UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended October 31, 2011April 30, 2012 |
OR
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| | |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
Commission File: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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| | |
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 Yes o 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 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):
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| | | |
Large acceleratedAccelerated filer oþ | Accelerated filer þo | Non-accelerated filer o | Smaller reporting company o |
| | (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 Yes þ No
As of November 30, 2011May 29, 2012 there were 18,103,96318,136,822 shares of common stock, $1 par value, of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.
RAVEN INDUSTRIES, INC.
INDEX
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Item 4. ReservedMine Safety Disclosures | |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
101.INS | |
101.SCH | |
101.CAL | |
101.DEF | |
101.LAB | |
101.PRE | |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAVEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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| | | | | | | | | | | |
(in thousands, except per-share data) | October 31, 2011 | | January 31, 2011 | | October 31, 2010 |
ASSETS | | | | | |
Current Assets | | | | | |
Cash and cash equivalents | $ | 44,223 |
| | $ | 37,563 |
| | $ | 28,470 |
|
Short-term investments | — |
| | 1,000 |
| | 1,500 |
|
Accounts receivable, net of allowances of $200, $300 and $299, respectively | 50,661 |
| | 39,967 |
| | 48,733 |
|
Inventories: | | | | | |
Materials | 33,905 |
| | 30,261 |
| | 26,189 |
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In process | 8,238 |
| | 5,424 |
| | 6,209 |
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Finished goods | 7,713 |
| | 7,994 |
| | 4,725 |
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Total inventories | 49,856 |
| | 43,679 |
| | 37,123 |
|
Deferred income taxes | 2,714 |
| | 2,733 |
| | 2,699 |
|
Prepaid expenses and other current assets | 1,867 |
| | 3,239 |
| | 2,996 |
|
Total current assets | 149,321 |
| | 128,181 |
| | 121,521 |
|
| | | | | |
Property, plant and equipment | 121,988 |
| | 102,080 |
| | 96,063 |
|
Accumulated depreciation | (65,082 | ) | | (60,558 | ) | | (58,851 | ) |
Property, plant and equipment, net | 56,906 |
| | 41,522 |
| | 37,212 |
|
Goodwill | 10,777 |
| | 10,777 |
| | 10,777 |
|
Amortizable intangible assets, net | 1,738 |
| | 1,585 |
| | 1,741 |
|
Other assets, net | 4,395 |
| | 5,695 |
| | 6,166 |
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| | | | | |
TOTAL ASSETS | $ | 223,137 |
| | $ | 187,760 |
| | $ | 177,417 |
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| | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities | | | | | |
Accounts payable | $ | 17,568 |
| | $ | 16,715 |
| | $ | 11,343 |
|
Accrued liabilities | 13,862 |
| | 14,643 |
| | 15,113 |
|
Taxes — accrued and withheld | 2,912 |
| | 1,453 |
| | 2,034 |
|
Customer advances | 2,356 |
| | 1,524 |
| | 1,105 |
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Total current liabilities | 36,698 |
| | 34,335 |
| | 29,595 |
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| | | | | |
Other liabilities | 13,582 |
| | 12,211 |
| | 11,683 |
|
Total liabilities | 50,280 |
| | 46,546 |
| | 41,278 |
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| | | | | |
Commitments and contingencies |
| |
| |
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| | | | | |
Shareholders’ equity: | | | | | |
Common stock, $1 par value, authorized shares 100,000; issued 32,548, 32,511 and 32,492, respectively | 32,548 |
| | 32,511 |
| | 32,492 |
|
Paid in capital | 8,770 |
| | 7,060 |
| | 6,432 |
|
Retained earnings | 185,911 |
| | 156,125 |
| | 151,613 |
|
Accumulated other comprehensive loss | (1,043 | ) | | (1,120 | ) | | (1,036 | ) |
Less treasury stock, at cost, 14,449 shares | (53,362 | ) | | (53,362 | ) | | (53,362 | ) |
Total Raven Industries, Inc. shareholders' equity | 172,824 |
| | 141,214 |
| | 136,139 |
|
Noncontrolling interest | 33 |
| | — |
| | — |
|
Total shareholders’ equity | 172,857 |
| | 141,214 |
| | 136,139 |
|
| | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 223,137 |
| | $ | 187,760 |
| | $ | 177,417 |
|
The accompanying notes are an integral part of the unaudited consolidated financial information.
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
(in thousands, except per-share data) | | October 31, 2011 | | October 31, 2010 | | October 31, 2011 | | October 31, 2010 | |
Net sales | | $ | 93,300 |
| | $ | 85,823 |
| | $ | 285,185 |
| | $ | 244,027 |
| |
Cost of sales | | 66,046 |
| | 60,936 |
| | 196,865 |
| | 171,580 |
| |
Gross profit | | 27,254 |
| | 24,887 |
| | 88,320 |
| | 72,447 |
| |
| | | | | | | | | |
Research and development expenses | | 2,499 |
| | 1,582 |
| | 7,116 |
| | 5,664 |
| |
Selling, general and administrative expenses | | 7,880 |
| | 5,890 |
| | 22,122 |
| | 17,240 |
| |
Gain on disposition of assets | | — |
| | (451 | ) | | — |
| | (451 | ) | |
Operating income | | 16,875 |
| | 17,866 |
| | 59,082 |
| | 49,994 |
| |
| | | | | | | | | |
Other income (expense), net | | (4 | ) | | 17 |
| | (93 | ) | | (25 | ) | |
Income before income taxes | | 16,871 |
| | 17,883 |
| | 58,989 |
| | 49,969 |
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| | | | | | | | | |
Income taxes | | 5,473 |
| | 6,050 |
| | 19,414 |
| | 16,838 |
| |
Net income | | 11,398 |
| | 11,833 |
| | 39,575 |
| | 33,131 |
| |
| | | | | | | | | |
Net income attributable to the noncontrolling interest | | 8 |
| | — |
| | 8 |
| | — |
| |
| | | | | | | | | |
Net income attributable to Raven Industries, Inc. | | $ | 11,390 |
| | $ | 11,833 |
| | $ | 39,567 |
| | $ | 33,131 |
| |
| | | | | | | | | |
Net income per common share: | | | | | | | | | |
Basic | | $ | 0.63 |
| | $ | 0.65 |
| | $ | 2.18 |
| | $ | 1.83 |
| |
Diluted | | $ | 0.63 |
| | $ | 0.65 |
| | $ | 2.17 |
| | $ | 1.83 |
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Cash dividends paid per common share | | $ | 0.18 |
| | $ | 1.41 |
| (a) | $ | 0.54 |
| | $ | 1.73 |
| (a) |
(a) Includes a special dividend of $1.25 per share paid on September 30, 2010. |
| | | | | | | | | | | |
(in thousands, except per-share data) | April 30, 2012 | | January 31, 2012 | | April 30, 2011 |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | $ | 43,536 |
| | $ | 25,842 |
| | $ | 42,125 |
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Short-term investments | — |
| | — |
| | 500 |
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Accounts receivable, net of allowances of $170, $170, and $200, respectively | 58,641 |
| | 60,759 |
| | 50,542 |
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Inventories | 54,664 |
| | 54,756 |
| | 45,538 |
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Deferred income taxes | 3,182 |
| | 3,299 |
| | 2,878 |
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Other current assets | 4,886 |
| | 2,903 |
| | 3,113 |
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Total current assets | 164,909 |
| | 147,559 |
| | 144,696 |
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Property, plant and equipment, net | 64,888 |
| | 61,894 |
| | 42,409 |
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Goodwill | 22,274 |
| | 22,274 |
| | 10,777 |
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Amortizable intangible assets, net | 9,220 |
| | 9,412 |
| | 1,700 |
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Other assets, net | 4,434 |
| | 4,564 |
| | 4,653 |
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TOTAL ASSETS | $ | 265,725 |
| | $ | 245,703 |
| | $ | 204,235 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
Current liabilities | | | | | |
Accounts payable | $ | 17,134 |
| | $ | 16,162 |
| | $ | 17,447 |
|
Accrued liabilities | 20,665 |
| | 20,397 |
| | 11,782 |
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Taxes - accrued and withheld | 11,300 |
| | 2,596 |
| | 6,713 |
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Customer advances | 1,200 |
| | 1,491 |
| | 1,320 |
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Total current liabilities | 50,299 |
| | 40,646 |
| | 37,262 |
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Other liabilities | 18,931 |
| | 24,467 |
| | 12,637 |
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Commitments and contingencies |
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| |
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| | | | | |
Shareholders' Equity | | | | | |
Common stock, $1 par value, authorized shares 100,000; issued 32,576; 32,566; and 32,528, respectively | 32,576 |
| | 32,566 |
| | 32,528 |
|
Paid in capital | 10,240 |
| | 9,607 |
| | 7,540 |
|
Retained earnings | 208,871 |
| | 193,650 |
| | 168,582 |
|
Accumulated other comprehensive loss | (1,901 | ) | | (1,962 | ) | | (952 | ) |
Less treasury stock at cost, 14,449 shares | (53,362 | ) | | (53,362 | ) | | (53,362 | ) |
Total Raven Industries, Inc. shareholders' equity | 196,424 |
| | 180,499 |
| | 154,336 |
|
Noncontrolling interest | 71 |
| | 91 |
| | — |
|
Total shareholders' equity | 196,495 |
| | 180,590 |
| | 154,336 |
|
TOTAL LIABILITY AND SHAREHOLDERS' EQUITY | $ | 265,725 |
| | $ | 245,703 |
| | $ | 204,235 |
|
The accompanying notes are an integral part of the unaudited consolidated financial information.
statements.
