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: JULY 31, 1998
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.
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(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 46-0246171
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
205 EAST 6TH STREET
P.O. BOX 5107
SIOUX FALLS, SD 57117-5107
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(Address of principal executive offices) (Zip code)
605-336-2750
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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 SEPTEMBER 3, 1998
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Common Stock 4,713,803 shares
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I-FINANCIAL INFORMATION
Consolidated Balance Sheets as of July 31, 1998,
January 31, 1998 and July 31, 1997 3
Consolidated Statements of Income for the three and six months
ended July 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
six months ended July 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II-OTHER INFORMATION 10
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars in thousands)
07/31/98 01/31/98 07/31/97
-------- -------- --------
ASSETS
Cash and cash equivalents ................................... $ 2,129 $ 2,850 $ 2,645
Accounts and note receivable, less allowance for
doubtful accounts of $407, $390 and $345 .................. 20,066 26,973 18,816
Inventories:
Materials ................................................. 19,493 17,801 18,637
In process ................................................ 6,604 3,882 5,013
Finished goods ............................................ 8,462 4,133 7,937
------- ------- -------
Total inventories ..................................... 34,559 25,816 31,587
Deferred income taxes ....................................... 1,682 1,686 2,064
Prepaid expenses and other current assets ................... 216 506 435
------- ------- -------
Total current assets .................................. 58,652 57,831 55,547
------- ------- -------
Property, plant and equipment ............................... 56,040 53,805 50,339
Less: accumulated depreciation ............................ 36,092 33,988 32,062
------- ------- -------
Net property, plant and equipment ..................... 19,948 19,817 18,277
Note receivable, less current portion ....................... 1,365 1,259
Other assets, net ........................................... 3,482 3,683 5,728
------- ------- -------
TOTAL ASSETS ................................................ $83,447 $82,590 $79,552
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt ........................... 1,682 1,765 757
Accounts payable ............................................ 5,725 7,480 5,789
Accrued liabilities and customer advances ................... 9,960 10,130 10,352
------- ------- -------
Total current liabilities ............................. 17,367 19,375 16,898
Long-term debt, less current portion ........................ 4,584 1,128 2,610
Deferred income taxes ....................................... 524 524 736
Stockholders' equity
Common stock, $1 par value, authorized shares: 100,000,000;
issued: 5,214,406; 5,210,832 and 5,203,395 shares ........ 5,214 5,211 5,203
Paid in capital ........................................... 2,849 2,844 2,758
Retained earnings ......................................... 58,217 57,131 54,257
------- ------- -------
66,280 65,186 62,218
Less treasury stock, at cost:
471,203; 386,403 and 352,403 shares ................... 5,308 3,623 2,910
------- ------- -------
Total stockholders' equity ............................ 60,972 61,563 59,308
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $83,447 $82,590 $79,552
======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 3
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
---------------------- ----------------------
07/31/98 07/31/97 07/31/98 07/31/97
-------- -------- -------- --------
Net sales ................... $ 36,208 $ 34,075 $ 68,370 $ 69,741
Cost of goods sold .......... 30,175 28,000 56,918 56,839
-------- -------- -------- --------
Gross profit .............. 6,033 6,075 11,452 12,902
Operating expenses
Selling ................... 2,030 2,018 4,111 3,954
Administrative ............ 1,620 1,650 3,352 3,253
-------- -------- -------- --------
Operating income ....... 2,383 2,407 3,989 5,695
Interest expense ............ (144) (78) (228) (166)
Other income, net ........... 102 147 180 281
-------- -------- -------- --------
Income before income taxes 2,341 2,476 3,941 5,810
Income taxes ................ 839 874 1,415 2,074
-------- -------- -------- --------
Net income ................ $ 1,502 $ 1,602 $ 2,526 $ 3,736
======== ======== ======== ========
Net income per common share:
Basic .............. $ 0.31 $ 0.33 $ 0.53 $ 0.77
Diluted ............ $ 0.31 $ 0.33 $ 0.52 $ 0.77
Cash dividends paid per share $ 0.160 $ 0.130 $ 0.320 $ 0.031
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 4
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
FOR THE SIX
MONTHS ENDED
---------------------
07/31/98 07/31/97
-------- --------
