Table of Contents

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, 2010
OR
  For the quarterly period ended April 30, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
For the transition period fromto
Commission File: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
South Dakota46-0246171
South Dakota
(State of incorporation)
 
46-0246171
(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).þ Yes o Yeso No 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, 2010May 27, 2011 there were 18,056,14118,079,656 shares of common stock, $1 par value, of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.
 

RAVEN INDUSTRIES, INC.
INDEX
INDEX
 PAGE
  
PAGE
PART I - FINANCIAL INFORMATION
 
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
Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
9
Item 3. Quantitative and Qualitative Disclosures about Market Risks
15
Item 4. Internal Controls and Procedures
15
  
PART II —- OTHER INFORMATION
 
  
Item 1. Legal Proceedings
16
Item 1A. Risk Factors
16
Item 2. Changes in Securities
16
Item 3. Defaults upon Senior Securities
16
Item 4. Submission of Matters to a Vote of Security HoldersReserved
16
Item 5. Other Information
16
Item 6. Exhibits Filed
16
Signatures
17
 EX-31.1
17 EX-31.2
 EX-32.1
 EX-32.2
101.INS 
EX-31.1101.SCH
EX-31.2101.CAL
EX-32.1101.DEF
EX-32.2101.LAB
101.PRE


2

Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(unaudited)
            
 October 31, January 31, October 31, 
(in thousands except share data) 2010 2010 2009 
(in thousands, except per-share data)April 30,
2011		 January 31,
2011		 April 30,
2010
ASSETS
      
Current Assets      
Cash and cash equivalents $28,470 $40,684 $43,262 $42,125  $37,563  $46,972 
Short-term investments 1,500 3,000 3,000 500  1,000  2,500 
Accounts receivable, net of allowances of $299, $297, and $318, respectively 48,733 34,327 35,902 
Accounts receivable, net of allowances of $302, $300, and $300, respectively50,542  39,967  43,946 
Inventories:      
Materials 26,189 24,020 21,013 31,636  30,261  24,845 
In process 6,209 4,172 3,517 5,986  5,424  6,397 
Finished goods 4,725 6,283 6,231 7,916  7,994  6,304 
       
Total inventories 37,123 34,475 30,761 45,538  43,679  37,546 
Deferred income taxes 2,699 2,471 2,570 2,878  2,733  2,663 
Prepaid expenses and other current assets 2,996 2,790 2,885 3,113  3,239  3,642 
       
Total current assets 121,521 117,747 118,380 144,696  128,181  137,269 
       
      
Property, plant and equipment 96,063 88,319 87,469 104,564  102,080  89,416 
Accumulated depreciation  (58,851)  (55,290)  (53,628)(62,155) (60,558) (56,369)
       
Property, plant and equipment, net 37,212 33,029 33,841 42,409  41,522  33,047 
Goodwill 10,777 10,699 7,829 10,777  10,777  10,777 
Amortizable intangible assets, net 1,741 2,185 1,254 1,700  1,585  2,039 
Other assets, net 6,166 6,649 1,316 4,653  5,695  6,989 
            
 
TOTAL ASSETS
 $177,417 $170,309 $162,620 $204,235  $187,760  $190,121 
       
      
LIABILITIES AND SHAREHOLDERS’ EQUITY
      
Current Liabilities      
Accounts payable $11,343 $12,398 $10,568 $17,447  $16,715  $14,450 
Accrued liabilities 15,113 10,682 11,478 11,782  14,643  11,693 
Taxes — accrued and withheld 2,034 1,574 1,580 6,713  1,453  7,940 
Customer advances 1,105 1,306 1,073 1,320  1,524  1,024 
       
Total current liabilities 29,595 25,960 24,699 37,262  34,335  35,107 
      
Other liabilities 11,683 11,098 8,088 12,637  12,211  11,378 
       
Total liabilities 41,278 37,058 32,787 49,899  46,546  46,485 
       
      
Commitments and contingencies      
      
Shareholders’ equity:      
Common stock, $1 par value, authorized shares 100,000,000; issued 32,491,664; 32,478,416 and 32,469,598, respectively 32,492 32,478 32,470 
Common stock, $1 par value, authorized shares 100,000; issued 32,528, 32,511 and 32,478, respectively32,528  32,511  32,478 
Paid in capital 6,432 5,604 5,223 7,540  7,060  5,808 
Retained earnings 151,613 149,732 146,413 168,582  156,125  159,789 
Accumulated other comprehensive income (loss)  (1,036)  (1,201)  (911)(952) (1,120) (1,077)
       
 189,501 186,613 183,195 
Less treasury stock, at cost, 14,448,683 shares 53,362 53,362 53,362 
       
Less treasury stock, at cost, 14,449 shares(53,362) (53,362) (53,362)
Total shareholders’ equity 136,139 133,251 129,833 154,336  141,214  143,636 
            
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $177,417 $170,309 $162,620 $204,235  $187,760  $190,121 
       
The accompanying notes are an integral part of the unaudited consolidated financial information.

3


3
Table of Contents

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
                 
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  October 31,  October 31, 
(in thousands except per share data) 2010  2009  2010  2009 
 
Net sales $85,823  $60,158  $244,027  $181,966 
Cost of goods sold  60,936   43,239   171,580   129,507 
             
Gross profit  24,887   16,919   72,447   52,459 
                 
Research and development expenses  1,582   1,511   5,664   4,399 
Selling, general and administrative expenses  5,890   4,289   17,240   13,522 
Gain on disposition of assets  (451)  —   (451)  — 
             
Operating income  17,866   11,119   49,994   34,538 
                 
Other expense (income), net  (17)  3   25   (103)
             
Income before income taxes  17,883   11,116   49,969   34,641 
                 
Income taxes  6,050   3,823   16,838   11,913 
             
                 
Net income $11,833  $7,293  $33,131  $22,728 
             
                 
Net income per common share:                
Basic $0.65  $0.40  $1.83  $1.26 
Diluted $0.65  $0.40  $1.83  $1.26 
                 
Cash dividends paid per common share $1.41(a) $0.14  $1.73(a) $0.41 
(a)Includes a special cash dividend of $1.25 per share paid on September 30, 2010.
  Three Months Ended
(in thousands, except per-share data) April 30,
2011		 April 30,
2010
Net sales $101,541  $85,030 
Cost of sales 68,605  57,859 
Gross profit 32,936  27,171 
     
Research and development expenses 2,243  2,126 
Selling, general and administrative expenses 7,160  5,540 
Operating income 23,533  19,505 
     
Other income (expense), net (13) 52 
Income before income taxes 23,520  19,557 
     
Income taxes 7,804  6,612 
     
Net income $15,716  $12,945 
     
Net income per common share:    
Basic $0.87  $0.72 
Diluted $0.86  $0.72 
     
Cash dividends paid per common share $0.18  $0.16 
The accompanying notes are an integral part of the unaudited consolidated financial information.