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOMEAND COMPREHENSIVE INCOME
(unaudited)
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| Three Months Ended |
(in thousands, except per-share data) | April 30, 2012 | | April 30, 2011 |
Net sales | $ | 117,915 |
| | $ | 101,541 |
|
Cost of sales | 76,780 |
| | 68,605 |
|
Gross profit | 41,135 |
| | 32,936 |
|
| | | |
Research and development expenses | 3,400 |
| | 2,243 |
|
Selling, general and administrative expenses | 9,303 |
| | 7,160 |
|
Operating income | 28,432 |
| | 23,533 |
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| | | |
Other income (expense), net | (52 | ) | | (13 | ) |
Income before income taxes | 28,380 |
| | 23,520 |
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| | | |
Income taxes | 9,357 |
| | 7,804 |
|
Net income | 19,023 |
| | 15,716 |
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| | | |
Net (loss) attributable to the noncontrolling interest | (20 | ) | | — |
|
| | | |
Net income attributable to Raven Industries, Inc. | $ | 19,043 |
| | $ | 15,716 |
|
| | | |
Net income per common share: | | | |
─ Basic | $ | 1.05 |
| | $ | 0.87 |
|
─ Diluted | $ | 1.04 |
| | $ | 0.86 |
|
| | | |
Cash dividends paid per common share | $ | 0.21 |
| | $ | 0.18 |
|
| | | |
Comprehensive income: | | | |
Net income | $ | 19,023 |
| | $ | 15,716 |
|
| | | |
Other comprehensive income, net of tax: | | | |
Foreign currency translation | 23 |
| | 139 |
|
Postretirement benefits, net of income tax of $20 and $15, respectively | 38 |
| | 29 |
|
Other comprehensive income, net of tax | 61 |
| | 168 |
|
| | | |
Comprehensive income | 19,084 |
| | 15,884 |
|
| | | |
Comprehensive (loss) attributable to noncontrolling interest | (20 | ) | | — |
|
| | | |
Comprehensive income attributable to Raven Industries, Inc. | $ | 19,104 |
| | $ | 15,884 |
|
The accompanying notes are an integral part of Contentsthe unaudited consolidated financial statements.
RAVEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | Nine Months Ended | Three Months Ended |
(in thousands) | October 31, 2011 | | October 31, 2010 | April 30, 2012 | | April 30, 2011 |
OPERATING ACTIVITIES: | | | | | | |
Net income | $ | 39,575 |
| | $ | 33,131 |
| $ | 19,023 |
| | $ | 15,716 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 6,481 |
| | 5,578 |
| 2,892 |
| | 1,985 |
|
Gain on disposition of assets | — |
| | (451 | ) | |
Change in fair value of acquisition-related contingent consideration | (135 | ) | | 238 |
| (253 | ) | | 31 |
|
Earnings of equity investee | | 24 |
| | 1 |
|
Deferred income taxes | 1,462 |
| | (100 | ) | (477 | ) | | 845 |
|
Share-based compensation expense | 1,375 |
| | 788 |
| 525 |
| | 392 |
|
Change in operating assets and liabilities: | | | | | | |
Accounts receivable | (10,625 | ) | | (14,314 | ) | 2,105 |
| | (10,468 | ) |
Inventories | (6,176 | ) | | (2,638 | ) | 97 |
| | (1,833 | ) |
Prepaid expenses and other assets | (670 | ) | | (346 | ) | |
Prepaid expense and other assets | | (1,793 | ) | | (1,117 | ) |
Operating liabilities | 6,562 |
| | 4,533 |
| 6,077 |
| | 5,463 |
|
Other operating activities, net | (120 | ) | | (131 | ) | (8 | ) | | (7 | ) |
Net cash provided by operating activities | 37,729 |
|
| 26,288 |
| 28,212 |
| | 11,008 |
|
| | | | |
INVESTING ACTIVITIES: | | | | | | |
Capital expenditures | (22,070 | ) | | (9,417 | ) | (4,900 | ) | | (3,585 | ) |
Purchase of short-term investments | — |
| | (1,700 | ) | |
Sale of short-term investments | 1,000 |
| | 3,200 |
| |
Proceeds from disposition of assets | — |
| | 888 |
| |
Payments related to business acquisitions | (88 | ) | | (390 | ) | |
Payments related to business acquisitions, net of cash acquired | | (1,867 | ) | | (8 | ) |
Sales of short-term investments | | — |
| | 500 |
|
Other investing activities, net | (507 | ) | | 83 |
| (58 | ) | | (264 | ) |
Net cash used in investing activities | (21,665 | ) | | (7,336 | ) | (6,825 | ) | | (3,357 | ) |
| | | | |
FINANCING ACTIVITIES: | | | | | | |
Dividends paid | (9,766 | ) | | (31,206 | ) | (3,806 | ) | | (3,254 | ) |
Other financing activities, net | 356 |
| | 11 |
| 103 |
| | 100 |
|
Net cash used in financing activities | (9,410 | ) | | (31,195 | ) | (3,703 | ) | | (3,154 | ) |
| | | | |
Effect of exchange rate changes on cash | 6 |
| | 29 |
| 10 |
| | 65 |
|
Net increase in cash and cash equivalents | 6,660 |
| | (12,214 | ) | |
Cash and cash equivalents: | | | | |
Beginning of period | 37,563 |
| | 40,684 |
| |
End of period | $ | 44,223 |
| | $ | 28,470 |
| |
| | | | |
Net increase (decrease) in cash and cash equivalents | | 17,694 |
| | 4,562 |
|
Cash and cash equivalents at beginning of year | | 25,842 |
| | 37,563 |
|
Cash and cash equivalents at end of year | | $ | 43,536 |
| | $ | 42,125 |
|
The accompanying notes are an integral part of the unaudited consolidated financial information.
statements.
RAVEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per-share amounts)
(1) Basis of PresentationBASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
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 ninethree-month periodsperiod ended October 31, 2011April 30, 2012 are not necessarily indicative of the results that may be expected for the year ending January 31, 20122013. The January 31, 20112012 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, 20112012.
(2) Summary of Significant Accounting Policies
There have been no material changesNon-controlling interests represent capital contributions, income and loss attributable 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.
(3) Noncontrolling Interest
owners of less than wholly-owned and consolidated entities. The company entered intoowns a business venture agreement to pursue potential product and support service contracts for agencies and instrumentalities for the United States Government. The business venture, Aerostar Integrated Systems (AIS), is 75 percent owned by the company and will be included75% interest in an entity consolidated under the Aerostar business segment. Given the company's majority ownership interest, the accounts of the business venture have been consolidated with the accounts of the company, and a noncontrolling interest has been recorded for the noncontrolling investor's interests in the net assets and operations of the business venture. Total capital contribution andThe non-controlling interests share of the net incomeloss was $20 for the three and nine month periodmonths ended October 31, 2011 were $100 and $32, respectively.April 30, 2012. The non-controlling interest made no capital contributions during the three months ended April 30, 2012.
(4) Net Income Per Share(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, 2012. Additionally, there were no new accounting standards issued or effective during the three months ended April 30, 2012 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), stock units and restricted stock units outstanding. Performance share awards are included in the diluted calculation based upon what would be issued if the end of the most recent reporting period was the end of the term of the award.
Certain outstanding options and units were excluded from the diluted net income per-share calculations because their effect would have been anti-dilutive.anti-dilutive under the treasury stock method. For the three and ninethree-month periods ended October 31,April 30, 2012 and April 30, 2011, zero169 and 136 shares and units were excluded, respectively. For the three and nine-month periods ended October 31, 2010, 25 and 164 shares were excluded, respectively.
