-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MlvE2I8oD6IZKpgfncuzoGbx8u82aN/CVD2uLpXsWUsmiQr7YR2STy9tuf2H+d15 Fz3x8hz1WFnTP1fC1K8R0g== 0000897101-99-000426.txt : 19990427 0000897101-99-000426.hdr.sgml : 19990427 ACCESSION NUMBER: 0000897101-99-000426 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAVEN INDUSTRIES INC CENTRAL INDEX KEY: 0000082166 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 460246171 STATE OF INCORPORATION: SD FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07982 FILM NUMBER: 99601113 BUSINESS ADDRESS: STREET 1: 205 E 6TH ST STREET 2: PO BOX 5107 CITY: SIOUX FALLS STATE: SD ZIP: 57117 BUSINESS PHONE: 6053362750 MAIL ADDRESS: STREET 1: P O BOX 5107 CITY: SIOUX FALLS STATE: SD ZIP: 57117-5107 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________________ Commission file number 0-3136 RAVEN INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) South Dakota 46-0246171 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 205 E. 6th Street, Sioux Falls, South Dakota 57117 - -------------------------------------------------------------------------------- (Address of principal offices)(Zip Code) Registrant's telephone number, including area code (605) 336-2750 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $1 par value -------------------------- (Title of each class) Indicate by checkmark 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 twelve months, and (2) has been subject to such filing requirements for the past ninety days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the Registrant, based on the closing price of $14.03215 per share as reported on the NASDAQ National Market System on April 14, 1999 was $57,947,952. Shares of common stock outstanding at April 14, 1999: 4,641,686. DOCUMENTS INCORPORATED BY REFERENCE The following table shows, except as otherwise noted, the location of information, required in this Form 10-K, in the registrant's Annual Report to Shareholders for the year ended January 31, 1999 and Proxy Statement for the registrant's 1999 annual meeting, a definitive copy of which was filed on April 26, 1999. All such information set forth under the heading "Reference" below is included herein or incorporated herein by reference. A copy of the registrant's Annual Report to Shareholders for the year ended January 31, 1999 is included as an exhibit to this report. PART I. ITEM IN FORM 10-K REFERENCE - ------- ----------------- --------- Item 1. Business Business, pages 4-7, this document; Business Segments, page 12, and Sales by Markets, page 13, Annual Report to Shareholders Item 2. Properties Properties, pages 7-8, this document Item 3. Pending Legal Pending Legal Proceedings, Proceedings page 8, this document Item 4. Submission of Matters Submission of Matters to a to a Vote of Vote of Security Security Holders Holders, page 8, this document PART II. - -------- Item 5. Market for the Regis- Quarterly Information trant's Common (unaudited), page 24, Equity and Related Eleven-year Financial Stockholder Matters Summary, pages 18-19, and inside back cover, Annual Report to Shareholders Item 6. Selected Financial Data Eleven-Year Financial Summary, pages 18-19, Annual Report to Shareholders Item 7. Management's Discussion Financial Review and and Analysis of Analysis, pages 20-23, Financial Condition Annual Report to Share- and Results of holders Operations 2 ITEM IN FORM 10-K REFERENCE ----------------- --------- Item 8. Financial Statements and Pages 25-36, Annual Report Supplementary Data to Shareholders. Item 9. Changes in and Disagree- Changes in and Disagree- ments with Account- ments with Accountants ants on Accounting on Accounting and and Financial Financial Disclosure, Disclosure page 8, this document PART III. - --------- Item 10. Directors of the Regis- Election of Directors and trant Executive Compensation, Proxy Statement Executive Officers of Executive Officers of the Registrant Registrant, page 9, this document and Other Matters, Proxy Statement Item 11. Executive Compensation Executive Compensation, Proxy Statement Item 12. Voting Securities and Ownership of Common Stock, Principal Holders Proxy Statement Thereof Item 13. Certain Relationships Election of Directors, and Related Proxy Statement Transactions PART IV. - -------- Item 14. Exhibits, Financial Exhibits, Financial Statement Schedule Statement Schedule and Reports on Form and Reports on Form 8-K. 8-K, pages 9-10, this document. SAFE HARBOR STATEMENT Certain sections of this report contain discussions of items which may constitute forward-looking statements within the meaning of federal securities laws. Although Raven Industries believes that expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurances that its expectations will be achieved. Factors that could cause actual results to differ from expectations include general economic conditions, weather conditions which could affect certain of the company's primary markets such as the agricultural market or its market for outerwear or changes in competition which could impact any of the company's product lines. 3 RAVEN INDUSTRIES, INC. FORM 10-K year ended January 31, 1999 Item 1. Business General Raven Industries, Inc. was incorporated in February 1956 under the laws of the State of South Dakota and began operations later that same year. The following terms - the company, Raven or the registrant - are intended to apply to Raven Industries, Inc. and its consolidated subsidiaries listed in Exhibit 21 to this report. Raven is headquartered in Sioux Falls, South Dakota, employing approximately 1,500 persons in nine states. The company began operations as a manufacturer of high-altitude research balloons. It has diversified over the years to supply specialized products for a number of markets, including industrial, recreation, agriculture, automotive and defense. Many of these product lines are an extension of technology and production methods developed in the original balloon business. The automotive product line was added via acquisition in fiscal 1987. Page 13 of the company's Annual Report to Shareholders, incorporated herein by reference, provides financial information regarding sales by markets. The company has three business segments: Electronics, Plastics and Sewn Products. Product lines have been grouped in these segments based on common technologies, production methods and raw materials. However, more than one business segment may serve each of the product markets identified above. Page 12 of the company's Annual Report to Shareholders, incorporated herein by reference, provides financial information concerning the three business segments. Business Segments Electronics - Historically, this segment provided a variety of assemblies and controls to the U.S. Department of Defense and other defense contractors. The company is expanding this segment's capabilities in contract electronics assembly for commercial customers to offset a decline in defense contracts. Assemblies manufactured by the Electronics segment include communication, computer and other products where high quality is critical. Flow control devices, used primarily for precision farming applications, are designed and produced within this business segment. These devices are also used for roadside and turf spraying. Management believes that acquisition of new technologies for height and depth control will expand the company's capabilities to support precision farming in future years. The segment also builds and installs automated control systems for use in feedmills. Contract electronics assembly sales are made in response to competitive bid requests by defense agencies or other contractors. The level and nature of competition vary with the type of product, but the company frequently competes with a number of assembly manufacturers on any given bid request. Home office personnel sell 4 flow control devices directly to original equipment manufacturers (OEMs) and distributors. Company sales representatives sell automated systems directly to feedmills. All the product markets the company participates in are competitive, with customers having a number of suppliers to choose from. Plastics - Products in this segment include heavy-duty sheeting for industrial and agricultural applications; fiberglass, polyethylene and dual-laminate tanks for industrial and agricultural use; high altitude balloons for public and commercial research; and pickup-truck toppers sold in the small truck aftermarket. The company sells plastic sheeting to distributors in each of the various markets it serves. The company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest sheeting converters in the U.S. A number of suppliers of sheeting compete with Raven on both price and product availability. Home office personnel and manufacturer's representatives sell storage tanks to OEMs and through distributors. Competition comes not only from many other plastic tank manufacturers, but also from manufacturers using other materials (aluminum and steel). The company makes a number of custom fiberglass and dual-laminate products, but polyethylene tanks tend to be commodity products and subject to intense price competition. The company sells research balloons directly to public agencies (usually funded by the National Aeronautics and Space Administration) or commercial users. Demand is small but stable. Raven is the largest balloon supplier for high-altitude research in the United States. Pickup-truck toppers are sold throughout the U.S., using a dealer network. The overall market for toppers has declined since the late 1980's as alternatives to pickups with toppers, primarily minivans and sport-utility vehicles, increased in popularity. The number of topper manufacturers has fallen but is still substantial. Sewn Products - This segment produces and sells outerwear for a variety of recreational activities, including skiing, hunting and fishing. The segment also manufactures sport balloons principally for recreational use. Another major product is large inflatable devices, which enjoy a number of uses, such as parade floats and advertising media. Recreational outerwear is sold both to retailers through an independent sales representative network, and by home office personnel to catalog retailers. There are many outerwear manufacturers in the U.S. and abroad, and considerable competition exists. The company competes successfully in the medium-to-higher priced range of the market where specialty fabrics such as Gore-Tex(R) are involved, emphasizing quality, service and manufacturing expertise. The segment sells balloons through a dealer network. Raven is the originator of modern hot-air ballooning and continues to be a leader in design and technical expertise. The company believes it has approximately 40 percent of the U.S. hot-air balloon market, although others are able to compete with lower-cost products. Inflatables are sold directly to corporate customers and are subject to varying levels of competition. Generally, the more 5 customized the product, the greater the company's market share. Major Customer Information No customer accounted for more than 10 percent of consolidated sales in fiscal 1999. However, the company sells sewn products to several large customers. In fiscal 1999, the top five customers in the Sewn Products segment accounted for more than two-thirds of the sales in that segment. Although the loss of these accounts would adversely affect profitability, the company believes that, over the long term, addition of new customers and sales growth from existing customers would replace any lost sales. Seasonality/Working Capital Requirements Some seasonality in demand exists for the company's outerwear products, many of which are produced in spring/summer for summer/fall delivery. Most of these sales carry net thirty day terms, although some winter-dated terms are offered. Sales to the agricultural market (flow controls, plastic tanks) also experience some seasonality, building in the fall for winter/spring delivery. Certain sales to agricultural customers offer spring dating terms for late fall and early winter shipments. The resulting fluctuations in inventory and accounts receivable balances may require and have required seasonal short-term financing. Financial Instruments The principal financial instruments the company maintains are in accounts receivable, notes receivable and long-term debt. The company believes that the interest rate, credit and market risk related to these accounts is not significant. The company manages the risk associated with these accounts through periodic reviews of the carrying value for non-collectability of assets and establishment of appropriate allowances in connection with the company's internal controls and policies. The company does not enter into hedging or derivative instruments. Raw Materials The company obtains a wide variety of materials from numerous vendors. Principal materials include numerous electronic components for the Electronics segment; various plastic resins for the Plastics segment; and fabric for the Sewn Products segment. The company has not experienced any significant shortages or other problems in purchasing raw materials to date, and alternative sources of supply are generally available. However, predicting future material shortages and the related potential impact on Raven is not possible. Patents The company owns a number of patents. However, Raven does not believe that its business as a whole is materially dependent on any one patent or related group of patents. It believes the successful manufacture and sale of its products generally depend more upon its technical expertise and manufacturing skills. Research and Development The business segments noted above conduct ongoing research and development efforts. Most of the company's research and development expenditures are directed toward new products in the 6 Electronics and Plastics segments. Total company research and development costs are disclosed in Note 1 to the consolidated financial statements located on page 29 of the Annual Report to Shareholders, incorporated herein by reference. Environmental Matters Raven believes that it is in compliance in all material respects with applicable federal, state and local environmental laws and regulations. Expenditures relating to compliance for operating facilities incurred in the past and anticipated in the future have not significantly affected capital expenditures, earnings or competitive position. Backlog As of February 1, 1999, the company's backlog of firm orders totaled $47.4 million. Comparable backlog amounts as of February 1, 1998 and 1997 were $47.2 million and $38.1 million, respectively. Approximately $4 million of the February 1, 1999 backlog is not scheduled for shipment by January 31, 2000. Item 2. Properties All properties, unless otherwise indicated are owned by Raven. Square Business Location Feet Use Segments - -------- ---- --- -------- Sioux Falls, SD 150,000 Corporate office and All electronics manufacturing 73,300 Storage tank Plastics manufacturing 68,400 Sewn products warehouse Sewn Products 62,300 Plastic sheeting Plastics manufacturing 59,000 Plastic sheeting and hot- Plastics air balloon manufacturing Sewn Products 31,400 Storage tank Plastics manufacturing 27,000 Offices and material Sewn Products handling facility 25,300 Inflatable manufacturing Sewn Products 24,000 Prototype manufacturing Electronics 10,200 Machine Shop Electronics 6,200 Training/meeting center All Dunnell, MN 81,500 Pickup-truck topper Plastics manufacturing 7 Square Business Location Feet Use Segments - -------- ---- --- -------- Eloy, AZ 51,600 Pickup-truck topper Plastics manufacturing Albertville, AL 49,600 Storage tank Plastics manufacturing Tacoma, WA *46,650 Storage tank Plastics manufacturing Sulphur Springs, TX *45,400 Research balloon Plastics manufacturing Springfield, OH 30,000 Plastic sheeting Plastics manufacturing Huron, SD 24,100 Sewing plant Sewn Products Washington Court 21,500 Storage tank Plastics House, OH manufacturing St. Louis, MO 21,000 Electronics manufacturing Electronics Gordo, AL *20,000 Feedmill automation Electronics equipment manufacturing Beresford, SD 20,000 Sewing plant Sewn Products Madison, SD 20,000 Sewing plant Sewn Products DeSmet, SD 15,000 Electronics manufacturing Electronics Salem, SD 15,000 Sewing plant Sewn Products Parkston, SD 14,000 Sewing plant Sewn Products * Leased, short-term Most of the company's manufacturing plants also serve as distribution centers and contain offices for sales, engineering and manufacturing support staff. The company believes that its properties are, in all material respects, in good condition and are adequate to meet existing production needs. The company owns 6.95 acres of undeveloped land adjacent to the other owned property in Sioux Falls which is available for expansion. Item 3. Pending Legal Proceedings There are no pending legal proceedings wherein the claim for damages exceeds 10% of the registrant's current assets. Item 4. Submission of Matters to a Vote of Security Holders There was no matter submitted during the fourth quarter to a vote of security holders. