UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2009April 30, 2010
OR
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission File: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
   
South Dakota 46-0246171
(State of incorporation) (IRS Employer Identification No.)
205 East 6th Street
P.O. Box 5107
Sioux Falls, SD 57117-5107
(Address of principal executive offices)
(605) 336-2750
(Registrant’s telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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.þ Yeso No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).þo Yeso No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
       
Large accelerated filero
 Accelerated filerþ Non-accelerated filero Smaller reporting companyo
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yesþ No
As of November 30, 2009May 31, 2010 there were 18,026,05518,033,849 shares of common stock, $1 par value, of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.
 
 

 

RAVEN INDUSTRIES, INC.
INDEX
     
  PAGE
PART I — FINANCIAL INFORMATION
    
Item 1. Financial Statements:
    
Consolidated Balance Sheets (unaudited)
  3 
Consolidated Statements of Income (unaudited)
  4 
Consolidated Statements of Cash Flows (unaudited)
  5 
Notes to Consolidated Financial Statements (unaudited)
  6-96-8 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  10-159-14 
Item 3. Quantitative and Qualitative Disclosures about Market Risks
  1614 
Item 4. Internal Controls and Procedures
  1614 
     
PART II — OTHER INFORMATION
    
     
Item 1. Legal Proceedings
  1716 
Item 1A. Risk Factors
  1716 
Item 2. Changes in Securities
  1716 
Item 3. Defaults upon Senior Securities
  1716 
Item 4. Submission of Matters to a Vote of Security Holders
  1716 
Item 5. Other Information
  1716 
Item 6. Exhibits Filed
  1716 
Signatures
  1716 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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PART I –— FINANCIAL INFORMATION

RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS

(unaudited)
                        
 October 31, January 31, October 31,  April 30, January 31, April 30, 
(in thousands except share data) 2009 2009 2008  2010 2010 2009 
ASSETS
  
Current Assets  
Cash and cash equivalents $43,262 $16,267 $31,194  $46,972 $40,684 $32,269 
Short-term investments 3,000 — —  2,500 3,000 — 
Accounts receivable, net of allowances of $318, $613 and $614, respectively 35,902 40,278 44,307 
Accounts receivable, net of allowances of $300, $297, and $574, respectively 43,946 34,327 36,290 
Inventories:  
Materials 21,013 26,657 28,192  24,845 24,020 24,652 
In process 3,517 3,258 3,901  6,397 4,172 3,475 
Finished goods 6,231 6,062 8,400  6,304 6,283 4,753 
              
Total inventories 30,761 35,977 40,493  37,546 34,475 32,880 
Deferred income taxes 2,570 2,542 2,510  2,663 2,471 2,616 
Prepaid expenses and other current assets 2,885 3,009 2,967  3,642 2,790 3,377 
              
Total current assets 118,380 98,073 121,471  137,269 117,747 107,432 
              
  
Property, plant and equipment 87,469 86,324 84,848  89,416 88,319 86,966 
Accumulated depreciation  (53,628)  (50,444)  (49,309)  (56,369)  (55,290)  (51,579)
              
Property, plant and equipment, net 33,841 35,880 35,539  33,047 33,029 35,387 
Goodwill 7,829 7,450 7,328  10,777 10,699 7,612 
Amortizable intangible assets, net 1,254 1,471 1,533  2,039 2,185 1,467 
Other assets, net 1,316 1,541 2,044  6,989 6,649 1,528 
              
  
TOTAL ASSETS
 $162,620 $144,415 $167,915  $190,121 $170,309 $153,426 
              
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
  
Current Liabilities  
Accounts payable $10,568 $9,433 $11,365  $14,450 $12,398 $8,718 
Dividends payable — — 22,510 
Accrued liabilities 12,598 13,281 14,178  11,693 10,682 10,125 
Income taxes payable 460 — 797 
Taxes — accrued and withheld 7,940 1,574 5,646 
Customer advances 1,073 608 576  1,024 1,306 524 
              
Total current liabilities 24,699 23,322 49,426  35,107 25,960 25,013 
  
Other liabilities 8,088 7,537 8,142  11,378 11,098 7,735 
              
Total liabilities 32,787 30,859 57,568  46,485 37,058 32,748 
              
  
Commitments and contingencies  
  
Shareholders’ equity:  
Common stock, $1 par value, authorized shares 100,000,000; issued 32,469,598; 32,460,934 and 32,456,889, respectively 32,470 32,461 32,457 
Common stock, $1 par value, authorized shares 100,000,000; issued 32,478,416; 32,478,416 and 32,460,934, respectively 32,478 32,478 32,461 
Paid in capital 5,223 4,531 4,241  5,808 5,604 4,725 
Retained earnings 146,413 131,080 128,735  159,789 149,732 137,967 
Accumulated other comprehensive income (loss)  (911)  (1,154)  (1,724)  (1,077)  (1,201)  (1,113)
              
 183,195 166,918 163,709  196,998 186,613 174,040 
Less treasury stock, at cost, 14,448,683 shares 53,362 53,362 53,362  53,362 53,362 53,362 
              
Total shareholders’ equity 129,833 113,556 110,347  143,636 133,251 120,678 
              
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $162,620 $144,415 $167,915  $190,121 $170,309 $153,426 
              
The accompanying notes are an integral part of the unaudited consolidated financial information.

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RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
                        
 Three Months Ended Nine months Ended  Three Months Ended 
 October 31, October 31, October 31, October 31,  April 30, April 30, 
(in thousands except per share data) 2009 2008 2009 2008  2010 2009 
Net sales $60,158 $75,538 $181,966 $219,982  $85,030 $65,222 
 
Cost of goods sold 44,648 57,537 133,665 164,180  57,859 44,794 
              
  
Gross profit 15,510 18,001 48,301 55,802  27,171 20,428 
 
Research and development expenses 2,126 1,516 
  
Selling, general and administrative expenses 4,391 5,630 13,763 16,478  5,540 4,799 
              
  
Operating income 11,119 12,371 34,538 39,324  19,505 14,113 
  
Other expense (income), net 3  (177)  (103)  (471)
Other income, net  (52)  (1)
     
          
Income before income taxes 11,116 12,548 34,641 39,795  19,557 14,114 
  
Income taxes 3,823 4,163 11,913 13,713  6,612 4,883 
              
  
Net income $7,293 $8,385 $22,728 $26,082  $12,945 $9,231 
              
  
Net income per common share:  
Basic $0.40 $0.47 $1.26 $1.44  $0.72 $0.51 
Diluted $0.40 $0.46 $1.26 $1.44  $0.72 $0.51 
  
Cash dividends paid per common share $0.14 $0.13 $0.41 $0.39  $0.16 $0.13 
The accompanying notes are an integral part of the unaudited consolidated financial information.