4


4
Table of Contents

RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
         
  Nine Months Ended 
  October 31,  October 31, 
(in thousands) 2010  2009 
 
OPERATING ACTIVITIES:
        
Net income $33,131  $22,728 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  5,578   5,285 
Gain on disposition of assets  (451)  — 
Change in fair value of acquisition-related contingent consideration  238   — 
Provision for losses on accounts receivable, net of recoveries  (21)  (169)
Deferred income taxes  (100)  171 
Share-based compensation expense  788   728 
Change in operating assets and liabilities:        
Accounts receivable  (14,314)  4,732 
Inventories  (2,638)  5,262 
Prepaid expenses and other assets  (346)  (448)
Operating liabilities  4,533   2,226 
Other operating activities, net  (110)  (10)
       
Net cash provided by operating activities  26,288   40,505 
       
INVESTING ACTIVITIES:
        
Capital expenditures  (9,417)  (2,660)
Purchase of short-term investments  (1,700)  (3,250)
Sale of short-term investments  3,200   250 
Proceeds from disposition of assets  888   — 
Payments related to business acquisitions  (390)  (388)
Other investing activities, net  83   (78)
       
Net cash used in investing activities  (7,336)  (6,126)
       
FINANCING ACTIVITIES:
        
Dividends paid  (31,206)  (7,387)
Other financing activities, net  11   (36)
       
Net cash used in financing activities  (31,195)  (7,423)
       
Effect of exchange rate changes on cash  29   39 
       
Net increase in cash and cash equivalents
  (12,214)  26,995 
Cash and cash equivalents:
        
Beginning of period  40,684   16,267 
       
End of period $28,470  $43,262 
       
 Three Months Ended
(in thousands)April 30,
2011		 April 30,
2010
OPERATING ACTIVITIES:   
Net income$15,716  $12,945 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization1,985  1,738 
Change in fair value of acquisition-related contingent consideration31  160 
Deferred income taxes845  (590)
Share-based compensation expense392  201 
Change in operating assets and liabilities:   
Accounts receivable(10,468) (9,482)
Inventories(1,833) (3,058)
Prepaid expenses and other assets(1,117) (925)
Operating liabilities5,463  9,458 
Other operating activities, net(6) (111)
Net cash provided by operating activities11,008  10,336 
INVESTING ACTIVITIES:   
Capital expenditures(3,585) (1,585)
Purchase of short-term investments—  (500)
Sale of short-term investments500  1,000 
Payments related to business acquisitions(8) (148)
Other investing activities, net(264) 54 
Net cash used in investing activities(3,357) (1,179)
FINANCING ACTIVITIES:   
Dividends paid(3,254) (2,885)
Other financing activities, net100  — 
Net cash used in financing activities(3,154) (2,885)
Effect of exchange rate changes on cash65  16 
Net increase in cash and cash equivalents4,562  6,288 
Cash and cash equivalents:   
Beginning of period37,563  40,684 
End of period$42,125  $46,972 
The accompanying notes are an integral part of the unaudited consolidated financial information.

5


5
Table of Contents

RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
(in thousands, except per-share amounts)
(1) Basis of Presentation
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, 2010 areApril 30, 2011 is not necessarily indicative of the results that may be expected for the year ending January 31, 2011.2012. The January 31, 20102011 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, 2010.2011.
(2)  Summary of Significant Accounting Policies
There have been no material changes to the company's significant accounting policies as compared to the significant accounting policies described in the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2011. Additionally, there were no new accounting standards issued or effective during the three months ended April 30, 2011 that had or are expected to have a material impact on the company's consolidated results of operations, financial condition, or cash flows.
(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. For the three and nine-monththree-month periods ended October 31,April 30, 2011 and April 30, 2010 25,000, 136 and 163,733 shares were excluded, respectively. For the three and nine-month periods ended October 31, 2009, 317,900 and 318,408224 shares were excluded, respectively. Details of the earnings per share computation are presented below:
                 
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  October 31,  October 31, 
  2010  2009  2010  2009 
 
Numerator:                
Net income(in thousands)
 $11,833  $7,293  $33,131  $22,728 
             
                 
Denominator:                
Weighted average common shares outstanding  18,040,290   18,020,915   18,035,560   18,017,901 
Weighted average stock units outstanding  26,645   21,062   24,622   19,052 
             
Denominator for basic calculation  18,066,935   18,041,977   18,060,182   18,036,953 
             
                 
Weighted average common shares outstanding  18,040,290   18,020,915   18,035,560   18,017,901 
Weighted average stock units outstanding  26,645   21,062   24,622   19,052 
Dilutive impact of stock options  48,106   1,753   31,258   3,417 
             
Denominator for diluted calculation  18,115,041   18,043,730   18,091,440   18,040,370 
             
                 
Net income per share — basic $0.65  $0.40  $1.83  $1.26 
Net income per share — diluted $0.65  $0.40  $1.83  $1.26 
(3)
   Three Months Ended
     April 30,
2011		 April 30,
2010
Numerator:       
Net income    $15,716  $12,945 
        
Denominator:       
Weighted average common shares outstanding    18,075  18,030 
Weighted average stock units outstanding    27  21 
Denominator for basic calculation    18,102  18,051 
        
Weighted average common shares outstanding    18,075  18,030 
Weighted average stock units outstanding    27  21 
Dilutive impact of stock options    110  7 
Denominator for diluted calculation    18,212  18,058 
        
Net income per share — basic    $0.87  $0.72 
Net income per share — diluted    $0.86  $0.72 
(4)  Segment Reporting
The company’s reportable segmentscompany has four business segments: Applied Technology Division, Engineered Films Division, Aerostar Division and

6
Table of Contents

Electronic Systems Division which are defined by their common technologies, production processes and inventories. These segments reflect Raven’s organization into three Raven divisions and the Aerostar subsidiary. Raven Canada, Raven GmbH and the company’s new Raven Industries Australia Pty Ltd sales office are included in the Applied Technology Division.has precision agriculture representatives on location in key geographic areas, including Canada, Europe, Ukraine and Australia. 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. Segment information is reported consistent with the company’s management reporting structure.

