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: APRIL 30,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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 46-0246171
- ------------------------------- ------------------------------------------------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) 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
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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 JUNESEPTEMBER 3, 1998
- -------------------------- --------------------------------------------------------------------------- -----------------------------------
Common Stock 4,770,8034,713,803 shares
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I-FINANCIAL INFORMATION
Consolidated Balance Sheets as of April 30,July 31, 1998,
January 31, 1998 and April 30,July 31, 1997 3
Consolidated Statements of Income for the three and six months
ended April 30,July 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
threesix months ended April 30,July 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-87-9
PART II-OTHER INFORMATION 910
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
04/30/07/31/98 01/31/98 4/30/07/31/97
--------- --------- ----------------- -------- --------
ASSETS
ASSETS
Cash and cash equivalents ................................... $ 1,6602,129 $ 2,850 $ 2,0552,645
Accounts and note receivable, less allowance for
doubtful accounts of $417,$407, $390 and $342$345 .................. 24,03420,066 26,973 23,00118,816
Inventories:
Materials ................................................. 20,46719,493 17,801 17,69618,637
In process ................................................ 5,5646,604 3,882 4,7835,013
Finished goods ............................................ 6,5588,462 4,133 5,864
--------- --------- ---------7,937
------- ------- -------
Total inventories ..................................... 32,58934,559 25,816 28,34331,587
Deferred income taxes ....................................... 1,682 1,686 2,064
Prepaid expenses and other current assets ................... 380216 506 328
--------- --------- ---------435
------- ------- -------
Total current assets .................................. 60,34558,652 57,831 55,791
--------- --------- ---------55,547
------- ------- -------
Property, plant and equipment ............................... 54,95556,040 53,805 49,58850,339
Less: accumulated depreciation ............................ 35,18336,092 33,988 31,183
--------- --------- ---------32,062
------- ------- -------
Net property, plant and equipment ..................... 19,77219,948 19,817 18,40518,277
Note receivable, less current portion ....................... 1,3111,365 1,259
Other assets, net ........................................... 3,5773,482 3,683 5,852
--------- --------- ---------5,728
------- ------- -------
TOTAL ASSETS ................................................ $ 85,005 $ 82,590 $ 80,048
========= ========= =========$83,447 $82,590 $79,552
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, bank ......................................... $ 4,000 $ 0 $ 0
Current portion of long-term debt ........................... 1,7541,682 1,765 1,766757
Accounts payable ............................................ 6,3395,725 7,480 6,5265,789
Accrued liabilities and customer advances ................... 9,9159,960 10,130 10,125
--------- --------- ---------10,352
------- ------- -------
Total current liabilities ............................. 22,00817,367 19,375 18,41716,898
Long-term debt, less current portion ........................ 6014,584 1,128 2,6392,610
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 5,189,9535,203,395 shares ........ 5,214 5,211 5,1905,203
Paid in capital ........................................... 2,849 2,844 2,6932,758
Retained earnings ......................................... 57,43258,217 57,131 53,283
--------- --------- ---------
65,49554,257
------- ------- -------
66,280 65,186 61,16662,218
Less treasury stock, at cost:
386,403;471,203; 386,403 and 352,403 shares ................... 3,6235,308 3,623 2,910
--------- --------- ---------------- ------- -------
Total stockholders' equity ............................ 61,87260,972 61,563 58,256
--------- --------- ---------59,308
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 85,005 $ 82,590 $ 80,048
========= ========= =========$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
MONTHS ENDED:
-------------------------
04/30/98 04/30/97
---------- ----------
Net sales ......................... $ 32,162 $ 35,666
Cost of goods sold ................ 26,743 28,839
---------- ----------
Gross profit .................... 5,419 6,827
---------- ----------
Operating expenses
Selling ......................... 2,081 1,936
Administrative .................. 1,732 1,603
---------- ----------
Operating income ............. 1,606 3,288
---------- ----------