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RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
                
 Nine months Ended  Three Months Ended 
 October 31, October 31,  April 30, April 30, 
(in thousands) 2009 2008  2010 2009 
OPERATING ACTIVITIES:
  
Net income $22,728 $26,082  $12,945 $9,231 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization 5,285 5,705  1,738 1,742 
Provision for losses on accounts receivable, net of recoveries  (169) 590 
Change in fair value of acquisition-related contingent consideration 160 — 
Deferred income taxes 171 21   (590)  (71)
Share-based compensation expense 728 737  201 192 
Change in operating assets and liabilities:  
Accounts receivable 4,732  (8,522)  (9,482) 4,026 
Inventories 5,262  (4,026)  (3,058) 3,526 
Prepaid expenses and other current assets  (448)  (417)
Prepaid expenses and other assets  (925)  (977)
Operating liabilities 2,226 6,417  9,458 2,021 
Other operating activities, net  (10)  (18)  (111)  (22)
          
Net cash provided by operating activities 40,505 26,569  10,336 19,668 
          
  
INVESTING ACTIVITIES:
  
Capital expenditures  (2,660)  (5,639)  (1,585)  (1,105)
Purchase of short-term investments  (3,250)  (2,100)  (500) — 
Sale of short-term investments 250 3,600  1,000 — 
Payments related to business acquisitions  (148)  (122)
Other investing activities, net  (466)  (323) 54  (101)
          
Net cash used in investing activities  (6,126)  (4,462)  (1,179)  (1,328)
          
  
FINANCING ACTIVITIES:
  
Dividends paid  (7,387)  (7,032)  (2,885)  (2,342)
Purchases of treasury stock —  (5,180)
Other financing activities, net  (36) 93 
          
Net cash used in financing activities  (7,423)  (12,119)  (2,885)  (2,342)
          
  
Effect of exchange rate changes on cash 39  (66) 16 4 
          
  
Net increase in cash and cash equivalents
 26,995 9,922  6,288 16,002 
  
Cash and cash equivalents:
  
Beginning of period 16,267 21,272  40,684 16,267 
          
End of period $43,262 $31,194  $46,972 $32,269 
          
The accompanying notes are an integral part of the unaudited consolidated financial information.

5

RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)
(1) Basis of Presentation and Description of Business
The accompanying unaudited consolidated financial information has been prepared by Raven Industries, Inc. (the “company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of this financial information have been included. Financial results for the interim three and nine-month periodsthree-month period ended October 31, 2009April 30, 2010 are not necessarily indicative of the results that may be expected for the year ending January 31, 2010.2011. The January 31, 20092010 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. This financial information should be read in conjunction with the consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended January 31, 2009.2010.
(2) Operating Expenses
The primary types of operating expenses are classified in the income statement as follows:
Cost of Goods SoldSelling, General and Administrative Expenses
Direct material costsPersonnel costs
Material acquisition and handling costsProfessional service fees
Direct laborAdvertising
Factory overhead including depreciationPromotions
Inventory obsolescenceInformation technology equipment depreciation
Product warrantiesOffice supplies
Research and development
The company’s gross margins may not be comparable to industry peers due to variability in the classification of these expenses across the industries in which the company operates.
The company’s research and development expense is comprised principally of labor and material costs related to product development efforts in the Applied Technology segment. During the three and nine-month periods ended October 31, 2009, $1.5 million and $4.4 million, respectively, were expended on research and development. During the three and nine-month periods ended October 31, 2008, $1.7 million and $4.5 million, respectively, were expended on research and development.
(3) Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average common shares and stock units outstanding. Diluted net income per share is computed by dividing net income by the weighted-average common and common equivalent shares outstanding (which includes the shares issuable upon exercise of employee stock options net of shares assumed purchased with the option proceeds) and stock units outstanding. Certain outstanding options were excluded from the diluted net income per-share calculations because their effect would have been anti-dilutive, as their exercise prices were greater than the average market price of the company’s common stock during those periods. For the three months ended April 30, 2010 and nine-month periods ended October 31, 2009, 317,900223,700 and 318,408 shares382,975 options, respectively, were excluded respectively. Forfrom the three and nine-month periods ended October 31, 2008, 74,200 and 74,467 shares were excluded, respectively.diluted net income per-share calculation. Details of the earnings per share computation are presented below:

6

                
 Three Months Ended Nine months Ended         
 October 31, October 31, October 31, October 31,  Three Months Ended 
 2009 2008 2009 2008  April 30, April 30, 
 2010 2009 
Numerator:  
Net income(in thousands)
 $7,293 $8,385 $22,728 $26,082  $12,945 $9,231 
              
  
Denominator:  
Weighted average common shares outstanding 18,020,915 18,003,044 18,017,901 18,037,823  18,029,733 18,012,251 
Weighted average stock units outstanding 21,062 14,557 19,052 12,919  21,264 15,140 
              
Denominator for basic calculation 18,041,977 18,017,601 18,036,953 18,050,742  18,050,997 18,027,391 
              
  
Weighted average common shares outstanding 18,020,915 18,003,044 18,017,901 18,037,823  18,029,733 18,012,251 
Weighted average stock units outstanding 21,062 14,557 19,052 12,919  21,264 15,140 
Dilutive impact of stock options 1,753 55,633 3,417 53,764  6,667 — 
              
Denominator for diluted calculation 18,043,730 18,073,234 18,040,370 18,104,506  18,057,664 18,027,391 
              
  
Net income per share — basic $0.40 $0.47 $1.26 $1.44  $0.72 $0.51 
Net income per share — diluted $0.40 $0.46 $1.26 $1.44  $0.72 $0.51 
(4)(3) Segment Reporting
The company’s reportable segments are defined by their common technologies, production processes and inventories. These segments are consistent with the company’s management reporting structure and reflect theRaven’s organization of the company into the three Raven divisions and the Aerostar subsidiary. Raven Canada and Raven GmbH are included in the Applied Technology Division. The company measures the performance of its segments based on their operating income exclusive of administrative and general expenses. Other income, interest expense and income taxes are not allocated to individual operating segments. Intersegment transactions are eliminated in a separate caption entitled “intersegment eliminations” to arrive at consolidated sales and operating income. ThirdSegment information is reported consistent with the company’s management reporting structure.

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First quarter and nine-month intersegment sales were primarily from Electronic Systems to Applied Technology. TheBusiness segment results for these segments follow:are as follows:
                        
 Three Months Ended Nine months Ended  Three Months Ended 
 October 31, October 31, October 31, October 31,  April 30, April 30, 
(in thousands) 2009 2008 2009 2008  2010 2009 
Net sales  
Applied Technology $20,953 $25,892 $68,959 $83,454  $32,925 $29,434 
Engineered Films 18,674 26,829 47,049 75,338  25,633 13,358 
Electronic Systems 15,671 17,915 49,737 45,933  16,288 16,153 
Aerostar 5,923 5,444 18,326 17,010  11,693 6,565 
Intersegment eliminations  (1,063)  (542)  (2,105)  (1,753)  (1,509)  (288)
              
Consolidated net sales $60,158 $75,538 $181,966 $219,982  $85,030 $65,222 
              
  
Operating income (loss) 
Operating income 
Applied Technology $6,856 $8,022 $21,583 $28,628  $12,403 $9,610 
Engineered Films 3,033 3,718 7,829 11,097  4,127 2,715 
Electronic Systems 1,567 1,804 7,024 3,683  3,124 2,495 
Aerostar 1,258 912 3,552 2,436  2,164 1,158 
Intersegment eliminations 11  (8) 13  (11)  (49) 28 
              
