BUSINESS SEGMENTS
for the years ended January 31,
---------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994 1993
==================================================================================================================
ELECTRONICS
Sales $ 45,947 $ 43,861 $ 32,962 $ 31,959 $ 35,771 $ 34,538
Operating income 5,844 4,913 4,600 2,753(a) 4,529 5,146
Identifiable assets 25,599 23,251 19,204 16,912 18,838 19,082
Capital expenditures 2,002 1,071 807 552 985 953
Depreciation & amortization 1,326 1,273 1,077 872 804 712
PLASTICS
Sales $ 68,325 $ 59,158 $ 55,281 $ 48,971 $ 40,386 $ 36,070
Operating income 1,998 4,187 3,267 3,470 2,815 2,625
Identifiable assets 34,583 33,879 26,092 25,817 16,796 13,769
Capital expenditures 3,869 2,539 2,973 6,387 3,587 1,305
Depreciation & amortization 3,243 2,678 2,414 1,845 1,263 1,245
SEWN PRODUCTS
Sales $ 35,347 $ 36,422 $ 32,201 $ 40,790 $ 45,311 $ 40,606
Operating income 2,720 2,871 1,694 2,913 3,096 1,375
Identifiable assets 14,157 14,990 13,934 16,384 16,510 17,760
Capital expenditures 667 379 396 765 1,141 888
Depreciation & amortization 541 583 719 832 803 683
CORPORATE & OTHER
Identifiable assets $ 8,251 $ 8,542 $ 8,323 $ 6,523 $ 8,453 $ 4,202
Capital expenditures 3 20 10 49 71 13
Depreciation & amortization 27 32 32 33 27 23
TOTAL COMPANY
Sales $149,619 $139,441 $120,444 $121,720 $121,468 $111,214
Operating income 10,562 11,971 9,561 9,136(a) 10,440 9,146
Identifiable assets 82,590 80,662 67,553 65,636 60,597 54,813
Capital expenditures 6,541 4,009 4,186 7,753 5,784 3,159
Depreciation & amortization 5,137 4,566 4,242 3,582 2,897 2,663
(a) INCLUDES A $1.8 MILLION CHARGE AT THE COMPANY'S BETA RAVEN SUBSIDIARY.
PRODUCT LINES BY BUSINESS SEGMENT
ELECTRONICS ... contract electronics manufacturing
... flow controls -- precision farming
... feedmill and bakery automation
PLASTICS ... sheeting
... storage/sprayer tanks
... research balloons
... pickup-truck toppers
SEWN PRODUCTS ... performance outerwear
... sport balloons
... inflatables
RAVEN INDUSTRIES 1998 ANNUAL REPORT...3
SALES BY MARKETS
for the years ended January 31
------------------------------
(dollars in thousands) 1998 1997 1996
==================================================================
INDUSTRIAL
Plastic sheeting $ 23,043 $ 21,276 $ 19,225
Industrial tanks 12,405 7,070 6,566
Electronics 18,765 16,574 11,391
Research balloons 3,150 3,268 2,776
Inflatables 3,085 3,515 3,169
-------- -------- --------
$ 60,448 $ 51,703 $ 43,127
RECREATION
Performance outerwear $ 29,803 $ 29,901 $ 26,426
Sport balloons 2,459 2,790 2,454
-------- -------- --------
$ 32,262 $ 32,691 $ 28,880
AGRICULTURE
Flow controls-precision farming $ 16,852 $ 16,689 $ 13,467
Feedmill automation 5,128 5,039 4,181
Storage/sprayer tanks 9,869 8,632 9,271
Plastic sheeting 1,251 1,255 1,653
-------- -------- --------
$ 33,100 $ 31,615 $ 28,572
AUTOMOTIVE
Pickup-truck toppers $ 18,607 $ 17,657 $ 15,402
Other 388
-------- -------- --------
$ 18,607 $ 17,657 $ 15,790
DEFENSE
Electronics $ 5,202 $ 5,559 $ 3,922
Other 216 153
-------- -------- --------
$ 5,202 $ 5,775 $ 4,075
TOTAL COMPANY SALES
Industrial $ 60,448 $ 51,703 $ 43,127
Recreation 32,262 32,691 28,880
Agriculture 33,100 31,615 28,572
Automotive 18,607 17,657 15,790
Defense 5,202 5,775 4,075
-------- -------- --------
Total $149,619 $139,441 $120,444
======== ======== ========
RAVEN INDUSTRIES 1998 ANNUAL REPORT...17
ELEVEN-YEAR FINANCIAL SUMMARY
------------------------------------------------------
(dollars in thousands, except per-share data) 1998 1997 1996 1995
======================================================================================================
OPERATIONS FOR YEAR
Net sales..................................... $ 149,619 $ 139,441 $ 120,444 $ 121,720
Gross profit.................................. 24,929 25,287 22,660 23,968
Operating income.............................. 10,562 11,971 9,561 9,136(b)
Income before income taxes.................... 12,540(a) 11,915 9,566 9,372
Net income.................................... 8,062 7,688 6,197 6,088
Net income % of sales......................... 5.4% 5.5% 5.1% 5.0%
Net income % of beginning equity.............. 14.2% 15.6% 13.6% 14.8%
Cash dividends................................ $ 2,709 $ 2,367 $ 2,130 $ 1,843
FINANCIAL POSITION
Current assets................................ $ 57,831 $ 56,696 $ 45,695 $ 43,795
Current liabilities........................... 19,375 20,016 14,771 15,078
Working capital............................... 38,456 36,680 30,924 28,717
Current ratio................................. 2.98 2.83 3.09 2.90
Property, plant and equipment................. 19,817 18,142 18,069 18,570
Total assets.................................. 82,590 80,662 67,553 65,636
Long-term debt................................ 1,128 3,181 2,816 4,179
Shareholders' equity.......................... 61,563 56,729 49,151 45,526
Long-term debt/total capitalization........... 1.8% 5.3% 5.4% 8.4%
Inventory turnover (CGS/year-end inventory)... 4.8 4.5 4.1 4.4
CASH FLOWS PROVIDED BY (USED IN)
Operating activities.......................... $ 9,274 $ 7,088 $ 9,687 $ 7,452
Investing activities.......................... (4,979) (5,090) (4,158) (10,000)
Financing activities.......................... (4,884) (2,363) (4,029) 406
Increase (decrease) in cash................... (589) (365) 1,500 (2,142)
COMMON STOCK DATA
Net income per share--basic................... $ 1.66 $ 1.62 $ 1.31 $ 1.29
Net income per share--diluted................. 1.65 1.61 1.30 1.27
Cash dividends per share...................... 0.56 0.50 0.45 0.39
Book value per share.......................... 12.76 11.73 10.42 9.62
Stock price range during year
High...................................... $ 25.75 $ 23.50 $ 20.75 $ 24.50
Low....................................... $ 19.63 $ 16.00 $ 15.50 $ 18.00
Shares outstanding, year-end (in thousands)... 4,825 4,836 4,716 4,735
Number of shareholders, year-end.............. 3,221 3,011 3,190 3,031
OTHER DATA
Average number of employees................... 1,511 1,387 1,368 1,414
Sales per employee............................ $ 99 $ 101 $ 88 $ 86
Backlog $ 47,154 $ 38,102 $ 32,539 $ 29,661
ALL PER-SHARE, SHARES OUTSTANDING AND MARKET PRICE DATA REFLECT THE OCTOBER 1992
THREE-FOR-TWO AND THE JULY 1989 TWO-FOR-ONE STOCK SPLITS. ALL OTHER FIGURES ARE
AS REPORTED.