Interest expense .................. (84) (88)
Other income, net ................. 78 134
---------- ----------
Income before income taxes ...... 1,600 3,334
Income taxes ...................... 576 1,200
---------- ----------
Net income ...................... $ 1,024 $ 2,134
========== ==========
Net income per common share:
Basic .................... $ 0.21 $ 0.44
Diluted .................. $ 0.21 $ 0.44
Cash dividends paid per share ..... $ 0.15 $ 0.13
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 THREESIX
MONTHS ENDED:
-----------------------
04/30/ENDED
---------------------
07/31/98 04/30/07/31/97
--------- ----------------- --------
Cash flows from operating activities:
Net income .......................................... $ 1,0242,526 $ 2,1343,736
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ................... 1,390 1,3252,710 2,660
Provision for losses on accounts receivable ..... 95 34104 101
Deferred income taxes ........................... 4 0
Equity in earnings of affiliate, net of dividends 0 (100)
(Increase) decreaseChange in accounts receivable ...... 2,844 2,602
(Increase) decrease................... 6,803 6,720
Change in inventories .............. (6,773) (3,218)
(Increase) decrease........................... (8,743) (6,462)
Change in other current assets ..... 126 103
Increase (decrease).................. 290 (4)
Change in operating liabilities .... (1,356) (1,999)................. (1,925) (2,509)
Other ........................................... (49) 25
--------- ---------(103) (11)
------- -------
Net cash provided by (used in) operating activities . (2,695) 906........... 1,666 4,131
Cash flows from investing activities:
Capital expenditures ................................ (1,262) (1,539)(2,680) (2,750)
Other ............................................... 20 (2)
--------- ---------37 166
------- -------
Net cash provided by (used in)used in investing activities . (1,242) (1,541)............... (2,643) (2,584)
Cash flows from financing activities:
Issuance of short-term debt ......................... 4,000
0Payment of short-term debt .......................... (4,000)
Issuance of long-term debt .......................... 5,000
Long-term debt principal payments ................... (538) (142)(1,627) (1,184)
Net proceeds from exercise of stock options ......... 8 22100
Dividends paid ...................................... (723) (629)
--------- ---------(1,440) (1,257)
Purchase of treasury stock .......................... (1,685)
------- -------
Net cash provided by (used in) financing activities . 2,747 (749)
--------- ---------256 (2,341)
------- -------
Net increase (decrease)decrease in cash and equivalents ..... (1,190) (1,384)................ (721) (794)
Cash and cash equivalents at beginning of period ...... 2,850 3,439
--------- ---------------- -------
Cash and cash equivalents at end of period ............ $ 1,6602,129 $ 2,055
========= =========2,645
======= =======
Cash paid during the period for:
Interest .......................................... $ 89165 $ 95181
Income taxes ...................................... $ 4211,525 $ 3202,693
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 periodthree-month and six-month periods ended April 30,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
MONTHS ENDED:
------------------------
4/30/98 4/30/
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
---------- ----------
Net income ...................... $ 1,024 $ 2,134
========== ==========
Average common shares outstanding 4,826,780 4,836,975
Dilutive impact of stock options 24,560 28,545 ---------- ----------
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 common
equivalent shares outstanding . 4,851,340 4,865,520
========== ==========
Net income per share:
Basic .................... $ 0.21 $ 0.44
========== ==========
Diluted .................. $ 0.21 $ 0.44
========== ==========continue through fiscal year 2004.
Page 6
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 at April 30, 1998 was $1.2 million
less than Januarymillion. As of July 31,
1998, and $395,000 less than April 30, 1997. Notes payable
of $4.0the company's long-term debt including the current portion was $6.3
million at April 30, 1998 were required to fund seasonal increases in
inventory levels; no such borrowings were required at January 31, 1998 or April
30, 1997.compared with $3.4 million one year earlier. Inventory levels increased
by $4.2$3.0 million from April 30,July 31, 1997, due primarily to April 30, 1998 in support of increased sales order backlogslater scheduled deliveries in
the Electronics
and Sewn Products segments. Subsequent to April 30, 1998, the company increased
its available credit facilities with Norwest Bank South Dakota N.A. from $5
million to $10 million, providing additional funding for potential repurchases
of common shares.segment. The company's capital resources continue to be
sufficient to fund all its activities.