Total reportable segment income 12,725 14,448 40,001 45,833  21,769 16,006 
Administrative and general expenses  (1,606)  (2,077)  (5,463)  (6,509)  (2,264)  (1,893)
              
Consolidated operating income $11,119 $12,371 $34,538 $39,324  $19,505 $14,113 
              
(5)(4) Financing Arrangements
Raven has an uncollateralized credit agreement providing a line of credit of $8.0 million with a maturity date of September 1, 2010, bearing interest at the prime rate with a minimum rate of 4% per annum.4.00%. Letters of credit totaling $1.3 million have been issued under the line, primarily to support self-insured workers compensation bonding requirements. No borrowings were outstanding as of October 31, 2009,April 30, 2010, January 31, 20092010 or October 31, 2008,April 30, 2009, and $6.7 million was available at October 31, 2009.April 30, 2010.
(6)(5) Dividends
The company announced on December 4, 2009,May 25, 2010, that its board of directors approved a quarterly cash dividend of 1416 cents per share, payable JanuaryJuly 15, 2010 to shareholders of record on December 24, 2009.June 30, 2010.
(7)(6) Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains, and losses that under U.S. generally accepted accounting principles are recorded as an element of

7

shareholders’ equity but are excluded from net income. The components of total comprehensive income and accumulated other comprehensive income (loss) follow:
Comprehensive income
         
  Three Months Ended 
  April 30,  April 30, 
(in thousands) 2010  2009 
Net income $12,945  $9,231 
Other comprehensive income:        
Foreign currency translation  97   20 
Amortization of postretirement benefit plan actuarial losses, net of income tax of $15 and $11, respectively  27   21 
       
Total other comprehensive income  124   41 
       
Total comprehensive income $13,069  $9,272 
       

7

                 
  Three Months Ended  Nine months Ended 
  October 31,  October 31,  October 31,  October 31, 
(in thousands) 2009  2008  2009  2008 
 
Net income $7,293  $8,385  $22,728  $26,082 
Other comprehensive income:                
Foreign currency translation  26   (199)  180   (228)
Amortization of postretirement benefit plan actuarial losses, net of income tax of $11, $20, $33 and $60, respectively  21   36   63   110 
             
Total other comprehensive income  47   (163)  243   (118)
             
Total comprehensive income $7,340  $8,222  $22,971  $25,964 
             
Accumulated other comprehensive income (loss)
             
  October 31,  January 31,  October 31, 
(in thousands) 2009  2009  2008 
 
Foreign currency translation $56  $(124) $(104)
Post-retirement benefits  (967)  (1,030)  (1,620)
          
Total accumulated other comprehensive loss $(911) $(1,154) $(1,724)
          
(8)(7) Employee Retirement Benefits
The components of net periodic benefit cost for postretirement benefits are as follows:
                        
 Three Months Ended Nine months Ended  Three Months Ended 
 October 31, October 31, October 31, October 31,  April 30, April 30, 
(in thousands) 2009 2008 2009 2008  2010 2009 
Service cost $14 $17 $41 $51  $15 $14 
Interest cost 83 91 249 270  81 83 
Amortization of actuarial losses 32 56 96 170  42 32 
              
Net periodic benefit cost $129 $164 $386 $491  $138 $129 
              
(9)(8) Product Warranty Costs
Accruals necessary for product warranties are estimated based uponon historical warranty costs and average time elapsed between purchases and returns for each division. AnyAdditional accruals are made for any significant, discrete warranty issues that are unusual in nature are accrued individually.issues. Changes in the carrying amount of accrued product warranty costs follow:accrual were as follows:
                        
 Three Months Ended Nine months Ended  Three Months Ended 
 October 31, October 31, October 31, October 31,  April 30, April 30, 
(in thousands) 2009 2008 2009 2008  2010 2009 
Balance, beginning of period $1,106 $1,018 $1,004 $684  $1,259 $1,004 
Accrual for warranties 541 688 1,781 1,999  734 485 
Settlements made (in cash or in kind)  (502)  (704)  (1,640)  (1,681)  (380)  (390)
              
Balance, end of period $1,145 $1,002 $1,145 $1,002  $1,613 $1,099 
              
(9) Investment in Site-Specific Technology Development Group, Inc. (SST)
(10)Recent Accounting Pronouncements
In JuneNovember 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification), which became the single source of authoritative generally accepted accounting principles (GAAP)company acquired a 20% interest in SST for $5.0 million. SST is a privately held agricultural software development and information services provider. Raven and SST are strategically aligned to provide customers with simple, more efficient ways to move and manage information in the United States, other than rules and interpretive releases issuedprecision agriculture market. At the acquisition date, the carrying value of the SST investment exceeded the company’s share of the underlying net assets of SST by $5.0 million. During the Securities and Exchange Commission (SEC). The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and instead establishes two levels of guidance — authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification will become non-authoritative. The company adopted the Codification in the thirdfirst quarter of fiscal 2010 which resulted in no changes2011, the company completed its analysis of this excess and determined that it related to the content$1.1 million of technology-related assets to be amortized over a seven-year period and $3.2 million of license-related assets to be amortized over a ten-year period. The remainder of the company’s financial statements or disclosures.
At the beginning of fiscal 2010, the company adopted FASB guidance that amends required disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affectexcess is attributable to equity method goodwill.

8

an entity’s financial position, financial performance and cash flows. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows.
At the beginning of fiscal 2010, the company adopted FASB guidance that amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets and apply to (1) intangible assets that are acquired individually or with a group of other assets, and (2) intangible assets acquired in both business combinations and asset acquisitions. Entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. As this guidance applies only to assets acquired in the future, the company is not able to predict the impact, if any, on the company’s consolidated results of operations, financial condition or cash flows.
As of July 31, 2009, the company adopted FASB guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of this guidance did not have a material impact on the company’s consolidated results of operations, financial condition or cash flows. In accordance with this guidance, the company has evaluated subsequent events through the date and time the financials were issued on December 4, 2009.
In June 2009, the FASB amended its guidance on accounting for variable interest entities. This guidance alters the approach to determining the primary beneficiary of a variable interest entity and requires companies to more frequently assess whether they must consolidate variable interest entities. The guidance is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The company will adopt this guidance on February 1, 2010 and is currently assessing the potential impacts, if any, on its financial statements and disclosures.
In October 2009, the FASB issued guidance on the accounting for multiple-deliverable revenue arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate of selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand alone basis. This guidance also expands the required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The guidance is effective beginning February 1, 2011 with early adoption permitted. The company has adopted the new guidance prospectively from the beginning of the fiscal year and determined that there is no material impact on its consolidated results of operations, financial condition, cash flows, or disclosures.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the company’s consolidated financial statements for the three months ended April 30, 2010 and nine-months ended October 31,April 30, 2009, and October 31, 2008, as well as the company’s consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in the company’s Form 10-K for the year ended January 31, 2009.2010.
EXECUTIVE SUMMARY
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, construction and military/aerospace markets, primarily in North America. The company operates in four business segments: Applied Technology, (formerly Flow Controls), Engineered Films, Electronic Systems and Aerostar.
Seasonality
The Applied Technology segment is predominately focused on the agricultural market and quarterly financial results have typically been impacted by the inherent seasonality of this market. Historically, Applied Technology’s first quarter results are the strongest and the second quarter the weakest.
SnapshotResults of Operations (Q1 fiscal 2011 versus Q1 fiscal 2010)
Consolidated financial highlights for the third quarterfirst quarters of fiscal 2011 and first nine months of fiscal 2010 include the following:
                                    