(a) INCLUDES THE $1.8 MILLION GAIN ON SALE OF AN INVESTMENT IN AN AFFILIATE
(SEE NOTE 5).
(b) INCLUDES A $1.8 MILLION CHARGE AT THE COMPANY'S BETA RAVEN SUBSIDIARY.
RAVEN INDUSTRIES 1998 ANNUAL REPORT...18
[WIDE TABLE CONTINUED]
for the years ended January 31,
- ------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
================================================================================================
$ 121,468 $ 111,214 $ 100,609 $ 85,502 $ 90,973 $ 77,563 $ 64,305
23,574 21,048 19,109 17,685 18,177 14,857 14,292
10,440 9,146 8,138 7,311 7,461 5,127 4,983
10,638 9,182 8,067 7,071 6,831 4,578 4,390
6,954 6,030 5,306 4,605 4,235 2,930 2,656
5.7% 5.4% 5.3% 5.4% 4.7% 3.8% 4.1%
19.6% 19.7% 20.2% 20.2% 19.7% 15.3% 15.5%
$ 1,545 $ 1,316 $ 1,165 $ 1,014 $ 849 $ 732 $ 680
$ 45,037 $ 42,476 $ 34,798 $ 33,900 $ 30,570 $ 24,976 $ 21,795
16,088 15,253 11,284 12,147 11,247 9,633 8,799
28,949 27,223 23,514 21,753 19,323 15,342 12,997
2.80 2.78 3.08 2.79 2.72 2.59 2.48
13,371 10,457 9,947 8,368 7,163 8,702 9,672
60,597 54,813 46,528 44,103 39,547 35,892 33,920
2,539 3,224 3,676 4,679 4,966 4,115 5,254
41,100 35,530 30,601 26,236 22,802 21,448 19,170
5.8% 8.3% 10.7% 15.1% 17.5% 15.7% 20.9%
4.4 3.8 4.2 3.4 4.1 4.6 4.1
$ 11,257 $ 3,475 $ 7,489 $ 5,583 $ 2,404 $ 3,908 $ 4,108
(5,908) (3,107) (3,886) (3,113) (1,308) (1,331) (3,598)
(2,042) (1,659) (2,518) (2,071) (1,875) (1,869) 274
3,307 (1,291) 1,085 399 (779) 708 784
$ 1.48 $ 1.30 $ 1.15 $ 1.00 $ 0.90 $ 0.61 $ 0.56
1.45 1.27 1.13 0.98 0.87 0.61 0.55
0.33 0.28 0.25 0.22 0.18 0.15 0.14
8.76 7.60 6.63 5.77 5.01 4.48 4.03
$ 23.50 $ 21.50 $ 15.83 $ 9.75 $ 10.00 $ 5.75 $ 7.09
$ 18.00 $ 13.83 $ 8.00 $ 6.42 $ 5.33 $ 4.37 $ 4.21
4,694 4,676 4,629 4,559 4,554 4,785 4,758
3,173 3,147 2,775 2,526 1,898 1,925 2,000
1,435 1,316 1,252 1,141 1,234 1,138 1,019
$ 85 $ 85 $ 80 $ 75 $ 74 $ 68 $ 63
$ 36,403 $ 49,033 $ 48,200 $ 53,587 $ 42,078 $ 33,436 $ 21,424
RAVEN INDUSTRIES 1998 ANNUAL REPORT...19
FINANCIAL REVIEW AND ANALYSIS
RESULTS OF OPERATIONS...MARGIN ANALYSIS
for the years ended January 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------------------------------
(in thousands, except per-share data) AMOUNT % SALES % CHANGE amount % sales % change amount % sales % change
====================================================================================================================================
Net sales.............................. $ 149,619 100.0 + 7.3 $ 139,441 100.0 + 15.8 $ 120,444 100.0 - 1.0
Gross profit........................... 24,929 16.7 - 1.4 25,287 18.1 + 11.6 22,660 18.8 - 5.5
Operating expenses..................... 14,367 9.6 + 7.9 13,316 9.5 + 1.7 13,099 10.9 + 0.5
Operating income....................... 10,562 7.1 - 11.8 11,971 8.6 + 25.2 9,561 7.9 + 4.7
Income before income taxes............. 12,540 8.4 + 5.2 11,915 8.5 + 24.6 9,566 7.9 + 2.1
Income taxes........................... 4,478 3.0 + 5.9 4,227 3.0 + 25.5 3,369 2.8 + 2.6
Net income............................. $ 8,062 5.4 + 4.9 $ 7,688 5.5 + 24.1 $ 6,197 5.1 + 1.8
Net income per share--diluted.......... $ 1.65 + 2.5 $ 1.61 + 23.8 $ 1.30 + 2.4
Effective income tax rate.............. 35.7% + 0.6 35.5% + 0.9 35.2% + 0.6
LONG-TERM PERFORMANCE
Although the company recorded record sales and net income in fiscal 1998,
operating income declined by almost 12%. Unfavorable operating results were due
primarily to weakness in the Plastics business segment. Net income of $8.1
million, or $1.65 per share on a diluted basis, included a $1.8 million pretax
gain on the sale of an investment in an affiliated company. Absent this gain,
net income would have been $6.9 million or $1.41 per share, the third highest in
company history. The Electronics segment generated higher sales and earnings in
fiscal 1998 as a result of improvements in contract electronics manufacturing.
Plastics segment sales increased because of the acquisition of Norcore Plastics,
Inc., in January 1997, but weakness in the industrial marketplace reduced
profitability. Sewn Products segment results were relatively flat when compared
with fiscal 1997 levels.
