FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: OCTOBER 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________________ Commission file number: 0-3136 RAVEN INDUSTRIES, INC. ------------------------------------------------------------ (Exact name of registrant as specified in its charter) SOUTH DAKOTA 46-0246171 - --------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 205 EAST 6TH STREET P.O. BOX 5107 SIOUX FALLS, SD 57117-5107 ---------------------------------------------------------- (Address of principal executive offices) (Zip code) 605-336-2750 ------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AS OF OCTOBER 31, 1997 - --------------- ----------------------------------------------- Common Stock 4,858,283 shares RAVEN INDUSTRIES, INC. AND SUBSIDIARIES INDEX PAGE NO. PART I-FINANCIAL INFORMATION -------- Consolidated Balance Sheets as of October 31, 1997, January 31, 1997 and October 31, 1996 3 Consolidated Statements of Income for the three months and nine months ended October 31, 1997 and 1996 4 Consolidated Statements of Cash Flows for the nine months ended October 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Computations of Earnings Per Common Share 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II-OTHER INFORMATION 10 PART I - FINANCIAL INFORMATION RAVEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands except per share data) 10/31/97 01/31/97 10/31/96 ------- ------- ------- ASSETS Cash and cash equivalents ................................... $ 1,585 $ 3,439 $ 1,960 Accounts receivable, less allowance for doubtful accounts of $352, $340 and $337 .................. 23,926 25,637 21,243 Inventories: Materials ................................................. 18,870 16,276 16,364 In process ................................................ 5,107 4,574 5,094 Finished goods ............................................ 5,876 4,275 4,944 ------- ------- ------- Total inventories ..................................... 29,853 25,125 26,402 Prepaid expenses and other current assets ................... 392 431 365 Deferred income taxes ....................................... 2,064 2,064 1,579 ------- ------- ------- Total current assets .................................. 57,820 56,696 51,549 Property, plant and equipment ............................... 51,731 48,315 47,320 Less: accumulated depreciation ............................ 32,992 30,173 29,429 ------- ------- ------- Net property, plant and equipment ..................... 18,739 18,142 17,891 Other assets, net ........................................... 5,709 5,824 3,619 ------- ------- ------- TOTAL ASSETS ................................................ $82,268 $80,662 $73,059 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable, bank ......................................... $ 1,000 $ 0 $ 0 Current portion of long-term debt ........................... 1,119 1,366 813 Accounts payable ............................................ 6,156 7,849 5,748 Accrued liabilities and customer advances ................... 10,797 10,801 10,010 ------- ------- ------- Total current liabilities ............................. 19,072 20,016 16,571 Long-term debt, less current portion ........................ 2,216 3,181 2,618 Deferred income taxes ....................................... 736 736 815 Stockholders' equity Common stock, $1 par value, authorized shares: 100,000,000; issued: 5,210,686; 5,187,961 and 5,093,109 shares ........ 5,211 5,188 5,093 Paid in capital ........................................... 2,773 2,673 645 Retained earnings ......................................... 55,170 51,778 50,227 ------- ------- ------- 63,154 59,639 55,965 Less treasury stock, at cost: 352,403 shares ........................................ 2,910 2,910 2,910 ------- ------- ------- Total stockholders' equity ............................ 60,244 56,729 53,055 ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $82,268 $80,662 $73,059 ======= ======= ======= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PART I - FINANCIAL INFORMATION RAVEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands except per share data) FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED -------------------------------------------------------- 10/31/97 10/31/96 10/31/97 10/31/96 ----------- ----------- ----------- ----------- Net sales ................... $ 41,321 $ 38,943 $ 111,062 $ 101,088 Cost of goods sold .......... 35,208 31,888 92,047 82,549 ----------- ----------- ----------- ----------- Gross profit .............. 6,113 7,055 19,015 18,539 Operating expenses Selling ................... 2,044 1,903 5,998 5,353 Administrative ............ 1,564 1,554 4,817 4,547 ----------- ----------- ----------- ----------- Operating income ....... 2,505 3,598 8,200 8,639 Interest expense ............ (71) (83) (237) (224) Other income, net ........... 114 56 395 144 ----------- ----------- ----------- ----------- Income before income taxes 2,548 3,571 8,358 8,559 Income taxes ................ 907 1,268 2,981 3,039 ----------- ----------- ----------- ----------- Net income ................ $ 1,641 $ 2,303 $ 5,377 $ 5,520 =========== =========== =========== =========== Average number of common and common-equivalent shares outstanding ............... 4,904,548 4,774,665 4,899,326 4,759,543 =========== =========== =========== =========== Net income per common and common-equivalent share ... $ 0.33 $ 0.48 $ 1.10 $ 1.16 =========== =========== =========== =========== Cash dividends paid per share $ 0.15 $ 0.13 $ 0.41 $ 0.37 =========== =========== =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PART I - FINANCIAL INFORMATION RAVEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) FOR THE NINE MONTHS ENDED ------------------- 10/31/97 10/31/96 ------- ------- Cash flows from operating activities: Net income .......................................... $ 5,377 $ 5,520 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................... 