10-K 1 raven011104-10k.txt RAVEN INDUSTRIES FORM 10-K 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, 2001 ---------------- [ ] 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 $19.00 per share as reported on the NASDAQ National Market System on April 11, 2001 was $49,970,304. Shares of common stock outstanding at April 11, 2001: 3,127,932. 1 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, 2001 and Proxy Statement for the registrant's 2001 annual meeting, a definitive copy of which was filed on April 19, 2001. 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, 2001 is included as an exhibit to this report.
PART I. ITEM IN FORM 10-K REFERENCE ------- ----------------- --------- Item 1. Business Business, pages 4-8, this Document; Business Segments, inside front cover and page 6 of the Annual Report to Shareholders Item 2. Properties Properties, pages 8-9, this document Item 3. Pending Legal Proceedings Pending Legal Proceedings, page 9, this document Item 4. Submission of Matters to a Vote of Security Submission of Matters to a Holders Vote of Security Holders, page 10, this document Item 4A. Executive Officers of the Registrant Executive Officers of the Registrant, page 10, this document PART II. -------- Item 5. Market for the Registrant's Common Equity Quarterly Information (unaudited), page 21, and Related Stockholder Matters Eleven-year Financial Summary, pages 12-13, and inside back cover, Annual Report to Shareholders Item 6. Selected Financial Data Eleven-Year Financial Summary, pages 12-13, Annual Report to Shareholders Item 7. Management's Discussion Financial Review and Analysis, pages 14-20, Annual and Analysis of Financial Report to Shareholders Condition and Results of Operations
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ITEM IN FORM 10-K REFERENCE ----------------- --------- Item 8. Financial Statements and Supplementary Data Pages 22-31, Annual Report to Shareholders Item 9. Changes in and Disagreements with Changes in and Disagreements with Accountants Accountants on Accounting and on Accounting and Financial Financial Disclosure Disclosure, page 10, this document PART III. --------- Item 10. Directors and Executive Officers of the Election of Directors and Executive Compensation, Registrant Proxy Statement Executive Officers of Registrant, Item 4A, page 10, 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 and Election of Directors, Related Transactions Proxy Statement PART IV. -------- Item 14. Exhibits, Financial Exhibits, Financial Statement Schedule and Reports Statement Schedule and Reports on on Form 8-K, pages 11-13, this document. Form 8-K.
FORWARD-LOOKING STATEMENTS Certain sections of this report contain statements which may constitute forward-looking statements within the meaning of federal securities laws. Although Raven Industries, Inc. 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 agriculture or construction, or changes in competition or the company's customer base which could impact any of the company's product lines. 3 RAVEN INDUSTRIES, INC. FORM 10-K year ended January 31, 2001 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 920 persons in six 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 and military/aerospace. Many of these product lines are an extension of technology and production methods developed in the original balloon business. The company's pickup-truck topper product line was sold in the third quarter of fiscal 2000. Substantially all of the company's plastic tank product lines were sold in the third quarter of fiscal 2001. The company has five business segments consisting of three Raven divisions and two subsidiaries: Electronic Systems Division, Flow Controls Division, Engineered Films Division, Aerostar and Beta Raven. 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 6 of the company's Annual Report to Shareholders, incorporated herein by reference, provides financial information concerning the five business segments. Following is a summary of company net sales by principal product categories (dollars in thousands):
FY 2001 FY 2000 FY 1999 ------- ------- ------- Electronics Manufacturing Services $ 32,039 $ 30,176 $ 24,958 Flow Control Devices and Accessories 16,758 13,520 15,311 Reinforced Plastic Sheeting 35,403 30,868 28,641 Specialty Apparel 19,102 23,286 30,202 Other 13,324 15,246 15,355 --------- ------------------ ------------------ Total Ongoing Operation Sales 116,626 113,096 114,467 Pickup-Truck Toppers - 17,657 19,993 Plastic Tanks 16,232 19,632 20,746 --------- ------------------ ------------------ Total Sales $132,858 $150,385 $155,206 ========= ================== ==================