Cash flows from operating activities:
Net income .......................................... $ 2,526 $ 3,736
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ................... 2,710 2,660
Provision for losses on accounts receivable ..... 104 101
Deferred income taxes ........................... 4
Equity in earnings of affiliate, net of dividends (100)
Change in accounts receivable ................... 6,803 6,720
Change in inventories ........................... (8,743) (6,462)
Change in other current assets .................. 290 (4)
Change in operating liabilities ................. (1,925) (2,509)
Other ........................................... (103) (11)
------- -------
Net cash provided by operating activities ........... 1,666 4,131
Cash flows from investing activities:
Capital expenditures ................................ (2,680) (2,750)
Other ............................................... 37 166
------- -------
Net cash used in investing activities ............... (2,643) (2,584)
Cash flows from financing activities:
Issuance of short-term debt ......................... 4,000
Payment of short-term debt .......................... (4,000)
Issuance of long-term debt .......................... 5,000
Long-term debt principal payments ................... (1,627) (1,184)
Net proceeds from exercise of stock options ......... 8 100
Dividends paid ...................................... (1,440) (1,257)
Purchase of treasury stock .......................... (1,685)
------- -------
Net cash provided by (used in) financing activities . 256 (2,341)
------- -------
Net decrease in cash and equivalents ................ (721) (794)
Cash and cash equivalents at beginning of period ...... 2,850 3,439
------- -------
Cash and cash equivalents at end of period ............ $ 2,129 $ 2,645
======= =======
Cash paid during the period for:
Interest .......................................... $ 165 $ 181
Income taxes ...................................... $ 1,525 $ 2,693
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 5
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month and six-month periods ended July
31, 1998 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1999. 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, 1998.
2. Details of the earnings per share computation are presented below
(dollars in thousands, except per share data):
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
------------------------- -------------------------
07/31/98 07/31/97 07/31/98 07/31/97
---------- ---------- ---------- ----------
Net income ...................... $ 1,502 $ 1,602 $ 2,526 $ 3,736
========== ========== ========== ==========
Average common shares outstanding 4,779,070 4,842,691 4,802,925 4,839,833
Dilutive impact of stock options 8,301 54,186 14,890 41,366
---------- ---------- ---------- ----------
Average common and common
equivalent shares outstanding . 4,787,371 4,896,877 4,817,815 4,881,199
========== ========== ========== ==========
Net income per share:
Basic ...................... $ 0.31 $ 0.33 $ 0.53 $ 0.77
Diluted .................... $ 0.31 $ 0.33 $ 0.52 $ 0.77
3. In May 1998, the company borrowed $5.0 million under a long-term
unsecured note with Norwest Bank South Dakota, N.A. at 8.0 percent
interest. Five $1.0 million principal payments are due under the note
beginning in fiscal year 2000 and continue through fiscal year 2004.
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PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The company's cash balance was $2.1 million at July 31, 1998, compared with $2.6
million one year earlier. The company obtained additional long-term financing in
the amount of $5.0 million. This was used to repay $4.0 million of short-term
borrowing and provide funds for the potential repurchase of common shares. The
company retains a $5.0 million conditional line of credit. The company
repurchased 84,800 shares of its stock during the second quarter. The average
purchase price was $19.87 per share for a total of $1.7 million. As of July 31,
1998, the company's long-term debt including the current portion was $6.3
million compared with $3.4 million one year earlier. Inventory levels increased
$3.0 million from July 31, 1997, due primarily to later scheduled deliveries in
the Sewn Products segment. The company's capital resources continue to be
sufficient to fund all its activities.
RESULTS OF OPERATIONS
Sales were $36.2 million for the quarter ended July 31, 1998, an increase of
$2.1 million over the second quarter of the prior year. First half sales of
$68.4 million were $1.4 million below the comparable period of the prior fiscal
year. Lower sales in both the Plastics segment and the Sewn Products segment
contributed to this result. Net income of $1.5 million or $0.31 per share
(basic) in the second quarter was $100,000 below the second quarter of fiscal
1998. For the first six months, net income of $2.5 million or $0.53 per share
(basic) was $1.2 million or $0.24 per share lower than one year earlier.
Operating income for the first six months was lower in each of the company's
business segments.