6

Intersegment sales were primarily from Electronic Systems to Applied Technology. Business segment results are as follows:
                 
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  October 31,  October 31, 
(in thousands) 2010  2009  2010  2009 
  | | | |
Net sales                
Applied Technology $23,913  $20,953  $77,804  $68,959 
Engineered Films  29,772   18,674   81,525   47,049 
Aerostar  15,945   5,923   36,833   18,326 
Electronic Systems  17,754   15,671   52,109   49,737 
Intersegment eliminations  (1,561)  (1,063)  (4,244)  (2,105)
             
Consolidated net sales $85,823  $60,158  $244,027  $181,966 
             
                 
Operating income (loss)                
Applied Technology $7,336  $6,856  $25,257  $21,583 
Engineered Films  6,908(a)  3,033   16,578(a)  7,829 
Aerostar  3,606   1,258   7,115   3,552 
Electronic Systems  2,297   1,567   8,234   7,024 
Intersegment eliminations  —   11   (47)  13 
             
Total reportable segment income  20,147   12,725   57,137   40,001 
Administrative and general expenses  (2,281)  (1,606)  (7,143)  (5,463)
             
Consolidated operating income $17,866  $11,119  $49,994  $34,538 
             
   Three Months Ended
     April 30,
2011		 April 30,
2010
Net sales       
Applied Technology    $39,125  $32,925 
Engineered Films    30,091  25,633 
Aerostar    15,139  11,693 
Electronic Systems    19,477  16,288 
Intersegment eliminations    (2,291) (1,509)
Consolidated net sales    $101,541  $85,030 
        
Operating income (loss)       
Applied Technology    $15,074  $12,403 
Engineered Films    4,129  4,127 
Aerostar    4,062  2,164 
Electronic Systems    3,412  3,124 
Intersegment eliminations    12  (49)
Total reportable segment income    26,689  21,769 
Administrative and general expenses    (3,156) (2,264)
Consolidated operating income    $23,533  $19,505 
 
(a)Includes a $451,000 pre-tax gain on disposition of assets.
(4)(5) Financing Arrangements
Raven has an uncollateralized credit agreement providing a line of credit of $8.0 million$8,000 with a maturity date of July 1, 2011, bearing interest at the prime rate with a minimum rate of 4.00%. Letters of credit totaling $1.3 million$1,342 have been issued under the line, primarily to support self-insured workers compensation bonding requirements. No borrowings were outstanding as of October 31, 2010, April 30, 2011, January 31, 20102011 or October 31, 2009,April 30, 2010, and $6.7 million$6,658 was available at October 31, 2010.April 30, 2011.
(5)
(6) Dividends
The company announced on November 30, 2010,May 24, 2011, that its board of directors approved a quarterly cash dividend of 1618 cents per share, payable January 14,July 15, 2011, to shareholders of record on December 31, 2010.June 30, 2011.
The company paid a special cash dividend of $1.25 per share or $22.5 million on September 30, 2010 to shareholders of record on September 15, 2010.
(6)(7) 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 shareholders’ equity but are excluded from net income.

7
Table of Contents

The components of total comprehensive income follow:

7

Comprehensive Income
                
 Three Months Ended Nine Months Ended 
 October 31, October 31, October 31, October 31,   Three Months Ended
(in thousands) 2010 2009 2010 2009 
| | | |
 April 30,
2011		 April 30,
2010
    
Net income $11,833 $7,293 $33,131 $22,728  $15,716  $12,945 
Other comprehensive income:     
Foreign currency translation 36 26 84 180  139  97 
Amortization of postretirement benefit plan actuarial losses, net of income tax of $15, $11, $44 and $33, respectively 27 21 81 63 
         
Amortization of postretirement benefit plan actuarial losses, net of income tax of $15 29  27 
Total other comprehensive income 63 47 165 243  168  124 
         
Total comprehensive income $11,896 $7,340 $33,296 $22,971  $15,884  $13,069 
         
(7)
(8) Employee Retirement Benefits
The components of net periodic benefit cost for postretirement benefits are as follows:
                 
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  October 31,  October 31, 
(in thousands) 2010  2009  2010  2009 
 
Service cost $15  $14  $46  $41 
Interest cost  81   83   243   249 
Amortization of actuarial losses  42   32   125   96 
             
Net periodic benefit cost $138  $129  $414  $386 
             
(8)
     Three Months Ended
     April 30,
2011		 April 30,
2010
Service cost    $30  $15 
Interest cost    84  81 
Amortization of actuarial losses    32  42 
Net periodic benefit cost    $146  $138 
(9) Product Warranty Costs
Accruals necessary for product warranties are estimated based on historical warranty costs and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues. Changes in the warranty accrual were as follows:
                 
  Three Months Ended  Nine Months Ended 
(in thousands) October 31,
2010		  October 31,
2009		  October 31,
2010		  October 31,
2009		 
 
Balance, beginning of period $1,812  $1,106  $1,259  $1,004 
Accrual for warranties  606   541   2,051   1,781 
Settlements made (in cash or in kind)  (618)  (502)  (1,510)  (1,640)
             
Balance, end of period $1,800  $1,145  $1,800  $1,145 
             
(9) Investment in Site-Specific Technology Development Group, Inc. (SST)
     Three Months Ended
     April 30,
2011		 April 30,
2010
Balance, beginning of period    $1,437  $1,259 
Accrual for warranties    807  734 
Settlements made (in cash or in kind)    (613) (380)
Balance, end of period    $1,631  $1,613 
In November 2009, the 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 precision 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 first quarter of fiscal 2011, the company completed its analysis of this excess and determined that it related to $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 excess is attributable to equity method goodwill.

8


8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the company’scompany's consolidated financial statements for the three and nine months ended October 31,April 30, 2011 and April 30, 2010, and October 31, 2009, as well as the company’scompany's consolidated financial statements and related notes thereto and management’smanagement's discussion and analysis of financial condition and results of operations in the company’scompany's Form 10-K for the year ended January 31, 2010.2011.
EXECUTIVE SUMMARYOVERVIEW
Raven, Industries, Inc.which began operations in 1956 as a manufacturer of high-altitude balloons, is an industrial manufacturer providing a varietydiversified provider of specialized products to customers withinand services for the industrial, agricultural, energy, construction and military/aerospace markets, primarily in North America. markets.
The company operates inis comprised of unique operating units, classified into four businessreportable segments: Applied Technology, Engineered Films, Aerostar and Electronic Systems. While each segment has distinct characteristics, the products, services and technologies are largely extensions of durable competitive advantages rooted in the original research balloon business.
Applied Technology produces precision agriculture products and information management tools to reduce costs and improve farm yields. Products include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, yield monitoring and planter controls and an integrated information platform.
Engineered Films is a leading manufacturer and supplier of high-quality flexible films and sheeting for custom applications in energy, industrial, environmental, construction and agricultural markets throughout the United States and abroad. Products include pit liners used in the oil and gas drilling process, high performance in-wall and under concrete slab moisture and vapor retarders, weather resistive barriers used for construction, silage covers that reduce the amount of spoilage in cattle feed and textured reinforced geomembranes.
Aerostar designs and fabricates lighter-than-air solutions (i.e. aerostats, airships, and high-altitude research balloons) for customers such as NASA and the Department of Defense and manufactures parachutes and protective wear for the U.S. military.
Electronic Systems is a total solution provider of contract electronic manufacturing services to a select base of customers in the industrial controls and instrumentation, aerospace/aviation and communication industries.
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’sTechnology's first quarter results are the strongest and the second quarter the weakest.
Vision and Strategy
The company's vision is to advance its leadership positions in niche markets through the development of innovative solutions to address the needs of customers and help solve global challenges in the areas of hunger, safety, peace and stability.
The company's primary strategy to achieve this vision is the maintenance of a diversified, but integrated portfolio of industrial manufacturing businesses. Diversification has enabled the company to consistently generate cash, achieve profitability and maintain financial strength by limiting the impact of market disruptions and facilitating growth in both strong and weak economic cycles. Additionally, the company continues to achieve increased geographic, product and market diversification.
The company's overall approach to creating value, which is employed consistently across the four unique operating units, is summarized as follows -
Seek to expand in niche markets that have strong prospects for growth and above-average profit margins.
Elevate customer service by leveraging innovation, speed and dedicated engineering support to solve the customer's problem.
Reinvest cash generated from operations to fuel growth. Capital is allocated aggressively when the prospects are high for above-average, risk-adjusted returns on capital. When the company accumulates cash in excess of investment opportunities for above-average, risk-adjusted returns, it will be returned to shareholders in the form of special dividends or stock buy backs.
Continue to increase the quarterly dividend annually.

