 
65,100

 
46,519

 
35,999

Capital expenditures
 
8,241

 
6,681

 
11,539

 
10,937

 
8,450

 
1,460

Depreciation and amortization
 
6,096

 
5,808

 
5,814

 
4,313

 
3,452

 
3,707

AEROSTAR DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
80,772

 
$
90,605

 
$
102,051

 
$
107,811

 
$
104,384

 
$
81,617

Operating income
 
8,983

 
7,816

 
10,341

 
18,308

 
17,209

 
12,849

Assets
 
59,274

 
63,017

 
60,689

 
72,089

 
38,366

 
28,665

Capital expenditures
 
2,799

 
7,507

 
2,081

 
4,105

 
2,621

 
471

Depreciation and amortization
 
3,474

 
2,616

 
2,272

 
1,684

 
1,335

 
1,151

INTERSEGMENT ELIMINATIONS
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
 
 
 
 
 
 
 
 
 
 
 
   Applied Technology Division
 
$
(231
)
 
$
(386
)
 
$
(974
)
 
$
(460
)
 
$
(226
)
 
$
(31
)
Engineered Films Division
 
(652
)
 
(505
)
 
(124
)
 
(193
)
 
(307
)
 
(210
)
Aerostar Division
 
(10,524
)
 
(13,118
)
 
(8,532
)
 
(4,389
)
 
(2,891
)
 
(1,382
)
Operating income
 
163

 
(111
)
 
(61
)
 
(188
)
 
(41
)
 
8

Assets
 
(148
)
 
(311
)
 
(347
)
 
(286
)
 
(98
)
 
(57
)
CORPORATE & OTHER
 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) from administrative expenses
 
$
(21,704
)
 
$
(18,865
)
 
$
(17,293
)
 
$
(13,730
)
 
$
(9,784
)
 
$
(7,407
)
Assets(a)
 
74,960

 
74,116

 
62,843

 
34,928

 
47,233

 
51,695

Capital expenditures
 
2,523

 
7,189

 
5,275

 
2,002

 
954

 
279

Depreciation and amortization
 
2,230

 
1,439

 
1,138

 
700

 
361

 
387

TOTAL COMPANY
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
378,153

 
$
394,677

 
$
406,175

 
$
381,511

 
$
314,708

 
$
237,782

Operating income (b)
 
43,801

 
63,994

 
77,692

 
75,641

 
60,203

 
43,220

Assets
 
362,873

 
301,819

 
273,210

 
245,703

 
187,760

 
170,309

Capital expenditures
 
17,041

 
30,701

 
29,675

 
29,015

 
13,972

 
3,302

Depreciation and amortization
 
17,369

 
14,195

 
13,098

 
9,268

 
7,631

 
7,108

 
(a)  Assets are principally cash, investments, deferred taxes and other receivables.
 
 
(b)  The year ended January 31, 2011 includes a $451 pre-tax gain on disposition of assets.
 
 


# 16



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

The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance overall financial disclosure with commentary on the operating results, liquidity, capital resources, and financial condition of Raven Industries, Inc. (the Company or Raven). This commentary provides management's analysis of the primary drivers of year-over-year changes in key financial statement elements, business segment results, and the impact of accounting principles on the Company's financial statements. The most significant risks and uncertainties impacting the operating performance and financial condition of the Company are discussed in Item 1A., Risk Factors, of this Annual Report on Form 10-K (Form 10-K).

This discussion should be read in conjunction with Raven's Consolidated Financial Statements and notes thereto in Item 8 of this Form 10-K.

The MD&A is organized as follows:

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

EXECUTIVE SUMMARY
Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy, construction, aerospace and situational awareness markets. The Company is comprised of three unique operating units, classified into reportable segments: Applied Technology Division, Engineered Films Division, and Aerostar Division. As strategic actions have changed the Company’s business over the last several years, Raven has remained committed to providing high-quality, high-value products. The Company’s performance reflects our ongoing adjustment to conditions and opportunities.
  
Management uses a number of metrics to assess the Company's performance:

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

Raven's growth strategy focuses on its proprietary product lines and the Company has made an intentional choice to move away from non-strategic product lines such as contract manufacturing. To assess the effectiveness of this strategy during the transition period, management is using two additional measures:

Consolidated net sales excluding contract manufacturing sales (adjusted sales)
Segment net sales excluding contract manufacturing sales (adjusted sales)

Information reported as net sales excluding contract manufacturing sales on both a consolidated and segment basis, exclude sales generated from contract manufacturing activities and do not conform to generally accepted accounting principles (GAAP). These non-GAAP measures should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. This non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below.
Vision and Strategy
At Raven, there is a singular purpose behind everything we do. It is: to solve great challenges. Great challenges require great solutions. Raven’s three unique divisions share resources, ideas, and a passion to create technology that helps the world grow more food, produce more energy, protect the environment, and live safely.