 Three Months Ended Nine months Ended Three Months Ended
 October 31, October 31, % October 31, October 31, % April 30, April 30, %
(dollars in thousands except per share data) 2009 2008 Change 2009 2008 Change
  
(dollars in thousands, except per share data) 2010 2009 Change
Net sales $60,158 $75,538  (20)% $181,966 $219,982  (17)% $85,030 $65,222  30%
Gross profit 15,510 18,001  (14)% 48,301 55,802  (13)% 27,171 20,428  33%
Gross margins  25.8%  23.8%  26.5%  25.4% 
Gross margins(a)
  32.0%  31.3% 
Operating income 11,119 12,371  (10)% 34,538 39,324  (12)% $19,505 $14,113  38%
Operating margins  22.9%  21.6% 
Net income 7,293 8,385  (13)% 22,728 26,082  (13)% $12,945 $9,231  40%
Diluted earnings per share 0.40 0.46  (13)% 1.26 1.44  (13)% 0.72 0.51  41%
  
Operating cash flow 40,505 26,569  52% 10,336 19,668  (47)%
Cash dividends 7,387 7,032  5% 2,885 2,342  23%
Common stock repurchases — 5,180 
The slump in global economic activity over
(a)The company’s gross margins may not be comparable to industry peers due to variability in the classification of expenses across industries in which the company operates.
Economic conditions gradually improved during the last halffirst quarter of fiscal 2009 continued through2011. However, the pace and durability of the economic recovery remain highly uncertain—high unemployment, fragile real estate markets, weak consumer spending and the potential impact of the European sovereign debt crisis will likely be a drag on economic recovery. Despite the challenging operating environment, the company achieved record sales and profitability in the first nine monthsquarter of 2010, negatively impacting the company’sfiscal 2011. The solid financial results. Third quarter consolidated results looked very similar to the first six months of the year in terms of business activity and comparisons to prior year results. For the quarter, sales and profits were down from the previous year’s third quarter, but improved profit margins reflectdriven primarily by market share gains, new products, disciplined margin management, operating efficiencies, productivity gains and reduced spending levels. Gross marginssolid returns on capital investments.
The 30% increase in net sales and 38% growth in operating income are the result of 25.8% increased two full percentage points from 23.8%, reflecting improvements in all of the operating segments for the quarter. Year-to-datedouble digit year-over-year sales and profit growth in Electronic Systems and Aerostar partially offset sharp declines inApplied Technology, Engineered Films and Applied TechnologyAerostar. Electronic Systems sales and profits. Despite the overall lower sales and earnings levels, year-to-date netwere relatively flat year-over-year; however, operating income as a percentage of sales improved to 12.5% from 11.9% for last year’s nine-month period.grew by 25%.
Applied Technology
Fiscal 2010 third2011 first quarter net sales of $21.0$32.9 million decreased $4.9grew $3.5 million (19%(12%) and operating income of $6.9$12.4 million fell $1.2 million (15%) compared to the third quarter of fiscal 2009. Year-to-date net sales of $69.0 million dropped $14.5 million (17%) and operating income of $21.6 million decreased $7.0 million (25%) compared to last year’s comparable period. Economic uncertainty has dampened grower sentiment resulting in lower sales volume and profits. Growers anticipate lower farm income as commodity price declines have outpaced the drop in input costs.
Engineered Films
Fiscal 2010 third quarter net sales of $18.7 million fell $8.2 million (30%) and operating income of $3.0 million declined $685,000 (18%) versus the third quarter of fiscal 2009. Year-to-date net sales of $47.0 million dropped $28.3 million (38%) and operating income of $7.8 million decreased $3.3increased $2.8 million (29%) compared to fiscal 2009’s comparable period. The declinereflecting the highly successful launch of Slingshot™—an information platform which improves data collection, transmission, storage and analysis and provides RTK correction of GPS signals for high accuracy steering solutions—along with growth in salesapplication controls and profitabilitysteering and guidance products. Gross margin growth was driven primarily by lower shipmentsa more favorable product mix and the positive impact of pit liners used in the energy exploration market. Oil and gas drilling activity has decreased, reflecting lower oil prices and economic uncertainty. Additionally, the continuation of a weak construction markethigher sales on operating leverage.

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resultedEngineered Films
Fiscal 2011 first quarter net sales of $25.6 million increased $12.3 million (92%) and operating income of $4.1 million grew $1.4 million (52%) from a weak first quarter one year ago. A sharp rise in reduced demand for constructionoil and gas drilling activity fueled sales of pit lining films to the oil and depressed selling prices. Sequentially, gross margins improvedgas exploration markets. In addition, higher sales of specialty agriculture films such as FeedFresh™ silage covers and $1.5 million of disaster film shipments contributed to 19.9%the increase in the currentsales. Last year’s first quarter from 18.2% in the second quarter as a result of increased sales volume. First quarter fiscal 2010 gross margins of 25.8% included25.9% were favorably affected by $1.3 million of profit from one-timematerial savings due to opportune purchases of prime gradeprime-grade plastic resin.resins.
Electronic Systems
Fiscal 2010 third2011 first quarter net sales of $15.7$16.3 million decreased $2.2were flat year-over-year as increased sales of secure communication devices and intercompany shipments to Applied Technology were offset by weaker sales of printed circuit board assemblies for the aviation industry. Operating income of $3.1 million (13%rose 25% versus the prior year comparable period as a result of a more favorable product mix.
Aerostar
Fiscal 2011 first quarter net sales of $11.7 million increased $5.1 million (78%) and operating income of $1.6$2.2 million fell $237,000 (13%increased $1.0 million (87%) compared to last year’s third quarter. Quarterly results were negatively impacted by raw material supply issues, which resulted. Growth in additional costs and time delays. Year-over-year nettethered aerostat systems for persistent military surveillance drove the increase in sales of $49.7 million grew $3.8 million (8%) and operating income of $7.0 million increased $3.3 million (91%). Year-to-date results were positively impacted by solid shipments of printed circuit boards for the aviation industry and secure communication devices, along with production efficiencies.
Aerostar
Fiscal 2010 third quarter net sales of $5.9 million grew $479,000 (9%) and operating income of $1.3 million expanded $346,000 (38%) compared to last year’s third quarter. Year-over-year net sales of $18.3 million were up $1.3 million (8%) and operating income of $3.6 million improved $1.1 million (46%). The positive results reflect increased shipments of MC-6 Army parachutesincome. Strong tethered aerostat growth was partially offset by a decline in protective wear shipments.parachute shipments—final deliveries under the MC-6 parachute contract were made at the end of fiscal 2010—as initial shipments under the T-11 Army Airborne parachute contract began mid-first quarter of fiscal 2011 and will not ramp up to full production levels until the second half of fiscal 2011.
RESULTS OF OPERATIONS — SEGMENT ANALYSIS (Q1 fiscal 2011 versus Q1 fiscal 2010)
Applied Technology
Applied Technology provides electronic and Global Positioning System (GPS) products designed to reduce operating costs and improve yields for the agriculture market.
                                 