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. 8 Item 10. Executive Officers of the Registrant Name Age Position Period Served ---- --- -------- ------------- David A. Christensen 64 President and Chief April 1971 to present Executive Officer Gary L. Conradi 59 Vice President, January 1980 to present Corporate Services Thomas Iacarella 45 Vice President, August 1998 to present Finance, Secretary and Treasurer Ronald M. Moquist 53 Executive Vice January 1979 to present President Each of the above named individuals serves at the pleasure of the Board of Directors. Each serves on a year-to-year basis. Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a) Consolidated Financial Statements and Schedule 1. Incorporated by reference from the attached exhibit containing the 1999 Annual Report to Shareholders: Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity and Comprehensive Income Consolidated Statements of Cash Flows Notes to Financial Statements Report of Independent Accountants 2. Included in Part II: Report of Independent Accountants on Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts The following schedules are omitted for the reason that they are not applicable or are not required: I, III and IV. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the fourth quarter ended January 31, 1999. (c) Exhibits filed 3(a) Articles of Incorporation of Raven Industries, Inc. and all amendments thereto.* 3(b) By-Laws of Raven Industries, Inc.* 3(c) Extract of Shareholders Resolution adopted on April 7, 1962 with respect to the by-laws of Raven Industries, Inc.* 9 Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K, continued: Exhibit Number Description ------ ----------- 10(a) Change in Control Agreement between Raven Industries, Inc. and David A. Christensen dated as of March 17, 1989.* 10(b) Change in Control Agreement between Raven Industries, Inc. and Gary L. Conradi dated as of March 17, 1989.* 10(c) Change in Control Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of March 17, 1989.* 10(d) Change in Control Agreement between Raven Industries, Inc. and Thomas Iacarella dated as of August 1, 1998 (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended July 31, 1998). 10(e) Employment Agreement between Raven Industries, Inc. and David A. Christensen dated as of May 20, 1998. 10(f) Schedule identifying material details of other Employment Agreements between Raven Industries and other executive officers substantially identical to the Employment Agreement filed as Exhibit 10(e). 10(g) Raven Industries, Inc. 1990 Stock Option Plan adopted January 30, 1990 (incorporated by reference to Exhibit A to the Company's definitive Proxy Statement filed April 25, 1990). 10(h) Deferred Compensation Plan between Raven Industries, Inc. and David A. Christensen dated as of February 1, 1997. 10(i) Trust Agreement between Raven Industries, Inc. and Norwest Bank South Dakota, N.A. dated April 26, 1989.* 13 1999 Annual Report to Shareholders (only those portions specifically incorporated herein by reference shall be deemed filed with the Commission). 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule. * Incorporated by reference to corresponding Exhibit Number of the Company's Form 10-K for the year ended January 31, 1989. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RAVEN INDUSTRIES, INC. (Registrant) April 26, 1999 By: /S/ David A. Christensen - ----------------------- -------------------------------------- Date David A. Christensen President (Principal Executive Officer and Director) Pursuant to the requirements of Section 13 or 15(d) 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. April 26, 1999 By: /S/ David A. Christensen - ----------------------- -------------------------------------- Date David A. Christensen President (Principal Executive Officer and Director) April 26, 1999 /S/ Thomas Iacarella - ----------------------- -------------------------------------- Date Thomas Iacarella Vice President, Finance, Secretary and Treasurer (Principal Financial and Accounting Officer) Directors: April 26, 1999 /S/ Conrad J. Hoigaard - ----------------------- -------------------------------------- Date Conrad J. Hoigaard April 26, 1999 /S/ John C. Skoglund - ----------------------- -------------------------------------- Date John C. Skoglund April 26, 1999 /S/ Mark E. Griffin - ----------------------- -------------------------------------- Date Mark E. Griffin April 26, 1999 /S/ Kevin T. Kirby - ----------------------- -------------------------------------- Date Kevin T. Kirby April 26, 1999 /S/ Anthony W. Bour - ----------------------- -------------------------------------- Date Anthony W. Bour April 26, 1999 /S/ Thomas S. Everist - ----------------------- -------------------------------------- Date Thomas S. Everist 11 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Raven Industries, Inc.: Our report on the consolidated financial statements of Raven Industries, Inc. has been incorporated by reference in this Annual Report on Form 10-K from page 36 of the 1999 Annual Report to Shareholders of Raven Industries, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14.(a)2. on page 9 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP Minneapolis, Minnesota March 11, 1999 12 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended January 31, 1999, 1998 and 1997 (Dollars in thousands)
Column A Column B Column C Column D Column E -------- ---------- ------------------------- ----------- -------- Additions ------------------------- Balance at Charged to Charged to Deductions Beginning Costs and Other From Balance at Description of Year Expenses Accounts Reserves(1) End of Year ----------- ---------- ---------- ---------- ----------- ----------- Deducted in the balance sheet from the asset to which it applies: Allowance for doubtful accounts: Year ended January 31, 1999 $390 $135 None $125 $400 ==== ==== ==== ==== Year ended January 31, 1998 $340 $193 None $143 $390 ==== ==== ==== ==== Year ended January 31, 1997 $340 $ 88 None $ 88 $340 ==== ==== ==== ====
Note: - ----- (1) Represents uncollectible accounts receivable written off during the year, net of recoveries. 13 EX-10.E 2 EMPLOYMENT AGREEMENT EXHIBIT 10(e) RAVEN INDUSTRIES, INC. EMPLOYMENT AGREEMENT AGREEMENT dated as of May 28, 1998 between RAVEN INDUSTRIES, INC., a South Dakota corporation (the "Company"), and David A. Christensen, (the "Executive"). WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board") recognizes that Executive's contribution to the growth and success of the Company and its subsidiaries has been substantial; and WHEREAS, the Board has determined that it is appropriate to memorialize in writing the terms and conditions of Executive's employment and Executive's entitlement to certain benefits upon his retirement; NOW THEREFORE, in consideration of the mutual covenants and conditions herein contained and in further consideration of services performed and to be performed by Executive for the Company, the parties agree as follows: 1. Employment. Executive shall continue in the employ of the Company in a senior executive capacity, with such duties, powers and authority as are assigned to Executive from time to time by the Board. 2. Term. This Agreement shall commence on the date first above written and, except as otherwise provided in paragraph 7, shall continue in effect until terminated by either the Company or Executive on 30 days' advance written notice, either with or without any reason. Except for such 30-day notice requirement, nothing contained in this Agreement shall affect the Company's ability to terminate Executive's employment with or without any reason notwithstanding the preceding. Termination of this Agreement shall not terminate Executive's benefits or the Executive's right to benefits under paragraph 4 or 5 if, at the date of termination, Executive has either (I) attained age 65 or (ii) the sum of Executive's age (as of his nearest birthday) and years of service with the company (to the nearest whole year) equal 80 or more. 3. Compensation. As full compensation for his services under this Agreement, Executive shall receive such Compensation as determined by the Board, and Executive shall be eligible for such fringe benefits as are provided generally to all senior executives of the Company. The fringe benefits provided at the date of this Agreement are listed on Schedule A, attached hereto and made a part hereof. The Company may change or terminate any fringe benefit from time to time while Executive is employed, so long as the change affects all senior executives. 4. Benefits on Termination in Certain Cases. If at the date Executive terminates employment with the Company, Executive has either (i) attained age 65 or (ii) the sum of Executive's age (as of his nearest birthday) and years of service with the Company (to the nearest whole year) equal 80 or more, Executive shall be entitled, at the Company's expense, to the following benefits in addition to any retirement benefits to which Executive may be entitled under any qualified or non-qualified retirement plan maintained by the Company: (a) Until the later to die of Executive or his spouse, continuation of coverage under the Company's group hospital, medical and dental plans ("Medical Plan") for himself, his spouse and eligible dependents ("Covered Group"); provided that if Executive and his spouse are divorced, the benefits for such spouse shall be discontinued; and further provided that if such spouse remarries after the death of Executive, such coverage shall continue for such spouse after the date of remarriage only if the spouse pays to the Company the group premium for such coverage. Prior to a member of the Covered Group becoming eligible for Medicare, the benefits to which that member of the Covered Group is entitled shall be at least equal to the benefits to which that member of the Covered Group would have been entitled under the Medical Plan at Executive's separation from service. Upon eligibility of a member of the Covered Group for Medicare, coverage provided by Medicare shall be primary and the Medical Plan shall provide additional benefits such that the total benefits (I.E., Medicare and the Medical Plan) are at least equal to the benefits that members of the Covered Group would have been entitled under the Medical Plan at Executive's separation from service. (b) Until Executive's death, group life insurance coverage in the same amount as in effect at the date of Executive's retirement; (c) Until the death of the last to die of Executive or his spouse, payment of uninsured medical expenses (including, but not limited to any deductibles and coinsurance) for Executive, his spouse and his eligible dependents up to an annual limit of 10% of Executive's highest annual compensation during any one of his last five calendar years of employment; provided that if Executive and his spouse are divorced, or if such spouse remarries after the death of Executive, such coverage shall be discontinued for such spouse. The medical expenses to be covered and the timing of payment of such medical expenses shall be based on the terms of the Raven Industries, Inc. Officers Employee Medical Reimbursement Plan as in effect at the date of Executive's separation from service. If such plan is not in effect at the date of Executive's separation from service and has not been replaced by a similar plan, medical expenses reimbursed shall be those expenses that would be deductible under Section 213 of the Internal Revenue Code of 1986 as in effect at the date of this Agreement (without regard to any provisions making such expenses deductible only to the extent they exceed a percentage of adjusted gross income and without regard to any limitation on expenses for cosmetic surgery), and all such expenses shall be paid or reimbursed within 15 days after presentation of invoices. 2 (d) Until Executive's death and thereafter until the filing of a federal estate tax return for his estate, if such a return is to be filed, payment of personal estate planning, estate tax return and probate expenses, up to an annual limit of 2% of Executive's highest annual compensation during any one of his last five calendar years of employment; provided that any amount up to such 2% limitation not paid in any calendar year may be carried forward for two succeeding years. (e) Until the last to die of Executive or his spouse, payment of premiums for long term care insurance for the remainder of Executive's and his spouse's lives; provided that if Executive and his spouse are divorced, or Executive's spouse remarries after his death, premium payments for such spouse shall be discontinued. 5. Limitation on Amendment or Termination. If for any reason after the date of Executive's retirement, Executive is not permitted to participate in any of the plans or programs referred to in paragraph 4, or if any such plans or programs are amended to provide lesser benefits or are terminated, the Company, at its sole expense, shall arrange to provide Executive with benefits substantially similar to those to which Executive would otherwise have been entitled but for such amendment or termination. 