3,944 3,529 Provision for losses on accounts receivable ..... 157 71 Equity in earnings of affiliate, net of dividends (175) (1) (Increase) decrease in accounts receivable ...... 1,554 (5,312) (Increase) decrease in inventories .............. (4,728) (2,505) (Increase) decrease in other current assets ..... 39 48 Increase (decrease) in operating liabilities .... (1,697) 1,800 Other ........................................... (19) 54 ------- ------- Net cash provided by (used in) operating activities . 4,452 3,204 Cash flows from investing activities: Capital expenditures ................................ (4,485) (3,262) Other investing activities, net ..................... 255 28 ------- ------- Net cash provided by (used in) investing activities . (4,230) (3,234) Cash flows from financing activities: Issuance of short-term debt ......................... 2,000 0 Payment of short-term debt .......................... (1,000) 0 Long-term debt principal payments ................... (1,214) (198) Proceeds from exercise of stock options ............. 123 134 Dividends paid ...................................... (1,985) (1,750) ------- ------- Net cash provided by (used in) financing activities . (2,076) (1,814) ------- ------- Net increase (decrease) in cash and equivalents ..... (1,854) (1,844) Cash and cash equivalents at beginning of period ...... 3,439 3,804 ------- ------- Cash and cash equivalents at end of period ............ $ 1,585 $ 1,960 ======= ======= Cash paid during the period for: Interest .......................................... $ 253 $ 229 Income taxes ...................................... $ 3,410 $ 2,737 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PART I - FINANCIAL INFORMATION RAVEN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three month and nine month periods ended October 31, 1997 are not necessarily indicative of the results that may be expected for the year ending January 31, 1998. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended January 31, 1997. 2. In March 1997, the Financial Accounting Standards Board issued Statement No. 128 "Earnings per Share," which the Company will adopt effective for its fiscal 1998 year end reporting. The Company will be required to report basic net income per share based on weighted average common shares outstanding, without considering common equivalent shares, and diluted net income per share based on weighted average common and common equivalent shares outstanding. Diluted net income per share would be equivalent to the Company's current reporting of net income per common and common-equivalent share. PART I - FINANCIAL INFORMATION RAVEN INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATIONS OF EARNINGS PER COMMON SHARE (UNAUDITED) (Dollars in thousands except per share data) FOR THE THREE FOR THE NINE MONTHS ENDED: MONTHS ENDED: ------------------------------------------------- 10/31/97 10/31/96 10/31/97 10/31/96 ---------- ---------- ---------- ---------- Net income ........................................... $ 1,641 $ 2,303 $ 5,377 $ 5,520 ========== ========== ========== ========== Earnings per common share - Primary ........................................ $ 0.33 $ 0.48 $ 1.10 $ 1.16 ========== ========== ========== ========== Earnings per common share - Fully diluted (1) .............................. $ 0.33 $ 0.48 $ 1.10 $ 1.16 ========== ========== ========== ========== Average number of common and common equivalent shares: Primary: Weighted average common shares outstanding .............................. 4,855,159 4,738,928 4,844,941 4,727,145 Dilutive effect of exercise of certain stock options ........................ 49,389 35,737 54,385 32,398 ---------- ---------- ---------- ---------- Average common shares - Primary ....................................... 4,904,548 4,774,665 4,899,326 4,759,543 ========== ========== ========== ========== Fully diluted (1): Weighted average common shares outstanding .............................. 4,855,159 4,738,928 4,844,941 4,727,146 Dilutive effect of exercise of certain stock options ........................ 49,389 38,022 54,385 33,159 ---------- ---------- ---------- ---------- Average common shares - Fully diluted ................................. 4,904,548 4,776,950 4,899,326 4,760,305 ========== ========== ========== ========== (1) THIS CALCULATION IS SUBMITTED IN ACCORDANCE WITH REGULATION S-K ITEM 601(b)(11) ALTHOUGH NOT REQUIRED BY FOOTNOTE 2 TO PARAGRAPH 14 OF APB OPINION NO. 15 BECAUSE IT RESULTS IN DILUTION OF LESS THAN 3%. PART I - FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION At October 31, 1997, the company had $1.6 million of cash and borrowed $1.0 million on a short-term basis. At October 31, 1996 the company had $2.0 million of cash and no short-term borrowings. Cash is typically used during the first nine months of the year to finance seasonal increases in inventories. Capital expenditures were $1.2 million higher for the nine months ended October 31, 1997 than the comparable period of the prior fiscal year. Spending was higher in the Plastics and Electronics segments. The higher spending was funded by increased cash provided by operating activities. The company's capital resources continue to be sufficient to fund its operating and investing activities. On November 24, 1997, the company announced that it had been authorized by its