Details of the earnings per share computation are presented below:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| October 31, 2011 | | October 31, 2010 | | October 31, 2011 |
| October 31, 2010 | April 30, 2012 | | April 30, 2011 |
Numerator: | | | | | | | | | | |
Net income attributable to Raven Industries, Inc. | $ | 11,390 |
| | $ | 11,833 |
| | $ | 39,567 |
| | $ | 33,131 |
| $ | 19,043 |
| | $ | 15,716 |
|
| | | | | | | | | | |
Denominator: | | | | | | | | | | |
Weighted average common shares outstanding | 18,097 |
| | 18,040 |
| | 18,085 |
| | 18,036 |
| 18,122 |
| | 18,075 |
|
Weighted average stock units outstanding | 24 |
| | 27 |
| | 27 |
| | 25 |
| 25 |
| | 27 |
|
Denominator for basic calculation | 18,121 |
| | 18,067 |
| | 18,112 |
| | 18,061 |
| 18,147 |
| | 18,102 |
|
| | | | | | | | | | |
Weighted average common shares outstanding | 18,097 |
| | 18,040 |
| | 18,085 |
| | 18,036 |
| 18,122 |
| | 18,075 |
|
Weighted average stock units outstanding | 24 |
| | 27 |
| | 27 |
| | 25 |
| 25 |
| | 27 |
|
Dilutive impact of stock options | 98 |
| | 48 |
| | 103 |
| | 31 |
| |
Dilutive impact of stock options and restricted units | | 114 |
| | 110 |
|
Denominator for diluted calculation | 18,219 |
| | 18,115 |
| | 18,215 |
| | 18,092 |
| 18,261 |
| | 18,212 |
|
| | | | | | | | | | |
Net income per share — basic | $ | 0.63 |
| | $ | 0.65 |
| | $ | 2.18 |
| | $ | 1.83 |
| |
Net income per share — diluted | $ | 0.63 |
| | $ | 0.65 |
| | $ | 2.17 |
| | $ | 1.83 |
| |
Net income per share - basic | | $ | 1.05 |
| | $ | 0.87 |
|
Net income per share - diluted | | $ | 1.04 |
| | $ | 0.86 |
|
(4) SELECTED BALANCE SHEET INFORMATION
Following are the components of selected balance sheet items:
|
| | | | | | | | | | | | |
| | | | | | |
| | April 30, 2012 | | January 31, 2012 | | April 30, 2011 |
Inventories: | | | | | | |
Finished goods | | $ | 7,688 |
| | $ | 7,094 |
| | $ | 7,916 |
|
In process | | 6,847 |
| | 6,105 |
| | 5,986 |
|
Materials | | 40,129 |
| | 41,557 |
| | 31,636 |
|
|
| $ | 54,664 |
|
| $ | 54,756 |
|
| $ | 45,538 |
|
Accrued liabilities: | | | | | | |
Salaries and benefits | | $ | 2,635 |
| | $ | 4,297 |
| | $ | 1,972 |
|
Vacation | | 4,584 |
| | 4,387 |
| | 3,504 |
|
401(k) contributions | | 555 |
| | 966 |
| | 228 |
|
Insurance obligations | | 2,887 |
| | 2,789 |
| | 3,134 |
|
Profit sharing | | 413 |
| | 1,244 |
| | 354 |
|
Warranties | | 1,792 |
| | 1,699 |
| | 1,631 |
|
Acquisition-related contingent consideration | | 6,658 |
| | 3,266 |
| | 266 |
|
Other | | 1,141 |
| | 1,749 |
| | 693 |
|
| | $ | 20,665 |
| | $ | 20,397 |
| | $ | 11,782 |
|
Other liabilities: | | | | | | |
Postretirement benefits | | $ | 7,423 |
| | $ | 7,348 |
| | $ | 5,774 |
|
Acquisition-related contingent consideration | | 2,169 |
| | 7,655 |
| | 2,249 |
|
Deferred income taxes | | 3,944 |
| | 4,518 |
| | 102 |
|
Uncertain tax positions | | 5,395 |
| | 4,946 |
| | 4,512 |
|
| | $ | 18,931 |
| | $ | 24,467 |
| | $ | 12,637 |
|
(5) Segment ReportingACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES
TheDuring the first quarter of fiscal 2013, the company has four business segments:paid $1,841 in cash to the previous Ranchview owner for an early buyout of the outstanding acquisition related contingent liability related to future Ranchview sales. This resulted in a gain of $508 during the first quarter of fiscal 2012 which is included in Applied Technology Division, Engineered Films Division, Aerostar Division and Electronic Systems Division which are defined by their common technologies, production processes and inventories. Applied Technology 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.
Intersegment sales were primarily from Electronic Systems to Applied Technology. Business segment net sales and operating income results are as follows:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | |
| October 31, 2011 | | October 31, 2010 | | October 31, 2011 |
| October 31, 2010 | |
Net sales | | | | | | | | |
Applied Technology | $ | 32,468 |
| | $ | 23,913 |
| | $ | 103,862 |
| | $ | 77,804 |
| |
Engineered Films | 34,947 |
| | 29,772 |
| | 97,497 |
| | 81,525 |
| |
Aerostar | 10,533 |
| | 15,945 |
| | 36,533 |
| | 36,833 |
| |
Electronic Systems | 17,308 |
| | 17,754 |
| | 53,315 |
| | 52,109 |
| |
Intersegment eliminations | (1,956 | ) | | (1,561 | ) | | (6,022 | ) | | (4,244 | ) | |
Consolidated net sales | $ | 93,300 |
| | $ | 85,823 |
| | $ | 285,185 |
| | $ | 244,027 |
| |
| | | | | | | | |
Operating income (loss) | | | | | | | |
| |
Applied Technology | $ | 10,667 |
| | $ | 7,336 |
| | $ | 37,859 |
| | $ | 25,257 |
| |
Engineered Films | 5,574 |
| | 6,908 |
| (a) | 14,987 |
| | 16,578 |
| (a) |
Aerostar | 1,807 |
| | 3,606 |
| | 8,053 |
| | 7,115 |
| |
Electronic Systems | 2,293 |
| | 2,297 |
| | 8,012 |
| | 8,234 |
| |
Intersegment eliminations | (16 | ) | | — |
| | 4 |
| | (47 | ) | |
Total reportable segment income | 20,325 |
| | 20,147 |
| | 68,915 |
| | 57,137 |
| |
Administrative and general expenses | (3,450 | ) | | (2,281 | ) | | (9,833 | ) | | (7,143 | ) | |
Consolidated operating income | $ | 16,875 |
| | $ | 17,866 |
| | $ | 59,082 |
| | $ | 49,994 |
| |
(a) Includes a $451 pre-tax gain on disposition of assets.
The table below outlines the company assets by business segment:
|
| | | | | | | | | | | | |
| October 31, 2011 | | January 31, 2011 | | October 31, 2010 | |
Total Assets | | | | | | |
Applied Technology | $ | 59,376 |
| | $ | 52,669 |
| | $ | 48,462 |
| |
Engineered Films | 60,919 |
| | 46,519 |
| | 47,021 |
| |
Aerostar | 28,045 |
| | 18,140 |
| | 19,800 |
| |
Electronic Systems | 23,814 |
| | 23,385 |
| | 23,982 |
| |
Intersegment eliminations | (182 | ) | | (186 | ) | | (140 | ) | |
Total reportable segments assets | 171,972 |
| | 140,527 |
| | 139,125 |
| |
Corporate and Other (b) | 51,165 |
| | 47,233 |
| | 38,292 |
| |
Consolidated assets | $ | 223,137 |
| | $ | 187,760 |
| | $ | 177,417 |
| |
(b) Assets are principally cash, deferred taxes and other receivables.
(6) Financing Arrangements
Raven has an uncollateralized credit agreement providing a line of credit of $10,500 with a maturity date of September 1, 2012, bearing interest at the prime rate with a minimum rate of 4.00%. Letters of credit totaling $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, 2011, January 31, 2011 or October 31, 2010, and $9,158 was available at October 31, 2011.income.
(7) Dividends(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
The company paid a special cash dividend of $1.25 per share or $22,500 on September 30, 2010 to shareholders of record on September 15, 2010.(6) EMPLOYEE RETIREMENT BENEFITS
(8) 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.
The components of total comprehensive income follow:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 31, 2011 | | October 31, 2010 | | October 31, 2011 | | October 31, 2010 |
Net income | $ | 11,398 |
| | $ | 11,833 |
| | $ | 39,575 |
| | $ | 33,131 |
|
Other comprehensive income: | | | | | | | |
Foreign currency translation | (145 | ) | | 36 |
| | 15 |
| | 84 |
|
Amortization of postretirement benefit plan actuarial losses, net of income tax of $11, $15, $33, and $44 | 21 |
| | 27 |
| | 62 |
| | 81 |
|
Total other comprehensive income | (124 | ) | | 63 |
| | 77 |
| | 165 |
|
Total comprehensive income | $ | 11,274 |
| | $ | 11,896 |
| | $ | 39,652 |
| | $ | 33,296 |
|
(9) 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, 2011 | | October 31, 2010 | | October 31, 2011 | | October 31, 2010 | April 30, 2012 | | April 30, 2011 |
Service cost | $ | 30 |
| | $ | 15 |
| | $ | 90 |
| | $ | 46 |
| $ | 47 |
| | $ | 30 |
|
Interest cost | 83 |
| | 81 |
| | 251 |
| | 243 |
| 84 |
| | 84 |
|
Amortization of actuarial losses | 32 |
| | 42 |
| | 95 |
| | 125 |
| 58 |
| | 32 |
|
Net periodic benefit cost | $ | 145 |
| | $ | 138 |
| | $ | 436 |
| | $ | 414 |
| $ | 189 |
| | $ | 146 |
|
(10) Product Warranty Costs(7) WARRANTIES
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 | Three Months Ended |
| October 31, 2011 | | October 31, 2010 | | October 31, 2011 | | October 31, 2010 | April 30, 2012 | | April 30, 2011 |
Balance, beginning of period | $ | 1,642 |
| | $ | 1,812 |
| | $ | 1,437 |
| | $ | 1,259 |
| |
Beginning balance | | $ | 1,699 |
| | $ | 1,437 |
|
Accrual for warranties | 763 |
| | 606 |
| | 2,352 |
| | 2,051 |
| 820 |
| | 807 |
|
Settlements made (in cash or in kind) | (1,066 | ) | | (618 | ) | | (2,450 | ) | | (1,510 | ) | (727 | ) | | (613 | ) |
Balance, end of period | $ | 1,339 |
| | $ | 1,800 |
| | $ | 1,339 |
| | $ | 1,800 |
| |
Ending balance | | $ | 1,792 |
| | $ | 1,631 |
|
(8) FINANCING ARRANGEMENTS
Raven has an uncollateralized credit agreement providing a line of credit of $10,500 with a maturity date of September 1, 2012, bearing interest at the prime rate with a minimum rate of 4.00%. Letters of credit totaling $1,342 have been issued under the line, primarily to support self-insured workers' compensation bonding requirements. No borrowings were outstanding as of April 30, 2012, January 31, 2012 and April 30, 2011, and $9,158 was available at April 30, 2012.