Electronics segment sales of $11.5 million in the second quarter were $2.5
million more than the same period the prior year. The second quarter operating
income for the Electronics segment was $1.0 million, more than double from the
comparable period last year. For the first six months, sales totaled $23.2
million, up 10 percent over last year. Operating income for the first half of
the year totaled $2.2 million, which was $247,000 less than the first six months
of fiscal 1998. Second quarter sales of $2.9 million for flow control devices
represented an increase of 4 percent over last year's second quarter. Despite
this result, management expects that the weak agricultural market may have an
unfavorable impact on the sales of flow control devices. Sales of contract
electronics were up, and the margins generated showed a marked improvement over
the first quarter of fiscal 1999. Higher sales of feedmill automation systems,
along with increased margins on this product line, have contributed heavily to
this segment's performance.
Plastics segment sales of $16.8 million for the second quarter were 1 percent
higher than the same period last year. Sales of $33.3 million for the first six
months were 4 percent lower than the first half of fiscal 1998. Continuing weak
sales in the industrial market for plastic storage tanks were offset by a higher
sales volume in engineered films and pickup toppers. Operating income for the
second quarter was $1.1 million, up 10 percent
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PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
over last year. For the first six months, operating income was $1.6 million
compared with $2.0 million for the same period last year.
Sewn Products segment sales of $7.9 million were 6 percent lower than the $8.4
million recorded in the second quarter of last year. Segment sales totaled $11.8
million in the first half of the year, down 16 percent from the six month
results of fiscal 1998. Major customers have scheduled later deliveries this
year, causing the lower sales. Operating income of $293,000 for the second
quarter was 68 percent lower than the same period last year. The first six
months generated operating income of $121,000, 90 percent below the first half
of last year. The second quarter saw the recovery of the operating loss posted
in the first quarter. Lower margins on deliveries of garments, inflatable
display products and hot air balloons have compounded the results. Historical
deliveries of Sewn Products are low during the first half of the year,
therefore, management expects to see an improvement in the next six months.
Consolidated gross profits were 1 percent lower for the second quarter and 11
percent lower for the first half when compared with the same periods last year.
Second quarter net income of $1.5 million was 6 percent below last year's second
quarter. Year-to-date net income of $2.5 million was 32 percent lower the last
year's first half. These results were due primarily to the delivery of lower
margin products in the Sewn Products and Plastics segments. Selling expenses was
2 percent higher for the second quarter than for the same period the previous
year. For the first half of the year, selling expenses were 5 percent higher
than the previous year's first half. This reflects an increased emphasis on
securing new markets in the Electronics and Plastics segments. Administrative
expenses were approximately the same when compared to last year's figures.
Pretax income of $2.3 million for the second quarter was 5 percent less than the
same period the previous year. The pretax income for the first six months was
$3.9 million, 32 percent lower than last year.
YEAR 2000 STATEMENT
The company is working to resolve the potential impact of the year 2000 date
problem. This date problem occurs when computer programs that use a two-digit
year designation recognize "00" as the year 1900. The company has completed its
assessment of the internal operating software used to run its business and is
mid-way into the process required to correct any of the defects found.
Internally, the Company is in the process of analyzing two additional areas
which are: computerized production equipment and computerized building
equipment. Externally, the company is working with its vendors and its customers
to insure that there is no break in the delivery process either with incoming or
outgoing shipments. Even though the company has not completed all of its
assessments, management believes that the costs of addressing this issue will
not have a material adverse impact on the company's financial position. This
assessment is supported by
Page 8
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
two factors. First, the diversification of the company mitigates the impact of
any business risk. Second, the company obtains a wide variety of raw materials
from numerous sources, and alternative sources of supply are generally
available. However, if the company and the third parties upon which it relies
are unable to address this issue in a timely manner, it could result in a
material adverse risk to the company.
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.
Page 9
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).
(b) Reports on Form 8-K: None
(c) Exh. 10.1-Change in Control Agreement between Raven Industries,
Inc. and Thomas Iacarella dated as of August 1, 1998.
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/ Thomas Iacarella
----------------------------------
Thomas Iacarella
Vice President, Finance, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
DATE: SEPTEMBER 9, 1998
Page 10