4 Business Segments Electronic Systems - Historically, the company's Electronic Systems segment provided a variety of assemblies and controls to the United States Department of Defense and other military contractors. The company has expanded this segment's capabilities in Electronics Manufacturing Services (EMS) for commercial customers to offset a decline in military contracts. Assemblies manufactured by the Electronic Systems segment include communication, environmental control, computer and other products where high quality is critical. EMS sales are made in response to competitive bid requests by commercial customers and military contractors. The level and nature of competition varies with the type of product, but the company frequently competes with a number of EMS manufacturers on any given bid request. The markets in which the company participates are highly competitive, with customers having many suppliers to choose from. Flow Controls - Flow control devices, used primarily for precision farming applications, are designed and produced within the company's Flow Controls segment. These devices are also used for roadside and turf chemical spraying. The company has developed new products for field location control, chemical injection and global positioning (GPS) to expand the company's capabilities and support precision application in future years. Home office personnel sell flow control devices directly to original equipment manufacturers(OEMs) and independent third-party distributors. The company's competitive advantage in this segment is product reliability, ease of use, product availability and service after the sale. Engineered Films - Products in the company's Engineered Films segment include rugged reinforced plastic sheeting for industrial, construction and agricultural applications and high altitude balloons for public and commercial research. The company's sales force sells plastic sheeting to independent third-party 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 United States. A number of suppliers of sheeting compete with Raven on both price and product availability. This division also sells high-altitude research balloons directly to public agencies (usually funded by the National Aeronautics and Space Administration) or commercial users. Demand for these products is small but stable. Raven is the largest balloon supplier for high-altitude research in the United States. Aerostar - The Aerostar segment of the company produces and sells specialty apparel for a variety of activities, including hunting and fishing. Raven is the originator of modern hot-air ballooning and continues to be a leader in design and technical expertise. Another product is custom-shaped advertising inflatables that have a number of uses including parade floats and advertising media. The operations of the former Raven Sportswear Division have been merged into its Aerostar subsidiary. Specialty apparel is a contract business sold by home office 5 personnel to independent third-party distributors and catalog retailers. There are many outerwear manufacturers in the United States and abroad, and considerable competition exists. The market for United States produced outerwear is declining because labor costs outside the United States are significantly below those incurred by domestic manufacturers. Within this shrinking market, the company competes most 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 Aerostar segment sells balloons through an independent third-party dealer network. The company believes it has approximately one-third of the United States hot-air balloon market, although others are able to compete with lower-cost products. Inflatable devices are sold directly to corporate customers and are subject to varying levels of competition. Generally, the more customized the product, the greater the company's market share. Beta Raven - The Beta Raven segment produces and sells computerized process-control systems primarily in the agriculture market and provides electronics manufacturing services in industrial markets. Company sales representatives sell computerized process-control systems directly to feedmills. The EMS services are sold through competitive bids, competing with a number of EMS manufacturers on any one bid. Major Customer Information No customer accounted for more than 10 percent of consolidated sales in fiscal 2001 or for more than 10 percent of the company's consolidated accounts receivable at January 31, 2001. However, the company sells specialty apparel to several large customers. In fiscal 2001, the top three customers in the Aerostar segment accounted for more than half of that segment's sales. Although the loss of these accounts would adversely affect profitability, the company believes it has positioned the segment to absorb the impact of declining sales. Seasonal Working Capital Requirements Some seasonal demand exists in Flow Control's agricultural market. The Flow Controls Division builds product 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 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. 