9
Results of Operations (Q1 fiscal 2012 versus Q1 fiscal 2011)
Consolidated financial highlights for the thirdfirst quarter and first nine months of fiscal 20112012 and fiscal 20102011 include the following:
                         
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  %  October 31,  October 31,  % 
(dollars in thousands, except per share data) 2010  2009  Change  2010  2009  Change 
 
Net sales $85,823  $60,158   43% $244,027  $181,966   34%
Gross profit  24,887   16,919   47%  72,447   52,459   38%
Gross margins(a)
  29.0%  28.1%      29.7%  28.8%    
Operating income  17,866   11,119   61% $49,994  $34,538   45%
Operating margins  20.8%  18.5%      20.5%  19.0%    
Net income  11,833   7,293   62% $33,131  $22,728   46%
Diluted earnings per share $0.65  $0.40      $1.83  $1.26     
                         
Operating cash flow              26,288   40,505   (35)%
Cash dividends              31,206(b)  7,387   322%
   Three Months Ended
(dollars in thousands, except per-share data)      April 30,
2011		 April 30,
2010		 % Change
Net sales      $101,541  $85,030  19%
Gross profit      32,936  27,171  21%
Gross margins(a)
      32.4% 32.0%  
Operating income      $23,533  $19,505  21%
Operating margins      23.2% 22.9%  
Net income      $15,716  $12,945  21%
Diluted earnings per share      $0.86  $0.72   
            
Operating cash flow      11,008  10,336  7%
Cash dividends      3,254  2,885  13%
(a)
The company’scompany's gross and operating margins may not be comparable to industry peers due to the diversity of its operations and variability in the classification of expenses across industries in which the company operates.
(b)Includes a special dividend of $1.25 per share or $22.5 million paid in the third quarter of fiscal 2011.
Sales growth across all divisions led to
The company achieved record quarterly sales and profitability in the thirdfirst quarter and first nine months of fiscal 2011. Engineered Films and Aerostar were the primary growth drivers of the third quarter and year-to-date results along with contributions from Applied Technology and Electronic Systems.2012. The strongsolid financial results were driven primarily by market share gains, new products, disciplined margin management, operating efficiencies productivity gains and solid returns on capital investments. General economic conditions continued to improve modestly though the
Double digit year-over-year sales growth in all four segments resulted in a 19% increase in consolidated net sales. The 21% rise in operating income was driven by Applied Technology and Aerostar as higher sales and strong operating leverage drove profitability. Engineered Films operating margins were negatively impacted by volatile material costs and competitive pricing pressures. Electronic Systems product mix had an unfavorable impact on first nine months of fiscal 2011. The pace and durability of the economic recovery remain highly uncertain—however the company continues to allocate significant resources to research and development and capital investments to capitalize on opportunities for substantial returns on invested capital.quarter operating margins.
Applied Technology
NetFiscal 2012 first quarter net sales of $23.9$39.1 million in the third quarter of fiscal 2011 were up (14% grew $6.2 million (19%) and operating income of $7.3$15.1 million increased $480,000 (7%$2.7 million (22%) compared to the third quarter of fiscal 2010. Year-to-date fiscal 2011 net sales of $77.8 million grew $8.8 million (13%) and year-to-date operating income of $25.3 million rose $3.7 million (17%). The primary driver of the growth in

9

sales and profitability was an increase inreflecting strong sales of application controls (control(i.e. control systems, flow meter,meters, valves), field computers and steeringboom controls. Applied Technology benefited from healthy agricultural fundamentals, capitalizing on strong brand recognition, industry leading service and guidance products (assisted-steering, GPS receivers) andgreater acceptance of precision agriculture as a means of controlling input costs. International sales growth outpaced domestic growth for the highly successfulfirst three months of fiscal 2012 as compared with one year ago.
Engineered Films
Fiscal 2012 first quarter launchnet sales of Slingshot™—an information platform which improves data collection, transmission, storage$30.1 million increased $4.5 million (17%) and analysisoperating income of $4.1 million was flat. Increased demand for pit liners was driven by intensified drilling for oil and provides RTK correctionnatural gas. Strong deliveries of GPS signals for high accuracy steering solutions. Fiscal 2011 third quarter operating margins were down from the prior year reflecting increased costs related to strategic initiativesagriculture films such as FeedFresh™ silage covers reflect broader appreciation of the agriculture information management solutionvalue-added benefits of this highly engineered film.
Aerostar
Fiscal 2012 first quarter net sales of $15.1 million increased $3.4 million (29%) and operating income of $4.1 millionincreased research$1.9 million (88%). Increased sales volume of T-11 Army parachutes was partially offset by a decrease in tethered aerostat deliveries due to government funding delays. Parachute manufacturing efficiencies led to profit margin expansion.
Electronic Systems
Fiscal 2012 first quarter net sales of $19.5 million increased $3.2 million (20%) and development expense. Year-to-date operating income of $3.4 million increased $0.3 million (9%). Higher sales of printed circuit board assemblies for the aviation industry and intercompany shipments to Applied Technology were offset by weaker sales of secure communication devices. Profit margins expanded compared to the prior year periodfell as a result of a less favorable product mixmix.

