ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
Our corporate office is at an owned premises located in Sioux Falls, South Dakota. The company owns seperate manufacturing facilities for each of our business segments located in Sioux Falls as well as various warehouses, training and product development facilities. In addition to our Sioux Falls facilities, Applied Technology has a product development facility in Austin, Texas; Electronic Systems has a manufacturing facility located in St. Louis, Missouri; and Aerostar has additional owned manufacturing, sewing, and research facilities located in Huron and Madison, South Dakota, and Sulphur Springs, Texas; and leased facilities in Arlington, Virgina; and Monterey and Chatsworth, California. Most of the company's manufacturing plants also serve as distribution centers and contain offices for sales, engineering and manufacturing support staff. The company believes that its properties are suitable and adequate to meet existing production needs. Additionally, the productive capacity in the company's facilities is substantially being utilized. The company also owns approximately 6.2 acres of undeveloped land adjacent to the other owned property, which is available for expansion.
The following is an approximate total square feet of the company's owned or leased facilities by segment: Applied Technology -
145,000; Engineered Films - 295,000; Aerostar - 250,000; Electronic Systems - 50,000; and Corporate - 150,000.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
The company is responsible for investigation and remediation of environmental contamination at one of its sold facilities (see “Item 1, Business - Environmental Matters”). In addition, the company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.
ITEM 4.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5.
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Raven's common stock is traded on the NASDAQ Global Select Market under the symbol RAVN. The following table shows quarterly unaudited financial results, quarterly high and low closing sales prices per share of Raven's common stock as reported by NASDAQ, and dividends declared for the periods indicated:
As of January 31, 2012, the company had approximately 10,600 beneficial holders, which includes a substantial number of the company's common stock held by record by banks, brokers and other financial institutions.
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COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES, S&P 1500 INDUSTRIAL MACHINERY INDEX AND RUSSELL 2000 INDEX
Raven continues to outperform its industrial peers and the overall market in shareholder return. Investors who bought $100 of the company's stock on January 31, 2007, held this for five years and reinvested the dividends, have seen its value increase to $265.30.
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ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
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ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance overall financial disclosure. It provides management's analysis of the primary drivers of year-over-year changes in key financial statement elements, business segment results and the impact of accounting principles on the company's financial statements.
This discussion should be read in conjunction with the company's January 31, 2012 financial statements and the accompanying notes.
The MD&A is organized as follows:
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Executive Summary
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Results of Operations - Segment Analysis
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Outlook
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Liquidity and Capital Resources
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Off-balance Sheet Arrangements and Contractual Obligations
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Critical Accounting Estimates
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New Accounting Standards
EXECUTIVE SUMMARY
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, energy, construction and military/aerospace markets, primarily in North America. The company is comprised of unique operating units, classified into four reportable segments: Applied Technology, Engineered Films, Aerostar and Electronic Systems. While each segment has distinct characteristics, the products and technologies are largely extensions of durable competitive advantages rooted in the original research balloon business.
Management uses a number of metrics to assess the company's performance:
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Consolidated net sales, gross margins, operating income, operating margins, net income and earnings per share
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Cash flow from operations and shareholder returns
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Return on sales, assets and equity
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Segment net sales, gross profit, gross margins, operating income and operating margins
Vision and Strategy
The company's vision is to advance its leadership positions in niche markets through the development of innovative solutions to address the needs of customers and help solve great challenges in the areas of hunger, safety, peace, and stability.
The company's primary strategy to achieve this vision is the maintenance of a diversified portfolio of businesses that share a common purpose but serve different markets providing balance, opportunity, and risk mitigation. Diversification has enabled the company to consistently generate cash, achieve profitability and maintain financial strength by limiting the impact of market disruptions and facilitating growth in both strong and weak economic cycles. Additionally, the company continues to achieve increased geographic, product and market diversification.
The company's overall approach to creating value, which is employed across the four unique segments, is summarized as follows:
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Seek to expand in niche markets that have strong prospects for growth and above-average profit margins.
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Elevate customer service by leveraging innovation, speed and dedicated engineering support to solve the customer's problem.
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Reinvest cash generated from operations to fuel growth. Capital is allocated aggressively when the prospects are high for above-average, risk-adjusted returns on capital. If the company accumulates cash in excess of investment opportunities for above-average, risk-adjusted returns, it will be returned to shareholders.
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Continue to increase the quarterly dividend annually.
The following discussion highlights the consolidated operating results. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.
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Results of Operations - Fiscal 2012 versus Fiscal 2011
The company posted record sales, operating income, net income, and diluted earnings per share for fiscal 2012. These levels resulted in large part from higher demand for Applied Technology's products due to a strong agriculture market and international expansion. In addition, the high crude oil prices resulted in increased drilling, which drove growth of pit liner sales into the energy market for Engineered Films. The 21% increase in net sales is the result of year-over-year sales growth in Applied Technology (33%), Engineered Films (26%), Aerostar (7%) and Electronic Systems (9%).
Fiscal 2012 operating income increased 26% from fiscal 2011 primarily due to sales growth. Applied Technology increased its operating income by 46% due to higher sales and associated operating leverage. Aerostar posted an increase in operating income of 22% from the prior year due to higher sales and improved manufacturing efficiencies. Electronic Systems operating income rose 14% due to a more favorable product mix and higher sales. Operating income growth of 10% in Engineered Films trailed sales growth in that segment, primarily due to higher material costs. For the first nine months of fiscal 2012, increased material costs outpaced the favorable impact of higher sales and increased pricing.
Results of Operations - Fiscal 2011 versus Fiscal 2010
Fiscal 2011 net sales rose 32% to $314.7 million and diluted earnings increased 42% to $2.24 per share as a result of sales growth in all operating segments: Applied Technology (16%), Engineered Films (66%), Aerostar (79%), and Electronic Systems (4%). Fiscal 2011 operating income increased 39% from the prior year due to the increase in net sales and improved margins from the recession impacted year of fiscal 2010.
Strategic Investments
In January 2012, the company completed the stock purchase agreement for all the outstanding stock of Vista Research, Inc. (Vista) for a purchase price of $23.3 million, of which $12.0 million was cash, $2.9 million was on assumed line of credit paid by Raven at closing, and $8.4 million was valued in contingent consideration and earn-outs.
Vista is a leading provider of surveillance systems that enhance the effectiveness of radars using sophisticated algorithms. Vista's smart sensing radar systems (SSRS) are employed in a host of advanced detection and tracking applications, including wide-area surveillance for the border patrol and the military. In the short term, this acquisition will allow Raven to enhance its tethered
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aerostat security solutions within its Aerostar Division. Longer-term, the company is positioned to meet growing global demand for low-cost detection and tracking systems used by government and law enforcement agencies. Results of operations subsequent to the acquisition have been combined into the Aerostar Division.
Cash Flow and Payments to Shareholders
The company continues to generate strong operating cash flows and maintain a strong capital base. Capital expenditures totaled a record $29.0 million in fiscal 2012 compared to $14.0 million in fiscal 2011. Capital spending consisted primarily of expenditures related to increased manufacturing capacity in Engineered Films, a new manufacturing facility in Applied Technology and Aerostar's commitment to a higher level of product development investments in future growth, including facilities and equipment.
During fiscal 2012, $13.0 million was returned to shareholders though quarterly dividends. In the first quarter of fiscal 2012, the quarterly dividend was raised from 16 cents per share to 18 cents per share, representing the 25th consecutive annual increase in the dividend (excluding special dividends). During fiscal 2011, $34.1 million was returned to shareholders through quarterly dividends totaling $11.5 million, or 64 cents per share, and a special dividend of $22.5 million, or $1.25 per share. A special dividend was paid on September 30, 2010 in response to the company’s strong cash position and commitment to return excess cash to shareholders.