(9) DIVIDENDS AND STOCK SPLIT
Dividends paid during the three months ended April 30, 2012 was $3,806 or 21 cents per share. Dividends paid during the three months ended April 30, 2011 was $3,254 or 18 cents per share.
The company announced on May 23, 2012, that the board of directors approved a quarterly cash dividend of 21 cents per share, payable July 25, 2012 to shareholders of record on July 10, 2012.
On May 23, 2012, the Board of Directors declared a two-for-one split of the company's common stock to be effected in the form of a stock dividend. The record date for the stock dividend is July 10, 2012, with the shares distributed on July 25, 2012. Per share calculations and average shares outstanding for all reported periods will be retrospectively adjusted during the second quarter of fiscal 2013.
Pro forma basic and diluted earnings per share on a post stock split basis for the three months ended April 30, 2012 would both have been $0.52 per share. Pro forma basic and diluted earnings per share on a post stock split basis for the three months ended April 30, 2011 would both have been $0.43 per share.
(10) SHARE-BASED COMPENSATION
Stock Options
The company granted 76 non-qualified stock options during the three months ended April 30, 2012. Options are granted with
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
exercise prices not less than market value at the date of grant. The stock options vest over a four-year period and expire after five- years. Options contain retirement and change in control provisions that may accelerate the vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The company uses historical data to estimate option exercise and employee termination within the valuation model. No stock options were granted during the three months ended April 30, 2011.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions:
|
| | | |
| Three Months Ended |
| April 30, 2012 |
Risk-free interest rate | 0.86 | % |
Expected dividend yield | 1.33 | % |
Expected volatility factor | 49.65 | % |
Expected option term (in years) | 3.75 |
|
| |
Weighted average grant date fair value | $ | 21.91 |
|
Restricted Stock Units
During the three months ended April 30, 2012, the company granted 11 time vested and 25 performance based restricted stock units to employees under the 2010 Stock Incentive Plan. Time vested restricted stock units will vest, if at the end of the three- year period, the employee is still with the company. The performance based restricted stock units will vest if, at the end of the three-year performance period, the company has achieved certain performance goals and the individual remains employed by the company. The exact number of performance shares to be issued will vary from 0% to 150% of the target award, depending on the company's actual performance over the three-year period in comparison to the target award goal based on return on sales (ROS). Return on sales is defined as net income divided by net sales. Dividends are earned on the restricted stock units over the vesting period.
The fair value of a time vested restricted stock unit is measured based upon the closing market price of common stock as of the date of grant. The fair value of the restricted stock units on the grant date was $63.31.
Fair value is determined for the performance share awards based upon the closing market price of common stock as of the date of grant multiplied by the number of shares granted, which is determined by an estimated ROS target over the three year performance period. The number of units issued at the vesting date will be based on actual results. The fair value of the restricted stock units on the grant date was $63.31. The estimated performance of ROS used to estimate the number of shares expected to vest is evaluated at least quarterly.
(11) New Accounting PronouncementsSEGMENT REPORTING
In June 2011, the Financial Accounting Standards Board (FASB) issued guidance on the presentation of comprehensive income. This guidance gives an entity the option to present the total of comprehensive income, the components of net incomeThe company has four business segments: Applied Technology Division, Engineered Films Division, Aerostar Division, and Electronic Systems Division. The company's reportable segments are defined by their common technologies, production processes and inventories. These segments reflect Raven's organization into three Raven divisions and the components of other comprehensive income eitherAerostar subsidiary. Raven Canada, Raven GmbH, Raven Australia, and Raven Brazil are included in a single continuous statement of comprehensive income orthe Applied Technology Division. Vista and AIS are included in two separate but consecutive statements. In either option, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as a partAerostar Division. Substantially all of the statement of changescompany's long-lived assets are located in shareholders' equity. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively, and for public companies is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The company is evaluating the presentation options.United States.
In September 2011, FASB issued updated guidance on goodwill impairment testing. This guidance seeks to reduceThe company measures the cost and complexity of performing the first step of the two-step goodwill impairment test. This amendment permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a more likely than not (more than 50% likelihood) that the fair value of the reporting unit is less than its carrying amount. The performance of the two-step impairment test becomes unnecessary if after assessing the totality of eventsits segments based on their operating income excluding administrative and circumstances, the entity determines that itgeneral expenses. Other income, interest expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets. Segment information is not more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment is effective for fiscal years beginning after December 15, 2011,reported consistent with early adoption permitted. The company does not expect the adoption of these provisions to have a material impact on the company's consolidated financial statements.management reporting structure.
Intersegment sales were primarily from Electronic Systems to Applied Technology. Business segment net sales and operating income results are as follows:
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
|
| | | | | | | |
| Three Months Ended |
| April 30, 2012 | | April 30, 2011 |
Net sales | | | |
Applied Technology | $ | 50,480 |
| | $ | 39,125 |
|
Engineered Films | 41,094 |
| | 30,091 |
|
Aerostar | 10,801 |
| | 15,139 |
|
Electronic Systems | 19,120 |
| | 19,477 |
|
Intersegment eliminations | (3,580 | ) | | (2,291 | ) |
Consolidated net sales | $ | 117,915 |
| | $ | 101,541 |
|
| | | |
Operating income (loss) | | | |
Applied Technology | $ | 20,910 |
| | $ | 15,074 |
|
Engineered Films | 9,179 |
| | 4,129 |
|
Aerostar | (1,161 | ) | | 4,062 |
|
Electronic Systems | 3,695 |
| | 3,412 |
|
Intersegment eliminations | (31 | ) | | 12 |
|
Total reportable segment income | 32,592 |
| | 26,689 |
|
Administrative and general expenses | (4,160 | ) | | (3,156 | ) |
Consolidated operating income | $ | 28,432 |
| | $ | 23,533 |
|
Effective June 1, 2012, the company will realign the assets and team members of its Electronic Systems Division deploying them into the company's Aerostar and Applied Technology Divisions. This repositioning is expected to better align the company's corporate structure with its mission and long-term growth strategies. Approximately 75 percent of Electronic Systems net sales will go to Aerostar and the remaining balance, after adjustments to intersegment eliminations, to Applied Technology. After the realignment, the company will continue with its core growth divisions: Applied Technology, Engineered Films and Aerostar. The company's internal reporting (chief operating decision maker reports) will be changed to reflect this realignment during the second quarter of fiscal 2013. During the quarter ending July 31, 2012, the company will retrospectively adjust its segment information for all periods presented to reflect this change in segment reporting.
ITEMItem 2. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDCONDITIONAND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the company's consolidated financial statements for the three and ninethree months ended October 31, 2011April 30, 2012 and October 31, 2010April 30, 2011, 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, 20112012.
EXECUTIVE OVERVIEW
EXECUTIVE SUMMARY
Raven which began operations in 1956 asIndustries, Inc. is an industrial manufacturer providing a manufacturervariety of high-altitude balloons, is a diversified provider of specialized products forto customers within the industrial, agricultural, energy, construction and military/aerospace markets.
markets, primarily in North America. The company is comprised of unique operating units, classified into four reportable segments: Applied Technology, Engineered Films, Aerostar and Electronic Systems. While each segment has distinct characteristics, the products 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 toolsManagement uses a number of metrics 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.assess the company's performance:
Engineered Films is a leading manufacturerConsolidated net sales, gross margins, operating income, operating margins, net income and supplier of high-quality flexible filmsearnings per share
Cash flow from operations and sheeting for custom applications in energy, industrial, environmental, constructionshareholder returns
Return on sales, assets and agricultural markets throughout the United Statesequity
Segment net sales, gross profit, gross margins, operating income 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's first quarter results are the strongest and the second quarter the weakest.operating margins
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 globalgreat challenges in the areas of hunger, safety, peacesecurity and stability.energy independence.
The company's primary strategy to achieve this vision is the maintenance of a diversified but integrated portfolio of industrial manufacturing businesses.businesses that share a common purpose but serve different markets providing balance, opportunity, and risk mitigation. 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,segments, is summarized as follows -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. WhenIf 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.shareholders.