6. Tax Gross-Up. To the extent that all or any of the payments under paragraph 4 or 5 made in a calendar year are subject to federal, state, or local income tax, the Company shall pay to Executive (or his spouse if Executive is deceased or his estate if he is not survived by a spouse) a Gross-Up Amount before April 15 of the following year. The term "Gross-Up Amount" means an amount, after the payment of federal, state and local income tax on such amount, that is necessary to pay the federal, state and local income tax on the taxable payments for such calendar year. For purposes of determining the Gross-Up Amount, Executive shall be considered to pay federal, state and local income taxes at the highest marginal rate, net of the maximum reduction in federal income taxes that could be obtained from the deduction of state and local taxes. 7. Termination For Cause. Notwithstanding paragraphs 2, 4 and 5, if the Company discharges Executive "For Cause"(as defined below) the Company shall not be required to provide 30 days' advance written notice of termination and the Company may elect, in its discretion, not to pay the benefits provided under paragraphs 4 and 5. A discharge shall be considered "For Cause" if Executive is terminated from employment for willful misconduct that materially injures or causes a material loss to the Company and a material benefit to Executive or third parties, as for example, by embezzlement, appropriation of corporate opportunity, conversion of tangible or intangible corporate property or the making of agreements with third parties in which Executive or anyone related to or associated with him has a direct or indirect interest. The term "For Cause" does not include a termination occasioned by 3 ill-advised good faith judgment or negligence in connection with the Company's business. 8. Confidentiality. So long as Executive is employed and thereafter so long as Executive is entitled to and is receiving the benefits to which he is entitled under paragraphs 4 and 5, he may not either directly or indirectly, except in the course of carrying out the business of the Company or as authorized in writing on behalf of the Company, disclose or communicate to any person, individual, firm or corporation, any information of any kind concerning any matters affecting or relating to the business of the Company or any of its subsidiaries, including without limitation, any of the customers, prices, sales, manner of operation, plans, trade secrets, processes, financial or other data of the Company or any of its subsidiaries, without regard to whether any or all of such information would otherwise be deemed confidential or material. 9. Non-Competition. So long as Executive is employed and thereafter so long as Executive is entitled to and is receiving the benefits to which he is entitled under paragraphs 4 and 5, he may not engage or participate directly or indirectly, either as principal, agent, employee, employer, consultant, stockholder, director, co-partner, or any other individual or representative capacity, in the conduct or management of, or own any stock or other proprietary interest in, any business that competes with the business of the Company or any subsidiary of the Company unless he has obtained prior written consent of the Board, except that Executive shall be free without such consent to make investments in any publicly-owned company so long as he does not become a controlling party in such company. 10. Consequences of Violation of Confidentiality on Non-Compete Provision. If the Company, in good faith, determines that Executive has violated paragraph 8 or 9 of this Agreement, then in addition to any remedy the Company may be entitled at law or in equity, it may discontinue payments under paragraphs 4 and 5 upon written notice to Executive of the violation of paragraph 8 or 9. 11. No Affect on Other Contractual Rights. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish Executive's existing rights, or rights that would accrue solely as a result of the passage of time, under any benefit plan, change in control agreement or other contract, plan or arrangement. 12. Successors to the Corporation. The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. As used in this Agreement, "Company" means Raven Industries, Inc. and any subsidiary or successor or assign to its business 4 or assets that otherwise becomes bound by the terms and provisions of this Agreement by operation of law. In such event, the Company shall pay or shall cause such employer to pay any amounts owed to Executive pursuant to this Agreement. 13. Agreement Binding. This Agreement shall inure to the benefit of and be enforceable by Executive's spouse, personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's spouse, devisee, legatee, or other designee or, if there is no such designee, to Executive's estate. 14. Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or when mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to the Company: Raven Industries, Inc. 205 East 6th Street P.O. Box 5107 Sioux Falls, SD Attention: President If to Executive: David A. Christensen P.O. Box 5107 Sioux Falls, SD 57117-5107 or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provision or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party that are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the state of South Dakota. 5 16. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Fees and Expenses. The Company shall pay all fees and expenses (including reasonable attorney's fees and costs) that Executive may incur as a result of the Company's contesting the validity, enforceability or Executive's interpretation of, or determinations under, this Agreement, regardless of whether the Company is successful in such contest. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. RAVEN INDUSTRIES, INC. By: /s/ David A. Christensen President and Chief Executive Officer EXECUTIVE: /s/ David A. Christensen 6 SCHEDULE A POLICIES AND PROCEDURES NO. RS-01 DATE: 1 August, 1998 REVISED SUBJECT: CORPORATE OFFICER BENEFITS In addition to all of the fringe benefits provided to salaried employees, Corporate Officers will have the following additional benefits: 1. Insurance premiums will be paid in full for all individual and family health, life, disability and dental insurance coverage. 2. Supplemental health insurance benefits for the officers and his dependents up to 5% of the total current base salary and the previous year's incentive bonus. 3. Remote access to the WATS lines for personal use. 4. Officers receive the following memberships: David A. Christensen, President & C.E.O. - 100% Full Membership, Minnehaha Country Club. Ronald M. Moquist, Exec. V.P. - 100% Social Membership, Minnehaha Country Club. Thomas Iacarella, V.P.-Finance - 100% Social Membership, Westward Ho Country Club. Gary L. Conradi, V.P.- Corporate Services - 100% Social Membership, Westward Ho Country Club & 50% of the difference between the Social and Executive Golf membership. 5. 100% reimbursement of membership in the S.D. Symphony and the Sioux Falls Community Playhouse. 6. Inclusion in the Group Life Insurance and A.D. & D. policy at $50,000 of benefits. 7. Outside of the group, individual term policies for each officer will be provided according to the following schedule: POLICIES AND PROCEDURES PAGE 2 NO. RS-01 CORPORATE OFFICER BENEFITS 1 AUGUST, 1998 DAC President & CEO $750,000 RMM Executive Vice President 375,000 TI Vice President-Treasurer 300,000 GLC Vice President-Corporate Services 300,000 The above policies are funded by the company for the period of time employed by the company. The officer will have the option to convert or continue at his expense upon termination or retirement. 8. In addition, a second-to-die life policy will be provided to each officer in the amounts listed above. Premiums on this policy will be paid by the company until the policy is fully funded (the point where dividends of the policy are sufficient to pay the entire premium) provided that the officer is employed until "normal retirement" age or qualifies for "early retirement" in accordance with Raven policies and procedures. Upon the officers retirement at the normal retirement age or if qualifying for early retirement in accordance with Raven Policies & Procedures the second-to-die life policy will be paid up by Raven at the time of the officers retirement. The premium benefit for the paid up policy will be grossed up at the end of the calendar year. If the officer terminates his employment before qualifying for either normal or early retirement he will have the option to continue the policy by paying the premiums or he may exercise one of the conversion features available in the policy. 9. Long term care insurance will be provided to the officer and officer's spouse. 10. Full pay for sick leave up to a point where disability insurance coverage begins. Disability insurance is 60% of base salary non-integrated with Social Security. Provisions of the actual policy will govern the exact amount of payments. 11. Two additional weeks of paid vacation to the regular established vacation policy. 12. Reimbursement under a formula of up to 2% of total annual POLICIES AND PROCEDURES PAGE 3 NO. RS-01 CORPORATE OFFICER BENEFITS 1 AUGUST, 1998 compensation (base salary & previous year's incentive bonus) with up to a three-year accumulation of benefit dollars available for personal estate planning. 13. Physical examinations provided by the company will be given on a biennial basis to age 60 on individuals who are asymptomatic, annually if symptomatic. Above age 60 examinations will be annually. 14. Officers annual base salary will be grossed up at the end of the calendar year to compensate for the additional tax burden created by the treatment of the officers benefits as additional income. 15. Officer Retirement & Benefits Full retirement benefits will be available to any officer who retires between the ages of 65 and 70, or who chooses early retirement. Early retirement is defined as the first day of any month after the officer's years of service, plus his attained age equals or exceeds the sum of 80, or any date between then and age 65. Those benefits are: (A) Continued group hospital, medical, and dental coverage for the officer, spouse and eligible dependents until the officer attains the age at which he is eligible for Medicare (presently age 65 or disabled). (B) Upon Medicare eligibility, the officer and spouse will be provided supplemental hospital and medical coverage to Medicare which would result in the same coverage that is provided to full-time active officers of the company. This coverage, as well as group dental coverage, will continue for the rest of the officer's and spouse's life. The spouse's coverage will be discontinued in the event an officer's spouse remarries after the death of an officer. However, the spouse would then be provided POLICIES AND PROCEDURES PAGE 4 NO. RS-O1 CORPORATE OFFICER BENEFITS 1 AUGUST, 1998 the option of continued coverage by paying the Raven group premium for such coverage. (C) At retirement, group life insurance coverage will continue to be provided at the amount in effect at retirement ($100,000 maximum - excludes A D & D). At age 65 this amount would be reduced to 67% or $67,000, and then reduced to 67% or $45,000 at age 70. Life insurance coverage will continue for the rest of the officer's life. This reduction provision applies only to the retired officers, Kaliszewski and Winker. The life insurance coverage may be provided through a term policy outside of the Raven group plan. (D) Upon retirement, supplemental health insurance benefits for the officers and his dependents will be provided annually for the rest of the officer's and spouse's lives at an amount of up to 10% of the officer's highest total annual compensation during any one of the officer's last 5 years of employment with the company. (E) Upon retirement, personal estate planning benefits will be available in an amount up to 2% of the officers highest total annual compensation during any one of the officer's last 5 years of employment with the company with up to a three year accumulation of benefit dollars available for personal estate planning. The estate plan may be upgraded when conditions warrant, but with prior approval of the C.E.O. (F) Long term care insurance will continue for the rest of the officer's and spouse's life. The spouse's coverage will be discontinued in the event an officer's spouse remarries after the death of an officer. EX-10.F 3 MATERIAL DETAILS OF EMPLOYMENT AGREEMENTS EXHIBIT 10(f) MATERIAL DETAILS OF EMPLOYMENT AGREEMENTS ---------- Name of Executive Date of Employment Agreement - ----------------- ---------------------------- Gary L. Conradi May 20, 1998 Ronald M. Moquist May 20, 1998 Thomas Iacarella August 1, 1998 EX-10.H 4 DEFERRED COMPENSATION PLAN AND AGREEMENT EXHIBIT 10(h) RAVEN INDUSTRIES, INC. AMENDED AND RESTATED DEFERRED COMPENSATION PLAN AND AGREEMENT THIS AGREEMENT made this 1st day of February, 1997, by and between RAVEN INDUSTRIES, INC., a South Dakota corporation (the "Company") and DAVID A. CHRISTENSEN, a resident of Sioux Falls, South Dakota, (the "Employee"). WHEREAS, Employee and the Company entered into a certain Deferred Compensation Plan and Agreement on June 1, 1986; and WHEREAS, Employee and the Company entered into a certain Amendment to the Raven Industries Deferred Compensation Plan and Agreement on May 22, 1990; and WHEREAS, Employee and the Company entered into a certain Second Amendment to the Raven Industries, Inc. Deferred Compensation Plan and Agreement on February 1, 1997; and WHEREAS, Paragraph 9 of said Deferred Compensation Plan and Agreement allows the Company the discretion to amend the Plan at any time, provided no amendment would have the effect of reducing the account balance of the Employee; and WHEREAS, the parties desire to amend and restate the Deferred Compensation Plan and Agreement in order to assist in administration of the Plan; and WHEREAS, the Employee is currently employed by the Company and is compensated in the form of a salary (adjusted periodically and paid periodically during the year) and potentially certain cash and other incentive bonuses; and WHEREAS, The parties desire to defer payment of part of each year's total compensation of the Employee until after the Employee's expected retirement or other earlier termination of employment; and WHEREAS, the parties desire that the Employee be compensated for certain benefit reductions under the Raven Industries, Inc. Profit Sharing Plan (the "Profit Sharing Plan"); NOW THEREFORE, In consideration of the premises and mutual promises stated in this Plan and Agreement, the parties agree as follows: 1. DEFERRED COMPENSATION. As used herein, "deferred compensation" shall mean any amounts attributable to compensation deferred pursuant to (a) and/or (b) and/or (c) below. a. ELECTION TO DEFER COMPENSATION. (i) Beginning effective June 1, 1986, the Employee may elect to defer all or a portion of his total compensation for the year (or in the case of the first year of the Agreement, the remainder of the calendar year) by filing herewith an election on a Deferral Election Form provided by the Company. (ii) For each subsequent calendar year, the Employee may change the election by filing with the