10
RESULTS OF OPERATIONS - SEGMENT ANALYSIS (Q1 fiscal 2012 versus Q1 fiscal 2011)
Applied Technology
Applied Technology provides precision agriculture products and information management tools to reduce costs and improve farm yields.
   Three Months Ended
(dollars in thousands)        April 30,
2011		 April 30,
2010		 $ Change % Change
Net sales        $39,125  $32,925  $6,200  19%
Gross profit        18,931  15,956  2,975  19%
Gross margins        48.4% 48.5%    
Operating income        15,074  12,403  2,671  22%
Operating margins        38.5% 37.7%    
The following factors were the positive effectprimary drivers of the year-over-year growth in net sales and operating income:
Market conditions. Global market fundamentals are healthy as population and income growth in emerging economies have increased demand for food, and natural disasters and adverse weather conditions have restricted supplies, resulting in higher crop prices and wider acceptance of precision agriculture as a sound investment for maximizing yields and controlling input costs
Sales volume and selling prices. The increase in sales was driven by higher sales volume as selling prices reflected only a modest increase year-over-year.
International sales. Net sales outside the U.S. accounted for 28% of segment sales in the first quarter of fiscal 2012 versus 24% in the first quarter of fiscal 2011. International sales of $11.0 million rose $2.9 million (36%) year-over-year as economic growth and strong farm fundamentals drove strong overall demand in South America and Eastern Europe.
Gross margins. Sequentially, gross margins improved from 43.4% for the three-months ended January 31, 2011 to 48.4% for the three-months ended April 30, 2011, reflecting the seasonal impact of higher sales on operating leverage; however, margin growth was tempered by a higher cost base.
Engineered Films
Fiscal 2011 third quarter net sales of $29.8 million grew $11.1 million (59%) and operating incomeleverage on profitability. Year-over-year comparative gross margins were flat.
Operating expenses. First quarter operating expenses decreased to 9.9% of $6.9 million increased $3.9 million (128%) versussales from 10.8% in the thirdprior year first quarter as research and development expenses decreased from 3.8% of sales in the first quarter of fiscal 2010. Fiscal 2011 year-to-date net sales of $81.5 million increased $34.5 million (73%) and operating income of $16.6 million essentially doubled from2012 compared to 4.8% in the first nine monthsquarter of fiscal 2010. 2011.
Engineered Films
Engineered Films produces high-quality flexible film for applications in energy, construction, agriculture, water and environmental safety.
   Three Months Ended
(dollars in thousands)        April 30,
2011		 April 30,
2010		 $ Change % Change
Net sales        $30,091  $25,633  $4,458  17%
Gross profit        5,239  5,000  239  5%
Gross margins        17.4% 19.5%    
Operating income        4,129  4,127  2  —%
Operating margins        13.7% 16.1%    
The positive impactfollowing factors were the primary drivers of higher oil prices on demand for energy market pit liners fueled the growthyear-over-year changes in net sales and operating income. income:
Market conditions. Engineered Films’ primary end markets—energy, geomembrane, industrial, agriculture and construction—continued to rebounded from recessionary levels. Worldwide economic growth continues to support oil and natural gas prices, related drilling activity and demand for pit liners. The construction market, excluding disaster films, continued to rebound from recessionary levels and the agriculture market was supported by strong fundamentals.
Sales volume and selling prices. Selling prices were up roughly 12% reflecting higher input costs. Sales volume, as measured by pounds shipped, increased 5%. The increase in sales volume was fueled by energy market demand for pit liners and to a lesser extent demand for agriculture and construction films. The year ago quarter included $1.5 million of disaster film shipments to Haiti to support earthquake relief efforts.
Margin decline. Operating margins improved for the third quarter and first nine months of fiscal 2011 as compared to the year ago comparable periods reflecting more favorable selling prices relative towere unfavorably impacted by increased overhead spending, higher material costs and positivecompetitive pricing pressure. Consequently, increases in production costs outpaced increases in selling prices.

11
Operating expenses. First quarter operating leverage.expenses were 3.7% of sales in fiscal 2012 versus 3.4% in fiscal 2011 due to higher research and development expenses to support expansion efforts in engineering and new product development.
Aerostar
Fiscal 2011 third quarter salesAerostar
Aerostar provides solutions for scientific and military operations, research, surveillance and communications using specialized fabrics and films.
   Three Months Ended
(dollars in thousands)        April 30,
2011		 April 30,
2010		 $ Change % Change
Net sales        $15,139  $11,693  $3,446  29%
Gross profit        5,000  2,820  2,180  77%
Gross margins        33.0% 24.1%    
Operating income        4,062  2,164  1,898  88%
Operating margins        26.8% 18.5%    
The following factors were the primary drivers of $15.9 million grew $10.0 million (169%) and operating income of $3.6 million improved by $2.3 million (187%) as compared to the third quarter of fiscal 2010. Year-to-date sales of $36.8 million grew $18.5 million (101%) and operating income of $7.1 million improved $3.6 million (100%) compared to fiscal 2010. Theyear-over-year growth in net sales and operating income gains were driven by increased demand for tethered aerostat systems for persistent military surveillance. Although fiscal 2011 year-to-date operating margins were relatively flat compared toincome:
Sales volumes. Increased T-11 parachute deliveries drove the prior year, third quarter margins showed improvement year-over-year. Through theincrease in sales. The first half of the year, margin gains due to tethered aerostat sales and resulting profitability were offset by start-up costs related to the T-11 Army Airborne parachute contract and higher operating expenses. Sequentially, parachute margins have increased and together with a positive product mix due to the aerostat sales, resulted in a third quarter year-over-year operating margin improvement.
Electronic Systems
Net sales of $17.8 million in the third quarter of fiscal 2011 grew $2.1included the initial T-11 shipments which ramped up to full production levels in the second half of fiscal 2011 and continued through the first quarter of fiscal 2012. Tethered aerostat sales declined from $8.2 million (13%) while operating incometo $7.3 million.
Gross margin improvement. Manufacturing efficiencies drove the improvement in fiscal 2012 first quarter gross margins as fiscal 2011 first quarter margins were unfavorably impacted by T-11 parachute start-up costs.
Operating expenses. Operating expenses increased to 6.2% of $2.3 million grew 47%. Net sales from 5.6% in the first quarter of $52.1 millionfiscal 2011, primarily reflecting increased selling expense to support the tethered aerostat business.
Electronic Systems
Electronic Systems provides contract electronic manufacturing services, primarily for low volume/high mix industrial products.
   Three Months Ended
(dollars in thousands)        April 30,
2011		 April 30,
2010		 $ Change % Change
Net sales        $19,477  $16,288  $3,189  20%
Gross profit        3,754  3,444  310  9%
Gross margins        19.3% 21.1%    
Operating income        3,412  3,124  288  9%
Operating margins        17.5% 19.2%    
The following factors were the nine months ended October 31, 2010 rose $2.4 million (5%)primary drivers of the year-over-year growth in net sales and operating incomeincome:
Sales volume. First quarter sales growth reflects increased deliveries of $8.2 million increased $1.2 million (17%) versus the year ago comparable period. Third quarteravionics, bed controls and nine-month results were positively impacted by avionics growth and increasedadditional sourcing of assemblies to the Applied Technology Division partially offset by weaker deliveries of circuit boards for secure communication devices. Supply-chain disruptions tempered avionics
Gross margins. Higher sales growth for the two reporting periods.
RESULTS OF OPERATIONS — SEGMENT ANALYSIS
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 
  October 31,  October 31,  $  %  October 31,  October 31,  $  % 
(dollars in thousands) 2010  2009  Change  Change  2010  2009  Change  Change 
 
Net sales $23,913  $20,953  $2,960   14% $77,804  $68,959  $8,845   13%
Gross profit  10,536   9,750   786   8%  35,424   30,215   5,209   17%
Gross margins  44.1%  46.5%          45.5%  43.8%        
Operating income  7,336   6,856   480   7%  25,257   21,583   3,674   17%
Operating margins  30.7%  32.7%          32.5%  31.3%        
The following factors were the primary driversvolume resulted in increased profits; however, gross margins fell as a result of the three and nine-month year-over-year change:a less favorable product mix.
•Market conditions. U.S. farm fundamentals are strong as commodity prices—corn, soybeans and other feed grains— remain above historical levels and the U.S. Department of Agriculture is projecting U.S. farm income to increase over 20% from last year. In addition, global market conditions are healthy as population and income growth in emerging economies continues to spur increased demand for food.