Performance Measures
The company continues to generate positive returns on net sales, average assets and beginning equity, which are important gauges of Raven's ability to efficiently produce profits. Raven generated a record 13.3% return on sales in fiscal 2012 as the company continues to capitalize on competitive advantages in niche markets.
RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs and improve farm yields around the world.
Fiscal 2012 net sales of $132.6 million increased $32.5 million (33%) and operating income of $45.4 million was up $14.2 million (46%) versus fiscal 2011.
Fiscal 2012 fourth quarter net sales of $28.8 million grew $6.5 million (29%) and operating income of $7.5 million rose $1.6 million (28%) versus fourth quarter fiscal 2011.
A number of factors contributed to the strong full-year and fourth quarter comparative results:
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Market conditions. Global market fundamentals were healthy as population and income growth in emerging economies have increased demand for food, while natural disasters and adverse weather conditions have restricted supplies. These factors have resulted in higher crop prices and wider acceptance of precision agriculture as a sound investment for maximizing yields and controlling input costs.
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Sales volume and selling prices. The increase in net sales was driven by higher sales volume, as selling prices reflected only a modest increase year-over-year. The favorable year-over-year comparisons reflect strong sales growth across the majority of the division's product offerings, including application controls (i.e. control systems, flow meters, valves), field computers, guidance and steering products and boom controls.
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International sales. Net sales outside the U.S. accounted for 25% of segment sales in fiscal 2012 versus 21% for fiscal 2011. International sales of $32.9 million in fiscal 2012 increased $11.6 million, or 54 % year-over-year as improved farm fundamentals drove strong overall demand in Brazil, and to a lesser extent, Eastern Europe, Canada, South Africa, and Australia. New customers have also contributed to the international sales growth, reflecting the segment's current
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and past investment to expand its geographical presence.
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Gross margins. Gross margins of 46.9% in fiscal 2012 improved from 45.1% in fiscal 2011 due to higher sales volume and operating leverage on profitability.
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Operating expenses. Full-year operating expenses were 12.7% of net sales in fiscal 2012, compared to 14.0% for the prior year. Although spending for R&D and business development efforts increased $2.8 million versus the prior year, such spending declined as a percentage of net sales, due to the significant growth in net sales.
Fiscal 2011 net sales of $100.1 million increased $13.9 million (16%) and operating income of $31.1 million was up $5.4 million (21%) versus fiscal 2010.
Several factors contributed to the strong full-year comparative results:
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Market conditions. U.S. farm fundamentals were strong as commodity prices-corn, soybeans and other feed grains- remained above historical levels. In addition, global market conditions were healthy as population and income growth in emerging economies continued to spur increased demand for food.
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Sales volume and selling prices. Fiscal 2011 sales growth was driven by higher volume and modest selling price increases. The growth in volume reflects solid year-over-year demand for Slingshot™, application controls and guidance and steering products.
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New product sales. Year-to-date new product sales reflected the success of Slingshot™-an information platform which improves data collection, transmission, storage and analysis and provides RTK correction of GPS signals for high accuracy steering solutions.
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International sales. Net sales outside the U.S. accounted for 21% of segment sales in fiscal 2011 versus 20% in fiscal 2010. International sales of $21.3 million rose $4.2 million (25%) year-over-year led by strong Slingshot™ demand in Canada. Economic growth and strong farm fundamentals in Argentina and Brazil drove strong overall demand in South America. This growth was partially offset by a decrease in Australian sales due to weak market conditions.
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Gross Margins. Gross margins of 45.1% in fiscal 2011 rose from 43.9% in fiscal 2010 due to the positive effect of higher sales and strong operating leverage on profitability.
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Operating expenses. Full-year operating expenses decreased from 14.1% of sales in fiscal 2010 to 14.0% in fiscal 2011. Strong sales and growth opportunities drove a $1.1 million (16%) increase in selling expenses and research and development expenses increased $0.7 million (14%) to support product development and strategic initiatives.
Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial, energy, construction, geomembrane and agricultural applications.
Fiscal 2012 net sales of $133.5 million increased $27.6 million (26%) while operating income of $21.5 million was up $1.9 million (10%) versus fiscal 2011.
The year-over-year changes were driven primarily by the following factors:
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Market conditions. Economic growth in emerging markets continued to support higher oil prices, and in turn, increased drilling activity and demand for pit liners in the energy market.
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Sales volume and selling prices. Sales growth for fiscal 2012 was predominately driven by the increased demand for pit liners utilized in oil and gas exploration activity. Environmental and water conservation projects increased the demand for geomembrane containment liners and covers during fiscal 2012. New product sales of FeedFresh™ and fumigation films contributed to the year-over-year sales increase in the agriculture market. Selling prices increased approximately 10% during fiscal 2012, reflecting higher material costs as compared with one year ago. Sales volume, as measured by pounds shipped, was up 12% year-over-year.
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Gross margin decline. Full year gross margins declined 2 percentage points, despite the 26% sales growth. The lower gross margin was attributable to higher resin costs that were not fully offset by increased selling prices in the first nine months of the year.
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Operating expenses. Fiscal 2012 operating expenses as a percentage of net sales increased slightly to 3.4%, compared to 3.3% in the prior year, excluding the $0.5 million gain on disposition of assets. The increase in selling expense of $0.4 million (13%) lagged the 26% increase in sales; however, a year-over-year increase in R&D spending of $0.7 million contributed to the slight increase in operating expenses as a percentage of sales. Higher R&D spending reflects one of the segment's key performance goals of expanding its product development efforts.
Fiscal 2012 fourth quarter net sales of $36.0 million grew $11.7 million (48%) and operating income of $6.5 million rose $3.5 million (114%) versus fourth quarter fiscal 2011.
Several factors contributed to the strong fourth quarter comparative results:
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Sales volume and selling price. Fourth quarter fiscal 2012 sales to the energy and geomembrane markets increased above levels in the fourth quarter of fiscal 2011 due to market conditions discussed above and increased capacity as new extrusion equipment was brought on-line in the fourth quarter to meet demand. Selling prices and sales volume, as measured by pounds shipped, increased 9% and 39%, respectively compared to fourth quarter fiscal 2011.
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Gross margin. Gross margins increased in the fourth quarter of fiscal 2012 to 22.1% compared to 16.7% in the prior year fourth quarter. The increase in the margin was due to the higher sales volume and the resulting positive operating leverage and to a more favorable ratio of selling prices to input costs.
Fiscal 2011 net sales of $105.8 million increased $42.1 million (66%) while operating income of $19.6 million was up $9.4 million (92%) versus fiscal 2010.
Fiscal 2011 results were primarily driven by the following factors:
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Improved market conditions. Business activity and confidence rose as credit markets improved and asset values stabilized. Crude oil prices rose to levels adequate to support increased drilling activity and strengthened energy market demand for pit liners. Similarly, as credit began flowing and economic uncertainty diminished, the construction and agriculture markets rose from recessionary levels.
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Sales volume and selling prices. Input cost increases drove a 13% increase in selling prices. Sales volume, as measured by pounds shipped, increased over 50%, as Engineered Films’ largest markets, energy and construction, rebounded from prior year depressed levels. Recovery of crude oil prices from their lows in early calendar 2009 drove additional oil and gas drilling activity and increased demand for pit liners as sales to the energy market more than doubled. Sales of industrial and construction films rose double digits. Deliveries of agriculture films rose more than 60%. Sales of FeedFresh™ silage covers gained traction due to healthy farm conditions and broadened appreciation of the value-added benefits of this highly engineered film. Grain cover sales improved year-over-year due to strong yields and a short harvest cycle.