Company a new Deferral Election Form on or before December 31 of the prior calendar year. Such annual elections shall affect only subsequent compensation. If no such election is made by the Employee in any year, the deferral for the subsequent year shall remain unchanged, and the latest Deferral Election Form duly filed shall continue in effect. Each election made -2- shall be irrevocable for each year to which it is applicable. (iii) In the event an Employee should die or otherwise separate from service prior to the last day of a calendar year, the amount of his elected deferral for such year shall be automatically pro-rated on the basis of the ratio of his base salary actually received as of the date of separation from service over his annualized base salary for such year; provided however, that if he has deferred as of his date of separation from service an amount greater than such pro-rated amount, the amount of his elected deferral for such year shall be automatically revised to equal the amount actually deferred. b. SUPPLEMENTAL DEFERRED COMPENSATION. The Company shall, effective as of each date upon which it makes a contribution to the Profit Sharing Plan, credit to the Deferred Compensation Account of the Employee in accordance with Section 2, an amount equal to the difference between (i) and (ii) below: (i) The amount of the Company's contribution under the Profit Sharing Plan which would have been allocated to the Employee's account under the Profit Sharing Plan had the Employee not elected to defer compensation pursuant to Section l(a), and (ii) The amount of the Company's contribution under the Profit Sharing Plan actually allocated to the Employee's account under the Profit Sharing Plan. c. ADDITIONAL SUPPLEMENTAL DEFERRED COMPENSATION. The Company shall, effective February 1, 1990, and as of each date thereafter upon which it makes a contribution to the Profit Sharing Plan, credit to the Deferred Compensation Account of the Employee in accordance with Section 2 an additional amount equal to the difference between (i) and (ii) below: (i) the amount of the Company's contribution under the Profit Sharing Plan which would have been allocated to the Employee's account under the Profit Sharing Plan had the Employee's compensation used to compute the Company's contribution not been limited to the amount prescribed by Internal Revenue Service Code Section -3- 401(a)(17), as amended by the Secretary of the Treasury from time to time, and (ii) the amount of the Company's contribution under the Profit Sharing Plan actually allocated to the Employee's account under the Profit Sharing Plan. 2. DEFERRED COMPENSATION ACCOUNT. The Company shall maintain a Deferred Compensation Account (the "Account") in the name of the Employee (or in the name of the designated beneficiaries upon the death of the Employee) which shall be credited with the amounts of compensation deferred under Section 1. Until and except to the extent that deferred benefits are distributed to the Employee or beneficiary, the interest of the Employee or any beneficiary in such Account is contingent only. Title to and beneficial ownership of any assets, whether cash or investments, which the Company may set aside or earmark to meet its deferred obligation hereunder, shall at all times remain in the Company, and neither the Employee nor any beneficiary shall under any circumstances acquire any property interest in any specific assets of the Company. The Company shall have full and unrestricted use of funds credited to the Account. 3. INVESTMENT OF DEFERRED COMPENSATION ACCOUNT. The Company may, but shall be under no obligation to, have amounts allocated to the Employee's Account set aside or earmarked to meet the Company's deferred obligation hereunder. The Company shall be under no obligation to invest amounts allocated to the Account, and may in its sole discretion apply part or all of such amounts toward the Company's normal business operations. The Company shall also have discretion to invest a part or all of such amounts in annuities, life insurance contracts, stocks, bonds or other securities selected by the Company in its sole discretion provided, however, that no portion of such funds shall be invested in any securities of the Company. In the exercise of the foregoing discretionary investment powers, the Company may solicit investment counsel and, if it so desires, may solicit such counsel from the Employee or the Employee's advisors. The cost of any such advice, if any, shall be charged as an expense of administering the Account and shall be paid out of the Account. The Company shall annually increase the Employee's Account by an accounting factor representing interest income. Such factor shall reflect a simple interest rate compounded annually (pro-rated for a partial year). The interest income accounting -4- factor shall be determined each year by the Company in its sole discretion, and the Company shall notify the Employee of such factor within 30 days prior to the date of the Employee's election to defer compensation for such year. In the event that the Company should either fail to determine an interest income accounting factor for a particular year, or should fail to notify the Employee of such factor as provided herein, the prior year's factor shall remain in effect for such year. The Company shall have discretion, after consultation with the Employee, to use all or a portion of amounts allocated to the Employee's Account to purchase and pay premiums on one or more life insurance policies on the life of the Employee. The Employee's Account balance shall be decreased, prior to the application of an interest income accounting factor for the period, by any such premium payments made for such period. 4. PAYMENT OF DEFERRED COMPENSATION. The Company shall pay to the Employee, or to his beneficiary in the event of his death, the full accounting balance credited to his Account at the time and in the manner provided in this Agreement and in accordance with the beneficiary designation elected by the Employee in the payment form elected by the Employee (or designated by the Company if the Company has designated a payment form preempting the Employee's election). Notwithstanding anything herein to the contrary, at any time after payments to the Employee or beneficiary have commenced, the Company shall have discretion to cash out the Account of the Employee by making a single lump sum payment to the Employee or beneficiary of the remaining unpaid balance of the Account (including an adjustment representing interest income to the date of such payment). Payment of the first installment of the Employee's Account shall be made as of the first day of the month following the date of the Employee's separation from the service of the Company. Subsequent installments, if any, adjusted to reflect interest on the unpaid balance of his Account from time to time, shall be payable in accordance with the payment form in effect for the Employee. 5. ELECTION OF PAYMENT FORM. Each Deferral Election Form shall include the Employee's election of the form in which payment of the compensation deferred under this Agreement shall be made. Amounts deferred pursuant to such Deferred Election Form shall be paid pursuant to the payment form thus elected and such -5- election shall be irrevocable. The following payment forms are permitted: a. A lump sum, or b. Substantially equal monthly installments (adjusted to reflect interest on the unpaid Account balance) over a selected period of up to 10 years. The Employee may elect a different payment form for compensation deferred in each calendar year under this Agreement; provided that the election with respect to any year's amount shall be made by the first day of the year the deferral is effective (or prior to the first day the deferral is effective in the case of the first year of this Agreement). If no payment form election is made for any year, the prior year's election shall remain in effect. Notwithstanding anything herein to the contrary, the Company retains discretion to: a. At any time prior to the date distribution is to commence, designate a payment form pre-empting the payment form elected by the Participant, and b. At any time after payments to the Employee or beneficiary have commenced, cash-out the Account of the Employee by making a single lump sum payment to the Employee or beneficiary of the remaining unpaid balance of the Account (including the amount of an adjustment representing interest income to the date of such payment). 6. DEATH BENEFIT: BENEFICIARY DESIGNATION. In the event of the death of the Employee, his Account (or any unpaid balance thereof) shall be paid to the person or persons designated by the Employee as his beneficiary. If at the time of his death the Company has in effect one or more life insurance policies on the life of the Employee, purchased with amounts allocated to the Employee's account, the death benefit herein payable shall equal to the sum of: (a) the Employee's Account balance (exclusively of any amounts applied as premium payments), and (b) the proceeds of any such life insurance policies. The Employee shall designate his beneficiary (or contingent beneficiary, if applicable) by written notice submitted to the Company, and he may amend his beneficiary designation at any time -6- by filing a new beneficiary designation with the Company. In the absence of a beneficiary designation, or if the designated beneficiary should predecease the Employee, any unpaid balance of the Account (and the proceeds of any insurance policies) shall be paid to the contingent beneficiary named by the Employee, or if none should survive the Employee, to the estate of the beneficiary. 7. EMPLOYEE'S RIGHTS. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Employee or as a right of the Employee to be continued in the employment of the Company or as a limitation of the rights of the Company to discharge the Employee, with or without cause. Notwithstanding the foregoing, nothing contained in this Agreement shall affect either the timing of the Employee's pay increases or the normal amount of gross compensation except as judged reasonable and prudent by the Company to reflect corporate and/or general economic conditions. Amounts credited to the Employee's Account under this Agreement shall be for bookkeeping purposes only, and the assets represented by such Account shall remain the sole property of the Company. The right of the Employee to receive distributions hereunder shall be unsecured claim against the general assets of the Company, and the Employee shall not have any rights in or against any security or other asset acquired by the Company with the proceeds of his Account. In the event that any claim for benefits is denied (in whole or in part) hereunder, the claimant shall receive from the Company notice in writing, written in a manner calculated to be understood by the claimant, setting forth the specific reasons for denial with specific reference to pertinent provisions of this Agreement. The interpretations and construction hereof by the Board of Directors shall be binding and conclusive on all persons and for all purposes. Any disagreements about such interpretations and construction shall be submitted to an arbitrator subject to the rules ant procedures established by the American Arbitration Association. No member of the Board of Directors shall be liable to any person for any action taken hereunder except those actions undertaken with lack of good faith. 8. INALIENABILITY. No benefit payable under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge prior to actual receipt thereof by the payee; and any -7- attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge prior to such receipt shall be void; nor shall the Company be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person entitled to any benefit. 9. AMENDMENT AND TERMINATION. The Company retains sole discretion to amend or terminate this Plan and Agreement at any time; provided however, that no amendment shall have the effect of reducing the Account balance of an Employee, determined as of the date of the amendment. In the event the Plan is terminated, the Employee's Deferral Elections shall remain in effect for the remainder of that calendar year and then shall cease. Upon termination, the Employee's Account shall continue to be maintained and shall continue to be adjusted by the appropriate interest factor. Payment to the Employee or beneficiary shall be made at such time and in such form as if the Plan and Agreement had not been terminated; provided however, that the Company shall, at any time after the Plan and Agreement is terminated, have sole discretion to commence payments to the Employee under a form of payment determined at the sole discretion of the Company. 10. APPLICABLE LAW. This Agreement shall constitute "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees", as defined by Section 301(a)(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"). The provisions of this Agreement shall be construed and applied in accordance with ERISA and the laws of the State of South Dakota. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of this 1st day of February , 1997. RAVEN INDUSTRIES, INC. By: /s/ Gary L. Conradi ----------------------------------- Gary L. Conradi, Vice President EMPLOYEE: /s/ David A. Christensen -------------------------------------- David A. Christensen -8- EX-13 5 1999 ANNUAL REPORT EXHIBIT 13 BUSINESS SEGMENTS
For the years ended January 31 ----------------------------------------------------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 1996 1995 1994 ======================================================================= ELECTRONICS Sales ..................... $ 46,328 $ 45,947 $ 43,861 $ 32,962 $ 31,959 $ 35,771 Operating income .......... 4,161 5,844 4,913 4,600 2,753(a) 4,529 Identifiable assets ....... 25,972 25,599 23,251 19,204 16,912 18,838 Capital expenditures ...... 2,084 2,005 1,089 817 579 1,023 Depreciation & amortization 1,446 1,345 1,298 1,099 895 823 PLASTICS Sales ..................... $ 70,845 $ 68,325 $ 59,158 $ 55,281 $ 48,971 $ 40,386 Operating income .......... 4,429 1,998 4,187 3,267 3,470 2,815 Identifiable assets ....... 33,674 34,583 33,879 26,092 25,817 16,796 Capital expenditures ...... 2,151 3,869 2,540 2,973 6,394 3,601 Depreciation & amortization 3,160 3,248 2,682 2,418 1,849 1,266 SEWN PRODUCTS Sales ..................... $ 35,625 $ 35,347 $ 36,422 $ 32,201 $ 40,790 $ 45,311 Operating income .......... 1,083 2,720 2,871 1,694 2,913 3,096 Identifiable assets ....... 14,547 14,157 14,990 13,934 16,384 16,510 Capital expenditures ...... 371 667 380 396 780 1,160 Depreciation & amortization 527 544 586 725 838 808 CORPORATE & OTHER Identifiable assets(b) .... $ 9,481 $ 8,251 $ 8,542 $ 8,323 $ 6,523 $ 8,453 TOTAL COMPANY Sales ..................... $152,798 $149,619 $139,441 $120,444 $121,720 $121,468 Operating income .......... 9,673 10,562 11,971 9,561 9,136(a) 10,440 Identifiable assets ....... 83,674 82,590 80,662 67,553 65,636 60,597 Capital expenditures ...... 4,606 6,541 4,009 4,186 7,753 5,784 Depreciation & amortization 5,133 5,137 4,566 4,242 3,582 2,897