10

•Sales volume and selling prices. Fiscal 2011 sales growth for the three and nine-month periods was driven by higher volume as comparative selling prices were relatively unchanged. The growth in volume reflects strong third quarter demand for application controls and guidance and steering products and strong first quarter sales of Slingshot™.
•New product sales. Year-to-date new product sales reflect the success 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. Management believes sales growth in guidance and steering products reflects acceptance of Slingshot™ technology in the agricultural marketplace.
•International sales.Fiscal 2011 export sales of $16.6 million grew $2.9 million (21%) year-over-year. Net sales outside the U.S. accounted for 21% of segment sales in fiscal 2011 versus 20% in fiscal 2010. Products sold to Canadian and South American customers generated the majority of the international revenue growth.
•Gross margins. Sequentially, gross margins improved from 42.6% for the three months ended July 31, 2010 to 44.1% for the three months ended October 31, 2010 as a result of the positive impact of higher sales on operating leverage. Year-over-year third quarter fiscal 2011 gross margins declined compared to third quarter fiscal 2010 due to higher costs associated with strategic initiatives such as the expansion and increased functionality of the Slingshot™ information management platform. Fiscal 2011 year-to-date gross margins improved to 45.5% from 43.8% in fiscal 2010 due to a more favorable product mix and the positive impact of higher sales on operating leverage; however, margin expansion was tempered by a higher cost base.
•Operating expenses.Operating expenses of 13.4% of sales in the third quarter of fiscal 2011 were relatively flat as a percentage of sales compared to the third quarter of fiscal 2010. Year-to-date operating expenses increased to 13.1% of sales from 12.5% in the prior year and were driven by a $981,000 (21%) increase in selling expenses and a $554,000 (14%) increase in research and development expenses, as product development and marketing investments were made to support the segment’s new product and strategic initiatives, such as the Slingshot™ ag information platform and international sales expansion.
Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial, construction, geomembrane and agricultural applications.
                                 
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  $  %  October 31,  October 31,  $  % 
(dollars in thousands) 2010  2009  Change  Change  2010  2009  Change  Change 
 
Net sales $29,772  $18,674  $11,098   59% $81,525  $47,049  $34,476   73%
Gross profit  7,311   3,711   3,600   97%  18,642   9,921   8,721   88%
Gross margins  24.6%  19.9%          22.9%  21.1%        
Operating income  6,908(a)  3,033   3,875   128%  16,578(a)  7,829   8,749   112%
Operating margins  23.2%  16.2%          20.3%  16.6%        
Operating expenses. Operating expenses were relatively unchanged.
(a)Includes a $451,000 pre-tax gain on disposition of assets.
The following factors were the primary drivers of the three and nine-month year-over-year change:
•Improved market conditions.Engineered Films’ primary end markets—energy, geomembrane, industrial, agriculture and construction—rebounded from prior year depressed levels. Economic growth—particularly in emerging markets —pushed crude oil prices to levels adequate to support an increase in drilling activity, which drove a substantial increase in pit liner deliveries to the energy market.
•Sales volume and selling prices. Fiscal 2011 year-over-year selling prices increased 12% year-to-date and 15% for the third quarter reflecting higher resin costs. Roughly 80% of the increase in third quarter sales was driven by pit liners sold into the energy market while 20% was attributable to growth in the segment’s other primary markets. Year-to-date sales volume, as measured by pounds shipped, increased 56% year-over-year, as recovery of crude oil prices from their lows in early 2009 drove demand for pit liners. Additionally, strong demand for industrial and agriculture films contributed to the increase in volume. Year-to-date deliveries of agriculture films increased as sales of FeedFresh™ silage covers gained traction due to broadened appreciation of the value-added benefits of this highly engineered film, while industrial film sales rose due to increased business activity.
•Margin improvement.Sequentially, fiscal 2011 gross margins rose from 19.5% in the first quarter to 24.2% in the second quarter and 24.6% in the third quarter reflecting favorable pricing relative to material costs. Year-over-year improvements in third quarter and nine-month gross margins reflect the positive affect of higher sales on capacity utilization and favorable pricing relative to material costs.

11

•Operating expenses. Third quarter operating expenses of $854,000 increased 26% versus one year earlier; however, fell as a percentage of sales from 3.6% to 2.9%. Year-to-date operating expenses fell to 3.1% of sales from 4.4% in the prior year. The 20% year-over-year increase in year-to-date operating expenses to $2.5 million is attributable to higher selling expense to support growth and new product development.
•Gain on disposition of assets.Engineered Films sold its Ohio distribution facility in the third quarter.
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 
  October 31,  October 31,  $  %  October 31,  October 31,  $  % 
(dollars in thousands) 2010  2009  Change  Change  2010  2009  Change  Change 
 
Net sales $15,945  $5,923  $10,022   169% $36,833  $18,326  $18,507   101%
Gross profit  4,403   1,549   2,854   184%  9,221   4,296   4,925   115%
Gross margins  27.6%  26.2%          25.0%  23.4%        
Operating income  3,606   1,258   2,348   187%  7,115   3,552   3,563   100%
Operating margins  22.6%  21.2%          19.3%  19.4%        
The following factors were the primary drivers of the three and nine-month year-over-year change:
•Tethered aerostats.The growth in fiscal 2011 third quarter and year-to-date sales is primarily attributable to continued success in the tethered aerostats market as Aerostar has capitalized on strong demand from the U.S. military for persistent threat detection systems to be deployed in Afghanistan. This segment provides the helium filled blimp, along with the fiber optics and deployment system. The blimp is then equipped with surveillance equipment and flown on a tether at several thousand feet to enable persistent surveillance of a wide area.
•Volatility in aerostat deliveries.Sequentially, fiscal 2011 aerostat sales have varied materially ($8.2 million in the first quarter; $3.2 million in the second quarter and $7.4 million in the current quarter). In fiscal 2011, design changes and funding shifts have impacted the timing of deliveries.
•Military parachutes.Fiscal 2011 third quarter and year-to-date parachute revenue increased year-over-year as T-11 parachutes ramped to full production and deliveries under the T-11 spares contract began.
•Gross margins.Fiscal 2011 gross margins for the quarter and year-to-date compared favorably year-over-year due to relatively higher margin aerostat sales growth partially offset by the negative impact of T-11 parachute start-up costs.
•Operating expenses.Fiscal 2011 third quarter operating expenses of $797,000 grew $506,000. Fiscal 2011 year-to-date operating expenses of $2.1 million increased $1.4 million. The increases reflect additional investment in research and development and higher selling expenses to support tethered aerostat 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 
  October 31,  October 31,  $  %  October 31,  October 31,  $  % 
(dollars in thousands) 2010  2009  Change  Change  2010  2009  Change  Change 
 