Continue to increase the quarterly dividend annually.
Results of Operations
Consolidated financial highlights for the thirdfirst quarter and first nine months of fiscal 20122013 and fiscal 20112012 include the following:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
(dollars in thousands, except per-share data) | October 31, 2011 | | October 31, 2010 | | % Change | | October 31, 2011 |
| October 31, 2010 | | % Change | April 30, 2012 | | April 30, 2011 | | % Change |
Net sales | $ | 93,300 |
| | $ | 85,823 |
| | 9 | % | | $ | 285,185 |
| | $ | 244,027 |
| | 17 | % | $ | 117,915 |
| | $ | 101,541 |
| | 16 | % |
Gross profit | 27,254 |
| | 24,887 |
| | 10 | % | | 88,320 |
| | 72,447 |
| | 22 | % | 41,135 |
| | 32,936 |
| | 25 | % |
Gross margins(a) | 29.2 | % | | 29.0 | % | | | | 31.0 | % | | 29.7 | % | | | 34.9 | % | | 32.4 | % | | |
Operating income | $ | 16,875 |
| | $ | 17,866 |
| | (6 | )% | | $ | 59,082 |
| | $ | 49,994 |
| | 18 | % | $ | 28,432 |
| | $ | 23,533 |
| | 21 | % |
Operating margins | 18.1 | % | | 20.8 | % | | | | 20.7 | % | | 20.5 | % | | | 24.1 | % | | 23.2 | % | | |
Net income attributable to Raven Industries, Inc. | $ | 11,390 |
| | $ | 11,833 |
| | (4 | )% | | $ | 39,567 |
| | $ | 33,131 |
| | 19 | % | $ | 19,043 |
| | $ | 15,716 |
| | 21 | % |
Diluted earnings per share | $ | 0.63 |
| | $ | 0.65 |
| | | | $ | 2.17 |
| | $ | 1.83 |
| | | $ | 1.04 |
| | $ | 0.86 |
| | |
| | | | | | | | | | | | | | | | |
Operating cash flow | | | | | | | 37,729 |
| | 26,288 |
| | 44 | % | $ | 28,212 |
| | $ | 11,008 |
| | |
Cash dividends | | | | | | | 9,766 |
| | 31,206 |
| (b) | (69 | )% | $ | 3,806 |
| | $ | 3,254 |
| | |
|
| |
(a) | The company'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 September 2010. |
ForNet sales and earnings trends the thirdcompany experienced in the 2012 fiscal year continued in the 2013 fiscal first quarter, with net sales increased 9%up 16% to $93.3$117.9 million, from $85.8$101.5 million in the same period a year ago. The largest sales increase was reported by the Applied Technology Division, with continued sales growth in Engineered Films. Third quarterprior-year period. First-quarter net income decreased 4%attributable to $11.4Raven Industries, Inc. rose 21% to $19.0 million, or $0.63$1.04 per diluted share, compared with $11.8versus fiscal 2012 first-quarter net income of $15.7 million, or $0.65 per share, during the same period a year ago.
Net sales for the nine months ended October 31, 2011 increased 17% to $285.2 million, from $244.0 million one year earlier. Net income for the nine-month period of $39.6 million, or $2.17$0.86 per diluted share,share.
Growth was up 19% abovedriven by the prior year's nine-month results of $33.1 million, or $1.83 per share. As with the quarter,Engineered Films and Applied Technology ledDivisions, where double-digit sales gains were accompanied by even stronger increases in operating income. Aerostar Division operating margins were negatively impacted by lack of tethered aerostat and radar sales. Electronic Systems product mix had a favorable impact on the sales and net income increases for fiscal 2012 compared to fiscal 2011.
The company reports its segmentfirst quarter operating income exclusive of administrative and general expenses. Other income, interest expense and income taxes are not allocated to individual operating segments.
margins.
Applied Technology
NetFiscal 2013 first quarter net sales of $32.5$50.5 million in the third quarter of fiscal 2012 were up $8.6grew $11.3 million, or 36% year-over-year29%, and operating income of $10.7$20.9 million increased $3.3$5.9 million, or 45%. For the nine-month period, net39%, reflecting strong sales of $103.9 million grew $26.1 million, or 33%in field computers, application controls, information management and, operating income of $37.9 million increased $12.6 million, or 50%. Applied Technology benefited from healthy agricultural fundamentals, capitalizing on strong brand recognition, industry leading servicein particular, guided steering systems that enhance farm yields and greater acceptance of precision agriculture as a means of controlling inputreduce operating costs. International sales growth outpaced domestic growthcontinue to be strong for the first three and nine months of fiscal 2012 as compared with one year ago, increasing 95% and 69%, respectively. Profits improved for the three and nine-month periods due to higher sales volume and positive operating leverage, although the growth was tempered by continued investments in R&D and business development.2013.
Engineered Films
For the thirdFiscal 2013 first quarter net sales of $34.9$41.1 million grew $5.2increased $11.0 million, or 17% as compared with the third quarter of last year. Third quarter operating income of $5.6 million declined 19% year-over-year despite higher sales. Fiscal 2012 year-to-date net sales of $97.5 million increased $16.0 million, or 20% and operating income of $15.0 million was down $1.6 million, decreasing 10%. For both periods, increased demand for pit liners was driven by intensified drilling for oil and natural gas. Also, film deliveries to the geomembrane market, which are used primarily for environmental and water conservation containment liners, contributed to the three and nine month sales growth. Lower year-over-year profitability for both the quarter and year-to-date periods related to margin contraction due to higher material and overhead costs relative to sales.
Aerostar
Fiscal 2012 third quarter net sales of $10.5 million decreased $5.4 million, or 34%37%, and operating income of $1.8$9.2 million decreased $1.8 million, or 50%, compared toincreased 122% from prior year first quarter. Continued strength in the prior year. Fiscal 2012 year-to-dateenergy and agriculture markets, and deliveries of geomembrane films for environmental protection drove first quarter net sales growth. Higher year-over-year profitability for the quarter related to margin expansion due to improved operating efficiencies and lower material and overhead cost relative to sales.
Aerostar
Net sales in the first quarter were down 29% to $10.8 million from $15.1 million in the previous year's first quarter. Aerostar reported an operating loss of $36.5$1.2 million, decreased $0.3 million, or 1% andversus operating income of $8.1$4.1 million increased $0.9 million, or 13%. Third quarter sales and profit results were lower due
to fluctuations in year-over-yeara year earlier. A difficult federal spending environment impacted aerostat sales and change in product mix. Year-to-date net sales and gross profit benefited from increasedorders during the three month period. Increased sales volume of T-11 Army parachutes as contract shipments wereand protective wear could not at full delivery levels until the third quarter of last year. This higher parachute sales volume offset the decreasednegative impact of no tethered aerostat deliveries during fiscal 2012. Higher parachute sales and the resulting profit, along with increased manufacturing efficiencies, drove year-to-date gross margins up to 30% as compared to 25% one year earlier, but were tempered by higher R&D and selling spending levels.shipments.
Electronic Systems
ThirdFiscal 2013 first quarter net sales of $17.3$19.1 million as compared with $17.8were down slightly by $0.3 million, one year earlier decreased 3%, and operatingor 2%. Operating income of $2.3 million remained flat year-over-year. Fiscal 2012 nine-month net sales of $53.3$3.7 million increased by $1.2from $3.4 million, or 2%, however, operating income of $8.0 million fell slightly by $0.2 million, or 3%8%. The fiscal 2012 three and nine-month results were impacted by lower aviation electronics deliveries but were mostly offset with increasedHigher intercompany sourcingshipments to Applied Technology Division and hand-held bed control sales.drove the gross margin increase.
RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology providesdesigns, manufactures, sells, and services innovative precision agriculture products and information management tools tothat help growers reduce costs and improve farm yields.yields around the world.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
(dollars in thousands) | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | April 30, 2012 | | April 30, 2011 | | $ Change | | % Change |
Net sales | $ | 32,468 |
| | $ | 23,913 |
| | $ | 8,555 |
| | 36 | % | | $ | 103,862 |
| | $ | 77,804 |
| | $ | 26,058 |
| | 33 | % | $ | 50,480 |
| | $ | 39,125 |
| | $ | 11,355 |
| | 29 | % |
Gross profit | 15,067 |
| | 10,536 |
| | 4,531 |
| | 43 | % | | 50,009 |
| | 35,424 |
| | 14,585 |
| | 41 | % | 26,042 |
| | 18,931 |
| | 7,111 |
| | 38 | % |
Gross margins | 46.4 | % | | 44.1 | % | | | | | | 48.1 | % | | 45.5 | % | | | | | 51.6 | % | | 48.4 | % | | | | |
Operating income | 10,667 |
| | 7,336 |
| | 3,331 |
| | 45 | % | | 37,859 |
| | 25,257 |
| | 12,602 |
| | 50 | % | 20,910 |
| | 15,074 |
| | 5,836 |
| | 39 | % |
Operating margins | 32.9 | % | | 30.7 | % | | | | | | 36.5 | % | | 32.5 | % | | | | | 41.4 | % | | 38.5 | % | | | | |
The following factors were the primary drivers of the three and nine-month year-over-year quarterly growth in net sales and operating income:
Market conditions. Global market fundamentals were healthy as population and income growth in emerging economies have increased demand for food, while natural disasters and adverse weather conditions have restricted supplies.food. These factors have resulted 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.volume. The increase in net sales was driven by higher sales volume, as selling prices reflected only a modest increase year-over-year. The favorable year-over-year comparisons reflect strong sales growth across the majority of the division's product offerings, including application controls, (i.e. control systems, flow meters, valves), field computers, guidance and steering products, and boom controls.