Strong operating cash flows, along with the sale of the 50% owned affiliate,
reduced the company's debt to capitalization ratio below 2% at the end of fiscal
1998. The company also returned 14.2% on shareholders equity, and 5.4% on sales;
increased its book value by 8.8% on a per share basis; paid a record per share
dividend and continued to invest in its businesses.
for the years ended January 31,
-------------------------------------------------------
1998 1997 1996 1995 1994 1993
===========================================================================================
Net income as % of
Sales........................ 5.4% 5.5% 5.1% 5.0% 5.7% 5.4%
Average assets............... 9.9% 10.4% 9.3% 9.6% 12.1% 11.9%
Beginning equity............. 14.2% 15.6% 13.6% 14.8% 19.6% 19.7%
RAVEN INDUSTRIES 1998 ANNUAL REPORT...20
FINANCIAL REVIEW AND ANALYSIS
SEGMENT ANALYSIS
The following table summarizes sales and gross profits in the company's three
business segments for each of the past three fiscal years:
1998 1997 1996
-----------------------------------------------------------------------
(dollars in thousands) AMOUNT % CHANGE amount % change amount % change
=======================================================================================================
SALES
Electronics................... $ 45,947 + 4.8 $ 43,861 + 33.1 $ 32,962 + 3.1
Plastics...................... 68,325 +15.5 59,158 + 7.0 55,281 + 12.9
Sewn Products................. 35,347 - 3.0 36,422 + 13.1 32,201 - 21.1
--------- --------- ---------
Total......................... $ 149,619 + 7.3 $ 139,441 + 15.8 $ 120,444 - 1.0
========= ========= =========
AMOUNT % SALES amount % sales amount % sales
=======================================================================================================
GROSS PROFITS
Electronics................... $ 10,083 21.9 $ 8,617 19.6 $ 7,841 23.8
Plastics...................... 8,791 12.9 10,154 17.2 9,450 17.1
Sewn Products................. 6,055 17.1 6,516 17.9 5,369 16.7
--------- --------- ---------
Total......................... $ 24,929 16.7 $ 25,287 18.1 $ 22,660 18.8
========= ========= =========
ELECTRONICS SEGMENT
FISCAL 1998 VERSUS FISCAL 1997
Sales in this segment were up 5% compared with fiscal 1997, reaching $45.9
million in fiscal 1998. Sales growth occurred in all of the segment's product
categories, with the largest increase, $1.0 million, coming from the company's
Electronic Systems division as a result of market growth in contract
manufacturing. Sales of flow and position control devices for the agricultural
market increased from $16.7 million in fiscal 1997 to $16.9 million in fiscal
1998 due primarily to higher selling prices. Delays in new product introductions
slowed the solid growth experienced in prior years. At the company's Beta Raven
subsidiary, sales of both feedmill automation and contract electronics
manufacturing increased due to higher market demand and increased market share.
Gross profit rates improved in this segment as a higher percentage of repeat
business lessened the impact of start-up costs in contract electronics
manufacturing.
[BAR CHART]
YEAR SALES GROSS PROFITS
'96 32.962 7.841
'97 43.861 8.617
'98 45.947 10.083
ELECTRONICS SEGMENT
(DOLLARS IN MILLIONS)
FISCAL 1997 VERSUS FISCAL 1996
The company successfully broadened its commercial contract electronics offerings
in fiscal 1997. Revenues from contract electronics assembly in the Raven
Electronic Systems division doubled over fiscal 1996 levels and reached $18.0
million. Sales of flow and position control devices for precision farming
applications increased from $13.5 to $16.7 million. Lower contract assembly
revenues from the company's Beta Raven subsidiary partially offset these
increases. The lower gross profit rate in fiscal 1997 was a result of the high
rate of technological and customer start-up costs incurred with the introduction
of new products and transformation from defense orientation to a commercial
customer base.
PROSPECTS
An increased backlog in contract electronics manufacturing orders at the end of
fiscal 1998 supports management's expectation for sales growth in this segment
between 10-15% in the coming year. Sales growth in the flow and position control
markets will depend on the farm economy in the United States and abroad and
acceptance of new product initiatives in the marketplace. Gross profit rates are
expected to be slightly lower in fiscal 1999 than in fiscal 1998 because sales
growth is expected to be in relatively lower margin product lines.
PLASTICS SEGMENT
FISCAL 1998 VERSUS FISCAL 1997
Sales in the Plastics segment rose from $59.2 million in fiscal 1997 to $68.3
million in fiscal 1998 due primarily to the acquisition of Norcore Plastics,
Inc., in January 1997. Norcore sales in fiscal 1998 were $6.3 million, nearly
30% below expectations due to a slowdown in the semiconductor industry. Storage
tank revenues were $22.3 million in fiscal 1998 and $15.7 million in fiscal
1997. The company's industrial plastic tank operations all experienced
unfavorable
RAVEN INDUSTRIES 1998 ANNUAL REPORT...21
FINANCIAL REVIEW AND ANALYSIS
[BAR CHART]
YEAR SALES GROSS PROFITS
'96 55.281 9.450
'97 59.158 10.154
'98 68.325 8.791
PLASTICS SEGMENT
(DOLLARS IN MILLIONS)
market conditions in the second half of fiscal 1998, depressing sales and gross
margins. Sales of engineered films and research balloons were 6% higher in
fiscal 1998 than in fiscal 1997, reaching $27.4 million. Entry into new markets,
such as retail stores, expanded sales opportunities and offset generally lower
selling prices for films. Pickup-truck topper sales increased by 5% due
primarily to higher unit deliveries. Most of the decline in the gross profit
rate resulted from the decline in plastic tank margins, but all product lines
showed some reduction.
FISCAL 1997 VERSUS FISCAL 1996
Continued growth in sales of engineered films in fiscal 1997 was central to the
company's success in this business segment. Engineered Film division sales were
$25.8 million, up 9% over fiscal 1996. Fiscal 1996 sales included emergency
demand for hurricane film. Sales of high-altitude research balloons and
pickup-truck toppers increased by 18% and 15%, respectively. Weakness in
agricultural markets reduced sales of plastic tanks by 4%. Higher sales combined
with improved operations at one of the company's pickup-truck topper plants
increased gross profits in fiscal 1997, compared with fiscal 1996.
PROSPECTS
The gross profit reduction experienced in the second half of fiscal 1998 is
expected to continue into the first half of fiscal 1999. For the full year,
management expects that gross profit percentages will partially recover, but
remain below the level of fiscal 1997 and 1996. Recent negotiations with
suppliers will result in lower raw material costs. With gross profit rate
improvement established as the primary objective for this segment in fiscal
1999, sales growth in the 5-10% range is expected.
SEWN PRODUCTS SEGMENT
FISCAL 1998 VERSUS FISCAL 1997
Sales were $35.3 million in this segment in fiscal 1998; a 3% decline from the
prior fiscal year. Sales of performance outerwear were essentially unchanged, at
$29.8 million, while sales of hot-air balloons and inflatable displays declined
due to lower demand. The change in the gross profit rate, from 18% in fiscal
1997 to 17% in fiscal 1998 was due primarily to lower sales of relatively higher
margin products.