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Capacity Utilization. Full-year operating margins expanded from 16.0% to 18.5% as a result of improved capacity utilization.
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Operating expenses. Full-year operating expenses were 3.3% of sales in fiscal 2011 versus 4.4% in fiscal 2010. The increase in selling expenses of $0.7 million (30%) lagged the 66% increase in sales. Research and development expenses were flat year-over-year.
Aerostar
Aerostar manufactures military parachutes, protective wear, custom-shaped inflatable products and high-altitude and tethered aerostats for government and commercial research.
Fiscal 2012 net sales of $52.4 million increased $3.6 million (7%) and operating income of $11.5 million grew $2.1 million (22%) over fiscal 2011.
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Fiscal 2012 fourth quarter net sales of $15.8 million increased $3.9 million (32%) and operating income of $3.4 million increased $1.1 million (49%) versus fiscal 2011 fourth quarter.
Fiscal 2012 full-year and fourth quarter comparative results were primarily attributable to the following:
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Sales volumes. Net sales for fiscal 2012 increased $3.6 million from the prior year, mainly due to higher T-11 parachute and spare parts deliveries and additional protective wear sales, offset by a decrease in tethered aerostat sales. The fourth quarter 2012 sales increase of 32% was largely impacted by the parachute and protective wear revenue growth and increased tethered aerostat sales.
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Volatility in aerostat deliveries. The company continued to see volatility in the delivery of aerostats which impact comparative results. Aerostat sales by fiscal 2012 quarters were $7.3 million in the first quarter; $3.7 million in the second quarter; $1.6 million in the third quarter and $5.1 million in the fourth quarter.
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Gross margin improvement. Gross margins improved to 29.3% compared to 25.6% in the prior year. Gross margin expansion on T-11 parachutes resulted from manufacturing efficiencies and higher sales volume but was partially offset by a change in product mix. Aerostat sales, which carry a relatively higher margin, accounted for approximately 34% of net sales in fiscal 2012 compared to 46% in fiscal 2011.
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Operating expenses. Operating expenses of $3.9 million or 7.4% of sales increased $0.8 million from $3.1 million or 6.3% of sales as a result of higher investment in research and development to support next generation aerostat technology and the development of lighter but stronger materials, along with higher selling and business development expense to expand the tethered aerostat business.
Fiscal 2011 net sales of $48.8 million increased $21.5 million (79%) and operating income of $9.4 million grew $3.8 million (67%) over fiscal 2010.
Fiscal 2011 results were driven by the following:
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Tethered aerostats. Aerostar capitalized on strong demand from the U.S. military for persistent ground surveillance systems to be deployed in Afghanistan.
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Volatility in aerostat deliveries. Sequentially, fiscal 2011 quarterly sales of aerostats varied materially ($8.2 million in the first quarter; $3.2 million in the second quarter; $7.4 million in the third quarter and $3.6 million in the fourth quarter) as design changes and funding shifts have impacted the timing of deliveries.
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Military parachutes. Fiscal 2011 parachute revenue increased over 20% as the T-11 parachutes ramped to full production and deliveries under the T-11 spares contract began.
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Gross Margins. Full-year gross margins improved year-over-year. The negative effect of T-11 parachute start-up costs in the first half of the year and increased overhead was partially offset by a more favorable product mix as the relative contribution of tethered aerostats to total sales grew.
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Operating expenses. Operating expenses of $3.1 million or 6.3% of sales increased $2.1 million from $1.0 million or 3.7% of sales as a result of higher selling expenses and significant investments in research and development primarily to support aerostat development.
Electronic Systems
Electronic Systems is a total-solutions provider of electronics manufacturing services, primarily to North American original equipment manufacturers.
Fiscal 2012 net sales of $71.7 million increased $5.9 million, (9%) and operating income of $11.3 million grew $1.3 million, (14%) from fiscal 2011.
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Fiscal 2012 fourth quarter net sales of $18.4 million increased $4.7 million (34%) and operating income of $3.3 million increased $1.6 million (93%) over fourth quarter fiscal 2011.
The following factors affected fiscal 2012 full-year and fourth quarter comparative results:
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Sales volume. Fiscal 2012 net sales increased 9% year-over-year, primarily due to additional intercompany sourcing of assemblies to the Applied Technology Division and increased sales of hand-held bed controls. Avionics deliveries were down year-over year, reflecting the planned ending of certain programs this year. Fourth quarter fiscal 2012 net sales were favorably impacted by increased secure communication electronic shipments and hand-held bed control deliveries compared to the same period a year ago.
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Gross margins. Year-over-year gross margins improved to 17.9% from 17.1% due to positive operating leverage from increased sales volume and favorable product mix. Fourth quarter fiscal 2012 gross margins of 19.9% were up from from 14.7% in the fourth quarter of fiscal 2011 due to increased sales volume.
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Operating expenses. Fiscal 2012 operating expenses were $1.6 million or 2.2% of sales, compared to $1.3 million or 2.0% of sales in fiscal 2011. The year-over-year increase is due to higher selling expenses.
Fiscal 2011 net sales of $65.9 million increased $2.3 million (4%) and operating income of $9.9 million grew $0.9 million (10%) from fiscal 2010.
Fiscal 2011 full-year comparative results reflected the following:
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Sales volume. Fiscal 2011 revenue was positively impacted by avionics growth and increased sourcing of assemblies to Applied Technology partially offset by weaker deliveries of circuit boards for secure communication devices.
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Profit margins. Product mix had a favorable impact on full-year operating margins.
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Operating expenses. Fiscal 2011 operating expenses were relatively unchanged from fiscal 2010 levels.
Corporate Expenses (administrative expenses; other income (expense), net; and income taxes)
Administrative expenses increased 40% in fiscal 2012 compared with fiscal 2011. Investments in additional finance, human resources and information technology personnel to support current and future growth strategies through a strengthened corporate infrastructure accounted for the majority of the increased spending. Higher professional services spending related to the Vista acquisition and other business and strategic initiatives also contributed to the increase. Administrative expenses increased 32% in fiscal 2011 compared with fiscal 2010, driven by increased headcount and higher incentive compensation.
Other income (expense), net consists mainly of interest income, foreign currency transaction gain or loss, and activity related to the company's equity investment in SST. The year-over-year variability is attributable primarily to a decrease in interest income due to lower interest rates.
The fiscal 2012 effective tax rate increased slightly compared with fiscal 2011 due to a lower U.S. federal tax deduction from income attributable to manufacturing activities.
OUTLOOK
Raven has been investing to achieve growth that will average 10-12% over the long term, with opportunities to exceed that objective and an understanding that it will not meet that target every year. Management believes double digit growth in fiscal 2013 is possible, and sees a wide range of possible results for Aerostar. The profit effect of expected sales growth is projected to be partially offset by higher investments in new product development and infrastructure. In addition to the R&D investment levels, Raven will continue to explore opportunities to grow its businesses through acquisition and expansion activities.
Applied Technology
Applied Technology expects to build on its investments in international growth and integration of hardware and software solutions to improve agricultural efficiency. The development of an industry-leading decision-support system helps position Applied
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Technology as a premier total precision solutions provider (GPS steering devices, planting and spraying controls, data collection, transmission, storage and analysis). Worldwide agriculture conditions are expected to remain healthy for this segment, with rising global demand for food, heightened environmental concerns and broadening recognition of Raven's suite of productivity tools as a cost-effective investment. These factors could drive sales growth to the 15-20% range in fiscal 2013. Profitability growth could be tempered by investments in new initiatives, both from a product development and geographic expansion perspective.