International sales. For the three-month period,Year-to-date international sales almost doubledtotaled $13.8 million, increasing 26% from onea year agoago. Products delivered to South America, Eastern Europe, South Africa, and represented 23%Canada, generated the majority of total segment revenue compared to 16% in fiscal 2011 third quarter. For the first nine months,international sales outside the U.S.growth. International sales accounted for 27% of division revenue versus 21% for the first nine months of fiscal 2011. Internationaltotal Applied Technology net sales of $28.1 million in the first nine months of fiscal 2012 increased $11.4 million, or 69 % year-over-year as improved farm fundamentals drove strong overall demand in Brazil, andquarter compared to a lesser extent, Eastern Europe, Canada, South Africa, and Australia.28% at this time last year.
Gross margins. Gross margins for the fiscal 2012 third2013 first quarter of 46.4%51.6% improved from 44.1%48.4% in fiscal 2011 third2012 first quarter due primarily to higher sales volume. Year-over-year comparative gross margins for the nine-month periods also improved, further highlighting the effect of higher sales and operating leverage on profitability. Historically, the first quarter is the seasonal high point in the division. Gross margins were also positively impacted in the first quarter of fiscal 2013 by one percentage point due to the early buyout of the Ranchview acquisition related contingent liability.
Operating expenses. ThirdFirst quarter operating expenses of 13.6%10.2% of net sales were relatively flat as a percentageincreased slightly from prior first quarter of 9.9% of net sales compareddue to the third quarter of fiscal 2011. Year-to-date operating expenses were 11.7% ofdivision's continued investment in research and development expenses. R&D cost as compared to net sales in fiscal 20122013 was 4.4% compared to 13.1% for3.8% in the prior year due to growth in net sales outpacing R&D and business development expenses.year.
Engineered Films
Engineered Films produces high-quality flexible filmrugged reinforced plastic sheeting for applications inindustrial, energy, construction, agriculture, watergeomembrane and environmental safety.agricultural applications.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(dollars in thousands) | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change |
Net sales | $ | 34,947 |
| | $ | 29,772 |
| | $ | 5,175 |
| | 17 | % | | $ | 97,497 |
| | $ | 81,525 |
| | $ | 15,972 |
| | 20 | % |
Gross profit | 6,688 |
| | 7,311 |
| | (623 | ) | | (9 | )% | | 18,139 |
| | 18,642 |
| | (503 | ) | | (3 | )% |
Gross margins | 19.1 | % | | 24.6 | % | | | | | | 18.6 | % | | 22.9 | % | | | | |
Operating income | 5,574 |
| | 6,908 |
| (a) | (1,334 | ) | | (19 | )% | | 14,987 |
| | 16,578 |
| (a) | (1,591 | ) | | (10 | )% |
Operating margins | 15.9 | % | | 23.2 | % | | | | | | 15.4 | % | | 20.3 | % | | | | |
(a) Includes a $451,000 pre-tax gain on disposition of assets. |
| | | | | | | | | | | | | | |
| Three Months Ended |
(dollars in thousands) | April 30, 2012 | | April 30, 2011 | | $ Change | | % Change |
Net sales | $ | 41,094 |
| | $ | 30,091 |
| | $ | 11,003 |
| | 37 | % |
Gross profit | 10,528 |
| | 5,239 |
| | 5,289 |
| | 101 | % |
Gross margins | 25.6 | % | | 17.4 | % | | | | |
Operating income | 9,179 |
| | 4,129 |
| | 5,050 |
| | 122 | % |
Operating margins | 22.3 | % | | 13.7 | % | | | | |
The following factors were the primary drivers of the three and nine month year-over-year changes:
Market conditions. Economic growth in emerging markets continued to support higher oil and natural gas prices, and in turn, increased related drilling activity and demand for pit liners in the energy market.
Sales volume and selling prices. Sales growth for the first quarter of fiscal 2013 was predominately driven by the increased demand for pit liners utilized in oil and gas exploration activity. Environmental and water conservation projects increased the demand for geomembrane containment liners and covers during the quarter. Selling prices increased approximatelywere up roughly 11% for the three and nine-month periods,
reflecting higher material costs as compared with one year ago. Sales of new products also tended to increase revenues per pound shipped.input cost over the comparable first quarter in the prior year. Sales volume, as measured by pounds shipped, was relatively flatup 20% for thefirst quarter and up 5% for the nine-month period. Sales growth for the third quarter was driven by increased geomembrane liners and covers related to a water reservoir project and higher sales of pit linersin fiscal 2013 as stronger demand combined with additional extrusion capacity, which went into the energy market. Year-to-date sales growth was predominately driven by pit liners sold into the energy market, increased demand for geomembrane liners and covers, and new product sales of FeedFresh™ and fumigation filmsproduction in the agriculture market.
fourth quarter of last fiscal year.
Gross margin decline.increase. For the three-month period, margins declined 5.5 percentage points, while year-to-date margins fell 4.3 points. Despite an increase in sales, the lower gross profit in both periods was attributable to higher resin cost and an increase in overhead costimproved 8.2% due to ramping up staffingimproved operating efficiencies, positive operating leverage and other costs in anticipationa more favorable price versus material spread. Material cost as a percentage of sales was 60% for the higher production levels that are associatedthree months ended April 2012 compared with 66% for the new extrusion capacity.same prior year period.
Operating expenses. ThirdFirst quarter operating expenses of $1.1 million increased 30.4% versus one year earlier, excluding the $0.5 million gain on disposition of the Ohio distribution facility in the prior year. This increased operating expenses as a percentagewere 3.3% of net sales to 3.2%in fiscal 2013 versus 2.9% for3.7% in fiscal 2012. Selling expense increases of $0.2 million (28%) and relatively flat R&D expense lagged the previous period. Year-to-date operating expenses of $3.2 million were up 25.3% year-over-year, excluding the gain on disposition of assets. Operating expenses as a percentage of net sales increased to 3.2% compared to 3.1% for the nine-month period. The37% increase in operating expenses for both the three and nine-month periods was due to higher R&D spending and increased marketing and business development costs.net sales.
Aerostar
Aerostar provides solutionsdesigns and sells tethered aerostats and radar systems for scientificsituational awareness. This division produces military parachutes, uniforms and military operations, research, surveillanceprotective wear, and communications using specialized fabricsother sewn and films.sealed products.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
(dollars in thousands) | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | April 30, 2012 | | April 30, 2011 | | $ Change | | % Change |
Net sales | $ | 10,533 |
| | $ | 15,945 |
| | $ | (5,412 | ) | | (34 | )% | | $ | 36,533 |
| | $ | 36,833 |
| | $ | (300 | ) | | (1 | )% | $ | 10,801 |
| | $ | 15,139 |
| | $ | (4,338 | ) | | (29 | )% |
Gross profit | 2,796 |
| | 4,403 |
| | (1,607 | ) | | (36 | )% | | 11,016 |
| | 9,221 |
| | 1,795 |
| | 19 | % | 370 |
| | 5,000 |
| | (4,630 | ) | | (93 | )% |
Gross margins | 26.5 | % | | 27.6 | % | | | | | | 30.2 | % | | 25.0 | % | | | | | 3.4 | % | | 33.0 | % | | | | |
Operating income | 1,807 |
| | 3,606 |
| | (1,799 | ) | | (50 | )% | | 8,053 |
| | 7,115 |
| | 938 |
| | 13 | % | |
Operating income (loss) | | (1,161 | ) | | 4,062 |
| | (5,223 | ) | | (129 | )% |
Operating margins | 17.2 | % | | 22.6 | % | | | | | | 22.0 | % | | 19.3 | % | | | | | (10.7 | )% | | 26.8 | % | | | | |
The following factors were the primary drivers of the year-over-year changes in net sales and operating income for the three and nine-month periods:income:
Sales volumes.volumes and Volatility in aerostat deliveries. Net sales for the thirdfirst quarter decreased $5.4$4.3 million, or 34%29% compared to the prior year primarily due to a $5.7$7.3 million decrease of tethered aerostat deliveries. Aerostat sales can vary significantly from quarter-to-quarter as reflected in the three-month year-over-year comparison. A relatively high level ofThe decrease in aerostat deliveries were made in last year's third quarter which resulted from shipments that had been delayed due to design changes and funding shifts in the preceding quarter. Year-to-date net sales were relatively flat, a $0.3 million decrease or 1%. Anwas partially offset by an increase in T-11 parachute deliveries was offset by the decrease in tethered aerostat sales. Year-to-date T-11 parachute and spares revenue increased $5.6 million, or 67% as T-11 parachutespare part shipments and additional protective wear sales increased year-over-year due to shipments made on follow-on delivery orders, in conjunction with the original order.($1.1 million) and Vista net sales of $2.6 million.