6 Raw Materials The company obtains a wide variety of materials from numerous vendors. Principal materials include numerous electronic components for the Electronic Systems, Flow Controls and Beta Raven segments, various plastic resins for the Engineered Films segment and fabric for the Aerostar 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 Flow Controls and Beta Raven segments. Total company research and development costs are disclosed in Note 1 to the Consolidated Financial Statements located on page 26 of the Annual Report to Shareholders, incorporated herein by reference. Environmental Matters Except as described below, the company 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 have not significantly affected the company's capital expenditures, earnings or competitive position. In connection with the sale of substantially all of the assets of the company's Glasstite, Inc. subsidiary, the company has agreed to assume responsibility for the investigation and remediation of any pre-October 29, 1999 environmental contamination at the company's Glasstite pickup-truck topper facility in Dunnell, Minnesota as required by the Minnesota Pollution Control Agency (MPCA) or the United States Environmental Protection Agency (EPA). Also, in connection with the sale of substantially all of the assets of the company's Plastic Tank Division, the company has agreed to assume responsibility for the investigation and remediation of any pre-August 28, 2000 environmental contamination at the property located at l813 E Avenue, Sioux Falls, S.D. in accordance with the South Dakota Department of Environment and Natural Resources (DENR). The company and the purchasers of the company's Glasstite subsidiary and Plastic Tank division have conducted preliminary environmental assessments of the properties used in these businesses. Although these assessments are still being evaluated by the MPCA and DENR, respectively, on the basis of the preliminary data available there is no reason to believe that any activities which might be required as a result of the findings of the assessments will have a material effect on the company's results of operations, financial position or cash flow of the company. As 7 discussed in Note 4 to the company's Consolidated Financial Statements, located on page 28 of the Annual Report to Shareholders, incorporated herein by reference, the company had accrued approximately $200,000 at January 31, 2001, its best estimate of probable costs to be incurred related to these matters. Backlog As of February 1, 2001, the company's backlog of firm orders totaled $38.2 million. Backlog amounts as of February 1, 2000 and 1999 were $44.9 million and $47.4 million, respectively. Backlog included in February 1, 2000 and 1999 attributable to sold businesses was $3.9 million in each year. Approximately $4 million of the February 1, 2001 backlog is not scheduled for shipment by January 31, 2002. Employees As of January 31, 2001, the company had approximately 920 employees. Following is a summary of employees by segment: Electronic Systems - 160; Flow Controls - 140; Engineered Films - 140; Aerostar - 290; Beta Raven - 100, Business for sale - 40, Administration - 50. Management believes its employee relations are satisfactory. Item 2. Properties ------- ---------- All properties, unless otherwise indicated are owned by Raven.
Business Location Square Feet Use Segments -------- ----------- --- -------- Sioux Falls, SD 150,000 Corporate office and electronics All manufacturing 62,300 Plastic sheeting manufacturing Engineered Films 59,000 Plastic sheeting and hot-air balloon Engineered Films manufacturing Aerostar 27,400 Warehouse and shipping facility Aerostar 27,000 Offices and material handling facility Aerostar 25,300 Inflatable manufacturing Aerostar 24,000 Electronics manufacturing Electronics 10,200 Machine shop Flow Controls 6,200 Training/meeting center All *21,100 Warehouse Engineered Films *9,000 Warehouse Engineered Films 8 Tacoma, WA *46,650 Storage tank manufacturing Business for sale Sulphur Springs, TX *45,400 Research balloon manufacturing Engineered Films Springfield, OH 30,000 Plastic sheeting manufacturing Engineered Films Huron, SD 24,100 Sewing plant Aeorstar St. Louis, MO 21,000 Electronics manufacturing Beta Raven Gordo, AL *20,000 Feedmill automation equipment manufacturing Beta Raven Madison, SD 20,000 Sewing plant Aerostar Parkston, SD 14,000 Sewing plant Aerostar
* 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 ------- ------------------------- The company is responsible for investigation and remediation of environmental contamination at two of its sold facilities as described under "Environmental Matters" on pages 7-8. In addition, the company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of its business. The settlement of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows. 9 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 of the company. Item 4A. Executive Officers of the Registrant -------- ------------------------------------ Name Age Position ---- --- -------- Ronald M. Moquist 55 President and Chief Executive Officer Gary L. Conradi 61 Vice President, Administration Thomas Iacarella 47 Vice President and Chief Financial Officer Each of the above named individuals serves at the pleasure of the Board of Directors on a year-to-year basis. Mr. Moquist was named President and Chief Executive Officer of the company effective August 1, 2000. He served as the Executive Vice President of Raven Industries, Inc. from 1985 through July 2000. As Vice President, Raven Industries, 1979-1985 his responsibilities encompassed both corporate and divisional management positions. He joined Raven Industries in 1975 as Sales and Marketing Manager. Mr. Conradi was named Vice President-Administration of Raven Industries, Inc., on June 1, 1999. He served as Vice President-Corporate Services from 1980 to 1999. From 1966 to 