(a) INCLUDES A $1.8 MILLION CHARGE AT THE COMPANY'S BETA RAVEN SUBSIDIARY. (b) CORPORATE & OTHER ASSETS ARE PRINCIPALLY CASH, INVESTMENTS, DEFERRED TAXES, AND NOTES RECEIVABLE. PRODUCT LINES BY BUSINESS SEGMENT ELECTRONICS: Contract electronics manufacturing, Flow controls--precision farming, Feedmill and bakery automation PLASTICS: Sheeting, Storage/sprayer tanks, Research balloons, Pickup-truck toppers SEWN PRODUCTS: Performance outerwear, Sport balloons, Inflatables ELECTRONICS SEGMENT SALES PLASTICS SEGMENT SALES DOLLARS IN MILLIONS DOLLARS IN MILLIONS [PLOT POINTS CHART] [PLOT POINTS CHART] 1994...... 35.771 1994...... 40.386 1995...... 31.959 1995...... 48.971 1996...... 32.962 1996...... 55.281 1997...... 43.861 1997...... 59.158 1998...... 45.947 1998...... 68.325 1999...... 46.328 1999...... 70.845 PULLING TOGETHER, PUSHING PERFORMANCE PAGE 12 SALES BY MARKETS For the years ended January 31 -------------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ================================ INDUSTRIAL Plastic sheeting ............... $ 25,877 $ 23,043 $ 21,276 Industrial tanks ............... 9,632 12,405 7,070 Electronics .................... 20,189 18,765 16,574 Research balloons .............. 3,873 3,150 3,268 Inflatables .................... 3,319 3,085 3,515 -------------------------------- $ 62,890 $ 60,448 $ 51,703 RECREATION Performance outerwear .......... $ 30,202 $ 29,803 $ 29,901 Sport balloons ................. 2,104 2,459 2,790 -------------------------------- $ 32,306 $ 32,262 $ 32,691 AGRICULTURE Flow controls--precision farming $ 15,311 $ 16,852 $ 16,689 Feedmill automation ............ 6,059 5,128 5,039 Storage/sprayer tanks .......... 9,740 9,869 8,632 Plastic sheeting ............... 1,730 1,251 1,255 -------------------------------- $ 32,840 $ 33,100 $ 31,615 AUTOMOTIVE Pickup-truck toppers ........... $ 19,993 $ 18,607 $ 17,657 DEFENSE Electronics .................... $ 4,769 $ 5,202 $ 5,559 Other .......................... 216 -------------------------------- $ 4,769 $ 5,202 $ 5,775 TOTAL COMPANY SALES Industrial ..................... $ 62,890 $ 60,448 $ 51,703 Recreation ..................... 32,306 32,262 32,691 Agriculture .................... 32,840 33,100 31,615 Automotive ..................... 19,993 18,607 17,657 Defense ........................ 4,769 5,202 5,775 -------------------------------- TOTAL ....................... $152,798 $149,619 $139,441 ================================ SEWN PRODUCTS SEGMENT SALES DOLLARS IN MILLIONS [PLOT POINTS CHART] 1994...... 45.311 1995...... 40.790 1996...... 32.201 1997...... 36.422 1998...... 35.347 1999...... 35.625 PULLING TOGETHER, PUSHING PERFORMANCE PAGE 13 ELEVEN-YEAR FINANCIAL SUMMARY OF OPERATIONS, FINANCIAL POSITION, CASH FLOW, PER-SHARE RESULTS AND OTHER DATA
-------------------------------------------------------- DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1999 1998 1997 1996 ======================================================== OPERATIONS FOR YEAR Net sales ........................................ $ 152,798 $ 149,619 $ 139,441 $ 120,444 Gross profit ..................................... 24,815 24,929 25,287 22,660 Operating income ................................. 9,673 10,562 11,971 9,561 Income before income taxes ....................... 9,649 12,540(a) 11,915 9,566 Net income ....................................... 6,182 8,062 7,688 6,197 Net income % of sales ............................ 4.0% 5.4% 5.5% 5.1% Net income % of beginning equity ................. 10.0% 14.2% 15.6% 13.6% Cash dividends ................................... $ 2,944 $ 2,709 $ 2,367 $ 2,130 FINANCIAL POSITION Current assets ................................... $ 60,861 $ 57,831 $ 56,696 $ 45,695 Current liabilities .............................. 16,792 19,375 20,016 14,771 Working capital .................................. 44,069 38,456 36,680 30,924 Current ratio .................................... 3.62 2.98 2.83 3.09 Property, plant and equipment, net ............... 19,563 19,817 18,142 18,069 Total assets ..................................... 83,674 82,590 80,662 67,553 Long-term debt, less current portion ............. 4,572 1,128 3,181 2,816 Shareholders' equity ............................. 62,293 61,563 56,729 49,151 Long-term debt/total capitalization .............. 6.8% 1.8% 5.3% 5.4% Inventory turnover (CGS/year-end inventory)....... 4.9 4.8 4.5 4.1 CASH FLOWS PROVIDED BY (USED IN) Operating activities ............................. $ 8,326 $ 9,274 $ 7,088 $ 9,687 Investing activities ............................. (3,127) (4,979) (5,090) (4,158) Financing activities ............................. (2,714) (4,884) (2,363) (4,029) Increase (decrease) in cash and equivalents....... 2,485 (589) (365) 1,500 COMMON STOCK DATA Net income per share--basic ...................... $ 1.30 $ 1.66 $ 1.62 $ 1.31 Net income per share--diluted .................... 1.30 1.65 1.61 1.30 Cash dividends per share ......................... 0.62 0.56 0.50 0.45 Book value per share ............................. 13.27 12.76 11.73 10.42 Stock price range during year High ......................................... $ 22.75 $ 25.75 $ 23.50 $ 20.75 Low .......................................... $ 15.25 $ 19.63 $ 16.00 $ 15.50 Shares outstanding, year-end (in thousands)....... 4,694 4,825 4,836 4,716 Number of shareholders, year-end ................. 3,014 3,221 3,011 3,190 OTHER DATA Average number of employees ...................... 1,463 1,511 1,387 1,368 Sales per employee ............................... $ 104 $ 99 $ 101 $ 88 Backlog .......................................... $ 47,431 $ 47,154 $ 38,102 $ 32,539
ALL PER SHARE, SHARES OUTSTANDING AND MARKET PRICE DATA REFLECT THE OCTOBER 1992 THREE-FOR-TWO AND THE JULY 1989 TWO-FOR-ONE STOCK SPLITS. ALL OTHER FIGURES ARE AS REPORTED. (a) INCLUDES THE $1.8 MILLION GAIN ON SALE OF AN INVESTMENT IN AN AFFILIATE (SEE NOTE FIVE). (b) INCLUDES A $1.8 MILLION CHARGE AT THE COMPANY'S BETA RAVEN SUBSIDIARY. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 18
For the years ended January 31 - --------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1989 ========================================================================================================= $ 121,720 $ 121,468 $ 111,214 $ 100,609 $ 85,502 $ 90,973 $ 77,563 23,968 23,574 21,048 19,109 17,685 18,177 14,857 9,136(b) 10,440 9,146 8,138 7,311 7,461 5,127 9,372 10,638 9,182 8,067 7,071 6,831 4,578 6,088 6,954 6,030 5,306 4,605 4,235 2,930 5.0% 5.7% 5.4% 5.3% 5.4% 4.7% 3.8% 14.8% 19.6% 19.7% 20.2% 20.2% 19.7% 15.3% $ 1,843 $ 1,545 $ 1,316 $ 1,165 $ 1,014 $ 849 $ 732 $ 43,795 $ 45,037 $ 42,476 $ 34,798 $ 33,900 $ 30,570 $ 24,976 15,078 16,088 15,253 11,284 12,147 11,247 9,633 28,717 28,949 27,223 23,514 21,753 19,323 15,342 2.90 2.80 2.78 3.08 2.79 2.72 2.59 18,570 13,371 10,457 9,947 8,368 7,163 8,702 65,636 60,597 54,813 46,528 44,103 39,547 35,892 4,179 2,539 3,224 3,676 4,679 4,966 4,115 45,526 41,100 35,530 30,601 26,236 22,802 21,448 8.4% 5.8% 8.3% 10.7% 15.1% 17.5% 15.7% 4.4 4.4 3.8 4.2 3.4 4.1 4.6 $ 7,452 $ 11,257 $ 3,475 $ 7,489 $ 5,583 $ 2,404 $ 3,908 (10,000) (5,908) (3,107) (3,886) (3,113) (1,308) (1,331) 406 (2,042) (1,659) (2,518) (2,071) (1,875) (1,869) (2,142) 3,307 (1,291) 1,085 399 (779) 708 $ 1.29 $ 1.48 $ 1.30 $ 1.15 $ 1.00 $ 0.90 $ 0.61 1.27 1.45 1.27 1.13 0.98 0.87 0.61 0.39 0.33 0.28 0.25 0.22 0.18 0.15 9.62 8.76 7.60 6.63 5.77 5.01 4.48 $ 24.50 $ 23.50 $ 21.50 $ 15.83 $ 9.75 $ 10.00 $ 5.75 $ 18.00 $ 18.00 $ 13.83 $ 8.00 $ 6.42 $ 5.33 $ 4.37 4,735 4,694 4,676 4,629 4,559 4,554 4,785 3,031 3,173 3,147 2,775 2,526 1,898 1,925 1,414 1,435 1,316 1,252 1,141 1,234 1,138 $ 86 $ 85 $ 85 $ 80 $ 75 $ 74 $ 68 $ 29,661 $ 36,403 $ 49,033 $ 48,200 $ 53,587 $ 42,078 $ 33,436
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 19 FINANCIAL REVIEW & ANALYSIS RESULTS OF OPERATIONS: MARGIN ANALYSIS
For the years ended January 31 ------------------------------------------------------------------------------------- 1999 1998 1997 ------------------------------------------------------------------------------------- % % % % % % ------------------------------------------------------------------------------------- IN THOUSANDS, EXCEPT PER-SHARE DATA Amount Sales Change Amount Sales Change Amount Sales Change ===================================================================================== Net sales............................ $152,798 100.0 + 2.1 $149,619 100.0 + 7.3 $139,441 100.0 + 15.8 Gross profit......................... 24,815 16.2 - 0.5 24,929 16.7 - 1.4 25,287 18.1 + 11.6 Operating expenses................... 15,142 9.9 + 5.4 14,367 9.6 + 7.9 13,316 9.5 + 1.7 Operating income..................... 9,673 6.3 - 8.4 10,562 7.1 - 11.8 11,971 8.6 + 25.2 Income before income taxes........... 9,649 6.3 - 23.1 12,540 8.4 + 5.2 11,915 8.5 + 24.6 Income taxes......................... 3,467 2.3 - 22.6 4,478 3.0 + 5.9 4,227 3.0 + 25.5 Net income........................... 6,182 4.0 - 23.3 8,062 5.4 + 4.9 7,688 5.5 + 24.1 Net income per share-diluted......... $ 1.30 - 21.2 $ 1.65 + 2.5 $ 1.61 + 23.8 Effective income tax rate............ 35.9% + 0.6 35.7% + 0.6 35.5% + 0.9
LONG-TERM PERFORMANCE Although the company achieved record sales in fiscal 1999, net income fell. Net income was $6.2 million or $1.30 per share on a diluted basis. Fiscal 1998 net income was $8.1 million, which included a $1.8 million pretax gain on the sale of an investment in an affiliated company. Absent this gain, net income for fiscal 1998 would have been $6.9 million or $1.41 per share. The more accurate comparison between fiscal 1998 and fiscal 1999 is to compare the $6.9 million to the $6.2 million. Based on this comparison, the shortfall for fiscal 1999 net income was 10.1%. A number of factors contributed to this unfavorable result. First, the Electronics Segment's agricultural controls product line and the Plastics Segment's storage tank line were adversely affected by the poor farm economy and its associated low commodity prices. Second, the Plastics Segment was also hit with a downturn in the semiconductor manufacturing market which directly affected the dual-laminate tank product line. Third, competitive pressures forced gross margins down in the contract product lines of the Sewn Products Segment. Fourth, gross margins in the Electronics Segment's contract products declined, due primarily to customer delays in deliveries. In fiscal 1999, the company's return was over 10% on stockholders' equity and 4% on sales. The company also increased its book value by 4% on a per-share basis; repurchased 135,000 shares of its stock for a total cost of $2.6 million; paid record dividends; and continued to invest in its business. For fiscal 1999 the company's debt-to-capitalization ratio was 6.8%.
For the years ended January 31 ------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 =================================================================== Net income as % of Sales............... 4.0% 5.4% 5.5% 5.1% 5.0% 5.7% Average assets...... 7.4% 9.9% 10.4% 9.3% 9.6% 12.1% Beginning equity.... 10.0% 14.2% 15.6% 13.6% 14.8% 19.6%
SEGMENT ANALYSIS The following table summarizes sales and gross profits in the company's three business segments for each of the past three fiscal years.
1999 1998 1997 ------------------------------------------------------------------------ DOLLARS IN THOUSANDS Amount % Change Amount % Change Amount % Change ======================================================================== SALES Electronics............ $ 46,328 + 0.8 $ 45,947 + 4.8 $ 43,861 + 33.1 Plastics............... 70,845 + 3.7 68,325 + 15.5 59,158 + 7.0 Sewn Products.......... 35,625 + 0.8 35,347 - 3.0 36,422 + 13.1 -------- -------- -------- Total.................. $152,798 + 2.1 $149,619 + 7.3 $139,441 + 15.8 ======== ======== ========
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 20
1999 1998 1997 --------------------------------------------------------------- DOLLARS IN THOUSANDS Amount % Sales Amount % Sales Amount % Sales =============================================================== GROSS PROFITS Electronics........... $ 8,657 18.7 $10,083 21.9 $ 8,617 19.6 Plastics.............. 11,600 16.4 8,791 12.9 10,154 17.2 Sewn Products......... 4,558 12.8 6,055 17.1 6,516 17.9 ------- ------- ------- Total................. $24,815 16.2 $24,929 16.7 $25,287 18.1 ======= ======= =======
ELECTRONICS SEGMENT FISCAL 1999 VERSUS FISCAL 1998 Sales for this segment were up slightly when compared to fiscal 1998, reaching $46.3 million in fiscal 1999. Due to increased market share, fiscal 1999 sales of Beta Raven feedmill systems and subcontract assemblies rose to $12.2 million; up from $10.1 million in fiscal 1998. Sales of precision-farming control devices declined by $1.5 million to $15.3 million. The primary agricultural markets were hard hit by a poor farm economy. Contract manufacturing deliveries ended the year at $18.8 million, down $200,000 from fiscal 1998. Customer delays in the delivery of certain contracts kept this product line from exceeding fiscal 1998 sales figures. Operating income for the segment was $4.1 million, down from $5.8 million in fiscal 1998. Gross margin rates on precision-farming control devices in fiscal 1999 were down from fiscal 1998. This resulted from lower volumes and a poor performance in the precision depth-control product line. Contract manufacturing margins were affected by delivery delays, and new contract start-up costs. Feedmill automation systems generated higher gross margin rates in fiscal 1999 than in fiscal 1998 due to better utilization of resources resulting from increased sales volume. FISCAL 1998 VERSUS FISCAL 1997 Electronics Segment sales were up 5% compared with fiscal 1997, totaling $45.9 million in fiscal 1998. Sales growth occurred in all the product lines in this segment, with the smallest increase of $163,000 being in the precision-farming control device product line. Contract manufacturing and feedmill automation systems sales increased by $1.0 million and $927,000, respectively. Contract manufacturing increases resulted from market growth. Feedmill automation systems saw higher market demand and increased market share. Gross profit rates improved in this segment as a higher percentage of repeat business lessened the impact of start-up costs in contract manufacturing. PROSPECTS There was a substantial backlog increase in the Electronics Segment at the end of fiscal 1999. This backlog supports management's expectation of sales growth over 10% in this segment for fiscal 2000. Contract manufacturing already has received $5.0 million in new circuit-board assemblies from a single computer manufacturer, and management expects an additional $3.0 million from the same customer. Sales growth in the precision-farming control devices product line will depend on the farm economy in the United States and abroad. A sound backlog in feedmill automation systems as well as prospects of additional sales due to the replacement of old equipment support management's expectation of a sales increase for this product line in fiscal 2000. Gross margin rates are expected to partially recover in fiscal 2000. ELECTRONICS SEGMENT DOLLARS IN MILLIONS [PLOT POINTS CHART] SALES GROSS PROFITS 1997....... 