 Three Months Ended  Nine months Ended   Three Months Ended    
 October 31, October 31, $ % October 31, October 31, $ % April 30, April 30, $ %
(dollars in thousands) 2009 2008 Change Change 2009 2008 Change Change 2010 2009 Change Change
  
Net sales $20,953 $25,892 $(4,939)  (19)% $68,959 $83,454 $(14,495)  (17)% $32,925 $29,434 $3,491  12%
Gross profit 8,424 10,227  (1,803)  (18)% 26,312 34,290  (7,978)  (23)% 15,956 12,695 3,261  26%
Gross margins  40.2%  39.5%  38.2%  41.1%   48.5%  43.1% 
Operating income 6,856 8,022  (1,166)  (15)% 21,583 28,628  (7,045)  (25)% $12,403 $9,610 2,793  29%
Operating margins  37.7%  32.6% 
SeveralThe following factors contributed towere the quarter-over-quarter andprimary drivers of the year-over-year declinesgrowth in net sales and operating income:
 • Market conditions.Worldwide agricultural conditions improved as prices for corn, soybeans and other feed grains stabilized. Crop prices remain well above historical levels—reflecting the affect of an increasing population and income growth in emerging economies on demand for food. The government’s 2009 farm income projections are nearly 40% lower than 2008 actual levels. Farm production costs have declined significantly from prior year levels; however, have been outpaced by the declinegradual improvement in crop prices. Expectations of lower farm incomeeconomic conditions positively impacted grower sentiment and economic uncertainty have led grower and custom spray applicators to defer purchases. These factors have negatively impacted substantially all of the segment’s product categories.accelerated purchasing decisions.
 
 • Sales volume and selling prices.The declineincrease in sales for the three and nine-month periods was comprised of a drop indriven by higher sales volume partially offset byas selling prices reflected only a modest increase in selling prices.year-over-year.
 
 • InternationalNew product sales.First quarter sales growth was driven by the highly successful launch of Slingshot™—an information platform which improves data collection, transmission, storage and analysis and provides RTK correction of GPS signals for high accuracy steering solutions. Slingshot accounted for $2.5 million of first quarter revenue growth and drove incremental sales of $13.3 million fell $1.6 million (11%) year-over-year. Net sales outside the U.S. accounted for 19% of segment sales in fiscal 2010 versus 18% in fiscal 2009. Declines in some markets were partially offset by expansion into regions not previously served.guidance and steering products which integrate with Slingshot.
 
 • New productInternational sales.International sales declinedof $8.1 million rose $2.1 million (35%) year-over-year due to the highly successful launch of Cruizer™ at the beginning of fiscal 2009. Cruizer™ is a simplereflecting expanded geographic penetration and affordable guidance system targeted at new entrants to the precision agricultural market.market share gains, particularly in Canada.
 
 • Gross margin improvement.Gross margins expanded from 43.1% to 48.5%, driven by a more favorable product mix and the positive impact of 41.1% for last year’s nine-month period contracted to 38.2%, as decreasedhigher sales volume yielded negativeon operating leverage partially offset by spending cuts and modest selling price increases.leverage.
 
 • Year-to-date selling expenseOperating expenses.First quarter operating expenses increased slightly to 6.9%10.8% of sales versus 6.8%from 10.5% in the prior year. Nine-month sellingyear quarter. Selling expenses of $4.7 million decreased 16% year-over-year reflecting a more positive collection environmentincreased $226,000 (13%) and lower discretionary spending.research and development expenses increased $242,000 (18%) to support higher sales and new product development.

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Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial, construction, geomembrane and agricultural applications.
                                 
 Three Months Ended  Nine months Ended   Three Months Ended    
 October 31, October 31, $ % October 31, October 31, $ % April 30, April 30, $ %
(dollars in thousands) 2009 2008 Change Change 2009 2008 Change Change 2010 2009 Change Change
  
Net sales $18,674 $26,829 $(8,155)  (30)% $47,049 $75,338 $(28,289)  (38)% $25,633 $13,358 $12,275  92%
Gross profit 3,708 4,554  (846)  (19)% 9,894 13,910  (4,016)  (29)% 5,000 3,463 1,537  44%
Gross margins  19.9%  17.0%  21.0%  18.5%   19.5%  25.9% 
Operating income 3,033 3,718  (685)  (18)% 7,829 11,097  (3,268)  (29)% $4,127 $2,715 1,412  52%
Operating margins  16.1%  20.3% 

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The following factors contributed towere the quarter-over-quarterprimary drivers of the year-over-year growth in net sales and year-over-year change:operating income:
• The slumpImproved market conditions.Business activity and confidence rose as credit markets improved and asset values stabilized. Economic growth—particularly in globalemerging markets—pushed crude oil prices to levels adequate to support an increase in drilling activity. Similarly, as credit began flowing and economic activity that began inuncertainty diminished, the second halfconstruction and agriculture markets showed signs of fiscal 2009 has continued to negatively impact financial results throughout fiscal 2010.life.
 
• FallingSales volume and selling prices accounted. Selling prices increased approximately 5% as material costs rose. Sales volume, as measured by pounds shipped, increased over 80%, as Engineered Films’ largest markets—energy and construction—rebounded from prior year depressed levels. Recovery of crude oil prices from their lows in early 2009 drove additional oil and gas drilling activity and increased demand for 35%pit liners as sales to the energy market more than doubled. Sales of construction films increased over 70%, which included $1.5 million in disaster film shipments to Haiti to support earthquake relief efforts. Deliveries of agriculture films more than doubled as sales of FeedFresh™ silage covers gained traction due to broadened appreciation of the year-over-year decline in sales. Lower selling prices reflect competitive pricing pressures stemming from excess capacity and lower resin costs due to relatively low natural gas prices.value-added benefits of this highly engineered film.
 
• Weak sales volume accountedMargin stabilization.Gross margins for 65% of the year-over-year drop in sales. Oil and gas drilling activity slowedlast year’s first quarter benefited from one-time material savings due to lower oil prices and uncertainty in forecasted demand resulting in a sharp decline in salesopportune purchases of pit liners toprime-grade plastic resins. Excluding $1.3 million of material savings—comparative gross margins would have improved from the energy exploration market. Additionally, construction orders fell as market participants adapted to an unclear economic outlook and the scarcity of credit.prior-year quarter, increasing over three percentage points.
 
• The expansion of gross margins in the current quarter and year-over-year reflects reduced spending levels.
•Year-to-date selling expense increasedOperating expenses.Operating expenses fell to 4.4%3.4% of sales versus 3.7%from 5.6% in the prior year. Selling expenseyear, reflecting the favorable impact of $2.1 million decreased 27% year-over-year through reductions in personnelhigher sales. Operating expenses of $873,000 increased 17% due to higher selling and promotionalresearch and development expenses however, sales dropped 38%.to support growth and new product development.
Electronic Systems
Electronic Systems is a total-solutions provider of electronics manufacturing services, primarily to North American original equipment manufacturers.
                                 