Engineered Films
Management anticipates sales growth of 15-18% to be driven by increased capacity and capabilities. Demand, especially for energy and geomembrane films, continues to have a positive outlook. Crude oil prices continue to drive oil and gas drilling activities and demand for pit liners. The impact of transient factors, such as civil unrest in oil-producing countries and speculation on the price of crude oil is uncertain, but long-term needs remain. New extrusion equipment put into service in the fourth quarter of fiscal 2012 completed the second phase of its expansion, increasing total tonnage capacity by approximately 40% over the last two years. The ramp-up period for new equipment has typically taken 2-3 years, depending on market conditions. Management expects operating income growth to slightly exceed anticipated sales growth due to an improving spread of selling prices over the cost of plastic resins and higher utilization of the new extrusion equipment, partially offset by higher depreciation and investment spending for research and product development.
Aerostar
Management believes the addition of Vista surveillance technologies will bring new innovations for detecting and tracking small objects over the land, on the water and in the air. Raven solutions can replace or enhance traditional, high-cost radar systems used today.
New opportunities in tethered aerostats to provide cost effective persistent surveillance for the military will be critical to Aerostar's success. Similar to this past year, deliveries could vary significantly by quarter as orders are dependent on the government funding process. Management believes with a full year of Vista revenue, and growth in military parachutes and protective wear, Aerostar revenue growth of 20-40% is possible in the upcoming year. At this point, Aerostar's outlook is impacted by uncertainty in the funding of new projects by the U.S. government. Despite strong interest, at this point, order backlog is minimal for aerostats and surveillance systems. Aerostar sales in the first quarter are now expected to decline over the previous year. Aerostar's gross profit rates are expected to decline by about 3 percentage points in fiscal 2013 due to the change in revenue mix, with Vista service revenues carrying a lower gross profit rate than product sales.
Electronic Systems
Management looks at Electronic Systems as a complementary business to its growth divisions: Engineered Films, Aerostar and Applied Technology. This business carries technical expertise that support the efforts of its sister divisions and provides electronic manufacturing services to low-volume high-mix customers that require high levels of service and engineering support. The mid- to long-term growth strategy is predicated on the development of proprietary products, expansion of the customer base and continued in-sourcing of assemblies for Raven's other divisions. Fiscal 2013 results are expected to be in line with fiscal 2012 results as the impact of lower avionics sales is substantially offset by higher deliveries to other Raven divisions.
LIQUIDITY AND CAPITAL RESOURCES
The company's balance sheet continues to reflect significant liquidity and a strong capital base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been Raven's primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows, will be sufficient to fund the company's 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 $25.8 million at January 31, 2012, a $12.7 million decrease from $38.6 million on the same date in 2011. In January 2012, the company made an $11.7 million net payment for the acquisition of Vista Research, Inc.
Raven has an uncollateralized credit agreement that provides a $10.5 million line of credit, with a balance of zero at January 31, 2012. The line of credit is reduced by outstanding letters of credit totaling $1.3 million as of January 31, 2012. The credit line, which matures on September 1, 2012, is expected to be renewed during fiscal 2013.
Operating Activities
Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services,
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employee compensation and income taxes. Management evaluates working capital levels through the computation of average days sales outstanding and inventory turnover. Average days sales outstanding is a measure of the company's efficiency in enforcing its credit policy. The inventory turnover ratio is a metric used to evaluate the effectiveness of inventory management, with further consideration given to balancing the disadvantages of excess inventory with the risk of delayed customer deliveries.
Cash provided by operating activities was $43.8 million in fiscal 2012 compared with $42.1 million in fiscal 2011. The increase in operating cash flows is the result of higher company earnings, depreciation expense, and deferred income taxes, partially offset by increased working capital to support growth.
In fiscal 2012, inventory and accounts receivable consumed $27.1 million of cash versus $14.7 million in fiscal 2011. The company's inventory turnover rate declined slightly from the prior year due to higher raw material inventory levels to support increased sales (trailing 12-month inventory turn of 5.4X in fiscal 2012 versus 5.6X in fiscal 2011). Cash collections continue to be efficient, with the trailing 12 month days sales outstanding of 47 days in fiscal 2012 compared to 48 days in fiscal 2011. Year-over-year variability in accounts payable consumed $0.2 million of cash in fiscal 2012 compared to cash generated of $2.7 million in fiscal 2011 due to timing of payments. In fiscal 2012, the change in deferred income taxes contributed $5.4 million of additional operating cash flow due primarily to the deferral of tax liabilities resulting from bonus depreciation taken on qualified capital expenditures.
In fiscal 2011, inventory consumed $9.2 million of cash versus cash generated of $1.6 million in fiscal 2010, reflecting higher raw material costs, higher forecasted demand, delayed deliveries at Electronic Systems and purchases of plastic resins at Engineered Films in anticipation of price increases. Similarly, accounts receivable consumed cash of $5.5 million in fiscal 2011 versus cash generated of $6.3 million in fiscal 2010, reflecting higher receivables associated with sales growth, particularly sales of engineered films and tethered aerostats. Disciplined inventory management (inventory turnover of 5.6X in fiscal 2011 versus 5.3X in fiscal 2010) and improved cash collections (average days sales outstanding of 48 days in fiscal 2011 versus 52 days in fiscal 2010) contributed to stronger cash flows. Year-over-year variability in accounts payable and accrued liabilities generated $7.1 million in cash, as compared with cash inflows of $2.4 million in fiscal 2010. This reflected an increase in accounts payable commensurate with the rise in inventory and higher incentive compensation accruals associated with strong profits.
Investing Activities
Cash used in investing activities totaled $40.3 million in fiscal 2012, $11.4 million in fiscal 2011 and $13.4 million in fiscal 2010. Capital expenditures totaled a record $29.0 million in fiscal 2012 compared to $14.0 million in fiscal 2011. Capital spending consisted primarily of expenditures related to increased manufacturing capacity in Engineered Films, a new manufacturing facility in Applied Technology and Aerostar's commitment to a higher level of product development investments in future growth, including facilities and equipment. Capital outlay for payments related to business acquisitions was $11.8 million in fiscal 2012, primarily related to the Vista acquisition.
Management anticipates record capital spending in fiscal 2013, in the $35 million range. In addition, management will evaluate strategic acquisitions that result in expanded capabilities and solidify competitive advantages. As part of the company's investment in corporate infrastructure, Raven will be investing approximately $15-$20 million over a 3-5 year period to renovate its downtown Sioux Falls facility headquarters. Expansion of Engineered Films capacity and Applied Technology's manufacturing and research and development facility are expected to continue.
Financing Activities
Cash used in financing activities is primarily for dividend payments and repurchases of common stock. Financing activities consumed cash of $15.2 million in fiscal 2012 compared with $33.8 million in fiscal 2011 and $9.9 million in fiscal 2010.
Quarterly dividends paid in fiscal 2012 were $13.0 million, or $0.72 per share, compared to $11.5 million in fiscal 2011 and $9.9 million in fiscal 2010. In the first quarter of fiscal 2012, the company increased the quarterly dividend rate (excluding special dividends) for the 25th consecutive year. Raven has now paid a dividend in 39 consecutive years.
In fiscal 2011, the company paid a special dividend of $22.5 million, or $1.25 per share.
Cash outflow for repayment of a line of credit in fiscal 2012 totaled $2.9 million. This represents a payment to close a line of credit assumed as part of the Vista acquisition in January 2012. No borrowings were made on the line of credit.