Net sales $17,754  $15,671  $2,083   13% $52,109  $49,737  $2,372   5%
Gross profit  2,637   1,898   739   39%  9,207   8,014   1,193   15%
Gross margins  14.9%  12.1%          17.7%  16.1%        
Operating income  2,297   1,567   730   47%  8,234   7,024   1,210   17%
Operating margins  12.9%  10.0%          15.8%  14.1%        
The following factors were the primary drivers of the three and nine-month year-over-year change:
•Sales volume.Fiscal 2011 third quarter and year-to-date results were positively impacted by avionics growth and increased sourcing of assemblies to Applied Technology partially offset by weaker deliveries of circuit boards for secure communication devices.
•Margin improvement.Fiscal 2011 year-to-date gross margins improved year-over-year reflecting a more favorable product mix. Third quarter margins improved year-over-year as supply chain issues experienced in fiscal 2010 negatively impacted third quarter margins.

12

•Operating expenses.Fiscal 2011 year-to-date and third quarter operating expenses were relatively unchanged from fiscal 2010 levels.
Corporate Expenses (administrative expenses; other expense (income)income (expense), net; and income taxes)
                 
  Three Months Ended  Nine Months Ended 
  October 31,  October 31,  October 31,  October 31, 
(dollars in thousands) 2010  2009  2010  2009 
Administrative expenses $2,281  $1,606  $7,143  $5,463 
Administrative expenses as a % of sales  2.7%  2.7%  2.9%  3.0%
Other expense (income), net  (17)  3   25   (103)
Effective tax rate  33.8%  34.4%  33.7%  34.4%
Administrative
   Three Months Ended
(dollars in thousands)    April 30,
2011		 April 30,
2010
Administrative expenses    $3,156  $2,264 
Administrative expenses as a % of sales    3.1% 2.7%
Other income (expense), net    $(13) $52 
Effective tax rate    33.2% 33.8%
First quarter administrative expenses were relatively flatincreased 39% from the prior year as a percentageresult of sales for the threeinvestments in additional finance, human

12
resources and nine-months ended October 31, 2010 as compared with one year ago. Higher compensation expense, primarily incentive compensation, increased with the rise in salesinformation technology personnel to support current and profitability.future growth strategies through a strengthened corporate infrastructure.
“Other expense (income)income (expense), net” consists mainly of interest income, foreign currency transaction gain and loss and activity related to the company’scompany's equity investment in SST. The decrease from the prior year is primarily attributable to year-over-year expense increase for the nine months ended October 31, 2010 primarily reflects the amortization of thevariability in SST technology-related assets partially offset by SST results to date.results-to-date.
The effective tax rate for the nine month periodfirst quarter of fiscal 2012 was favorably affected by tax benefits associated with the U.S. research and development tax benefit on qualified production activities.credit. The credit was not available in the first quarter of fiscal 2011, but was renewed in December 2010.
OUTLOOK
Management anticipates a record year of sales and earningsearnings. Net income growth in line with the company's long-term objectives of 12 - 15% is expected. Sales are forecasted to grow at a higher rate relative to income as investment spending for research and development, capacity, capabilities and human capital will temper profitability in the company continues to capitalize on energy, precision agriculture and military surveillance market opportunities.near-term.
Applied Technology
Sales and profit growth trends are expected to continue as strong commodity prices and improving farm incomes support continued investment in equipment to boost farm productivity. Management expects double-digitstrong sales and profit growth to continue amid strong demand for farm equipment. Strong global demand for agriculture commodities is expected to support higher crop prices and boost farm receipts and investment in the fourth quarter. Applied Technology will continue to build on the successful launch of the Slingshot™ product platform as a catalyst for long-term growth in information management services and integrated guidance and steering products.farm equipment.
Engineered Films
Although management anticipates favorable year-over-year sales and profit growth, sequentially, Engineered Films will face less favorable year-over-year comparisons in the fourth quarter of fiscal 2011 as fiscal 2010 fourth quarter sales to the energy market rebounded as distributors sought to replenish inventory levels.
The potential for market disruptions remains high as the sustainability of the economic recovery is uncertain. The occurrence of unforeseen adverse economic events could have a significant unfavorable impact on industry conditions—particularly the energy (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 of new products and product diversification with a greater contribution to overall sales from highly engineered films.
Aerostar
Management will continue to focusmake significant investments in product development and global expansion and is committed to building on opportunitiesprior year investments in the growing market for situational surveillance systems. Management believes that Aerostar will becomeSST and Ranchview. The development of an industry-leading decision-support system helps position Applied Technology as a significant long-termpremier total precision solutions provider (GPS steering devices, planting and spraying controls, data collection, transmission, storage and analysis). Applied Technology's strategy of integrate, inform and innovate along with strong brand recognition, ease of use, product localization and industry leading service creates strong growth engine, however, quarterly sales and profit volatility is probable in the near-term as the timing of additional orders is uncertain and the market continues to evolve.
Electronic Systems
Fourth quarter fiscal 2011 sales are expected to show modest year-over-year growth. Fourth quarter operating marginsopportunities. Worldwide agriculture conditions are expected to remain relatively stablehealthy for this segment, with rising global demand for food, heightened environmental concerns and broadening recognition of Raven's suite of productivity tools as significant shiftsa cost-effective investment supporting management's outlook for annual profit growth in line with increased sales.
Engineered Films
Management anticipates double-digit annual sales growth driven by increased capacity and capabilities and favorable market conditions. Rising crude oil prices continue to drive oil and gas drilling activities and increased demand for pit liners. The impact of transient factors—such as civil unrest in oil-producing countries and speculation—on the price of crude oil is uncertain. The construction industry continues to show gradual improvement, reflecting improved credit flow and less economic uncertainty.
The addition of new extrusion equipment in the second half of fiscal 2012 is expected to increase annual capacity by 25-30%. This equipment will improve sales opportunities by adding both new capacity and capabilities to this segment. Additional depreciation and new product mix are unlikely. Long term, management expects to see declining avionics revenues,introduction costs will partially offset the positive impact of the higher pounds produced until new extrusion capacity is fully utilized. This ramp-up period has typically taken 2-3 years, depending on market conditions.
In addition, profit margins are highly dependent on the ratio of selling prices to input costs. The selling price of blown films is largely driven by competitive pricing pressure, capacity utilization and market dynamics—supply and demand. Plastic resin—a derivative of natural gas and oil—is the primary component of extruded films. Management expects annual operating income growth but at a lower rate than the anticipated sales growth due to competitive pricing pressure and increased investment spending for research, capacity and capabilities.
Aerostar
Management projects strong sales growth for the first half of fiscal 2012. Tethered aerostat systems deployed in Afghanistan have promoted the safety of U.S. troops by successfully providing continuous wide-area surveillance of insurgents. Management is optimistic about new opportunities in tethered aerostats and anticipates follow-on opportunities to provide cost-effective persistent surveillance for the military. As in this past year, deliveries could vary significantly by quarter as follow-on orders are dependent on the government funding process. Management also sees opportunities for growth under existing government contracts for military parachutes and new contracts for protective wear. The engineering knowledge and manufacturing technology gained from these relationships along with expertise in sewing and sealing specialty fabrics will help solidify Aerostar's competitive advantage. Increased investment spending is expected to temper operating income growth relative to top-line growth.
Electronic Systems
Management looks at Electronic Systems as a complementary business to its growth divisions: Engineered Films, Aerostar and especially Applied Technology. This business carries technical expertise that support the efforts of its sister divisions and provides electronic manufacturing services to low-volume high-mix customers that require high levels of service and engineering support.