# 17

                           

The Raven business model is our platform for success. Our business model is defensible, sustainable, and gives us a consistent approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three business segments, is summarized as follows:
Intentionally serve a set of diversified market segments with attractive near- and long-term growth prospects;
Consistently manage a pipeline of growth initiatives within our market segments;
Aggressively compete on quality, service, innovation, and peak performance;
Hold ourselves accountable for continuous improvement;
Value our balance sheet as a source of strength and stability with which to pursue strategic acquisitions; and
Make corporate responsibility a top priority.

This diversified business model enables us to better weather near-term challenges, while continuing to grow and build for our future. It is our culture and it is woven into how we do business.

The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.
 
 
For the years ended January 31,
dollars in thousands, except per-share data
 
2015
 
%
change
 
2014
 
%
change
 
2013
Results of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
378,153

 
(4.2
)%
 
$
394,677

 
(2.8
)%
 
$
406,175

Gross margins (a)
 
27.3
%
 
 
 
30.2
%
 
 
 
31.4
%
Operating income
 
$
43,801

 
(31.6
)%
 
$
63,994

 
(17.6
)%
 
$
77,692

Operating margins (a)
 
11.6
%
 
 
 
16.2
%
 
 
 
19.1
%
Net income attributable to Raven Industries, Inc.
 
$
31,733

 
(26.0
)%
 
$
42,903

 
(18.4
)%
 
$
52,545

Diluted income per share (b) 
 
$
0.86

 
(26.5
)%
 
$
1.17

 
(18.8
)%
 
$
1.44

 
 
 
 
 
 
 
 
 
 
 
Consolidated net sales, excluding contract
    manufacturing sales(c)
 
$
351,205

 
1.8
 %
 
$
344,919

 
(2.3
)%
 
$
353,004

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Flow and Payments to Shareholders
 
 
 
 
 
 
 
 
 
 
Cash flow from operating activities
 
$
60,083

 
 
 
$
52,836

 
 
 
$
76,456

Cash outflow for capital expenditures
 
$
17,041

 
 
 
$
30,701

 
 
 
$
29,675

Cash dividends
 
$
18,519

 
 
 
$
17,465

 
 
 
$
15,244

 
 
 
 
 
 
 
 
 
 
 
Performance Measures
 
 
 
 
 
 
 
 
 
 
Return on net sales (d)
 
8.4
%
 
 
 
10.9
%
 
 
 
12.9
%
Return on average assets (e)
 
9.5
%
 
 
 
14.9
%
 
 
 
20.3
%
Return on average equity (f)
 
11.4
%
 
 
 
18.2
%
 
 
 
26.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)  The Company's gross and operating margins may not be comparable to industry peers due to variability in the classification of expenses
across industries in which the Company operates.
(b)  Diluted income per share reflects a two-for-one stock split effective July 25, 2012.
(c)  Non-GAAP measure reconciled to GAAP in the table below.
(d)  Net income divided by sales.
(e)  Net income divided by average assets.
(f)  Net income divided by average equity.

# 18

                           

The following table reconciles the reported net sales to adjusted sales, a non-GAAP financial measure. Adjusted sales excludes contract manufacturing and represents the Company's sales from proprietary products.
 
 
For the years ended January 31,
 
 
 
 
%
change
 
 
 
%
change
 
 
 
dollars in thousands
 
2015
 
 
2014
 
 
2013
 
Applied Technology
 
 
 
 
 
 
 
 
 
 
 
Reported net sales
 
$
142,154

 
(16.6
)%
 
$
170,461

 
(0.8
)%
 
$
171,778

 
Less: Contract manufacturing sales
 
5,832

 
(48.5
)%
 
11,324

 
(29.2
)%
 
15,998

 
Applied Technology net sales, excluding
    contract manufacturing sales
 
$
136,322

 
(14.3
)%
 
$
159,137

 
2.2
 %
 
$
155,780

 
 
 
 
 
 
 
 
 
 
 
 
 
Aerostar
 
 
 
 
 
 
 
 
 
 
 
Reported net sales
 
$
80,772

 
(10.9
)%
 
$
90,605

 
(11.2
)%
 
$
102,051

 
Less: Contract manufacturing sales
 
31,669

 
(38.3
)%
 
51,311

 
6.5
 %
 
48,195

 
Aerostar net sales, excluding contract
    manufacturing sales
 
$
49,103

 
25.0
 %
 
$
39,294

 
(27.0
)%
 
$
53,856

 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Raven
 
 
 
 
 
 
 
 
 
 
 
Reported net sales
 
$
378,153

 
(4.2
)%
 
$
394,677

 
(2.8
)%
 
$
406,175

 
Less: Contract manufacturing sales
 
37,501

 
(40.1
)%
 
62,635

 
(2.4
)%
 
64,193

 
Plus: Aerostar sales to Applied Technology
 
10,553

 
(18.0
)%
 
12,877

 
16.8
 %
 
11,022

 
Consolidated net sales, excluding contract
    manufacturing sales
 
$
351,205

 
1.8
 %
 
$
344,919

 
(2.3
)%
 
$
353,004

 
 
 
 
 
 
 
 
 
 
 
 
 
Results of Operations - Fiscal 2015 compared to Fiscal 2014