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OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of January 31, 2012, 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, 2012 and for the next five years is shown below.
Acquisition related obligations
The company has entered into future obligations for milestone and earn-out payments associated with the Ranchview and Vista acquisitions.
In connection with the Vista stock purchase agreement, the company has agreed to pay $3.25 million upon the total receipt of smart sensing radar systems (SSRS) orders for delivery of a specific quantity by January 31, 2013 and another $3.25 million upon the delivery of the total specific SSRS quantity by January 31, 2014. No amount would be paid if the specific milestones are not reached by the specific dates. The company will also make annual payments to the previous owners based upon earn-out percentages on specific revenue streams until January 31, 2019, not to exceed $15.0 million. Lastly, the company has agreed to fund a revenue based bonus pool for Vista employees using those same earn-out percentages on specific revenue streams until January 31, 2019, also not to exceed $15.0 million. The company has not paid any amount on these obligation as of January 31, 2012.
For the Ranchview acquisition, Raven 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. As of January 31, 2012, the company has paid a total of $0.3 million on this obligation since acquisition.
The total liability recorded on the consolidated balance sheet as of January 31, 2012 related to these future obligations was $10.9 million, of which $3.3 million is classified as accrued liabilities and $7.6 million as other liabilities. These liabilities primarily represent the present value of milestone and earn-out payments classified as consideration at the acquisition date. Payments related to the Vista employee revenue-based bonus pool were treated as a separate transaction from the acquisition and will be accrued when the specific revenue stream is recorded.
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
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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 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
The company estimates inventory valuation each quarter. Typically, when a product reaches the end of its lifecycle, inventory value declines slowly or the product has alternative uses. Management uses its manufacturing resources planning data to help determine if inventory is slow-moving or has become obsolete due to an engineering change. The company closely reviews items that have balances in excess of the 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
Estimated returns or sales allowances are recognized upon shipment of a product. The company sells directly to customers or distributors that incur the expense and commitment for any post-sale obligations beyond stated warranty terms.
Goodwill and Long-lived Assets
Management assesses goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that an asset might be impaired, using fair value measurement techniques. For goodwill, Raven performs impairment reviews by reporting units which are the company's reportable segments.
The company has the option to perform a qualitative impairment assessment over relevant events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Certain events and circumstances reviewed are macroeconomics, industry conditions, cost inputs, overall financial performance, and other relevant entity specific events. If events and circumstances indicate the fair value of a reporting unit is more likely than not greater than its carrying amount, then no further goodwill impairment testing is needed. If events and circumstances indicate the fair value of a reporting unit is less than its carrying value, or the company does not elect to do the qualitative assessment, then the company must perform step one of the goodwill impairment analysis.
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
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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.
For long-lived assets, including definite life 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
See Note 1 to the consolidated financial statements in Item 8 of this report for discussion of new accounting pronouncements.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents and short-term investments. The company has no debt outstanding as of January 31, 2012. The company does not expect operating results or cash flows to be significantly affected by changes in interest rates. Additionally, the company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, the company does utilize derivative financial instruments to manage the economic impact of fluctuation in foreign currency exchange rates on those transactions that are denominated in currency other than its functional currency, which is the U.S. dollar. The use of these financial instruments had no material effect on the company's financial condition, results of operations or cash flows.
The company's subsidiaries that operate outside the United States use their local currency as the functional currency. The functional currency is translated into U.S. dollars for balance sheet accounts using the period-end exchange rates, and average exchange rates for the statement of income. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in accumulated other comprehensive income (loss) within shareholders' equity. Foreign currency transaction gains or losses are recognized in the period incurred and are included in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income. Foreign currency fluctuations had no material effect on the company's financial condition, results of operations or cash flows.
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ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s)
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Information (Unaudited) - included in Item 5 on page 10
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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, 2012, our internal control over financial reporting was effective.
Management has excluded from its assessment the internal control over financial reporting at Vista Research, Inc. (Vista), which was acquired on January 6, 2012 and whose financial statements constitute approximately 11% of total assets and 0.2% of total revenues on the consolidated financial statements as of and for the year ended January 31, 2012.
The effectiveness of our internal control over financial reporting as of January 31, 2012, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on the next page.
/s/ Daniel A. Rykhus
/s/ Thomas Iacarella
Daniel A. Rykhus
Thomas Iacarella
President & Chief Executive Officer
Vice President & Chief Financial Officer
March 30, 2012
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Raven Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Raven Industries, Inc. and its subsidiaries (the "Company") at January 31, 2012, 2011 and 2010 and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2012 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting on the preceding page. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control over Financial Reporting, management has excluded Vista Research, Inc. (Vista) from its assessment of internal control over financial reporting as of January 31, 2012 because it was acquired by the Company in a purchase business combination during January 2012. We have also excluded Vista from our audit of internal control over financial reporting. Vista is a wholly-owned subsidiary whose total assets and total revenues represent 11% and 0.2%, respectively, of the related consolidated financial statement amounts as of and for the year ended January 31, 2012.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 30, 2012
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RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
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RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
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RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
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RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
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. Raven operates 3 divisions (Applied Technology, Engineered Films and Electronic Systems), and 6 wholly owned subsidiaries: Aerostar International, Inc. (Aerostar); Raven Industries Canada, Inc. (Raven Canada); Raven Industries GmbH (Raven GmbH); Raven Industries Australia Pty Ltd (Raven Australia); Raven Do Brazil Participacoes E Servicos Technicos LTDA (Raven Brazil); and Vista Research, Inc. (Vista).
The consolidated financial statements for the periods included herein have been prepared by Raven Industries, Inc. (Raven or the company), pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying consolidated financial statements include the accounts of Raven and its wholly owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling Interest
Non-controlling interests represent capital contributions, income and loss attributable to the owners of less than wholly-owned and consolidated entities. During fiscal year 2012, the company entered into a business venture agreement to pursue potential product and support services contracts for agencies and instrumentalities for the United States Government. The business venture, Aerostar Integrated Systems, (AIS), is 75% owned by the company and is included in the Aerostar business segment. Given the company's majority ownership interest, the accounts of the business venture have been consolidated with the accounts of the company, and a noncontrolling interest has been recorded for the noncontrolling investor's interests in the net assets and operations of the business venture.
Investments in Affiliate
An affiliate investment over which the company has significant influence, but neither a controlling interest nor a majority interest in the risks or rewards of the investee, is accounted for using the equity method. The investment balance is included in “other assets, net,” while the company's share of the investee's results of operations is included in “other income (expense), net.” The company considers whether the value of any of its equity method investments has been impaired whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the company considered any such decline to be other than temporary (based on various factors, including historical financial results, product development activities and the overall health of the affiliate's industry), a write-down would be recorded.
Use of Estimates
Preparing the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Foreign Currency
The company's subsidiaries that operate outside the United States use the local currency as their functional currency. The functional currency is translated into U.S. dollars for balance sheet accounts using the period-end exchange rates and average exchange rates for the statement of income and comprehensive income. Adjustments resulting from financial statement translations are included as foreign currency translation adjustments in “accumulated other comprehensive income (loss)” within shareholders' equity. Foreign currency transaction gains or losses are recognized in the period incurred and are included in “other income (expense), net” in the Consolidated Statements of Income and Comprehensive Income.
Cash and Cash Equivalents
The company considers all highly liquid instruments with original maturities of three or fewer months to be cash equivalents. Cash and cash equivalent balances are principally concentrated in checking, money market and savings accounts with Wells Fargo Bank.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
the company's best estimate of the amount of probable credit losses. This is based on historical writeoff experience by segment and an estimate of the collectibility of any known problem accounts.