FISCAL 1997 VERSUS FISCAL 1996
Sales of $36.4 million in fiscal 1997 were 13% higher than in fiscal 1996 as a
result of improved market conditions for outerwear sales to catalog
merchandisers and increased sales of severe weather uniforms. Sales of
inflatable display products and hot-air balloons also increased. Raven branded
skiwear and western wear sales declined. Higher sales and production levels
improved plant efficiencies and aided the recovery of the gross profit rate.
[BAR CHART]
YEAR SALES GROSS PROFITS
'96 32.201 5.369
'97 36.422 6.516
'98 35.347 6.055
SEWN PRODUCTS SEGMENT
(DOLLARS IN MILLIONS)
PROSPECTS
Management believes the limited growth strategy currently employed in its Sewn
Products businesses will deliver consistent and predictable profits. Management
believes these businesses do have sufficient resources to respond to
opportunities as they arise. Increased order backlog at January 31, 1998
indicates an opportunity for sales growth in excess of 5% in fiscal 1999. If
sales do increase, gross profits are expected to rise commensurately.
EXPENSES, INCOME TAXES
AND OTHER
FISCAL 1998 VERSUS FISCAL 1997
Selling expenses increased by 13% in fiscal 1998 when compared with fiscal 1997
levels. Increased selling effort to penetrate new markets in the Plastics and
Electronics segments contributed to the increase. Administrative and interest
expenses were relatively unchanged. Other income included improved results at
the company's 50% owned affiliate, which was sold in January 1998 for $3.8
million, generating a pretax gain of $1.8 million. The company's effective
income tax rate rose from 35.5% to 35.7% as the goodwill amortization associated
with the Norcore merger was not deductible for federal income tax purposes.
FISCAL 1997 VERSUS FISCAL 1996
Selling and administrative costs increased by 1.7% over fiscal 1996 levels. As a
percent of sales, they were reduced to 9.5% from 10.9% one year earlier. Selling
expenses did not increase over the prior year as a result of declines in
commissionable sales and lower promotional expenses. Administrative expenses did
increase by 3.9% as a result of higher compensation expenses. Interest expense
declined
RAVEN INDUSTRIES 1998 ANNUAL REPORT...22
FINANCIAL REVIEW AND ANALYSIS
due to lower borrowing levels. The company's effective income tax rate increased
from 35.2% in fiscal 1996 to 35.5% in fiscal 1997 due primarily to the taxation
of income over $10 million at a higher federal rate.
PROSPECTS
Operating expenses are expected to remain relatively constant as a percentage of
sales in fiscal 1999. Interest costs should decline as total borrowings are
reduced. The company's effective income tax rate is expected to rise slightly,
to the 36% range.
OTHER
The company reports its business segments according to Statement of Financial
Accounting Standards No. 14. A new Statement, affecting the company for its
fiscal 1999 year-end reporting, will require changes in the reporting of segment
information. Management has not yet determined the impact of the new Statement
on its financial reporting, but expects additional detail concerning its
business operations to be disclosed.
ANALYSIS OF FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes cash provided by (used in) the company's business
activities for the past three fiscal years:
(dollars in thousands) 1998 1997 1996
===========================================================================
Operating activities............... $ 9,274 $ 7,088 $ 9,687
Investing activities............... (4,979) (5,090) (4,158)
Financing activities............... (4,884) (2,363) (4,029)
Increase (decrease) in cash........ $ (589) $ (365) $ 1,500
OPERATING ACTIVITIES
The company's cash flow from operations totaled $26.0 million over the past
three years, compared with net income of $21.9 million over the same period.
Accounts receivable and inventory levels increased slightly in fiscal 1998 due
to higher sales. Working capital requirements are projected to grow along with
revenues in fiscal 1999.
INVESTING ACTIVITIES
The company sold its investment in an affiliated company in January 1998 for
$3.8 million. Cash proceeds were $1.3 million and the remainder was in the form
of a note receivable in fiscal 1999 and 2000. Capital expenditures totaled $6.5
million in fiscal 1998, $2.5 million higher than the prior year and $1.4 million
more than depreciation and amortization. Over one-half of the expenditures in
fiscal 1998 were in support of continued growth in the Plastics segment. Capital
spending is expected to exceed depreciation and amortization by approximately $1
million in fiscal 1999.
FINANCING ACTIVITIES AND CREDIT LINES
The company increased its dividend, on a per share basis, for the eleventh
consecutive year. Cash was also used to repurchase 34,000 shares of company
stock at an average price of $20.96 per share and repay $1.7 million of
long-term debt.
The company uses its short-term line of credit to finance its seasonal borrowing
needs. Maximum borrowings under the company's line of credit were $2.0 million
during fiscal 1998 and average daily borrowings were less than $300,000. Higher
levels of short-term borrowing may be required during fiscal 1999 because of the
company's lower opening cash balance and anticipation of higher working capital
requirements. Management believes its existing credit facility will be
sufficient to fund these requirements in the coming fiscal year.
CAPITAL STRUCTURE AND LONG-TERM FINANCING
The company's long-term debt to total capitalization ratio was 1.8% at January
31, 1998. Refer to Note 8 to the consolidated financial statements for types and
sources of long-term debt. Although no new long-term borrowing is planned for
fiscal 1999, additional borrowings may be required if management repurchases any
of the 466,000 additional shares of Raven stock remaining under the
authorization by the board of directors.
The company's solid financial condition and capacity to assume additional
financing, if needed, provide the company a strategic advantage over many of its
competitors. In the opinion of management, the company is well-positioned to
take on new opportunities in its core businesses with emphasis on those that
build on the company's strengths of customer service and quality manufacturing.