 Three Months Ended  Nine months Ended  Three Months Ended    
 October 31, October 31, $ % October 31, October 31, $ % April 30, April 30, $ %
(dollars in thousands) 2009 2008 Change Change 2009 2008 Change Change 2010 2009 Change Change
  
Net sales $15,671 $17,915 $(2,244)  (13)% $49,737 $45,933 $3,804  8% $16,288 $16,153 $135  1%
Gross profit 1,871 2,092  (221)  (11)% 7,908 4,517 3,391  75% 3,444 2,853 591  21%
Gross margins  11.9%  11.7%  15.9%  9.8%   21.1%  17.7% 
Operating income 1,567 1,804  (237)  (13)% 7,024 3,683 3,341  91% $3,124 $2,495 629  25%
Operating margins  19.2%  15.4% 
The relative quarter-over-quarter and year-over-year change is primarilyfollowing factors were the resultprimary drivers of the following:year-over-year growth in net sales and operating income:
 • The 8% increase in year-over-year sales is attributable to increased shipmentsSales volume.Increased deliveries of aviationsecure communication electronics and secure communication equipmentadditional sourcing of assemblies to meet demand.the Applied Technology Division were almost fully offset by slower avionics deliveries.
 
 • The quarter-over-quarter drop in sales and profits reflects lower volume of aviation electronics shipments. Third quarter scheduled deliveries were delayed due to supply issues which negatively impacted throughput and resulted in additional costs. Operating income was reduced by approximately $500,000Margin expansion.Gross margins improved as a result.result of a more favorable product mix and continued spending constraints. Management continues to tightly manage expenses—necessary steps to keep the division’s cost structure aligned with industry conditions.
 
 • Year-to-date gross margins expandedOperating expenses.Operating expenses fell slightly to 15.9% versus 9.8%2.0% of sales from 2.2% in last year’s comparable period. Positive operating leverage generated through increased sales volume has hadthe first quarter of fiscal 2010, reflecting a positive effect on results combined with favorable product mixslight increase in selling expenses offset by lower research and cost controls, such as staff reduction and facility consolidation.development activity.
•Year-to-date selling expense of 1.8% of net sales was unchanged from the prior year. Selling expense of $884,000 increased from one year ago in line with the growth in net sales.

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Aerostar
Aerostar manufactures military parachutes, protective wear, custom shaped inflatable products, and high-altitude aerostats for government and commercial research.
                                 
 Three Months Ended  Nine months Ended  Three Months Ended    
 October 31, October 31, $ % October 31, October 31, $ % April 30, April 30, $ %
(dollars in thousands) 2009 2008 Change Change 2009 2008 Change Change 2010 2009 Change Change
  
Net sales $5,923 $5,444 $479  9% $18,326 $17,010 $1,316  8% $11,693 $6,565 $5,128  78%
Gross profit 1,496 1,136 360  32% 4,174 3,096 1,078  35% 2,820 1,389 1,431  103%
Gross margins  25.3%  20.9%  22.8%  18.2%   24.1%  21.2% 
Operating income 1,258 912 346  38% 3,552 2,436 1,116  46% $2,164 $1,158 1,006  87%
Operating margins  18.5%  17.6% 
The quarter-over-quarterfollowing factors were the primary drivers of the year-over-year growth in net sales and year-over-year change is primarily due to the following:operating income:
Parachute shipments increased quarter-over-quarter as a result of delays experienced in the prior year. There were virtually no parachute shipments made during last year’s third quarter due to contract modifications.

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 • Increased sales volume of MC-6 Army parachutes was partially offsetTethered aerostats.The tethered aerostat business gained momentum during the quarter driven by reduced protective wear shipments. Protective wear sales have declinedstrong demand from last yearthe U.S. military for persistent threat detection systems to be deployed in Afghanistan. Raven provides the helium filled blimp, along with the fiber optics and deployments systems. The blimp is then equipped with surveillance equipment and flown on a tether at this time dueseveral thousand feet to the completionenable persistent surveillance of a relatively large contract in January 2009. The improvement in fiscal 2010 gross margins is a reflection of parachute manufacturing efficiencies.wide area. Tethered aerostat sales were approximately $8 million for the quarter ended April 30, 2010.
 
 • Year-to-date selling expenseMilitary parachutes.Parachute revenue was down year-over-year as final shipments under the three-year MC-6 Army parachute contract were made during the fourth quarter of 3.4%fiscal 2010. Initial shipments under the T-11 Army parachute contract were made during the first quarter of fiscal 2011 but will not ramp up to the $12 million annual production level until the second-half of fiscal 2011.
•Margin expansion.Improved gross margins were the result of aerostats growth which was partially offset by T-11 start-up costs.
•Operating expenses.Operating expenses increased to 5.6% of sales fell from 3.9%3.5% in the prior year duefirst quarter of fiscal 2010, reflecting increased research and development expense to lower selling expense on increased sales volume.support tethered aerostat development.
Corporate Expenses (administrative expenses, interestother income, and other, net and income taxes)
                        
 Three Months Ended Nine months Ended Three Months Ended
 October 31, October 31, October 31, October 31, April 30, April 30,
(dollars in thousands) 2009 2008 2009 2008
Dollars in thousands 2010 2009
Administrative expenses $1,606 $2,077 $5,463 $6,509  $2,264 $1,893 
Administrative expenses as a % of sales  2.7%  2.7%  3.0%  3.0%  2.7%  2.9%
Other expense (income), net 3  (177)  (103)  (471)
Other income, net $52 $1 
Effective tax rate  34.4%  33.2%  34.4%  34.5%  33.8%  34.6%
AdministrativeFirst quarter administrative expenses decreased 16% year-over-year and 23% quarter-over-quarterincreased 20% from the prior year due primarily to lowerhigher compensation expense.expense, however, declined as a percentage of sales.
“Other expense (income),income, net” consists mainly of interest income, bank fees and foreign currency transaction gain or loss. Interest income declined year-over-year dueand activity related to lower interest rates.the company’s equity investment in SST. The increase from the prior year reflects foreign currency transaction gains and SST earnings partially offset by amortization of the SST technology-related assets.
The lowerfirst quarter estimated effective tax rate in the quarter ended October 31, 2008 was attributable to reinstatement offavorably affected by tax benefits associated with the U.S. research and development tax credit in October 2008.benefit on qualified production activities.
OUTLOOK
Management responded promptlyanticipates a record year of sales and decisivelyearnings. After a strong start to control costsfiscal 2011, second quarter profit growth is expected to moderate due to lower operating margins in response to the severe recession that began to impact the company in the fall of 2008. Weak economic conditions are likely to persist for the foreseeable future. Fourth quarter results may improve marginally from the weak results recorded one year earlier; however, full-year results will fall short of last year’s record levels.
A strong cash position, solid balance sheet, commitment to qualityApplied Technology and service, recent strategic investments and new product offerings collectively position the company for future growth despite the challenging economic environment.Electronic Systems.