Inventory Valuation
Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out basis. Market value encompasses consideration of all business factors including price, contract terms and usefulness.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated over the estimated useful lives of the assets using accelerated methods. The estimated useful lives used for computing depreciation are as follows:
Maintenance and repairs are charged to expense in the year incurred, and renewals and betterments are capitalized. The cost and related accumulated depreciation of assets sold or disposed of are removed from the accounts and the resulting gain or loss is reflected in operations.
The company capitalizes certain costs incurred in connection with developing or obtaining internal-use software in accordance with the accounting guidance for such costs. Capitalized software costs totaled $553 in fiscal 2012, $1,280 in fiscal 2011 and $914 in fiscal 2010. The costs are included in “Property, Plant and Equipment, net” on the Consolidated Balance Sheets. Software costs that do not meet capitalization criteria are expensed as incurred. Amortization expense related to capitalized software is included in depreciation.
Intangible Assets
Intangible assets, primarily comprised of technologies acquired through acquisition, are recorded at cost and are presented net of accumulated amortization. Amortization is computed either on a straight-line basis or under the undiscounted cash flows method
over the estimated useful lives ranging from 3 to 20 years. The straight-line method of amortization is used when it reflects an appropriate allocation of the cost of the intangible assets to earnings in each reporting period.
Goodwill
Raven recognizes goodwill as the excess cost of an acquired business over the net amount assigned to assets acquired and liabilities assumed. For business combinations prior to February 1, 2009, earn-out payments to sellers are added to goodwill when payable under the terms of the purchase agreement. For business combinations after February 1, 2009, earn-out payments are accrued at fair value as of the purchase date, and payments reduce the accrual without affecting goodwill. Any change in the fair value of the contingent consideration after the acquisition date is recognized in the Consolidated Statements of Income and Comprehensive Income.
Goodwill is tested for impairment on an annual basis during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are performed at the reporting unit level. A qualitative impairment assessment over relevant events and circumstances may be assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If events and circumstances indicate the fair value of a reporting unit is less than its carrying value, then the fair values are estimated based on discounted cash flows and are compared with the corresponding carrying value of the reporting unit. If the fair value of the reporting unit is less than the carrying amount, the amount of the impairment loss must be measured and then recognized to the extent the carrying value exceeds the implied fair value.
Long-Lived Assets
The company periodically assesses the recoverability of long-lived and intangible assets. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the assets. The amount of the impairment loss to be recorded is calculated by the excess of the asset's carrying value over its fair value.
Insurance Obligations
Raven employs insurance policies to cover workers' compensation and general liability costs. Liabilities are accrued related to
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
claims filed and estimates for claims incurred but not reported. To the extent these obligations are expected to be reimbursed by insurance, the expected insurance policy benefit is included as a component of “other current assets.”
Contingencies
The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. An estimate of the loss on these matters is charged to operations when it is probable that an asset has been impaired or a liability has been incurred, and the amount of the loss can be reasonably estimated. While the settlement of any claims cannot be determined at this time, management believes that any liability resulting from these claims will be substantially covered by insurance. Accordingly, management does not believe that the ultimate outcome of these matters will have a significant impact on its results of operations, financial position or cash flows.
Revenue Recognition
Raven recognizes revenue when it is realized or realizable and has been earned. Revenue is recognized when there is persuasive evidence of an arrangement, the sales price is determinable, collectability is reasonably assured and shipment or delivery has occurred (depending on the terms of the sale). The company sells directly to customers or distributors who incur the expense and commitment for any post-sale obligations beyond stated warranty terms. Estimated returns, sales allowances or warranty charges are recognized upon shipment of a product.
Operating Expenses
The primary types of operating expenses are classified in the income statement as follows:
Cost of sales
Research and development expenses
Selling, general and administrative expenses
Direct material costs
Material acquisition and handling costs
Direct labor
Factory overhead including depreciation
Inventory obsolescence
Product warranties
Shipping and handling cost
Personnel costs
Professional service fees
Material and supplies
Facility allocation
Personnel costs
Professional service fees
Advertising
Promotions
Information technology equipment depreciation
Office supplies
The company's gross margins may not be comparable to industry peers due to variability in the classification of these expenses across the industries in which the company operates.
Warranties
Accruals necessary for product warranties are estimated based on historical warranty costs and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues.
Share-Based Compensation
The company records compensation expense related to its share-based compensation plans using the fair value method. Under this method, the fair value of share-based compensation is determined as of the grant date and the related expense is recorded over the period in which the share-based compensation vests.
Income Taxes
Deferred income taxes reflect temporary differences between assets and liabilities reported on the company's balance sheet and their tax bases. These differences are measured using enacted tax laws and statutory tax rates applicable to the periods when the temporary differences will affect taxable income. Deferred tax assets are reduced by a valuation allowance to reflect realizable value, when necessary. Accruals are maintained for uncertain tax positions.
New Accounting Standards
In September 2011, the Financial Accounting Standards Board (FASB) issued updated guidance on goodwill impairment testing. This guidance seeks to reduce the cost and complexity of performing the first step of the two-step goodwill impairment test. This amendment permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a more likely than not (more than 50% likelihood) that the fair value of the reporting unit is less than its carrying amount. The performance of the two-step impairment test becomes unnecessary if after assessing the totality of events and circumstances, the entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. Raven adopted the accounting guidance for our fiscal 2012 goodwill impairment analysis. The adoption of the guidance did not have any impact on the company's consolidated financial statements.
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
In June 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance gives an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance eliminates the option to present the components of other comprehensive income as a part of the statement of changes in shareholders' equity. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively, and for public companies is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, FASB deferred the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income. During the deferral period, there is no requirement to separately present or disclose the reclassification adjustments into net income. Raven adopted the presentation requirements related to comprehensive income, which did not have any impact on the company's consolidated financial statements.
NOTE 2
SELECTED BALANCE SHEET INFORMATION
Following are the components of selected balance sheet items:
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
NOTE 3
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income refers to revenue, expenses, gains and losses that under U.S. generally accepted accounting principles are recorded as an element of shareholders' equity but are excluded from net income. The components of accumulated other comprehensive income (loss) are shown below:
NOTE 4
SUPPLEMENTAL CASH FLOW INFORMATION
NOTE 5
ACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
Vista Research
In January 2012, the company completed the stock purchase agreement for all the outstanding stock of Vista Research, Inc. (Vista) for a purchase price of $23,269, of which $12,000 was cash, $2,869 was on assumed line of credit paid by Raven at closing, and $8,400 was valued in contingent consideration and earn-outs.
Vista is a leading provider of surveillance systems that enhance the effectiveness of radars using sophisticated algorithms. Vista's smart sensing radar systems (SSRS) are employed in a host of advanced detection and tracking applications, including wide-area surveillance for the border patrol and the military. In the short term, this acquisition will allow Raven to enhance its tethered aerostat security solutions within its Aerostar Division. Longer-term, the company is positioned to meet growing global demand for low-cost detection and tracking systems used by government and law enforcement agencies. Results of operations subsequent to the acquisition have been combined into the Aerostar Division.
In connection with the stock purchase agreement, Raven has agreed to pay an aggregated $3,250 upon the total receipt of SSRS orders for delivery of a specific quantity by January 31, 2013 and another $3,250 upon the delivery of the total specific quantity by January 31, 2014. No amount would be paid if the specific milestones are not reached by the specific dates. The company will also make annual payments based upon earn-out percentages on specific revenue streams over the next seven years, not to exceed $15,000. The company has determined the fair value of these contingent considerations to be $8,400, of which $3,068 was classified as accrued liabilities and $5,332 as other liabilities in the Consolidated Balance Sheet.