Gross margin changes. ThirdFirst quarter gross margins declined from 27.6%33.0% one year ago to 26.5%3.4%. GrossLast year's margins were favorably impacted by higher margin expansion on T-11 parachutes resulted from manufacturing efficiencies and higher sales volume but was offset by a change in product mix, as aerostat sales carry a relatively higher margin.sales. Aerostat sales accounted for approximately 16%48% of net sales in the thirdfirst quarter fiscal 2012 compared to 46%none in the thirdfirst quarter fiscal 2011. Manufacturing efficiencies in T-11 parachute production drove the $1.8 million, or 5.2 point year-over-year improvement in the year-to-date2013. Parachute and protective wear gross margin. Last year's margins were unfavorably impacted by T-11 parachute start-up costs. Aspercentage was consistent with the prior first quarter, year-to-date margin growth was tempered by lower, high-margin aerostat sales.however, Vista operating losses during first quarter fiscal 2013 negatively impacted gross margins.
Operating expenses. ThirdFirst quarter operating expenses of $1.0$1.5 million increased to 9.4%14.2% of net sales from 5.0%6.2% in the thirdfirst quarter of fiscal 2011. Year-to-date operating expenses of $3.0 million were 8.1% of net sales versus 5.7% one year earlier.2012. Current year operating expenses primarily reflect increased investment in research and development to support next generation aerostat technology and the development of lighter but stronger materials, along with higherVista radar technology. Higher selling and business development expense to expandexpenses were directed towards expansion of the tethered aerostat and radar business.
Electronic Systems
Electronic Systems provides contract electronicis a total-solutions provider of electronics manufacturing services, primarily for low volume/high mix industrial products.to North American original equipment manufacturers.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
(dollars in thousands) | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | | October 31, 2011 | | October 31, 2010 | | $ Change | | % Change | April 30, 2012 | | April 30, 2011 | | $ Change | | % Change |
Net sales | $ | 17,308 |
| | $ | 17,754 |
| | $ | (446 | ) | | (3 | )% | | $ | 53,315 |
| | $ | 52,109 |
| | $ | 1,206 |
| | 2 | % | $ | 19,120 |
| | $ | 19,477 |
| | $ | (357 | ) | | (2 | )% |
Gross profit | 2,719 |
| | 2,637 |
| | 82 |
| | 3 | % | | 9,152 |
| | 9,207 |
| | (55 | ) | | (1 | )% | 4,226 |
| | 3,754 |
| | 472 |
| | 13 | % |
Gross margins | 15.7 | % | | 14.9 | % | | | | | | 17.2 | % | | 17.7 | % | | | | | 22.1 | % | | 19.3 | % | | | | |
Operating income | 2,293 |
| | 2,297 |
| | (4 | ) | | — | % | | 8,012 |
| | 8,234 |
| | (222 | ) | | (3 | )% | 3,695 |
| | 3,412 |
| | 283 |
| | 8 | % |
Operating margins | 13.2 | % | | 12.9 | % | | | | | | 15.0 | % | | 15.8 | % | | | | | 19.3 | % | | 17.5 | % | | | | |
The following factors were the primary drivers of the three and nine-month year-over-yearfirst quarter changes in net sales and operating income:
Sales volume. ThirdFirst quarter net sales decreased 3%2% year-over-year, reflecting lower avionics volume. This was partially offset by additional sourcing of assemblies to the Applied Technology Division and increased sales of hand-held bed controls. For the nine months ended October 31, 2011, net sales were up slightly, increasing 2% from one year earlier. Increased intercompany sourcing of electronic circuit boards to Applied Technology and higher sales of hand-held bed controls more than offset the decline in avionics shipments.
Gross margins. For the quarter, year-over-year gross margins improved from 14.9%19.3% to 15.7%22.1% due to favorable product mix. This resulted from increased sales of hand-held bed controls versus lower sales of avionics revenue. For the nine months, gross margins declined slightly, falling from 17.7% to 17.2%.additional sourcing for Applied Technology.
Operating expenses. ThirdThe increase in operating expense from first quarter and year-to-date operating expenses were relatively unchanged year-over-year.fiscal 2013 to fiscal 2012 is due to higher selling expenses.
Corporate Expenses (administrative expenses; other income (expense), net; and income taxes)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
(dollars in thousands) | October 31, 2011 | | October 31, 2010 | | October 31, 2011 | | October 31, 2010 | April 30, 2012 | | April 30, 2011 |
Administrative expenses | $ | 3,450 |
| | $ | 2,281 |
| | $ | 9,833 |
| | $ | 7,143 |
| $ | 4,160 |
| | $ | 3,156 |
|
Administrative expenses as a % of sales | 3.7 | % | | 2.7 | % | | 3.4 | % | | 2.9 | % | 3.5 | % | | 3.1 | % |
Other income (expense), net | $ | (4 | ) | | $ | 17 |
| | $ | (93 | ) | | $ | (25 | ) | $ | (52 | ) | | $ | (13 | ) |
Effective tax rate | 32.4 | % | | 33.8 | % | | 32.9 | % | | 33.7 | % | 33.0 | % | | 33.2 | % |
Administrative expenses increased year-over-year forduring the first three and nine-month periodsmonths from the prior year by 51% and 38%, respectively. Investments32% due to continued investments in additional finance, human resources and information technology personnel to support current and future growth strategies through a strengthened corporate infrastructure accounted for the majority of the increased spending. Higher professional services spending also contributed to the increase.infrastructure.
“Other income (expense), net” consists mainly of interest income, foreign currency transaction gain and activity related to the company's equity investment in SST.SST, interest income, and foreign currency transaction gain. The year-over-year variability for the year-to-date expense is primarily attributable to SST results.
As compared with one year ago, the effective tax rates for the quarter and nine-month periods were favorably affected by tax benefits associated with the U.S. research and development tax credit and domestic production manufacturing credits. The research and development tax credit was not available at this time last year, but was renewed in December 2010.
OUTLOOK
Management anticipates a record year of salescontinued positive trends in Engineered Films and earnings. Net income growth exceeding the company's long-term objectives of 12 - 15% is expected. Profit is forecasted to grow at a higher rate relative to sales as a result of positive operating leverage; however, investment spending for research and development, capacity, capabilities and human capitalApplied Technology while order variability will temper the overall growth ratelikely persist in the near-term. The upcoming fourth quarter is expected to show growth in all divisions andAerostar going forward. For the company is on pace for another record year in sales and net income.
overall, management believes that it can meet its long-term target of 10-15% earnings growth.
Applied Technology
ManagementApplied Technology expects year-over-year fourth quarter sales and profit growth, although the pace of growth is expected to slow from recent quarterly results. Strong global demand for agriculture commodities is expected to support higher farm income and investment in agriculture equipment.
Management will continue to make significantbuild on its investments in product developmentinternational growth and global expansionintegration of hardware and is committedsoftware solutions to building on prior year investments in SST and Ranchview. The division's manufacturing facilities are in the process of being moved to a new location and any related disruptions should be short-lived.improve agricultural efficiency. Worldwide agriculture conditions are expected to remain healthy for this segment, with rising global demand for food, heightened environmental concerns and broadening recognition of Raven's suite of productivity tools as a cost-effective investment supporting management's outlook for annual profitinvestment. These factors indicate that sales growth could continue to out pace top line growth.be in excess of 20% in fiscal 2013. Profitability growth could be tempered by investments in new initiatives, both from a product development and geographic expansion perspective.
Engineered Films
Management anticipateslooks for sales growth to befor fiscal 2013 in the high teens, driven by increased capacity and capabilities, and market conditions, including energy and geomembrane. Crude oil prices continueassuming steady resin prices. Demand continues to drive oilhave a positive outlook. Oil and gas drilling activities anddrives 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 addition of newNew extrusion equipment in the fourth quarter of fiscal 2012put into service is expectedramping up according to increase annual capacity by 25-30%.plan. This equipment will improve sales opportunities by adding bothperiod for new capacity and capabilities to this division. Additional depreciation and new product introduction costs will partially offset the positive impact of the higher pounds produced until new extrusion capacity is fully utilized. This ramp-up periodequipment 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, including supply and demand. Plastic resin, a derivative of natural gas and oil, is the primary component of extruded films. Management expects operating income growth to continue to exceed anticipated sales growth due to an improvingimproved scrap levels, the spread of selling prices over resinthe cost of plastic resins and higher utilization of the new extrusion equipment, partially offset by increasedhigher depreciation and investment spending for research capacity and capabilities.product development.
Aerostar
Management expects fourth quarter salesWhile the addition of Vista surveillance technologies is expected to bring new innovations for detecting and operating incometracking small objects over the land, on the water and in the air, government funding for projects related to increase versus a year ago duesurveillance continues to continuing improvement of parachute margins and stronger aerostat sales. Tethered aerostat systems deployedbe erratic. Sales growth in Afghanistan have promoted the safety of U.S. troops by successfully providing continuous wide-area surveillance of insurgents. Management expects futurefiscal 2013 does not appear likely.