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Applied Technology
The recognitionsuccessful launch of precision agricultural equipment asthe division’s Slingshot™ product platform indicates that this could be a pivotal toolsignificant long-term growth driver for maximizing yieldsthis segment. This development could help generate higher sales of application controls, steering and reducing input costs continuesguidance products. International sales are also expected to widen. However, growergrow. Management anticipates sales and custom spray applicator purchasing decisions have been impacted byprofit growth in the second quarter of fiscal 2011 versus the year ago quarter, but at a lower anticipated net farm income and uncertain global economic conditions. Fourthlevel than in the first quarter of the year. Sequentially, revenue is expected to decrease due to seasonality—historically roughly one-third of Applied Technology’s annual net sales are likelygenerated in the first quarter. The initial burst of activity related to continue to fall short of last year’s results.
In April 2009, the company announced an agreement with John Deere to distribute select Raven products through John Deere dealers. The financial impact of the agreement is notSlingshot may intensify this seasonal decline. Operating margins are expected to be material this year.
In July 2009, the companynegatively impacted by higher R&D and SST Software, Inc. (“SST”) announced a strategic alliance to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market. These solutions include integration of SST’s AgX™ platform into Raven’s Viper Pro and Envizio Pro field computers. SST’s AgX™ platform is a standardized data structure and reference database that enables efficient in-field record keeping and seamless communication between AgX™ compliant software and devices. SST Software is a privately held agricultural software development and information services provider with over 15 years of experience.
In November 2009, the company and SST announced that the companies would build on their strategic alliance, with Raven buying a minority ownership position in SST.
In November 2009, the company purchased substantially all of the assets of Ranchview, Inc. a privately-held Canadian corporation. Ranchview, a start-up company, develops products that use cellular networks instead of the traditional radio systems that are typically used to deliver RTK (Real Time Kinematic) corrections to GPS enabled equipment. RTK corrections improve the accuracy of GPS equipment. The network can also be used to provide high speed Internet access.other growth related expenses.
Engineered Films
The catalyst for long-termManagement anticipates Engineered Films to continue to show strong double-digit revenue growth. Current order intake remains significantly higher than the prior year. Year-over-year comparisons are expected to be favorable as prior year results were negatively impacted by the soft construction and energy markets. Operating margin growth may be somewhat lower than revenue due to the impact of competitive pricing pressure, but strong double-digit earnings growth is the development of non-commodity specialized films. In the near-term, year-over-year profit comparisons are favorableachievable as well.
The potential for the fourth quartermarket disruptions remains high as the financial andstability of the moderate economic turmoil in the prior year negatively impacted profitability. However, the construction market continues to be hampered by bleakrecovery is uncertain. The occurrence of unforeseen adverse economic events could have a significant unfavorable impact on industry conditions and the scarcity of credit. In

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addition, deliveries of pit liners toconditions—particularly the energy exploration(oil and gas drilling) and construction markets—which are Engineered Films largest markets. The division’s long-term success depends on increased penetration of existing markets, improving the speed to market remain depressed relativeof new products and product diversification with a greater contribution to last year’s record levels. Recent increases in oil prices are encouraging but it is unlikely that drilling activity will return to prior year levels as there is widespread uncertainty as to the sustainability of current prices. Management expects a profitable fourth quarter in contrast to the operating loss reported for the final three months of fiscal 2009. Margins have improved as a result of the segment’s reduced cost structure.overall sales from highly engineered films.
Electronic Systems
Electronic Systems fourthsales are expected to continue to be under pressure as soft demand for aviation electronics may offset demand for secure communication equipment and hand-held bed controls. Gross margins in the first quarter salesbenefited from a favorable product mix and profits are anticipatedexpected to decline from last year’s fourththe 19.2% operating margin recorded in the first quarter asto a more normalized 15% during the segment’s largest customer is expected to reduce its inventory levels by year-end. Sequentially, management is cautious due to the impact of the recession on avionics sales and an expected decrease in secure communication product deliveries.year.
Aerostar
Long-term results will be driven by Aerostar’s abilityManagement expects continued success in tethered aerostats to succeed in the high-altitude research balloon and tethered aerostat markets. The MC-6 Army parachute contract will wind down in the fourth quarter. Also, the previous year’s fourthdrive second quarter included $3 million of parachute sales that were delayed from the third quarter. Consequently, fourth quarter year-over-year comparisonsto double over prior year levels. Profit margins are expected to be unfavorable, however,constrained by start up costs on T-11 Army parachute production and spending for R&D and other growth related initiatives. The current backlog for tethered aerostats will sustain relatively high levels of production into the third quarter and additional order intake is needed to maintain this may be partially offset by increased sales ofthrough the full year. Long-term growth is dependent on tethered aerostats.
In October 2009, Aerostar announced that it had been awarded a five-year, IDIQ (indefinite delivery, indefinite quantity) contract for the production of US Army T-11 personnel parachutes. The first $12.2 million order of parachutes is expected to ship next fiscal year, with additional orders anticipated in the following four fiscal years.aerostat market diversification.
LIQUIDITY AND CAPITAL RESOURCES
The company’s liquidity and capital resources are strong despite the global economic recession.strong. Management focuses on the current cash balance and operating cash flows in considering liquidity as operating cash flows have historically been the company’s primary source of liquidity. Management expects that current cash combined with the generation of positive operating cash flows will be sufficient to fund the company’s operating, investing and financing activities.
The company’s cash needs are seasonal, with working capital demands strongest in the first quarter. Consequently, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in working capital.
Cash, cash equivalents, and short-term investments totaled $46.3$49.5 million at October 31, 2009,April 30, 2010, a $30.0$5.8 million increase compared to cash, cash equivalents, and short-term investments at January 31, 20092010 of $16.3$43.7 million. The comparable balances one year earlier totaled $31.2 million. In November 2008, the company paid a special cash dividend of $22.5$32.3 million.
Operating Activities
Cash provided by operating activities was $40.5 million in the first three quarters of fiscal 2010 compared to $26.6 million in the first three quarters of fiscal 2009. The company’s operatingOperating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services, employee compensation and employee compensation.income taxes. Management evaluates working capital levels through the computation of day’s sales outstanding (“DSO”) and inventory turnover. DSO is a measure of the company’s efficiency in enforcing its credit policy. The increaseinventory turnover ratio is a metric used to evaluate the effectiveness of inventory management, with further consideration given to balancing the disadvantages of excess inventory with the risk of delayed customer deliveries.