Lastly, the company agreed to fund a revenue based bonus pool for Vista employees using those same earn-out percentages on specific revenue streams over the next seven years, also not to exceed $15,000. Payments related to the Vista employee revenue-based bonus pool were treated as a separate transaction from the acquisition and will be accrued when the specific revenue stream is recorded.
The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was $11,497, all of which is tax deductible. Goodwill resulting from this business combination is largely attributable to the experienced workforce of the acquired business and synergies expected to arise after integration of Vista products into existing Aerostar products. Identifiable intangible assets acquired as part of the acquisition were $7,810, including definite-lived intangibles, such as customer relationships, proprietary technology and non-compete agreements, with a useful life ranging from six to ten years. These intangible assets will be amortized on the basis of undiscounted cash flows over a weighted average period of 4.1 years.
The total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
Vista net sales and net loss for the period from the acquisition date to January 31, 2012 were $631 and $(125), respectively.
The following pro forma consolidated condensed financial results of operations are presented as if the acquisition described above had been completed at the beginning of each period presented:
These pro forma consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as amortization and acquisition cost. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
SST
In November 2009, the company acquired a 20% interest in Site Specific Technology Development Group, Inc. (SST) for $5,000. SST is a privately held agricultural software development and information services provider. Raven and SST are strategically aligned to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market. At the acquisition date, the carrying value of the SST investment exceeded the company’s share of the underlying net assets of SST by $4,976. The company's analysis of this excess determined that it related to $1,054 of technology-related assets to be amortized over a seven-year period and $3,200 of license-related assets to be amortized over a ten-year period. The remainder of the excess is attributable to equity method goodwill.
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Changes in the net carrying value of the investment in SST (Investment in Affiliate) were as follows:
Ranchview
In November 2009, the company purchased substantially all of the assets of Ranchview, Inc., a privately held Canadian corporation for $1,500 cash and contingent consideration valued at $2,310. Raven agreed to pay additional consideration on a quarterly basis of 6% on future sales of Ranchview products, up to a maximum payment of $4,000. Ranchview developed products that use cellular networks instead of the traditional radio systems that are typically used to deliver RTK (Real Time Kinematic) corrections to GPS enabled equipment. RTK corrections improve the accuracy of GPS equipment. The network can also be used to provide high-speed Internet access.
The allocation of the purchase price is summarized below:
The goodwill associated with Ranchview is deductible for tax purposes. Purchased identifiable intangible assets are amortized on a straight-line basis over their respected useful lives. The estimated useful life is six years for existing technology and five to seven years for the remaining intangibles.
The results of operations of Ranchview for periods prior to the company’s acquisition were not material to the company’s Consolidated Statements of Income and Comprehensive Income and, accordingly, pro forma results of operations have not been presented. This operation has been combined into the Applied Technology Division.
NOTE 6
GOODWILL AND OTHER INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill by reporting segment are shown below:
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Intangible Assets
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
The estimated future amortization expense for identifiable intangible assets during the next five years is as follows:
NOTE 7
EMPLOYEE RETIREMENT BENEFITS
The company has two 401(k) plans covering substantially all employees as of January 31, 2012. One plan, which covers the majority of employees, matches employee contributions up to 4%. Prior to January 1, 2010, the company contributed 3% of qualified payroll. The other 401(k) plan was assumed as part of the Vista acquisition. This plan makes a 3% contribution annually and may make additional discretionary contributions to the plan that are determined annually by management. Total 401(k) contribution expense was $1,556, $1,254 and $1,085 for fiscal 2012, 2011 and 2010, respectively.
In addition, the company provides postretirement medical and other benefits to senior executive officers and senior managers. There are no assets held for the plans and any obligations are covered through operating cash and investments. The accumulated benefit obligation for these benefits is shown below:
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
The liability and expense reflected in the balance sheet and income statement were as follows:
The discount rate is based on matching rates of return on high-quality fixed-income investments with the timing and amount of expected benefit payments. No material fluctuations in retiree benefit payments are expected in future years.
The assumed health care cost trend rate for fiscal 2012 was 8.60% compared with 9.00% and 9.51% for fiscal 2011 and 2010. The impact of a one-percentage-point change in assumed health care rates would not be significant to the company's income statement and would affect the ending liability balance by approximately $1,307. The rate to which the fiscal 2012 health care cost trend rate is assumed to decline is 5.00%, which is the ultimate trend rate. The fiscal year that the rate reaches the ultimate trend rate is expected to be fiscal 2025.
Changes in the warranty accrual were as follows:
The reconciliation of income tax computed at the federal statutory rate to the company's effective income tax rate was as follows:
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Significant components of the company's income tax provision were as follows:
Deferred Tax Assets
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the company's deferred tax assets and liabilities were as follows:
Pre-tax book income for the U.S. companies and the Canadian subsidiary was $74,219 and $1,338, respectively. As of January 31, 2012, undistributed earnings of the Canadian subsidiary were considered to have been reinvested indefinitely and, accordingly, the company has not provided United States income taxes on such earnings.
Uncertain Tax Positions
A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows:
During the fiscal year ended January 31, 2012, the only change to uncertain tax positions related to prior years resulted from the lapse of a statute of limitations. The company does not expect any significant change in the amount of unrecognized tax benefits in the next fiscal year.
The total unrecognized tax benefits that, if recognized, would affect the company's effective tax rate were $2,318, $2,023 and $1,727 as of January 31, 2012, January 31, 2011 and January 31, 2010, respectively.
The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31, 2012, January 31, 2011 and January 31, 2010, accrued interest and penalties were $1,379, $1,112 and $857, respectively.
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
The company files tax returns, including returns for its subsidiaries, with various federal, state and local jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. As of January 31, 2012, federal tax returns filed in the U.S., Canada and Switzerland for fiscal years ended January 31, 2008-2011 remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2004-2011 remain subject to examination by state and local tax authorities.
Raven has an uncollateralized credit agreement providing a line of credit of $10,500 with a maturity date of September 1, 2012, bearing interest at the prime rate with a minimum rate of 4.00%. Letters of credit totaling $1,342 have been issued under the line, primarily to support self-insured workers' compensation bonding requirements. No borrowings were outstanding as of January 31, 2012, 2011 and 2010, and $9,158 was available at January 31, 2012. There have been no borrowings under this credit line in the last three fiscal years.
Wells Fargo Bank, N.A. provides Raven's line of credit and holds the majority of its cash and cash equivalents. One member of the company's board of directors is also on the board of directors of Wells Fargo & Co., the parent company of Wells Fargo Bank, N.A.
Raven assumed a revolving line of credit in the amount of $2,869 as part of the Vista acquisition. The outstanding balance on this line of credit was paid and subsequently closed in January 2012. No additional borrowings were made under this line of credit since acquisition.
The company leases certain vehicles, equipment and facilities under operating leases. Total rent and lease expense was $759, $546 and $328 in fiscal 2012, 2011 and 2010, respectively.
Future minimum lease payments under non-cancelable operating leases are as follows:
At January 31, 2012, Raven had two shareholder approved share-based compensation plans, which are described below. The compensation cost and related income tax benefit for these plans were as follows:
Compensation cost capitalized as part of inventory is not significant.
Stock Option and Compensation Plans
The 2010 Stock Incentive Plan is administered by the Personnel and Compensation Committee of the board of directors and allows for stock awards and incentive or non-qualified options with terms not to exceed 10 years. There were 500 shares of common stock reserved for grant, of which 202 were remaining at January 31, 2012. Fiscal 2012 and fiscal 2010 compensation cost includes $64 and $144 of expense recognized as a result of 1.0 and 4.8 share stock awards, respectively. No stock award was issued in fiscal 2011.