RAVEN INDUSTRIES 1998 annual report...23
STOCK AND QUARTERLY PERFORMANCE
WEEKLY STOCK PRICE, VOLUME AND P/E
[PLOT POINTS CHART]
DATE P/E PRICE VOLUME
2/07 14.596 23 1/2 17,200.0
2/14 14.441 23 1/4 8,300.0
2/21 13.820 22 1/4 9,300.0
2/28 13.509 21 3/4 13,700.0
3/07 13.742 22 1/8 23,800.0
3/14 13.665 22 67,500.0
3/21 14.596 23 1/2 21,500.0
3/28 14.596 23 1/2 13,300.0
4/04 14.286 23 33,800
4/11 14.441 23 1/4 33,200
4/18 14.441 23 1/4 15,900
4/25 14.441 23 1/4 16,300
5/02 13.772 23 13,800
5/09 13.698 22 7/8 24,500
5/16 13.922 23 1/4 29,000
5/23 14.072 23 1/2 29,500
5/30 14.222 23 3/4 13,500
6/06 14.222 23 3/4 8,000
6/13 13.997 23 3/8 6,600
6/20 14.147 23 5/8 10,700
6/27 14.521 24 1/4 14,600
7/04 14.596 24 3/8 11,500
7/11 14.521 24 1/4 10,900
7/18 14.371 24 12,400
7/25 14.371 24 4,700
8/01 14.559 24 3/4 26,100
8/08 14.412 24 1/2 17,000
8/15 15.147 25 3/4 33,200
8/22 14.853 25 1/4 17,100
8/29 14.706 25 19,300
9/05 14.118 24 24,800
9/12 14.412 24 1/2 6,900
9/19 14.265 24 1/4 10,700
9/26 14.559 24 3/4 46,700
10/03 14.265 24 1/4 45,100
10/10 14.706 25 32,400
10/17 14.191 24 1/8 87,000
10/24 13.382 22 3/4 40,400
10/31 14.516 22 1/2 26,300
11/07 15.161 23 1/2 9,300
11/14 14.677 22 3/4 53,100
11/21 12.661 19 5/8 67,600
11/28 13.347 20 11/16 23,800
12/05 13.629 21 1/8 91,000
12/12 13.548 21 81,400
12/19 13.871 21 1/2 14,100
12/26 14.194 22 9,000
1/02 13.790 21 3/8 22,800
1/09 13.790 21 3/8 13,100
1/16 14.355 22 1/4 14,600
1/23 14.274 22 1/8 21,600
1/30 13.630 22 5/8 15,700
QUARTERLY SUMMARY (UNAUDITED)
net income common stock
per share(a) market price
(dollars in thousands, net gross operating pretax net ----------------- ----------------- dividends
except per-share data) sales profit income income income basic diluted high low per share
====================================================================================================================================
FISCAL 1998
FIRST QUARTER......... $ 35,666 $ 6,827 $ 3,288 $ 3,334 $ 2,134 $ 0.44 $ 0.44 $ 24.00 $ 21.75 $ 0.130
SECOND QUARTER........ 34,075 6,075 2,407 2,476 1,602 0.33 0.33 24.50 22.38 0.130
THIRD QUARTER......... 41,321 6,113 2,505 2,548 1,641 0.34 0.33 25.75 22.50 0.150
FOURTH QUARTER........ 38,557 5,914 2,362 4,182(b) 2,685 0.56 0.55 23.75 19.63 0.150
------------------------------------------------------------------------------ -------
TOTAL YEAR............ $ 149,619 $ 24,929 $ 10,562 $ 12,540 $ 8,062 $ 1.66 $ 1.65 $ 25.75 $ 19.63 $ 0.560
============================================================================== =======
FISCAL 1997
First Quarter......... $ 30,875 $ 6,086 $ 2,826 $ 2,797 $ 1,808 $ 0.38 $ 0.38 $ 18.75 $ 16.00 $ 0.120
Second Quarter........ 31,270 5,398 2,215 2,191 1,409 0.30 0.30 22.00 16.00 0.120
Third Quarter......... 38,943 7,055 3,598 3,571 2,303 0.49 0.48 22.75 18.25 0.130
Fourth Quarter........ 38,353 6,748 3,332 3,356 2,168 0.45 0.45 23.50 20.88 0.130
------------------------------------------------------------------------------ -------
Total Year............ $ 139,441 $ 25,287 $ 11,971 $ 11,915 $ 7,688 $ 1.62 $ 1.61 $ 23.50 $ 16.00 $ 0.500
============================================================================== =======
FISCAL 1996
First Quarter......... $ 27,787 $ 5,776 $ 2,404 $ 2,380 $ 1,535 $ 0.32 $ 0.32 $ 20.50 $ 17.25 $ 0.105
Second Quarter........ 27,253 4,795 1,675 1,732 1,117 0.24 0.23 20.75 19.50 0.105
Third Quarter......... 35,560 6,400 3,115 3,057 1,972 0.42 0.41 20.50 17.50 0.120
Fourth Quarter........ 29,844 5,689 2,367 2,397 1,573 0.34 0.34 19.25 15.50 0.120
------------------------------------------------------------------------------ -------
Total Year............ $ 120,444 $ 22,660 $ 9,561 $ 9,566 $ 6,197 $ 1.31 $ 1.30 $ 20.75 $ 15.50 $ 0.450
============================================================================== =======
(a) NET INCOME PER SHARE IS COMPUTED DISCRETELY BY QUARTER AND MAY NOT ADD TO
THE FULL YEAR COMPUTATION DUE TO ROUNDING.
(b) INCLUDES THE $1.8 MILLION GAIN ON SALE OF AN INVESTMENT IN AN AFFILIATE
(SEE NOTE 5).
RAVEN INDUSTRIES 1998 ANNUAL REPORT...24
CONSOLIDATED BALANCE SHEETS
as of January 31
---------------------------------
(dollars in thousands) 1998 1997 1996
==========================================================================================================
ASSETS
Current assets
Cash and cash equivalents ..................................... $ 2,850 $ 3,439 $ 3,804
Accounts and note receivable, net ............................. 26,973 25,637 16,002
Inventories ................................................... 25,816 25,125 23,897
Deferred income taxes ......................................... 1,686 2,064 1,579
Prepaid expenses and other current assets ..................... 506 431 413
---------------------------------
Total current assets ...................................... 57,831 56,696 45,695
Property, plant and equipment, net ................................ 19,817 18,142 18,069
Note receivable, less current portion ............................. 1,259
Other assets, net ................................................. 3,683 5,824 3,789
---------------------------------
Total assets .............................................. $82,590 $80,662 $67,553
---------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ............................. $ 1,765 $ 1,366 $ 813
Accounts payable .............................................. 7,480 7,849 4,651
Accrued liabilities ........................................... 9,327 10,197 8,309
Customer advances ............................................. 803 604 998
---------------------------------
Total current liabilities ................................. 19,375 20,016 14,771
Long-term debt, less current portion .............................. 1,128 3,181 2,816
Deferred income taxes ............................................. 524 736 815
Stockholders' equity .............................................. 61,563 56,729 49,151
---------------------------------
Common shares-
Authorized--100,000,000
Outstanding--1998: 4,824,429; 1997: 4,835,558; 1996: 4,715,976
Total liabilities and stockholders' equity .................... $82,590 $80,662 $67,553
=================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
RAVEN INDUSTRIES 1998 annual report...25
CONSOLIDATED STATEMENTS OF INCOME
for the years ended January 31
-----------------------------------------
(dollars in thousands, except per-share data) 1998 1997 1996
==========================================================================================
Net sales ................................. $ 149,619 $ 139,441 $ 120,444
Cost of goods sold ........................ 124,690 114,154 97,784
-----------------------------------------
Gross profit .......................... 24,929 25,287 22,660
Operating expenses
Selling ............................... 8,149 7,211 7,223
Administrative ........................ 6,218 6,105 5,876
-----------------------------------------
Operating income .................. 10,562 11,971 9,561
Interest expense ...................... (323) (310) (375)
Gain on sale of investment in affiliate 1,794
Other income, net ..................... 507 254 380
-----------------------------------------
Income before income taxes ............ 12,540 11,915 9,566
Income taxes .............................. 4,478 4,227 3,369
-----------------------------------------
Net income ............................ $ 8,062 $ 7,688 $ 6,197
=========================================
Net income per common share:
--basic ................................ $ 1.66 $ 1.62 1.31
=========================================
--diluted .............................. $ 1.65 $ 1.61 1.30
=========================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
RAVEN INDUSTRIES 1998 ANNUAL REPORT..26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
$1 par treasury stock
common paid-in ------------------- retained