board of directors to repurchase up to 500,000 shares of its common stock. Depending on the number of shares repurchased and the price of those shares, additional long-term debt financing may be required by the company. Management believes such financing would be available to the company at interest rates equivalent to current financing arrangements. RESULTS OF OPERATIONS Third quarter sales of $41.3 million were 6 percent higher than the comparable quarter of the prior year. Unfavorable operating results in the company's Plastics segment were primarily responsible for lower operating and net income. Net income of $1.6 million was 29 percent lower than one year earlier and on a per share basis of $.33 was down 31 percent from the comparable period of the prior year. For the nine months, sales of $111.1 million were 10 percent higher than the first nine months of the prior year. Nine month net income of $5.4 million was down 3 percent from the prior year and on a per share basis declined 5 percent to $1.10 per share. The increase in the number of average shares outstanding was due primarily to the issuance of 93,701 shares of common stock in connection with the January, 1997 acquisition of Norcore Plastics, Inc. For the full year, unfavorable results in the Plastic segment are expected to reduce operating income for the company below the $12.0 million recorded in fiscal 1997. Demand for industrial plastic tanks remains weak and seasonal strength in agricultural tank sales in not expected to offset the overall profit decline. Plastics segment sales of $17.1 million in the third quarter were 13 percent higher than one year earlier. The acquisition of Norcore Plastics added $1.0 million to sales in the quarter and $5.5 million in the first nine months of the current year. Excluding the impact of the acquisition, sales of industrial plastic tanks dropped significantly, while pick-up truck topper sales were flat. Sales of engineered films rose 19 percent in the third quarter and were up 10 percent for the nine months. Total Plastics sales for the nine months ended October 31, 1997 were $51.7 million compared to $43.3 million in the comparable period of PART I - FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) the prior year. Losses in the industrial tank business and to a lesser extent the pick-up truck topper business reduced operating income in this segment to $70,000 in the third quarter and $2.0 million for the nine months. Comparable operating income figures for the prior year were $925,000 and $3.0 million, respectively. Electronics segment sales of $11.5 million in the quarter ended October 31, 1997 were 8 percent higher than the comparable quarter of the prior fiscal year. The improvement was due primarily to increases in the company's contract electronics manufacturing business. For the nine month period, sales of $32.7 million were 3 percent higher than the comparable period of the previous year. Gross profit rates improved throughout the segment. Operating income for the three month period of $1.4 million was 30 percent higher and for the nine months was $3.9 million - up 18 percent from the comparable periods of the prior year. Sewn Products sales of $12.7 million in the third quarter were down 3 percent from the prior year's third quarter, but, at $26.7 million on a year-to-date basis were 3 percent higher than the prior year. The variances relate primarily to the timing of shipments. Relatively higher sales of lower margin products during the quarter combined with the lower sales to reduce profitability. Operating income of $1.0 million in the third quarter was 36 percent lower than the comparable period of the prior year. Nine month operating income of $2.2 million was 5 percent lower than the first nine months of the prior fiscal year. Consolidated gross profits were down 13 percent in the third quarter and were 3 percent higher for the nine month period, when compared to the prior year, as a result of the operating performance in the Plastics and Sewn Products segments discussed above. Selling and administrative expenses, combined, were relatively unchanged as a percentage of sales. Improved results at the company's 50 percent owned affiliate increased other income for both the third quarter and nine month periods. Consolidated income before income taxes decreased by 29 percent in the third quarter and 2 percent for the nine month period when compared to the same periods in the previous fiscal year. SAFE HARBOR STATEMENT THIS REPORT CONTAINS DISCUSSIONS OF ITEMS WHICH MAY CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF FEDERAL SECURITIES LAWS. ALTHOUGH RAVEN INDUSTRIES BELIEVES THAT EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCES THAT ITS EXPECTATIONS WILL BE ACHIEVED. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS INCLUDE GENERAL ECONOMIC CONDITIONS, WEATHER CONDITIONS WHICH COULD AFFECT CERTAIN OF THE COMPANY'S PRIMARY MARKETS SUCH AS THE AGRICULTURAL MARKET OR ITS MARKET FOR OUTERWEAR, OR CHANGES IN COMPETITION WHICH COULD IMPACT ANY OF THE COMPANY'S PRODUCT LINES. PART II-OTHER INFORMATION Item 1. Legal Proceedings: None Item 2. Changes in Securities: None Item 3. Defaults upon Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: None Item 5. Other Information: None Item 6. (a) Exhibits Filed: Exh. 27-Financial Data schedule (for SEC only). (See Part 1, page 7 for Earnings Per Share computation) (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RAVEN INDUSTRIES, INC. /s/ Arnold J. Thue ---------------------------------- Arnold J. Thue Vice President, Finance, Secretary and Treasurer (Principal Financial and Accounting Officer) DATE: DECEMBER 10, 1997