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Cash provided by operating activities was $10.3 million in the first quarter of fiscal 2011 versus $19.7 million in the first quarter of fiscal 2010. The decrease in quarterly operating cash flows is the result of variabilityreflects higher working capital requirements to support sales growth partially offset by higher company earnings.
Increases in working capital. For the nine-month period, reduction in inventoriesinventory and accounts receivable have combined to generate $10.0consumed $12.5 million in cash as compared within the first quarter of fiscal 2011 versus cash consumedgenerated of $12.5$7.5 million during last year’sin the first nine-months. Inventory balances have declined significantly duequarter of fiscal 2010. Disciplined inventory management (trailing 12-month inventory turnover of 5.6X at April 30, 2010 versus 5.2X at April 30, 2009) and efficient cash collections (trailing 12-month DSO of 49 days at April 30, 2010 versus 54 days at April 30, 2009) were offset by working capital requirements to improved management, lower salessupport growth. Accounts receivable from Engineered Films and a dropAerostar customers increased from prior year levels, reflecting the growth in sales. Higher plastic resin costs. Additionally,costs in Engineered Films and higher production levels in Aerostar drove the increase in inventory. The unfavorable cash impact of higher inventory and accounts receivable have declined which reflects the decrease in business activity. Thisbalances was partially offset by year-over-year reductions inthe favorable cash impact of higher accounts payable.payable, income tax and compensation accruals due to higher earnings and inventory.
Investing Activities
Cash used in investing activities totaled $6.1$1.2 million in the first nine-monthsquarter of fiscal 2010, compared to $4.52011 versus $1.3 million in the first nine-monthsquarter of fiscal 2009. The variance reflects2010. An increase in capital expenditures was offset by a $4.5 million increasedecrease in net purchases of short-term investments which was partially offset by a $3.0investments.
Management anticipates fiscal 2011 capital spending of $12 to $15 million reduction in capital expenditures. Capital expenditures are expected to be in the $3-4 million range for the current fiscal year. In addition, cash outlays for the SST and Ranchview investments totaled $6.5 million in November 2009. Additional cash requirements for an earnout related to the Ranchview acquisition will be funded through future sales of Ranchview products.support growth initiatives.
Financing Activities
Financing activities consumed cashDividends of $7.4$2.9 million foror 16 cents per share were paid during the nine-months ended October 31, 2009current quarter compared with $12.1to $2.3 million used in last year’s comparable period. Cash used in financing activities is primarily for dividend payments and repurchases of common stock. The quarterly per-share cash dividend was increased by 8 percent, to 14or 13 cents per share in the secondyear ago quarter. Dividends of $7.4 million or 41The 16 cents per share were paiddividend represents the company’s 24th consecutive increase in the current year compared to $7.0 million in the prior year. Treasury stock purchases totaled $5.2 million for the first nine-months of last year. The share repurchase program was suspended in July 2008.annual dividend (excluding special dividends).

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OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes since the fiscal year ended January 31, 2009.2010.
NEW ACCOUNTING STANDARDS
In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification), which became the single source of authoritative generally acceptedThere were no new accounting principles (GAAP) in the United States, other than rules and interpretive releases issued by the Securities and Exchange Commission (SEC). The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and instead establishes two levels of guidance — authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification will become non-authoritative. The company adopted the Codification in the third quarter of fiscal 2010 which resulted in no changes to the content of the company’s financial statements or disclosures.
At the beginning of fiscal 2010, the company adopted FASB guidance that amends required disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The adoption of this guidance had no impact on the company’s consolidated results of operations, financial condition or cash flows.
At the beginning of fiscal 2010, the company adopted FASB guidance that amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets and apply to (1) intangible assets that are acquired individually or with a group of other assets, and (2) intangible assets acquired in both business combinations and asset acquisitions. Entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. As this guidance applies only to assets acquired in the future, the company is not able to predict the impact, if any, on the company’s consolidated results of operations, financial condition or cash flows.
As of July 31, 2009, the company adopted FASB guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or effective during the three months ended April 30, 2010 that had or are availableexpected to be issued. In particular, this guidance sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of this guidance did not have a material impact on the company’s consolidated results of operations, financial condition, or cash flows. In accordance with this guidance, the company has evaluated subsequent events through the date and time the financials were issued on December 4, 2009.
In June 2009, the FASB amended its guidance on accounting for variable interest entities. This guidance alters the approach to determining the primary beneficiary of a variable interest entity and requires companies to more frequently assess whether they must consolidate variable interest entities. The guidance is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The company will adopt this guidance on February 1, 2010 and is currently assessing the potential impacts, if any, on its financial statements and disclosures.
In October 2009, the FASB issued guidance on the accounting for multiple-deliverable revenue arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate of selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand alone basis. This guidance also expands the required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The guidance is effective beginning February 1, 2011 with early adoption permitted. The company has adopted the new guidance prospectively from the beginning of the fiscal year and determined that there is no material impact on its consolidated results of operations, financial condition, cash flows, or disclosures.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents and short-term investments. The company has no debt. The company does not expect operating results or cash flows to be significantly affected by changes in interest rates. Additionally, the company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, the company does utilize derivative financial instruments to manage the economic impact of fluctuation in foreign currency exchange rates on those transactions that are denominated in currency other than its functional currency, which is the U.S. dollar. The use of these financial instruments had no material effect on the company’s financial condition, results of operations or cash flows.
The company’s subsidiaries that operate outside the United States use their local currency as the functional currency. The functional currency is translated into U.S. dollars for balance sheet accounts using the period-end exchange rates, and average exchange rates for the statement of income. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in accumulated other comprehensive income (loss) within shareholders’ equity. Foreign currency transaction gains or losses are recognized in the period incurred and are included in “other expense (income),income, net” in the Consolidated Statements of Income. Foreign currency fluctuations had no material effect on the company’s financial condition, results of operations or cash flows.
ITEM 4. CONTROLS AND PROCEDURES
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of October 31, 2009,April 30, 2010, the end of the period covered by this report, management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) evaluated the effectiveness of disclosure controls and procedures (as defined in the Exchange Act

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Rules 13a-15(e) and 15d-15(e)) as of such date. Based on that evaluation, the CEO and CFO have concluded that the company’s disclosure controls and procedures were effective as of October 31, 2009.April 30, 2010.
Changes in Internal Control over Financial Reporting
There were no changes in the company’s internal control over financial reporting that occurred during the quarter ended October 31, 2009April 30, 2010 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report onForm 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. Without limiting the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “may,” “plans” and similar expressions are intended to identify forward-looking statements. The company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act. Although management believes that the expectations reflected in forward-looking statements are based on reasonable assumptions, there is no assurance that these assumptions are correct or that these expectations will be achieved. Assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to weather conditions and commodity prices, which could affect sales and profitability in some of the company’s primary markets, such as agriculture, construction, and oil and gas well drilling; or changes in competition, raw material availability, technology or relationships with the company’s largest customers-anycustomers—any of which could adversely affect any of the company’s product lines, lines—as well as other risks described in the company’s 10-K under Item 1A. This list is not exhaustive, and the company does not have an obligation to revise any forward-looking statements to reflect events or circumstances after the date these statements are made.

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RAVEN INDUSTRIES, INC.

PART II — OTHER INFORMATION
Item 1.
Item 1.Legal Proceedings:
The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. The settlement of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.
Item 1A.
Item 1A.Risk Factors: No material change.
Item 2. Changes in Securities:
Under a resolution from the Board of Directors dated March 15, 2008, the company was authorized to repurchase up to $10 million of stock on the open market. No shares were repurchased during the first three quarters of fiscal 2010. Approximately $5.1 million of the repurchase authorization remains open; however, the company temporarily suspended the share repurchase program in July 2008.
Item 2.Changes in Securities: None
Item 3.
Item 3.Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 4.Reserved
Item 5.
Item 5.Other Information: None
Item 6.
Item 6.Exhibits Filed:
 
31.1 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act
 
 31.2 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act
 
 32.1 Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act
 
 32.2 Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act
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  
Date: June 3, 2010 Vice President and CFO, Secretary and Treasurer
(Principal (Principal Financial and Accounting Officer) 		 
Date: December 4, 2009

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