(dollars in thousands, except per-share data) stock capital shares at cost earnings total
================================================================================================================================
Balance, January 31, 1995.................... $ 5,050 $ 420 (315,903) $ (2,334) $ 42,390 $ 45,526
Net income................................... 6,197 6,197
Cash dividends ($.45 per share).............. (2,130) (2,130)
Purchase of stock for treasury............... (36,500) (576) (576)
Purchase and retirement of stock............. (9) (172) (181)
Employees' stock options exercised........... 27 180 207
Tax benefit from exercise of stock options... 108 108
--------------------------------------------------------------------------------
Balance January 31, 1996..................... 5,068 536 (352,403) (2,910) 46,457 49,151
Net income................................... 7,688 7,688
Cash dividends ($.50 per share).............. (2,367) (2,367)
Shares issued for acquisition................ 94 1,956 2,050
Purchase and retirement of stock............. (30) (624) (654)
Employees' stock options exercised........... 56 618 674
Tax benefit from exercise of stock options... 187 187
--------------------------------------------------------------------------------
Balance January 31, 1997..................... 5,188 2,673 (352,403) (2,910) 51,778 56,729
Net income................................... 8,062 8,062
Cash dividends ($.56 per share).............. (2,709) (2,709)
Purchase of stock for treasury............... (34,000) (713) (713)
Purchase and retirement of stock............. (33) (771) (804)
Employees' stock options exercised........... 56 742 798
Tax benefit from exercise of stock options... 200 200
--------------------------------------------------------------------------------
BALANCE JANUARY 31, 1998..................... $ 5,211 $ 2,844 (386,403) $ (3,623) $ 57,131 $ 61,563
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
RAVEN INDUSTRIES 1998 ANNUAL REPORT...27
consolidated statements of cash flows
for the years ended January 31
------------------------------
(dollars in thousands) 1998 1997 1996
====================================================================================================================================
Cash flows from operating activities
Net income .................................................................................. $ 8,062 $ 7,688 $ 6,197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ........................................................... 5,137 4,566 4,242
Provision for losses on accounts receivable ............................................. 193 88 86
Deferred income taxes ................................................................... 166 (514) (203)
Equity in earnings of affiliate, net of dividends ....................................... (204) (6) (105)
Gain on sale of investment in affiliate ................................................. (1,794)
Change in operating assets and liabilities, net of effects from acquisition of businesses (2,254) (4,808) (525)
Other operating activities, net ......................................................... (32) 74 (5)
-------------------------------
Net cash provided by operating activities ................................................... 9,274 7,088 9,687
Cash flows from investing activities
Capital expenditures ........................................................................ (6,541) (4,009) (4,186)
Sale of investment in affiliate ............................................................. 1,300
Acquisition of businesses ................................................................... (1,105) (510)
Other investing activities, net ............................................................. 262 24 538
-------------------------------
Net cash used in investing activities ....................................................... (4,979) (5,090) (4,158)
Cash flows from financing activities
Issuance of short-term debt ................................................................. 2,000 4,500
Payment of short-term debt .................................................................. (2,000) (4,500)
Retire debt of acquired business ............................................................ (890)
Long-term debt principal payments ........................................................... (1,656) (813) (1,457)
Proceeds from issuance of long-term debt .................................................... 1,500
Net proceeds from exercise of stock options ................................................. 194 207 134
Dividends paid .............................................................................. (2,709) (2,367) (2,130)
Purchase of treasury stock .................................................................. (713) (576)
-------------------------------
Net cash used in financing activities ....................................................... (4,884) (2,363) (4,029)
-------------------------------
Net increase (decrease) in cash and cash equivalents ............................................ (589) (365) 1,500
Cash and cash equivalents at beginning of year .................................................. 3,439 3,804 2,304
-------------------------------
Cash and cash equivalents at end of year ........................................................ $ 2,850 $ 3,439 $ 3,804
===============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
RAVEN INDUSTRIES 1998 ANNUAL REPORT...28
NOTES TO FINANCIAL STATEMENTS
NOTE 1...SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Raven Industries,
Inc. ("Raven") and its wholly-owned subsidiaries (the "company"), Aerostar
International, Inc. ("Aerostar"); Beta Raven Inc. ("Beta"); and Glasstite, Inc.
("Glasstite"). All intercompany balances and transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of the company's financial statements requires management to
make certain estimates and assumptions that 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.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalent balances are principally concentrated in a money market mutual fund
with Norwest Advantage Funds, an affiliate of Norwest Bank Minnesota, N.A.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market with cost determined on
the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is
depreciated over the estimated useful life of the asset using accelerated
methods. The estimated useful lives used for computing depreciation are as
follows:
Buildings and improvements................................7 to 39 years
Machinery and equipment....................................3 to 7 years
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 income.
INTANGIBLE ASSETS
Intangible assets are primarily comprised of goodwill and patents which are
recorded at cost net of accumulated amortization. Amortization is computed on a
straight-line basis over estimated useful lives ranging from 5 to 20 years.
INSURANCE OBLIGATIONS
The company employs large deductible insurance policies covering workers
compensation, employee health care and general liability costs. Costs are
accrued up to the limits of these policies based on claims filed and estimates
for claims incurred but not reported.
CONTINGENCIES
The company may from time to time be involved as a defendant in lawsuits, claims
or disputes in the normal course of business. An estimated loss is charged to
operations when it is probable that an asset has been impaired or a liability
incurred and the amount of the loss can be reasonably estimated.
RESEARCH AND DEVELOPMENT
Research and development expenditures of $660,000 in fiscal 1998, $678,000 in
fiscal 1997, and $619,000 in fiscal 1996 were charged to cost of goods sold in
the year incurred.
STOCK OPTIONS
The company records compensation expense related to its stock option plan using
the intrinsic value method.