RESULTS OF OPERATIONS
Sales and net incomewere $36.2 million for the quarter ended April 30,July 31, 1998, fell 10 percent and 52
percent, respectively froman increase of
$2.1 million over the firstsecond quarter records of the previousprior year. First quarterhalf sales of
$32.2$68.4 million were down $3.5$1.4 million frombelow 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 $1.0$1.5 million or $0.21$0.31 per share
(basic) in the firstsecond quarter was $1.1$100,000 below the second quarter of fiscal
1998. For the first six months, net income of $2.5 million or $0.23$0.53 per share
(basic) was $1.2 million or $0.24 per share lower than one year earlier.
Sales
and operatingOperating income werefor the first six months was lower in each of the company's
business segments.
Electronics segment sales of $11.7$11.5 million in the firstsecond quarter were 3 percent
lower$2.5
million more than one year earlier. Contract electronics sales were $1.0 million lower
thanthe same period the prior year. This reduction relates toThe second quarter operating
income for the timingElectronics 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
shipments and is
not expected tothe 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 full year results. Saleson the sales of flow control devicesdevices. Sales of contract
electronics were reduced byup, and the margins generated showed a marked improvement over $500,000 in
the first quarter as a result of weakness in the
agricultural market due to unfavorable weather in the southeastern United States
and the impact of lower wheat prices. These shortfalls were partially offset by
higherfiscal 1999. Higher sales of feedmill automation systems. Operating income was $1.2 million
in the Electronics segment during the quarter, 38 percent lower than the
comparable period of the prior year. With sales levels lower than planned, and
relatively lower sales of productssystems,
along with stronger gross profit rates, the gross
profit rate inincreased margins on this segment was 3.9 percentage points lower than the year
earlier period.product line, have contributed heavily to
this segment's performance.
Plastics segment sales of $16.8 million for the second quarter were $16.51 percent
higher than the same period last year. Sales of $33.3 million infor the quarter ended April 30, 1998
andfirst six
months were 84 percent lower than the first quarterhalf of the previous year. Higherfiscal 1998. Continuing weak
sales of engineered films were offset by continuing weakness in the industrial market for plastic storage tanks. Sales of pickup-truck toppers also declined
slightly. Compared totanks were offset by a higher
sales volume in engineered films and pickup toppers. Operating income for the
firstsecond quarter of the prior year, operating income of
$547,000 was down 45 percent. This reduction was due primarily to the weakness
in demand, associated idle capacity costs and reduced gross profits in the
plastic tank business. Compared to the third and fourth quarters of the prior$1.1 million, up 10 percent
Page 7
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
fiscal year,over last year. For the first six months, operating margins inincome was $1.6 million
compared with $2.0 million for the company's plastic tank business improved
in the quarter just ended, but remain at levels unacceptable to management.same period last year.
Sewn Products segment sales are typically atof $7.9 million were 6 percent lower than the seasonal low point$8.4
million recorded in the firstsecond quarter of the fiscallast year. As a result, performance measures may not be, and
are not expected to be, representative of the full year. First quarterSegment sales of
$3.9 million were down 31 percent from the first quarter of the prior year.
Later scheduled deliveries to major customers caused the lower sales and created
a 22 percent increase in Sewn Products backlog at April 30, 1998 when compared
to April 30, 1997. The relatively low sales generated a first quarter operating
loss of $172,000 compared to operating income of $306,000 in the prior year.
Consolidated gross profits of $5.4totaled $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 were 21was 68 percent lower than the priorsame 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 quarterhalf. These results were due primarily to the delivery of lower
sales.margin products in the Sewn Products and Plastics segments. Selling expenses were 7was
2 percent higher as a resultfor 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
penetratingsecuring new markets in the Electronics and Plastics segments. Administrative
expense includes an increased provision for losses on accounts receivable. First
quarter operatingexpenses were approximately the same when compared to last year's figures.
Pretax income of $1.6$2.3 million for the second quarter was 515 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 previous
year. Other incomepotential 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 quarter ended April 30, 1997 included $100,000 fromprocess 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 50 percent owned affiliate, which was sold in January 1998.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, quarter pretax income of $1.6 million was 52 percent lower than the first
quarterdiversification of the prior fiscal year.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.
8Page 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/ Arnold J. Thue
----------------------------------------
Arnold J. ThueThomas Iacarella
----------------------------------
Thomas Iacarella
Vice President, Finance, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
DATE: JUNE 8,SEPTEMBER 9, 1998
9Page 10