Options are granted with exercise prices not less than market value at the date of grant. The stock options vest over a four-year period and expire after five years. Options contain retirement and change in control provisions that may accelerate the vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The company uses historical data to estimate option exercise and employee termination within the valuation model.
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions by grant year:
Outstanding stock options as of January 31, 2012 and activity for the year then ended are presented below:
The intrinsic value of a stock award is the amount by which the fair value of the underlying stock exceeds the exercise price of the award. The total intrinsic value of options exercised was $2,362, $1,102 and $314 during the years ended January 31, 2012, 2011 and 2010, respectively. As of January 31, 2012, the total compensation cost for non-vested awards not yet recognized in the company's statements of income was $4,360, net of the effect of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.96 years.
Deferred Stock Compensation Plan for Directors
The Deferred Stock Compensation Plan for Directors of Raven Industries, Inc. is administered by the Governance Committee of the board of directors. Under the plan, a stock unit is the right to receive one share of the company's common stock as deferred compensation, to be distributed from an account established by the company in the name of the non-employee director. Stock units have the same value as a share of common stock but cannot be sold. Stock units are a component of the company's equity. The plan reserves 50 common shares for the conversion of stock units into common stock after directors retire from the board.
Stock units granted under this plan vest immediately and are expensed at the date of grant. Stock units are also accumulated if a director elects to defer the annual retainer paid for board service. When dividends are paid on the company's common shares, stock units are added to the directors' balances and a corresponding amount is removed from retained earnings. The intrinsic value of a stock unit is the fair value of the underlying shares.
Outstanding stock units as of January 31, 2012 and changes during the year then ended are presented below:
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Basic net income per share is computed by dividing net income by the weighted-average common shares and stock units outstanding. Diluted net income per share is computed by dividing net income by the weighted-average common and common equivalent shares outstanding (which includes the shares issuable upon exercise of employee stock options, net of shares assumed purchased with the option proceeds) and stock units outstanding. Certain outstanding options were excluded from the diluted net income per share calculations because their effect would have been anti-dilutive. For fiscal 2012, 2011 and 2010, 34, 128 and 338 options, respectively, were excluded from the diluted net income per-share calculation.
Details of the computation are presented below:
NOTE 13
BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION
The company's reportable segments are defined by their common technologies, production processes and inventories. These segments reflect Raven's organization into three Raven divisions and the Aerostar subsidiary. Raven Canada, Raven GmbH, Raven Australia, and Raven Brazil are included in the Applied Technology Division. Vista and AIS are included in the Aerostar Division. Substantially all of the company's long-lived assets are located in the United States.
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs and improve farm yields around the world. Their product families include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, yield monitoring planter controls and an integrated RTK and information platform called Slingshot. Engineered Films produces rugged reinforced plastic sheeting for industrial, energy, construction, geomembrane, and agriculture applications. Aerostar sells high-altitude research balloons and tethered aerostats for government and commercial research and military parachutes. It produces uniforms and protective wear for U.S. government agencies as a subcontractor and also manufactures other sewn and sealed products on a contract basis. Electronic System's capabilities are focused on electronics manufacturing services (EMS) for commercial customers with a focus on high-mix, low-volume production. Assemblies manufactured by the Electronic Systems segment include avionics, communication, environmental controls and other products where high quality is critical.
The company measures the performance of its segments based on their operating income excluding administrative and general expenses. The accounting policies of the operating segments are the same as those described in Note 1, Summary of Significant Accounting Policies. Other income, interest expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets. Segment information is reported consistent with the company's management reporting structure.
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
(a) Assets are principally cash, investments, deferred taxes and other receivables.
(b) Includes a $451 pre-tax gain on disposition of assets.
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(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Sales to a customer of the Electronic Systems segment accounted for 10%, 13% and 16% of consolidated sales in fiscal 2012, 2011 and 2010, respectively, and 10%, 11% and 13% of consolidated accounts receivable at the end of fiscal 2012, 2011 and 2010, respectively.
Sales to a customer of the Engineered Films segment accounted for 11% of consolidated sales in fiscal 2012 and 1% of consolidated accounts receivable at the end of fiscal 2012.
The table below provides a summary of net sales by principal product categories:
Foreign sales are attributed to product delivered to non-U.S. locations. Sales to countries outside the United States, primarily to Canada and Brazil, were as follows:
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ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of January 31, 2012, the end of the period covered by this report, management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), evaluated the effectiveness of the company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of such date. Based on that evaluation, the CEO and CFO have concluded that the company's disclosure controls and procedures were effective as of January 31, 2012.
Management's Report on Internal Control Over Financial Reporting
Management’s annual report on internal control over financial reporting and the report of the company's independent registered public accounting firm appear in Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K Report.
Changes in Internal Control Over Financial Reporting
There were no changes in the company's internal control over financial reporting that occurred during the fiscal quarter ended January 31, 2012, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
Not applicable.
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PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the sections entitled “Election of Directors,” “Board of Directors and Committees,” “Corporate Governance,” and “Other Matters” within the company's Proxy Statement relating to its 2012 Annual Meeting of Shareholders.
Information regarding executive officers is set forth in Item 1 of Part 1 of this Report under the caption “Executive Officers” .
Incorporated by reference to the sections entitled “Executive Compensation” and “Non-management Director Compensation” within the company's Proxy Statement relating to its 2012 Annual Meeting of Shareholders.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Incorporated by reference to the section entitled “Ownership of Common Stock” within the company’s Proxy Statement relating to its 2012 Annual Meeting of Shareholders.
The remaining information called for by this item relating to “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated by reference to the section entitled “Equity Compensation Plan Information” contained in the company’s Proxy Statement relating to its 2012 Annual Meeting of Shareholders.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference to the sections entitled “Board of Directors and Committees” and “Corporate Governance” contained in the company’s Proxy Statement relating to its 2012 Annual Meeting of Shareholders.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the section entitled “Independent Registered Public Accounting Firm Fees,” contained in the company’s Proxy Statement relating to its 2012 Annual Meeting of Shareholders.
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PART IV
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
Financial Statements
See PART II, Item 8.
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
Exhibits
See index to Exhibits on the following page.
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SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RAVEN INDUSTRIES, INC.
(Registrant)
By: /s/ DANIEL A RYKHUS
Daniel A. Rykhus
President and Chief Executive Officer
Date: March 30, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ DANIEL A RYKHUS
/s/ MARK E. GRIFFIN
Daniel A. Rykhus
Mark E. Griffin
President and Chief Executive Officer
Director
(principal executive officer) and Director
/s/ THOMAS IACARELLA
/s/ KEVIN T. KIRBY
Thomas Iacarella
Kevin T. Kirby
Vice President and Chief Financial Officer
Director
(principal financial and accounting officer)
/s/ THOMAS S. EVERIST
/s/ MARC E. LEBARON
Thomas S. Everist
Marc E. LeBaron
Chairman of the Board
Director
/s/ ANTHONY W. BOUR
/s/ CYNTHIA H. MILLIGAN
Anthony W. Bour
Cynthia H. Milligan
Director
Director
Date: March 30, 2012
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of Raven Industries, Inc.:
Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated March 30, 2012 appearing elsewhere in this Annual Report on Form 10-K of Raven Industries, Inc. also included an audit of the financial statement schedule listed in Item 15 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 30, 2012
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2012, 2011 and 2010
(in thousands)
Note:
(1)
Represents uncollectible accounts receivable written off during the year, net of recoveries.
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