13
Management anticipates an additional customer in fiscal 2012, but believes this growth will be offset by lower avionics sales. The mid- to long-term growth strategy is predicated on the development of proprietary products, expansion of the customer base and continued in-sourcing of assemblies for Raven's other market sectors.divisions. Electronic Systems Division results for the remainder of fiscal 2012 are expected to be roughly flat as compared with fiscal 2011.
LIQUIDITY AND CAPITAL RESOURCES
The company’scompany's liquidity and capital resources are strong. Management focuses on the current cash balance and operating cash

13

flows in considering liquidity as operating cash flows have historically been the company’scompany's primary source of liquidity. On September 30, 2010, the company paid a special dividend of $1.25 per share or $22.5 million, in addition to the normal quarterly dividend. The special dividend was in response to the company’s strong cash position and commitment to return excess cash to shareholders. Management expects that current cash combined with the generation of positive operating cash flows will be sufficient to fund the company’scompany's operating, investing and financing activities.
The company’scompany'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 $30.0$42.6 million at October 31, 2010,April 30, 2011, a $13.7$4.1 million decrease increase compared to cash, cash equivalents, and short-term investments at January 31, 20102011 of $43.7$38.6 million. The comparable balances one year earlier totaled $46.3 million.$49.5 million. Raven paid a $22.5 million special dividend in September 2010.
Operating Activities
Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services, employee compensation and income taxes. Management evaluates working capital levels through the computation of day’sdays sales outstanding (“DSO”) and inventory turnover. DSO is a measure of the company’scompany's efficiency in enforcing its credit policy. The inventory 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.
Cash provided by operating activities was $26.3$11.0 million in the first quarter of fiscal 2012 versus $10.3 million in the first quarter of fiscal 2011. The increase in quarterly operating cash flows primarily reflects higher company earnings.
Inventory and accounts receivable consumed $12.3 million of cash in the first quarter of fiscal 2012 versus $12.5 million in the first nine monthsquarter of fiscal 2011 versus $40.5 million in the first nine months of fiscal 2010.2011. The decrease reflects higher working capital requirementscompany continues to support sales growth partially offset by higher company earnings.
Increases in inventory and accounts receivable consumed $17.0 million in cash in the first nine months of fiscal 2011 versus cash generated of $10.0 million in the first nine months of fiscal 2010. Disciplinedfocus on disciplined inventory management (trailing 12-month inventory turnover of 5.7X at April 30, 2011 versus 5.6X at October 31, 2010 versus 5.3X at October 31, 2009)April 30, 2010) and efficient cash collections (trailing 12-month DSO of 4849 days at October 31, 2010 versus 55 days at October 31, 2009) were offset by working capital requirements to support growth primarilyApril 30, 2011 and April 30, 2010). Year-over-year variability in accrued liabilities consumed $2.9 million in the Engineered Filmsfirst quarter of fiscal 2012 versus cash generated of $582,000 in the first quarter of fiscal 2011 as a result of the payout of fiscal 2011 profit sharing and Aerostar operating segments. Accounts receivable from Engineered Films and Aerostar customers increased from prior year levels, reflecting the growth in sales. Engineered Films inventory increased 35% year-over-year due to higher resin costs and increased quantities-on-hand to support sales growth. Additionally, higher production levels in Aerostar contributed to the increase in inventory. The unfavorable cash impact of higher accounts receivable and inventory levels was partially offset by the favorable impact of higherincentive compensation accruals due to improved profitability.in the first quarter of fiscal 2012.
Investing Activities
Cash used in investing activities totaled $7.3$3.4 million in the first nine monthsquarter of fiscal 2011versus $6.12012 versus $1.2 million in the first nine monthsquarter of fiscal 2010. The increase in cash used in investing activities reflects an2011, reflecting a $2.0 million increase in capital expenditures from $2.7 million in fiscal 2010 to $9.4 million in fiscal 2011 partially offset by short-term investment activity.expenditures.
Management anticipates fiscal 2011record capital spending of approximately $15in fiscal 2012—in the $30 million range—as management sees opportunities to support growth initiatives. Investmentsearn attractive returns on invested capital through organic investments. In addition, management will evaluate strategic acquisitions that result in production capabilityexpanded capabilities and capacity for Engineered Films and technology investments for Applied Technology and Aerostar are expected to drive the spending.solidify competitive advantages.
Financing Activities
Quarterly dividendsDividends of $8.7$3.3 million or 4818 cents per share were paid during the first nine months of fiscal 2011current quarter compared to $7.4$2.9 million or 4116 cents per share in the first nine months of fiscal 2010. In addition, a special dividend of $1.25year ago quarter. The 18 cents per share ($22.5 million) was paid duringdividend represents the third quarter of fiscal 2011.company's 25th consecutive increase in the annual dividend (excluding special dividends).
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes since the fiscal year ended January 31, 2010.2011.
NEW ACCOUNTING STANDARDS
There were no new accounting standards issued or effective during the ninethree months ended October 31, 2010April 30, 2011 that had or are expected to have a material impact on the company’scompany's consolidated results of operations, financial condition, or cash flows.


14

Table of Contents

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 (expense), 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
Evaluation of Disclosure Controls and Procedures
As of October 31, 2010,April 30, 2011, 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 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, 2010.April 30, 2011.
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, 2010April 30, 2011 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 on Form 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—any of which could adversely affect any of the company’s product 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.

15


15
Table of Contents

RAVEN INDUSTRIES, INC.
PART II — OTHER INFORMATION
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. Risk Factors: No material change.
Item 2. Changes in Securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Reserved
Item 5. Other Information: None
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.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extenstion Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase


16

Table of Contents

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.
 
  RAVEN INDUSTRIES, INC.
 
 /s/ Thomas Iacarella   
 Thomas Iacarella Thomas Iacarella
Vice President and CFO, Secretary and Treasurer
(Principal Financial and Accounting Officer) 
 
Date: DecemberJune 3, 20102011


17