INCOME TAXES
Deferred income taxes reflect temporary differences between assets and
liabilities reported on the company's balance sheet and their tax basis. These
differences are measured using enacted tax laws and statutory tax rates
applicable to the periods when the temporary differences will impact taxable
income. Deferred tax assets are reduced by a valuation allowance to reflect
realizable value, when necessary. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
RAVEN INDUSTRIES 1998 ANNUAL REPORT...29
NOTES TO FINANCIAL STATEMENTS
NOTE 2...SELECTED BALANCE SHEET INFORMATION
Following are the components of selected balance sheet items:
as of January 31
-----------------------------------
(dollars in thousands) 1998 1997 1996
================================================================================
Accounts and note receivable, net:
Trade accounts ....................... $ 26,113 $ 25,977 $ 16,342
Current portion of note receivable ... 1,250
Allowance for doubtful accounts ...... (390) (340) (340)
----------------------------------
Total ............................ $ 26,973 $ 25,637 $ 16,002
==================================
Inventories:
Finished goods ....................... $ 4,133 $ 4,275 $ 5,236
In process ........................... 3,882 4,574 5,344
Materials ............................ 17,801 16,276 13,317
----------------------------------
Total ............................ $ 25,816 $ 25,125 $ 23,897
==================================
Property, plant, and equipment:
Land ................................. $ 1,265 $ 1,185 $ 1,185
Building and improvements ............ 14,742 13,988 13,285
Machinery and equipment .............. 37,798 33,142 30,550
----------------------------------
53,805 48,315 45,020
Accumulated depreciation ............. (33,988) (30,173) (26,951)
----------------------------------
Total ............................ $ 19,817 $ 18,142 $ 18,069
==================================
Other assets, net:
Intangible assets, net of amortization $ 3,447 $ 3,732 $ 1,746
Investment in affiliate .............. 1,802 1,796
Other non-current assets ............. 236 290 247
----------------------------------
Total ............................ $ 3,683 $ 5,824 $ 3,789
==================================
Accrued liabilities:
Profit sharing ....................... $ 1,255 $ 1,654 $ 1,324
Vacations ............................ 1,941 1,786 1,622
Salaries and wages ................... 2,407 2,514 2,427
Insurance obligations ................ 2,247 2,070 1,502
Other ................................ 1,477 2,173 1,434
----------------------------------
Total ............................ $ 9,327 $ 10,197 $ 8,309
==================================
RAVEN INDUSTRIES 1998 ANNUAL REPORT...30
NOTES TO FINANCIAL STATEMENTS
NOTE 3...SUPPLEMENTAL CASH FLOW INFORMATION
for the years ended January 31
--------------------------------
(dollars in thousands) 1998 1997 1996
================================================================================
Changes in operating assets and liabilities:
Accounts receivable ..................... $ (279) $(8,112) $ 1,504
Inventories ............................. (727) (393) (1,785)
Prepaid expenses and other current assets (76) 53 (31)
Accounts payable ........................ (369) 2,450 (784)
Accrued liabilities ..................... (1,003) 1,588 118
Customer advances ....................... 200 (394) 453
--------------------------------
$(2,254) $(4,808) $ (525)
================================
Cash paid during the year for:
Interest ................................ $ 335 $ 309 $ 395
Income taxes ............................ 4,227 4,201 3,761
NOTE 4...ACQUISITIONS
In January 1997, the company acquired all the outstanding shares of Norcore
Plastics, Inc., a manufacturer of large
industrial storage tanks utilizing "dual laminate" technology. Consideration
paid included $1.1 million of cash and the issuance of 93,701 shares of common
stock. Raven acquired assets of $3.0 million and assumed liabilities of $2.1
million in connection with the merger. In fiscal 1996 the company acquired
certain assets of another company for $510,000.
Both acquisitions were accounted for as purchases. The cost in excess of net
tangible assets acquired resulted in goodwill of $2.7 million. The consolidated
financial statements include the results of operations of these businesses
subsequent to the acquisition dates.
NOTE 5...SALE OF INVESTMENT IN AFFILIATE
In January 1998, the company sold its 50 percent equity investment in a
corporation engaged in the manufacture of injection-molded plastic products for
$3.8 million and recognized a pre-tax gain of $1.8 million. The company had
accounted for this investment using the equity method. Under the Stock
Redemption Agreement, the company received cash of $1.3 million in fiscal 1998
and an 8.5% interest bearing note for the remaining $2.5 million. This note
receivable will be collected in two installments; one principal payment in
fiscal 1999 and the balance, including interest, in fiscal 2000.
NOTE 6...BUSINESS SEGMENTS AND MAJOR CUSTOMER
INFORMATION
The company operates in three reportable business segments consisting of
Electronics, Plastics and Sewn Products. Segment information can be found on
page 3, along with a description of product lines included in each segment. No
customer accounted for more than 10% of consolidated sales in any fiscal year
presented.
RAVEN INDUSTRIES 1998 ANNUAL REPORT...31
NOTES TO FINANCIAL STATEMENTS
NOTE 7...QUARTERLY DATA (UNAUDITED)
Quarterly net sales, gross profit, net income and net income per share data are
presented on page 24.
NOTE 8...FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
as of January 31
--------------------------------
(dollars in thousands) 1998 1997 1996
===========================================================================================================================
Norwest bank notes payable in installments through 2001 with interest at the prime rate $ 2,560 $ 3,620 $ 2,680
Contracts, notes and mortgages payable in installments through 2003
with interest from 3.0% to 14.0% .................................................. 212 762 740
Industrial revenue bonds payable in installments through 2001
with interest at 83% of the prime rate ............................................ 121 165 209
--------------------------------
Total long-term debt .......................................................... 2,893 4,547 3,629
Current portion ............................................................... (1,765) (1,366) (813)
--------------------------------
$ 1,128 $ 3,181 $ 2,816
================================
Certain long-term debt is collateralized by land, buildings and equipment having
an aggregate depreciated cost at January 31, 1998 of $1.4 million. Norwest Bank
South Dakota, N.A. (Norwest) provides the company's unsecured notes payable and
unsecured line of credit. Two members of the company's board of directors are
also on the board of directors of Norwest.
The company had a $5.0 million unsecured line of credit available as of January
31, 1998; no borrowings were outstanding as of that date. Borrowings on the line
bear interest at rates approximating the prime rate. The prime rates at January
31, 1998, 1997, and 1996 were 8.5%, 8.25%, and 8.5%, respectively. In fiscal
1997, there were no borrowings under the credit line. The weighted average
interest rates under short-term credit lines in fiscal 1998 and 1996 were 8.5%
and 8.9%, respectively.
The company leases certain transportation and other equipment and facilities
under operating leases. Total rent expense under these leases was $802,000,
$445,000 and $483,000 in fiscal 1998, 1997 and 1996, respectively.
NOTE 9...SHARE PURCHASE RIGHTS PLAN
The company has a Share Purchase Rights Plan designed to protect the interests
of its stockholders by preventing a potential acquiror from gaining control of
the company without offering a fair price to all stockholders. Under the Plan,
each stockholder has one Right for each share of the company's common stock
owned. Each Right entitles the stockholder to purchase from the company one
share of the company's common stock for a specified price. The Rights are not
exercisable or transferable apart from the common stock until ten days after a
person or group has acquired 20% or more, or makes a tender offer for 30% or
more, of the company's outstanding common stock. The Rights expire in March 1999
and are redeemable by the company at $0.01 per Right prior to the date upon
which they become exercisable, and in certain limited circumstances following
such date.