New opportunities in tethered aerostats to provide cost-effectivecost effective persistent surveillance for the military although orders have varied significantlyand border security are critical to Aerostar's success. Despite strong showings by Aerostar's military parachute and high-altitude research balloon
operations, Aerostar may not be profitable until the third quarter of the year. Management is pursuing opportunities to add new markets for its aerostat business, and follow-on orders are dependent onis closely monitoring spending levels compared to anticipated sales levels, while continuing to invest in the government funding process. Management also sees opportunities for growth under existing government contracts for military parachutesintegration of Vista Research 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.
Electronic Systems into Aerostar operations.
Electronic Systems
Management looks atEffective June 1, 2012, Electronic Systems aswill be merged into Raven's Applied Technology and Aerostar Divisions. Approximately 75 percent of Electronic Systems sales will go to Aerostar. Management recognizes that the integration of these businesses will be challenging, both from a complementary business to itssales and an operational perspective. After the realignment, Raven Industries will continue with the company's core growth divisions: Applied Technology, Engineered Films Aerostar and especially Applied Technology. This business carries technical expertise that supportsAerostar. Electronic Systems fiscal 2013 sales, before the efforts of its sistersplit into the separate divisions, and provides electronic manufacturing servicesare expected to low-volume, high-mix customers that require high levels of service and engineering support. Management anticipates additional customersbe as much as 10 percent lower than in fiscal 2012 but believes this growth willas the impact of lower avionics sales may not be fully offset by lower avionics sales. The mid-higher deliveries to long-term growth strategyother customers. There is predicated on the development of proprietary products, expansion of the customer base and continued in-sourcing of assemblies for Raven's other divisions. Electronic Systems Division results for the fourth quarter ofalso a risk that operating income could be impacted by integration costs in fiscal 2012 are expected to show a solid year-over-year growth. Fourth quarter operating margins are expected to reflect improved product mix over the nine month results.2013.
LIQUIDITY AND CAPITAL RESOURCES
The company's balance sheet continues to reflect significant liquidity and a strong capital resources are strong.base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been the company'sRaven'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'sRaven's cash needs are seasonal, with working capital demands strongest in the first quarter. Consequently,As a result, 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 $44.2$43.5 million at October 31, 2011,April 30, 2012, a $5.6$17.7 million increase compared to cash, cash equivalents, and short-term investments$25.8 million at January 31, 2011 of $38.6 million.2012. The comparable balancesbalance one year earlier totaled $30.0$42.6 million. Increases in capital expenditures and a $12.0 million payment to acquire Vista Research, Inc., in the fourth quarter last year were offset by cash flows from operations.
Raven has an uncollateralized credit agreement that provides a $14.2$10.5 million increase. line of credit, with a balance of zero at April 30, 2012. The line of credit is reduced by outstanding letters of credit totaling $1.3 million as of April 30, 2012. The credit line, which matures on September 1, 2012, is expected to be renewed during fiscal 2013.
Operating Activities
Operating cash flows result primarily from cash received from customers, which is offset primarily by cash payments for inventories, services, employee compensation and income taxes. Management evaluates working capital levels through the computation of average days sales outstanding (“DSO”) and inventory turnover. DSOAverage days sales outstanding is a measure of the company'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 $37.7$28.2 million in first quarter of fiscal 2013 compared with $11.0 million in the first nine monthsquarter of fiscal 2012 versus $26.3 million in the first nine months of fiscal 2011.2012. The increase in operating cash flows primarily reflectsis the result of higher company earnings.earnings, depreciation expense, and collection of accounts receivable balances.
Inventory and accounts receivable consumed $16.8generated $2.2 million of cash in the first nine monthsquarter of fiscal 20122013 versus $17.0consumed $12.3 million one year ago.of cash in the first quarter of fiscal 2012. The company continues to focus on disciplinedcompany's inventory management, although the turnover rate has declined slightly from onethe prior year ago due to higher raw material inventory levels to support aerostatincreased sales (trailing 12-month inventory turnoverturn of 5.4X at October 31, 20115.2X in fiscal 2013 versus 5.6X at October 31, 2010)5.7X in fiscal 2012). Cash collections continue to be efficient, with the trailing 12-month DSO12 month days sales outstanding of 47 days at April 30, 2012 and 4849 days at October 31, 2011 and 2010, respectively. Year-over-year variability in operating liabilities provided an additional $2.0 million of cash due primarily to less cash consumed by accounts payable payments for the nine-month period partially offset by higher cash outflow of accrued liabilities.April 30, 2011.
Investing Activities
Cash used in investing activities totaled $21.7$6.8 million in the first nine monthsquarter of fiscal 2013 versus 2012$3.4 million versus $7.3 million in the first nine monthsquarter of fiscal 2011. Capital2012, reflecting a $1.3 million increase in capital expenditures totaled $22.1and $1.9 million comparedpayment to $9.4 million in the previous year, a 135.1% increase. Year-to-date capital spending consisted primarily of expendituressettle an acquisition related to increased manufacturing capacity in Engineered Films, a new manufacturing facility in Applied Technology, and Aerostar's commitment to a higher level of product development investments for future growth, including facilities and equipment.contingent liability.
Management anticipates record capital spending in fiscal 2012,2013, in the $33$35 million range, as management sees opportunities to earn attractive returns on invested capital through organic investments.range. In addition, management will evaluate strategic acquisitions that result in expanded capabilities and solidify competitive advantages. As part of the company's investment in corporate infrastructure, Raven will be investing approximately $15-$20 million over a 3-5 year period to renovate its downtown Sioux Falls facility headquarters. Expansion of Engineered Films capacity and Applied Technology's manufacturing and research and development facility are expected to continue.
Financing Activities
Dividends of $9.8$3.8 million or $0.5421 cents per share were paid during the first nine months of fiscal 2012current quarter compared to $31.2$3.3 million or $1.7318 cents per share onein the year ago. A special dividend of $1.25ago quarter. The 21 cents per share or $22.5 million, was paid duringdividend represents the third quarter of fiscal 2011. In the first quarter of fiscal 2012, the company increased the quarterly dividend rate (excluding special dividends) for the 25company's 26th consecutive year.increase in the annual dividend (excluding special dividends). Raven has now paid a dividend forin 39 consecutive years.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes since the fiscal year ended January 31, 20112012.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2011,There were no new accounting standards issued or effective during the Financial Accounting Standards Board (FASB) issued guidance on the presentation of comprehensive income. This guidance gives an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive incomethree months ended April 30, 2012 that had or in two separate but consecutive statements. In either option, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as a part of the statement of changes in shareholders' equity. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively, and for public companies is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The company is evaluating the presentation options.
In September 2011, FASB issued updated guidance on goodwill impairment testing. This guidance seeks to reduce the cost and complexity of performing the first step of the two-step goodwill impairment test. This amendment permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a more likely than not (more than 50% likelihood) that the fair value of the reporting unit is less than its carrying amount. The performance of the two-step impairment test becomes unnecessary if after assessing the totality of events and circumstances, the entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The company does not expect the adoption of these provisionsare expected to have a material impact on the company's consolidated results of operations, financial statements.condition, or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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.debt outstanding as of April 30, 2012. 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’scompany's financial condition, results of operations or cash flows.
The company’scompany'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 lossincome (loss) within shareholders’shareholders' equity. Foreign currency transaction gains or losses are recognized in the period incurred and are included in “other"Other income (expense), net”net" in the Consolidated Statements of Income and Comprehensive Income. Foreign currency fluctuations had no material effect on the company’scompany's financial condition, results of operations or cash flows.
ITEM 4. |
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ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of October 31, 2011April 30, 2012, 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, 2011April 30, 2012.
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, 2011April 30, 2012 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.
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. ReservedMine Safety Disclosures: None
Item 5. Other Information: None
Item 6. Exhibits Filed:
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Exhibit Number | | Description |
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3(b) |
| | Amended and Restated Bylaws (incorporated by reference to Exhibit B of the definitive proxy statement filed April 12, 2012). |
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10(k) |
| | Amended and Restated Raven Industries, Inc. 2010 Stock Incentive Plan adopted May 25, 2012 (incorporated by reference to Exhibit A of the definitive proxy statement filed April 12, 2012). |
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10(r) |
| | Raven Industries Inc. Non-Qualified Stock Option agreement |
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10(s) |
| | Raven Industries, Inc. Restricted Stock Unit agreement |
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31.1 |
| | Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act. |
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31.2 |
| | Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act. |
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32.1 |
| | Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act. |
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32.2 |
| | Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act. |
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101.INS |
| | XBRL Instance Document |
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101.SCH |
| | XBRL Taxonomy Extension Schema |
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101.CAL |
| | XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
| | XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
| | XBRL Taxonomy Extenstion Label Linkbase |
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101.PRE |
| | XBRL Taxonomy Extension Presentation Linkbase |
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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.
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| RAVEN INDUSTRIES, INC. | |
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| /s/ Thomas Iacarella | |
| Thomas Iacarella | |
| Vice President and CFO, Secretary and Treasurer (Principal Financial and Accounting Officer) | |
Date: December 2, 2011June 4, 2012