43.861 8.617 1998....... 45.947 10.083 1999....... 46.328 8.657 PLASTICS SEGMENT FISCAL 1999 VERSUS FISCAL 1998 Sales in the Plastics Segment rose from $68.3 million in fiscal 1998 to $70.8 million in fiscal 1999. The engineered films product line generated a $4.0 million increase in sales over fiscal 1998's $27.4 million. Included in fiscal 1999 sales was $2.5 million of construction film shipped to various storm-devastated areas. Plastic storage tank sales of $19.4 million were $3.1 million below fiscal 1998. The primary factor responsible for the reduction in sales was a weak semiconductor market that affected the dual-laminate tank product line. Sales in the pickup-truck topper product line increased by over 7% due primarily to higher unit deliveries. Even though sales of agricultural tanks held steady, gross margins were down due to the poor farm economy. This, in conjunction with low volume in dual-laminate tanks, accounted for lower gross margins on plastic storage tanks. Overall, the Plastics Segment generated gross margins of 16.4% compared to 12.9% for fiscal 1998. This increase was due to strong performances in the company's engineered films and pickup-truck topper operations as a result of better unitization of capacity due to increased sales volume. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 21 FINANCIAL REVIEW & ANALYSIS FISCAL 1998 VERSUS FISCAL 1997 Sales in the Plastics Segment rose from $59.2 million in fiscal 1997 to $68.3 million in fiscal 1998, due primarily to the acquisition of Norcore Plastics, Inc. in January 1997. Storage tank sales were $22.3 million in fiscal 1998 and $15.7 million in fiscal 1997. The company's industrial plastic tank operations experienced unfavorable market conditions in the second half of fiscal 1998. Sales of engineered films and research balloons were 6% higher in fiscal 1998 than in fiscal 1997, reaching $27.4 million. Expanded sales in new markets helped attain these increases. Pickup-truck topper sales increased by 5% due primarily to increased market share. Most of the decline in the gross profit rates resulted from the decline in plastic tank margins, but all product lines showed some reduction. PROSPECTS Management's expectation is that Plastics Segment sales will rise 5-10% in fiscal 2000. Engineered films, plastic tanks and pickup-truck toppers are expected to show sales increases due to increased market share. Management expects Plastics Segment gross margin rates to remain flat in fiscal 2000. Lower gross margins on the engineered films product line are expected to be offset by higher gross margins on plastic tanks and pickup-truck toppers in fiscal 2000. PLASTICS SEGMENT DOLLARS IN MILLIONS [PLOT POINTS CHART] SALES GROSS PROFITS 1997...... 59.158 10.154 1998...... 68.325 8.791 1999...... 70.845 11.600 SEWN PRODUCTS SEGMENT FISCAL 1999 VERSUS FISCAL 1998 Sales were $35.6 million in the Sewn Products Segment in fiscal 1999, less than 1% more than fiscal 1998. Sales of performance outerwear increased by $400,000 to end fiscal 1999 at $30.2 million. Sales of hot-air balloons and inflatable displays declined due to lower demand. The change in the Sewn Products Segment's gross profit rate, from 17% in fiscal 1998 to 13% in fiscal 1999, was due primarily to increased competitive pressures in the contract sewing product line along with significant style-changeover costs. FISCAL 1998 VERSUS FISCAL 1997 Sales for this segment were down 3% in fiscal 1998 from fiscal 1997. Sales of performance outerwear were essentially unchanged at $29.8 million while sales of hot-air balloons and inflatable displays declined due to lower demand. The gross profit rate of 17% for fiscal 1998 was one percentage point lower than the 18% rate of fiscal 1997. The decline was due primarily to lower sales of relatively higher-margin products. PROSPECTS The company is projecting a sales decline in the Sewn Products Segment of 10-15%. Competitive pressures are evidenced by a portion of the fiscal 1999 performance outerwear sales moving offshore in fiscal 2000, which accounts for most of the decline. Management projects that the Sewn Products Segment will see an improvement in its gross profit rate, due primarily to reduced sales of relatively low-margin products and the impact of a lower cost structure. SEWN PRODUCTS SEGMENT DOLLARS IN MILLIONS [PLOT POINTS CHART] SALES GROSS PROFITS 1997...... 36.422 6.516 1998...... 35.347 6.055 1999...... 35.625 4.558 EXPENSES, INCOME TAXES AND OTHER FISCAL 1999 VERSUS FISCAL 1998 Selling expenses increased by 4% in fiscal 1999 when compared with fiscal 1998 levels, basically the same rate as salary increases. Administration expense was up 7% to $6.6 million in fiscal 1999 compared to $6.2 million in fiscal 1998. Administration expense was higher due primarily to salary increases and settlement of a legal issue. Interest expense was up from 1998 by $151,000 due to higher borrowing levels. Fiscal 1999 "other income" was $450,000, which included interest income on a note related to the sale of an affiliated company in January 1998. The company's effective income tax rate increased from 35.7% in fiscal 1998 to 35.9% in fiscal 1999 due to higher state income taxes. FISCAL 1998 VERSUS FISCAL 1997 Selling expenses increased by 13% in fiscal 1998 when compared with fiscal 1997 levels. Increased selling efforts to penetrate new markets in the Plastics and Electronics segments contributed to the increase. Administrative and interest expenses were relatively unchanged. Other income included improved results at the company's 50%-owned affiliate, which was sold in January 1998 for $3.8 million generating a pretax gain of $1.8 million. The company's effective income tax rate rose from 35.5% to 35.7% as the goodwill amortization associated with the Norcore merger was not deductible for federal income tax purposes. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 22 PROSPECTS Operating expenses are expected to remain relatively constant as a percentage of sales in fiscal 2000. Interest expense should decline slightly as total borrowing is reduced. The company's effective income tax rate is expected to rise slightly, to the 36% range for fiscal 2000. YEAR 2000 All of the company's business software has been changed to be 2000-date-compliant and will be fully tested by July 1, 1999. The platform on which this software runs is 2000-compliant. Production equipment is being checked, and this procedure should be completed by August 1, 1999. Building equipment has been checked, and only one problem was found, which was corrected in March of 1999. Since the company does not run its primary business software on personal computers, management does not expect any material problems from non-compliant personal computers. Vendors and service providers are being surveyed to ensure that they are 2000-compliant and will be able to continue to meet the company's demands. Management believes total year 2000 costs will not exceed $250,000. Unforeseen year 2000 problems may arise, and the company believes it has sufficient resources to respond. ANALYSIS OF FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The following table summarizes cash provided by (used in) the company's business activities for the past three fiscal years. DOLLARS IN THOUSANDS 1999 1998 1997 ============================== Operating activities ............. $ 8,326 $ 9,274 $ 7,088 Investing activities.............. (3,127) (4,979) (5,090) Financing activities.............. (2,714) (4,884) (2,363) Increase (decrease) in cash....... $ 2,485 $ (589) $ (365) OPERATING ACTIVITIES The company's cash flow from operations totaled $24.7 million over the past three years, compared with net income of $21.9 million over the same period. Accounts receivable and inventory levels increased slightly in fiscal 1999 due to slightly higher sales. Working capital requirements are projected to grow along with revenues in fiscal 2000. INVESTING ACTIVITIES In December 1998, the company received the second payment of $1.2 million from the sale of its investment in an affiliated company. The last installment is due December 1999. Capital expenditures totaled $4.6 million in fiscal 1999, $1.9 million less than the prior year. Capital expenditures in fiscal 1999 ran $527,000 less than depreciation and amortization. Expenditures were fairly evenly divided between the Electronics and Plastics segments in support of expected growth. Capital spending is expected to exceed depreciation and amortization by $1.0 million in fiscal 2000 to support growth of the company's engineered films business. FINANCING ACTIVITIES AND CREDIT LINES The company increased its dividend on a per-share basis for the twelfth consecutive year. Cash also was used to repurchase 135,000 shares of company stock at an average price of $19.32. As of January 31,1999, the company had repurchased 169,000 shares of its common stock under a 500,000-share authorization from the board of directors. These shares were repurchased to return additional cash to the shareholders and increase the leverage of the company's balance sheet. The company may repurchase additional shares depending on its own internal cash requirements. The company uses its short-term line of credit to finance seasonal borrowing needs. Maximum borrowings under the company's line of credit were $4.0 million during fiscal 1999 and the average daily borrowing was $704,000. Short-term borrowing required for fiscal 2000 should be lower because of the company's higher opening cash balance. Management believes its existing credit facility will be sufficient to fund its requirements in the coming fiscal year. CAPITAL STRUCTURE AND LONG-TERM FINANCING The company's long-term debt-to-total capitalization ratio was 6.8% at January 31, 1999. Refer to Note Eight to the consolidated financial statements for the types and sources of long-term debt. The company secured an additional $5.0 million in long-term financing during fiscal 1999. The proceeds of this loan were used to retire $4.0 million in short-term borrowings and to repurchase company stock. The terms of the loan call for repayment over five years at $1.0 million per year ending in 2003. Interest is at a fixed 7.25%, payable quarterly during the life of the loan. The company's solid financial condition and capacity to assume additional financing, if needed, provide the company a strategic advantage over many of its competitors. Management has the capacity to, and will, leverage the company to acquire businesses that fit its strategic direction. Additional cash for acquisition purposes could also be raised by using proceeds from a disposition. In the opinion of management, the company is well-positioned to take on new opportunities in its core businesses with emphasis on those that build on the company's strengths of customer service and manufacturing. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 23 STOCK & QUARTERLY PERFORMANCE WEEKLY CLOSING STOCK PRICE, VOLUME & P/E [PLOT POINTS CHART] CLOSING DATE PRICE VOLUME P/E 02-06-98 22 1/4 6,700 13.323 02-13-98 22 3/8 H 28,900 13.398 02-20-98 22 1/4 18,700 13.323 02-27-98 22 1/4 74,200 13.323 03-06-98 22 1/8 16,800 13.249 03-13-98 22 1/8 11,200 13.249 03-20-98 20 89,800 11.976 03-27-98 20 3/4 46,500 12.425 04-03-98 21 47,000 12.575 04-10-98 20 3/4 22,600 12.425 04-17-98 20 3/4 43,100 12.425 04-24-98 20 1/4 21,300 12.126 05-01-98 19 3/4 39,300 13.715 05-08-98 19 11/16 11,500 13.672 05-15-98 20 52,900 13.889 05-22-98 20 3/8 15,300 14.149 05-29-98 20 23,800 13.889 06-05-98 19 3/4 110,800 13.715 06-12-98 19 1/8 36,000 13.281 06-19-98 19 1/8 13,400 13.281 06-26-98 19 1/8 6,200 13.281 07-03-98 19 1/8 28,800 13.281 07-10-98 19 1/4 7,600 13.368 07-17-98 19 1/8 23,500 13.281 07-24-98 19 7/32 73,200 13.346 07-31-98 19 3/16 21,600 13.512 08-07-98 19 1/8 14,500 13.468 08-14-98 18 7/8 50,200 13.292 08-21-98 18 3/4 16,300 13.204 08-28-98 18 3/4 12,800 13.204 09-04-98 18 1/16 49,600 12.720 09-11-98 18 1/8 3,900 12.764 09-18-98 18 14,400 12.676 09-25-98 17 3/4 11,900 12.500 10-02-98 15 7/8 21,500 11.180 10-09-98 15 7/8 41,600 11.180 10-16-98 16 13,600 11.268 10-23-98 16 1/4 24,000 11.444 10-30-98 16 3/8 3,500 10.773 11-06-98 16 31,500 10.526 11-13-98 17 3/4 35,000 11.678 11-20-98 17 3/8 12,200 11.431 11-27-98 17 1/8 17,000 11.266 12-04-98 17 1/8 14,400 11.266 12-11-98 16 15/16 13,300 11.143 12-18-98 16 18,900 10.526 12-25-98 15 7/8 19,100 10.444 01-01-99 16 1/8 28,800 10.609 01-08-99 16 21,000 10.526 01-15-99 16 24,100 10.526 01-22-99 15 5/8 L 32,500 10.280 01-29-99 16 44,900 10.526 QUARTERLY INFORMATION (UNAUDITED)
Net income(a) Common stock per share market price DOLLARS IN THOUSANDS, Net Gross Operating Pretax Net ------------------- ------------------- Dividends EXCEPT PER-SHARE DATA sales profit income income income Basic Diluted High Low per share ============================================================================================================ FISCAL 1999 1ST QUARTER ....... $ 32,162 $ 5,420 $ 1,606 $ 1,601 $ 1,024 $ 0.21 $ 0.21 $ 22.75 $ 19.25 $ 0.15 2ND QUARTER ....... 36,208 6,033 2,383 2,341 1,502 0.31 0.31 20.38 19.00 0.15 3RD QUARTER ....... 44,787 7,041 3,197 3,202 2,053 0.44 0.44 19.38 15.63 0.16 4TH QUARTER ....... 39,641 6,321 2,487 2,505 1,603 0.34 0.34 18.00 15.25 0.16 --------------------------------------------------------------------------- -------- TOTAL YEAR ........ $152,798 $ 24,815 $ 9,673 $ 9,649 $ 6,182 $ 1.30 $ 1.30 $ 22.75 $ 15.25 $ 0.62 =========================================================================== ======== FISCAL 1998 1st quarter ....... $ 35,666 $ 6,827 $ 3,288 $ 3,334 $ 2,134 $ 0.44 $ 0.44 $ 24.00 $ 21.75 $ 0.13 2nd quarter ....... 34,075 6,075 2,407 2,476 1,602 0.33 0.33 24.50 22.38 0.13 3rd quarter ....... 41,321 6,113 2,505 2,548 1,641 0.34 0.33 25.75 22.50 0.15 4th quarter ....... 38,557 5,914 2,362 4,182(b) 2,685 0.56 0.55 23.75 19.63 0.15 --------------------------------------------------------------------------- -------- Total year ........ $149,619 $ 24,929 $ 10,562 $ 12,540 $ 8,062 $ 1.66 $ 1.65 $ 25.75 $ 19.63 $ 0.56 =========================================================================== ======== FISCAL 1997 1st quarter ....... $ 30,875 $ 6,086 $ 2,826 $ 2,797 $ 1,808 $ 0.38 $ 0.38 $ 18.75 $ 16.00 $ 0.12 2nd quarter ....... 31,270 5,398 2,215 2,191 1,409 0.30 0.30 22.00 16.00 0.12 3rd quarter ....... 38,943 7,055 3,598 3,571 2,303 0.49 0.48 22.75 18.25 0.13 4th quarter ....... 38,353 6,748 3,332 3,356 2,168 0.45 0.45 23.50 20.88 0.13 --------------------------------------------------------------------------- -------- Total year ........ $139,441 $ 25,287 $ 11,971 $ 11,915 $ 7,688 $ 1.62 $ 1.61 $ 23.50 $ 16.00 $ 0.50 =========================================================================== ========
(a) NET INCOME PER SHARE IS COMPUTED DISCRETELY BY QUARTER AND MAY NOT ADD TO THE FULL-YEAR. (b) INCLUDES THE $1.8 MILLION GAIN ON SALE OF AN INVESTMENT IN AN AFFILIATE (SEE NOTE FIVE). PULLING TOGETHER, PUSHING PERFORMANCE PAGE 24 CONSOLIDATED BALANCE SHEETS