NOTE 10...STOCK OPTIONS
Officers and key employees of the company have been granted options to purchase
stock under the 1990 Stock Option Plan. The plan, administered by the Board of
Directors, allows for a cash bonus when options are exercised and may grant
either incentive stock options or non-qualified options with terms not to exceed
ten years. The plan reserves
RAVEN INDUSTRIES 1998 ANNUAL REPORT...32
NOTES TO FINANCIAL STATEMENTS
121,727 shares of the company's common stock at January 31, 1998. Options have
been granted at prices not less than market value at the date of grant, vest
over a four-year period and expire after five years. Compensation expense
related to the cash bonus was $383,000, $343,000 and $298,000 in fiscal 1998,
1997, and 1996, respectively.
In accordance with Statement of Financial Accounting Standards No. 123, the
company has elected to continue to use the intrinsic value method to recognize
compensation expense for stock options. If compensation expense had been
recognized in accordance with the fair value method, the company's net income
and net income per share would have been:
for the years ended January 31
--------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------
AS REPORTED PRO FORMA as reported pro forma as reported pro forma
=======================================================================================================
Net income (in thousands) $ 8,062 $ 7,904 $ 7,688 $ 7,573 $ 6,197 $ 6,172
Net income per share:
--basic .............. $ 1.66 $ 1.63 $ 1.62 $ 1.60 $ 1.31 $ 1.30
--diluted ............ $ 1.65 $ 1.61 $ 1.61 $ 1.59 $ 1.30 $ 1.29
The pro forma information above only includes stock options granted after fiscal
1995. Pro forma compensation expense under the fair value method may increase
over the next few years as additional option grants are considered. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: Dividend
yield of 2.5-3.0%; expected volatility of 25%; risk-free interest rate of
5.8-5.9%; and expected lives of 4.5 years. The fair value of each option
granted, including the cash bonus, was $7.30 in fiscal 1996, $8.75 in fiscal
1997 and $7.98 in fiscal 1998.
Information regarding option activity follows:
for the years ended January 31
----------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------
WEIGHTED weighted weighted
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE shares price shares price
====================================================================================================================
Outstanding at beginning of year 287,750 $ 18.35 280,292 $ 16.50 247,581 $ 15.17
Granted ........................ 68,900 20.00 65,100 21.00 60,000 17.87
Exercised ...................... (55,650) 14.32 (55,642) 12.11 (27,289) 7.57
Forfeited ...................... (2,500) 19.30 (2,000) 18.51
------- ------- -------
Outstanding at end of year ..... 298,500 19.47 287,750 18.35 280,292 16.50
======= ======= =======
Options exercisable at year-end 138,775 $ 19.14 135,400 $ 17.05 134,329 $ 14.65
The following table contains information about stock options outstanding at
January 31, 1998:
remaining
exercise contractual number number
price life (years) outstanding exercisable
=============================================================================
$ 20.00 0.75 51,700 51,700
18.25 1.75 56,500 42,375
17.87 2.75 57,400 28,700
21.00 3.75 64,000 16,000
20.00 4.75 68,900 --
--------------------------------
298,500 138,775
================================
RAVEN INDUSTRIES 1998 ANNUAL REPORT...33
NOTES TO FINANCIAL STATEMENTS
NOTE 11...EMPLOYEE RETIREMENT PLAN
The company has a profit sharing plan covering substantially all employees.
Contributions to the profit sharing plan, not to exceed 15% of total eligible
compensation, are made by Raven and each subsidiary, at the discretion of each
entity's Board of Directors. The company's contribution to the plan was
$1,255,000, $1,654,000, $1,324,000, for fiscal 1998, 1997 and 1996,
respectively.
NOTE 12...INCOME TAXES
Significant components of the company's income tax provision are as follows:
for the years ended January 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
================================================================================
Income taxes
Currently payable ......................... $ 4,312 $ 4,741 $ 3,572
Deferred .................................. 166 (514) (203)
------------------------------
$ 4,478 $ 4,227 $ 3,369
==============================
Significant components of the company's deferred tax assets and liabilities are
as follows:
as of January 31
------------------------------
(dollars in thousands) 1998 1997 1996
================================================================================
Current deferred tax assets (liabilities):
Accounts receivable ....................... $ (137) $ 119 $ 119
Installment sale of investment in affiliate (365)
Inventory valuation methods ............... 335 256 107
Accrued vacations ......................... 513 478 429
Insurance obligations ..................... 779 718 491
Other accrued liabilities ................. 561 493 433
------------------------------
Total ................................. 1,686 2,064 1,579
------------------------------
Non-current deferred tax assets (liabilities):
Installment sale of investment in affiliate (510)
Carrying value of investment in affiliate . (626) (622)
Depreciation methods ...................... (14) (76) (83)
Safe-harbor lease ......................... (34) (110)
------------------------------
Total ................................. (524) (736) (815)
------------------------------
Net deferred tax asset ........................ $ 1,162 $ 1,328 $ 764
==============================
The company's effective tax rate was 35.7%, 35.5%, and 35.2%, in fiscal 1998,
1997, and 1996, respectively. The tax rate varies from the statutory rate of 35%
due primarily to the effect of state income taxes and non-deductible expenses,
partially offset by the impact of graduated income tax rates.
RAVEN INDUSTRIES 1998 ANNUAL REPORT...34
NOTES TO FINANCIAL STATEMENTS
NOTE 13...NET INCOME PER SHARE COMPUTATION
Basic net income per share is computed by dividing net income by weighted
average common shares outstanding. Common shares outstanding represent common
shares issued less shares purchased and held in treasury. Diluted net income per
share is computed by dividing net income by weighted average common and common
equivalent shares outstanding, which includes the dilutive effect of shares
issuable upon exercise of employee stock options (net of shares assumed
purchased with the option proceeds). Details of the computation are presented
below:
for the years ended January 31
--------------------------------------
(dollars in thousands, except per-share data) 1998 1997 1996
=================================================================================================
Net income ............................................ $ 8,062 $ 7,688 $ 6,197
======================================
Average common shares outstanding ..................... 4,842,622 4,738,511 4,735,223
Dilutive impact of stock options ...................... 48,778 36,649 46,962
--------------------------------------
Average common and common equivalent shares outstanding 4,891,400 4,775,160 4,782,185
======================================
Net income per share:
--basic ............................................ $ 1.66 $ 1.62 $ 1.31
======================================
--diluted .......................................... $ 1.65 $ 1.61 $ 1.30
======================================
RAVEN INDUSTRIES 1998 ANNUAL REPORT...35
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RAVEN INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Raven
Industries, Inc. and subsidiaries as of January 31, 1998, 1997, and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended January 31,1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Raven Industries,
Inc. and subsidiaries as of January 31, 1998, 1997, and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
March 6, 1998
RAVEN INDUSTRIES 1998 ANNUAL REPORT...36