1980 he was the company's Director of Personnel. Mr. Iacarella has been the company's Chief Financial Officer, Secretary and Treasurer since 1998. He joined Raven Industries, as Corporate Controller, in 1991. Prior to joining Raven Industries, he held positions with Tonka Corporation and Ernst & Young, LLP. Item 9. Changes In and Disagreements With Accountants on ------- ------------------------------------------------- Accounting and Financial Disclosure ----------------------------------- None. 10 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 2001 Annual Report to Shareholders: Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statements of Stockholders' Equity and Comprehensive Income Consolidated Statement 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 as they are not applicable or are not required: I, III and IV. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended January 31, 2001. (c) Exhibits filed The following exhibits are filed as part of this report. Exhibit Number Description ------ ----------- 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.* 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.* 11 Item 14. Exhibits, Financial Statement Schedule and -------- ------------------------------------------- Reports on Form 8-K, continued: ------------------------------- Exhibit Number Description ------ ----------- 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 November 29, 1999 (incorporated by reference to Exhibit 10 (e) of the company's Form 10-K for the year ended January 31, 2000). 10(f) Raven Industries, Inc. 2000 Stock Option and Compensation Plan adopted May 24, 2000 (incorporated by reference to Exhibit A to the company's definitive Proxy Statement filed April 19, 2000). 10(g) Raven Industries, Inc. 1990 Stock 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 (incorporated by reference to Exhibit 10(h) of the company's Form 10-K for the year ended January 31, 1999). 10(i) Trust Agreement between Raven Industries, Inc. and Norwest Bank South Dakota, N.A. dated April 26, 1989.* 10(j) Employment Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of November 29, 1999. 10(k) Schedule identifying material details of other Employment Agreements between Raven Industries, Inc. and other executive officers substantially identical to the Employment Agreement filed as Exhibit 10(j). 10(l) Schedule A to Employment Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of November 14, 2000. 13 2001 Annual Report to Shareholders (only those portions specifically incorporated herein by reference shall be deemed filed with the Commission). 12 Item 14. Exhibits, Financial Statement Schedule and -------- ------------------------------------------- Reports on Form 8-K, continued: ------------------------------- Exhibit Number Description ------ ----------- 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 of the company's Form 10-K for the year ended January 31, 2000). 23 Consent of Independent Accountants. * Incorporated by reference to corresponding Exhibit Number of the company's Form 10-K for the year ended January 31, 1989. 13 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, 2001 By: /S/ Ronald M. Moquist ----------------------- ----------------------------- Date Ronald M. Moquist President (Principal Executive Officer and Director) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. April 26, 2001 By: /S/ Ronald M. Moquist ----------------------- ---------------------------- Date Ronald M. Moquist President (Principal Executive Officer and Director) April 26, 2001 /S/ Thomas Iacarella ----------------------- ---------------------------- Date Thomas Iacarella Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) Directors: April 26, 2001 /S/ Conrad J. Hoigaard ----------------------- ---------------------------- Date Conrad J. Hoigaard April 26, 2001 /S/ David A. Christensen ----------------------- ---------------------------- Date David A. Christensen April 26, 2001 /S/ Mark E. Griffin ----------------------- ---------------------------- Date Mark E. Griffin April 26, 2001 /S/ Kevin T. Kirby ----------------------- ---------------------------- Date Kevin T. Kirby April 26, 2001 /S/ Anthony W. Bour ----------------------- ---------------------------- Date Anthony W. Bour April 26, 2001 /S/ Thomas S. Everist ----------------------- ---------------------------- Date Thomas S. Everist 14 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Raven Industries, Inc.: Our audits of the consolidated financial statements referred to in our report dated March 13, 2001 appearing in the 2001 Annual Report to Stockholders of Raven Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)2. of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Minneapolis, Minnesota March 13, 2001 15 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended January 31, 2001, 2000 and 1999 (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, 2001 $400 $552 None $552 $400 ==== ==== ==== ==== Year ended January 31, 2000 $400 $362 None $362 $400 ==== ==== ==== ==== Year ended January 31, 1999 $390 $135 None $125 $400 ==== ==== ==== ====
Note: ----- (1) Represents uncollectible accounts receivable written off during the year, net of recoveries. 16