As of January 31 ----------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ASSETS ============================= CURRENT ASSETS Cash and cash equivalents .................................... $ 5,335 $ 2,850 $ 3,439 Accounts and note receivable, net ............................ 27,399 26,973 25,637 Inventories, net ............................................. 25,978 25,816 25,125 Deferred income taxes ........................................ 1,732 1,686 2,064 Prepaid expenses and other current assets .................... 417 506 431 ----------------------------- Total current assets ..................................... 60,861 57,831 56,696 Property, plant and equipment, net ............................... 19,563 19,817 18,142 Note receivable, less current portion ............................ 1,259 Other assets, net ................................................ 3,250 3,683 5,824 ----------------------------- Total assets ............................................. $83,674 $82,590 $80,662 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt ............................ $ 1,060 $ 1,765 $ 1,366 Accounts payable ............................................. 5,993 7,480 7,849 Accrued liabilities .......................................... 9,245 9,327 10,197 Customer advances ............................................ 494 803 604 ----------------------------- Total current liabilities ................................ 16,792 19,375 20,016 Long-term debt, less current portion ............................. 4,572 1,128 3,181 Deferred income taxes ............................................ 17 524 736 Commitments and contingencies Stockholders' equity ............................................. 62,293 61,563 56,729 ----------------------------- Common shares Authorized-100,000,000 Outstanding-1999: 4,694,086: 1998: 4,824,429; 1997: 4,835,558 Total liabilities and stockholders' equity ................... $83,674 $82,590 $80,662 =============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 25 CONSOLIDATED STATEMENTS OF INCOME
For the years ended January 31 ------------------------------------- DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1999 1998 1997 ===================================== Net sales ............................. $ 152,798 $ 149,619 $ 139,441 Cost of goods sold .................... 127,983 124,690 114,154 ------------------------------------- Gross profit ...................... 24,815 24,929 25,287 Operating expenses Selling ........................... 8,502 8,149 7,211 Administrative .................... 6,640 6,218 6,105 ------------------------------------- Operating income .............. 9,673 10,562 11,971 Interest expense ...................... (474) (323) (310) Gain on sale of investment of affiliate 1,794 Other income, net ..................... 450 507 254 ------------------------------------- Income before income taxes .... 9,649 12,540 11,915 Income taxes .......................... 3,467 4,478 4,227 ------------------------------------- Net income .................... $ 6,182 $ 8,062 $ 7,688 ===================================== Net income per common share: -basic ............................. $ 1.30 $ 1.66 $ 1.62 ===================================== -diluted ........................... $ 1.30 $ 1.65 $ 1.61 =====================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 26 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
$1 Par Treasury stock common Paid-in --------------------- Retained DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA stock capital Shares At cost earnings Total ======================================================================== Balance January 31, 1996.......................... $ 5,068 $ 536 (352,403) $ (2,910) $ 46,457 $49,151 Net and comprehensive income...................... 7,688 7,688 Cash dividends ($.50 per share)................... (2,367) (2,367) Shares issued for acquisition..................... 94 1,956 2,050 Purchase and retirement of stock.................. (30) (624) (654) Employees' stock options exercised................ 56 618 674 Tax benefit from exercise of stock options.............................. 187 187 ------------------------------------------------------------------------ Balance January 31, 1997.......................... 5,188 2,673 (352,403) (2,910) 51,778 56,729 Net and comprehensive income...................... 8,062 8,062 Cash dividends ($.56 per share)................... (2,709) (2,709) Purchase of stock for treasury.................... (34,000) (713) (713) Purchase and retirement of stock.................. (33) (771) (804) Employees' stock options exercised................ 56 742 798 Tax benefit from exercise of stock options.............................. 200 200 ------------------------------------------------------------------------ Balance January 31, 1998.......................... 5,211 2,844 (386,403) (3,623) 57,131 61,563 Net and comprehensive income...................... 6,182 6,182 Cash dividends ($.62 per share)................... (2,944) (2,944) Purchase of stock for treasury.................... (135,000) (2,608) (2,608) Purchase and retirement of stock.................. (53) (982) (1,035) Employees' stock options exercised................ 57 1,078 1,135 ------------------------------------------------------------------------ BALANCE JANUARY 31, 1999.......................... $ 5,215 $ 2,940 (521,403) $ (6,231) $ 60,369 $62,293 ========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 27 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended January 31 -------------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ================================ CASH FLOWS FROM OPERATING ACTIVITIES Net income ...................................................................... $ 6,182 $ 8,062 $ 7,688 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................... 5,133 5,137 4,566 Provision for losses on accounts receivable ................................. 135 193 88 Deferred income taxes ....................................................... (553) 166 (514) Equity in earnings of affiliate, net of dividends ........................... (204) (6) Gain on sale of investment of affiliate ..................................... (1,794) Interest earned on note receivable .......................................... (203) (10) Change in operating assets and liabilities, net of effects from acquisition of a business .................................. (2,299) (2,254) (4,808) Other operating activities, net ................................................. (69) (22) 74 -------------------------------- Net cash provided by operating activities ....................................... 8,326 9,274 7,088 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ............................................................ (4,606) (6,541) (4,009) Proceeds on installment sale of investment ...................................... 1,250 1,300 Acquisition of a business ....................................................... (1,105) Other investing activities, net ................................................. 229 262 24 -------------------------------- Net cash used in investing activities ........................................... (3,127) (4,979) (5,090) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of short-term debt ..................................................... 4,000 2,000 Payment of short-term debt ...................................................... (4,000) (2,000) Retire debt of acquired business ................................................ (890) Long-term debt principal payments ............................................... (2,262) (1,656) (813) Proceeds from issuance of long-term debt ........................................ 5,000 1,500 Net proceeds from exercise of stock options ..................................... 100 194 207 Dividends paid .................................................................. (2,944) (2,709) (2,367) Purchase of treasury stock ...................................................... (2,608) (713) -------------------------------- Net cash used in financing activities ........................................... (2,714) (4,884) (2,363) -------------------------------- Net increase (decrease) in cash and cash equivalents ................................ 2,485 (589) (365) Cash and cash equivalents at beginning of year ...................................... 2,850 3,439 3,804 -------------------------------- Cash and cash equivalents at end of year ............................................ $ 5,335 $ 2,850 $ 3,439 ================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 28 NOTES TO FINANCIAL STATEMENTS NOTE ONE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Raven Industries, Inc. ("Raven") and its wholly-owned subsidiaries (the "company"), Aerostar International, Inc. ("Aerostar"); Beta Raven Inc. ("Beta"); and Glasstite, Inc. ("Glasstite"). All intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of the company's financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS The company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash and cash equivalent balances are principally concentrated in a money market fund with Norwest Bank Minnesota, N.A. INVENTORY VALUATION Inventories are stated at the lower of cost or market with cost determined on the first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost and is depreciated over the estimated useful life of the asset using accelerated methods. The estimated useful lives used for computing depreciation are as follows: Buildings and improvements.................................. 7 to 39 years Machinery and equipment..................................... 3 to 7 years Maintenance and repairs are charged to expense in the year incurred and renewals and betterments are capitalized. The cost and related accumulated depreciation of assets sold or disposed of are removed from the accounts and the resulting gain or loss is reflected in income. INTANGIBLE ASSETS Intangible assets are primarily comprised of goodwill and patents which are recorded at cost net of accumulated amortization. Amortization is computed on a straight-line basis over estimated useful lives ranging from 5 to 20 years. INSURANCE OBLIGATIONS The company employs large deductible insurance policies covering workers compensation, employee health care and general liability costs. Costs are accrued up to the limits of these policies based on claims filed and estimates for claims incurred but not reported. CONTINGENCIES The company may from time to time be involved as a defendant in lawsuits, claims or disputes in the normal course of business. An estimated loss is charged to operations when it is probable that an asset has been impaired or a liability incurred and the amount of the loss can be reasonably estimated. RESEARCH AND DEVELOPMENT Research and development expenditures of $608,000 in fiscal 1999, $660,000 in fiscal 1998, and $678,000 in fiscal 1997 were charged to cost of goods sold in the year incurred. STOCK OPTIONS The company records compensation expense related to its stock option plan using the intrinsic value method. INCOME TAXES Deferred income taxes reflect temporary differences between assets and liabilities reported on the company's balance sheet and their tax basis. These differences are measured using enacted tax laws and statutory tax rates applicable to the periods when the temporary differences will impact taxable income. Deferred tax assets are reduced by a valuation allowance to reflect realizable value, when necessary. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 29 NOTES TO FINANCIAL STATEMENTS NOTE TWO SELECTED BALANCE SHEET INFORMATION Following are the components of selected balance sheet items:
As of January 31 ---------------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ================================== Accounts and note receivable, net: Trade accounts ....................... $ 26,336 $ 26,113 $ 25,977 Current portion of note receivable ... 1,463 1,250 Allowance for doubtful accounts ...... (400) (390) (340) ---------------------------------- Total ............................ $ 27,399 $ 26,973 $ 25,637 ================================== Inventories, net: Finished goods ....................... $ 4,055 $ 4,133 $ 4,275 In process ........................... 3,662 3,882 4,574 Materials ............................ 18,261 17,801 16,276 ---------------------------------- Total ............................ $ 25,978 $ 25,816 $ 25,125 ================================== Property, plant, and equipment, net: Land ................................. $ 1,265 $ 1,265 $ 1,185 Building and improvements ............ 15,429 14,742 13,988 Machinery and equipment .............. 40,582 37,798 33,142 ---------------------------------- Property, plant and equipment, at cost 57,276 53,805 48,315 Accumulated depreciation ............. (37,713) (33,988) (30,173) ---------------------------------- Total ............................ $ 19,563 $ 19,817 $ 18,142 ================================== Other assets, net: Intangible assets, net of amortization $ 3,097 $ 3,447 $ 3,732 Investment in affiliate .............. 1,802 Other non-current assets ............. 153 236 290 ---------------------------------- Total ............................ $ 3,250 $ 3,683 $ 5,824 ================================== Accrued liabilities: Profit sharing and 401(k) contribution $ 973 $ 1,255 $ 1,654 Vacation ............................. 1,979 1,941 1,786 Salaries and wages ................... 2,573 2,407 2,514 Insurance obligations ................ 1,921 2,247 2,070 Other ................................ 1,799 1,477 2,173 ---------------------------------- Total ............................ $ 9,245 $ 9,327 $ 10,197 ==================================
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 30 NOTE THREE SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended January 31 ------------------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ===================================== Changes in operating assets and liabilities: Accounts receivable..................................... $ (348) $ (279) $ (8,112) Inventories............................................. (162) (727) (393) Prepaid expenses and other current assets............... 89 (76) 53 Accounts payable........................................ (1,487) (369) 2,450 Accrued liabilities..................................... (82) (1,003) 1,588 Customer advances....................................... (309) 200 (394) ------------------------------------- $ (2,299) $ (2,254) $ (4,808) ===================================== Cash paid during the year for: Interest................................................ $ 450 $ 335 $ 309 Income taxes............................................ 4,276 4,227 4,201
NOTE FOUR ACQUISITION In January 1997, the company acquired all the outstanding shares of Norcore Plastics, Inc., a manufacturer of large industrial storage tanks utilizing "dual laminate" technology. Consideration paid included $1.1 million of cash and the issuance of 93,701 shares of unregistered common stock. Raven acquired assets of $3.0 million and assumed liabilities of $2.1 million in connection with the merger. The acquisition was accounted for as a purchase. The cost in excess of net tangible and intangible assets acquired resulted in goodwill of $2.7 million. The consolidated statements of income include the results of operations of this business subsequent to the acquisition date. NOTE FIVE SALE OF INVESTMENT IN AFFILIATE In January 1998, the company sold its 50% equity investment in a corporation engaged in the manufacture of injection-molded plastic products for $3.8 million and recognized a pre-tax gain of $1.8 million. The company had accounted for this investment using the equity method. Under the Stock Redemption Agreement, the company received cash of $1.3 million in fiscal 1998 and an 8.5% interest bearing note for the remaining $2.5 million. This note receivable was payable to the company in two installments. The first installment of principal only was received in fiscal 1999 and the balance, including interest, is due in fiscal 2000. NOTE SIX BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION The company's three segments (Electronics, Plastics, and Sewn Products) were defined by their common technologies and production processes. These segments are consistent with the company's management reporting structure as required by Statement of Financial Accounting Standards 131 adopted by the company at the end of fiscal 1999. The company's customers (distributors or original equipment manufactures) provide opportunities for each segment to serve various markets. Distribution methods are similar across and within segments. No customer accounted for more than 10% of consolidated sales or accounts receivable in any fiscal year presented. Segment and product sales by market information is presented on pages 12 and 13 of the annual report. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 31 NOTES TO FINANCIAL STATEMENTS NOTE SEVEN QUARTERLY INFORMATION (UNAUDITED) The company's quarterly information is presented on page 24. NOTE EIGHT FINANCING ARRANGEMENTS Long-term debt consisted of the following:
As of January 31 ------------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 =============================== Norwest bank notes payable in installments through 2003 with interest fixed at 7.25% .............. $ 5,500 $ 2,560 $ 3,620 Contracts, notes and mortgages payable in installments through FY 2003 with interest ranging from 7.0% to 14.0% 55 212 762 Industrial revenue bonds payable in installments through 2001 with interest at 83% of the prime rate .... 77 121 165 ------------------------------- Total long-term debt ............................... 5,632 2,893 4,547 Current portion .................................... (1,060) (1,765) (1,366) ------------------------------- Long-term debt, less current portion ............... $ 4,572 $ 1,128 $ 3,181 ===============================
Certain long-term debt is collateralized by land, buildings and equipment having an aggregate net book value at January 31, 1999 of $948,000. Norwest Bank South Dakota N.A. provides the company's unsecured notes payable and unsecured line of credit. One member of the company's board of directors is also on the board of directors of Wells Fargo & Co., the parent company of Norwest Bank South Dakota N.A. The company believes the fair market value of its long-term debt approximates its carrying value. Long-term debt will be repaid as follows: $1.1 million in fiscal 2000, $1.5 million in fiscal 2001 and approximately $1 million per year thereafter. The company has a $5.0 million line of credit available as of January 31, 1999; no borrowings were outstanding as of that date. Borrowings on this line bear interest as of January 31, 1999, 1998 and 1997 at 7.25%, 8.5% and 8.25%, respectively. In fiscal 1997, there were no borrowings under the credit line. The weighted average interest rates under short-term credit lines in fiscal 1999 and 1998 were 8.4% and 8.5%, respectively. The company leases certain transportation and other equipment and facilities under operating leases. Total rent expense under these leases were $1.0 million, $802,000 and $445,000 in fiscal 1999, 1998 and 1997, respectively. NOTE NINE SHARE PURCHASE RIGHTS PLAN The company had a Share Purchase Rights Plan which expired in March 1999. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 32 NOTE TEN STOCK OPTIONS Officers and key employees of the company have been granted options to purchase stock under the 1990 Stock Option Plan ("Plan"). The Plan, administered by the Board of Directors, allows for a fixed cash bonus when options are exercised and may grant either incentive or non-qualified stock options with terms not to exceed ten years. There are 86,842 shares of the Company's common stock reserved for issue under the Plan at January 31, 1999. Options have been granted with exercise prices not less than market value at the date of grant. These stock options vest over a four-year period and expire after five years. Compensation expense related to the cash bonus was $387,000, $383,000 and $343,000 in fiscal 1999, 1998 and 1997 respectively. In accordance with Statement of Financial Accounting Standards No. 123, the company has elected to continue to use the intrinsic value method to recognize compensation expense for stock options. If compensation expense had been recognized in accordance with the fair value method, the company's net income and net income per share would have been:
For the years ended January 31 --------------------------------------------------------------------------- 1999 1998 1997 --------------------------------------------------------------------------- As Reported Pro Forma As reported Pro forma As reported Pro forma =========================================================================== Net income (in thousands).......... $ 6,182 $ 6,055 $ 8,062 $ 7,904 $ 7,688 $ 7,573 Net income per share: -basic.......................... $ 1.30 $ 1.27 $ 1.66 $ 1.63 $ 1.62 $ 1.60 -diluted........................ $ 1.30 $ 1.26 $ 1.65 $ 1.61 $ 1.61 $ 1.59
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: Dividend yield of 2.5-4.0%; expected volatility of 23-25%; risk-free interest rate of 4.5-5.9%; and expected lives of 4.5 years. The fair value of each option granted, including the cash bonus, was $5.29, $7.98 and $8.75 in fiscal 1999, 1998 and 1997, respectively. Information regarding option activity follows:
For the years ended January 31 ----------------------------------------------------------------------- 1999 1998 1997 ----------------------------------------------------------------------- Weighted Weighted Weighted average average average exercise exercise exercise Options price Options price Options price ======================================================================= Outstanding at beginning of year... 298,500 $ 19.47 287,750 $ 18.35 280,292 $ 16.50 Granted ........................... 46,400 15.88 68,900 20.00 65,100 21.00 Exercised ......................... (57,185) 19.85 (55,650) 14.32 (55,642) 12.11 Forfeited ......................... (11,515) 19.64 (2,500) 19.30 (2,000) 18.51 ------- ------- ------- Outstanding at end of year ........ 276,200 18.79 298,500 19.47 287,750 18.35 ======= ======= ======= Options exercisable at year-end... 138,100 $ 18.94 138,775 $ 19.14 135,400 $ 17.05
The following table contains information about stock options outstanding at January 31, 1999:
Remaining Exercise contractual Number Number price life (years) outstanding exercisable ================================================================ $ 18.25 0.75 51,400 51,400 17.87 1.75 54,300 40,725 21.00 2.75 59,300 29,650 20.00 3.75 65,300 16,325 15.88 4.75 45,900 -- ------- ------- 276,200 138,100 ======= =======
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 33 NOTES TO FINANCIAL STATEMENTS NOTE ELEVEN EMPLOYEE RETIREMENT PLANS The company has a profit sharing and 401(k) plan covering substantially all employees. Contributions to the profit sharing plan, not to exceed 15% of total eligible compensation, are made by Raven and each subsidiary, at the discretion of each entity's Board of Directors. The company's contributions to the 401(k) plan, initiated on January 1, 1999, are 3% of qualified payroll. The company's contribution to the plans was $973,000, $1,255,000 and $1,654,000, for fiscal 1999, 1998 and 1997, respectively. NOTE TWELVE INCOME TAXES Significant components of the company's income tax provision are as follows: For the years ended January 31 ----------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ============================ Income taxes Currently payable ........................... $ 4,020 $4,312 $ 4,741 Deferred .................................... (553) 166 (514) ---------------------------- Total ................................... $ 3,467 $4,478 $ 4,227 ============================ Significant components of the company's deferred tax assets and liabilities are as follows: As of January 31 ----------------------------- DOLLARS IN THOUSANDS 1999 1998 1997 ============================= Current deferred tax assets (liabilities): Accounts receivable ......................... $ 27 $ (137) $ 119 Installment sale of investment in affiliate.. (436) (365) Inventory valuation ......................... 395 335 256 Accrued vacation ............................ 522 513 478 Insurance obligations ....................... 629 779 718 Other accrued liabilities ................... 595 561 493 ----------------------------- Total ................................... 1,732 1,686 2,064 ----------------------------- Non-current deferred tax liabilities: Installment sale of investment in affiliate.. 510 Carrying value of investment in affiliate ... 626 Depreciation ................................ 17 14 76 Safe-harbor lease ........................... 34 ----------------------------- Total ................................... 17 524 736 ----------------------------- Net deferred tax asset .......................... $ 1,715 $ 1,162 $1,328 ============================= The company's effective tax rate was 35.9%, 35.7% and 35.5%, in fiscal 1999, 1998 and 1997, respectively. The tax rate varies from the statutory rate of 35% due primarily to the effect of state income taxes and non-deductible expenses, partially offset by the impact of graduated income tax rates. PULLING TOGETHER, PUSHING PERFORMANCE PAGE 34 NOTE THIRTEEN NET INCOME PER SHARE COMPUTATION Basic net income per share is computed by dividing net income by weighted average common shares outstanding. Common shares outstanding represent common shares issued less shares purchased and held in treasury. Diluted net income per share is computed by dividing net income by weighted average common and common equivalent shares outstanding, which includes the dilutive effect of shares issuable upon exercise of employee stock options (net of shares assumed purchased with the option proceeds). Details of the computation are presented below:
For the years ended January 31 -------------------------------------- DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1999 1998 1997 ====================================== Net Income ............................................ $ 6,182 $ 8,062 $ 7,688 ====================================== Average common shares outstanding ..................... 4,751,367 4,842,622 4,738,511 ====================================== Dilutive impact of stock options ...................... 5,496 48,778 36,649 -------------------------------------- Average common and common equivalent shares outstanding 4,756,863 4,891,400 4,775,160 ====================================== Net income per share: -basic ............................................. $ 1.30 $ 1.66 $ 1.62 ====================================== -diluted ........................................... $ 1.30 $ 1.65 $ 1.61 ======================================
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 35 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RAVEN INDUSTRIES, INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of Raven Industries, Inc. as of January 31, 1999, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Raven Industries, Inc.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP March 11, 1999 Minneapolis, Minnesota PULLING TOGETHER, PUSHING PERFORMANCE PAGE 36 CORPORATE & INVESTOR INFORMATION DIRECTORS & OFFICERS DIRECTORS CONRAD J. HOIGAARD (2,3) CHAIRMAN OF THE BOARD, Raven Industries, Inc.; CHAIRMAN OF THE BOARD, Hoigaard's Inc., Minneapolis, MN; Age: 62 DAVID A. CHRISTENSEN (3) PRESIDENT & CHIEF EXECUTIVE OFFICER, Raven Industries, Inc., Sioux Falls; SD, Age: 64 ANTHONY W. BOUR (1) BROKER ASSOCIATE, COMMERCIAL REAL ESTATE, Hegg Companies, Sioux Falls, SD; Age: 61 THOMAS S. EVERIST (1) PRESIDENT, L.G. Everist, Sioux Falls, SD; Age: 49 MARK E. GRIFFIN (2) PRESIDENT & CHIEF EXECUTIVE OFFICER, Lewis Drugs, Inc., Sioux Falls, SD; Age: 48 KEVIN T. KIRBY (1) PRESIDENT, KIRBY INVESTMENT CORP., Sioux Falls, SD; Age: 44 JOHN C. SKOGLUND (2,3) CHAIRMAN, Skoglund Communications, Duluth, MN; Age:66 Audit Committee(1) Compensation Committee(2) Executive Committee(3) OFFICERS DAVID A. CHRISTENSEN PRESIDENT & CHIEF EXECUTIVE OFFICER, Age: 64, Service: 36 years GARY L. CONRADI VICE PRESIDENT, CORPORATE SERVICES; Age: 59, Service: 32 years THOMAS IACARELLA VICE PRESIDENT, FINANCE, SECRETARY & TREASURER; Age: 45, Service: 7 years RONALD M. MOQUIST EXECUTIVE VICE PRESIDENT; Age: 53, Service: 23 years INVESTOR INFORMATION INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP Minneapolis, MN STOCK TRANSFER AGENT & REGISTRAR NORWEST BANK, MINNESOTA N.A. 161 N. Concord Exchange P. O. Box 64854 S. St. Paul, MN 55164-0854 NORWEST TRUST COMPANY New York, NY FORM 10-K Upon written request, Raven Industries, Inc.'s Form 10-K for the fiscal year ended January 31, 1999, which has been filed with the Securities and Exchange Commission, is available free of charge. DIRECT INQUIRIES TO: RAVEN INDUSTRIES, INC. Attention: Vice President, Finance P. O. Box 5107 Sioux Falls, SD 57117-5107 STOCK QUOTATIONS Listed on the Nasdaq Stock Market--RAVN ANNUAL MEETING May 26, 1999, 9:00 a.m. Sheraton Sioux Falls 1211 N. West Avenue Sioux Falls, SD Raven Industries, Inc. is an Equal Employment Opportunity Employer with an approved affirmative action plan. REPORT DESIGNED BY GRAPHIC CONCEPTS UNLIMITED, OKEMOS, MICHIGAN PULLING TOGETHER, PUSHING PERFORMANCE PAGE 37 EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT --------- Name of Subsidiary State of Incorporation - ------------------ ---------------------- Aerostar International, Inc. South Dakota Beta Raven, Inc. Missouri Glasstite, Inc. Minnesota EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of Raven Industries, Inc. on Form S-8 Registration No. 33-38614) of our reports dated March 11, 1999, on our audits of the consolidated financial statements and related financial statement schedule of Raven Industries, Inc. as of January 31, 1999, 1998 and 1997, and for the years ended January 31, 1999, 1998 and 1997, which reports are included or incorporated by reference in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Minneapolis, Minnesota April 26, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-31-1999 JAN-31-1999 5,335 0 26,336 400 25,978 60,861 57,276 37,713 83,674 16,792 4,572 0 0 5,215 57,078 83,674 152,798 152,798 127,983 127,983 0 0 474 9,649 3,467 6,182 0 0 0 6,182 1.30 1.30
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